Good day, and Welc ome to the Be tter Choice Company Inc. Q1 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Rob Sauermilch, Executive Vice President of Strategy. Please go ahead. Thank you, operator. Welcome everyone to Better Choice's Q1 earnings conference call. This morning, we issued our Q1 2022 financial results press release and posted our updated earnings presentation under the IR section of our website, which we'll be discussing later today. I'm joined by Scott Lerner, our CEO, Sharla Cook, our CFO, and Donald Young, our Executive Vice President of Sales. Before we begin, please remember that during the course of this call, we 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 cause actual results to differ materially from those described in these forward-looking statements. Please refer to the company's annual report on Form 10-K filed with the Securities and Exchange Commission and the company's press release issued on Thursday, May 12, 2022, 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 that on today's call, management will refer to certain non-GAAP financial measures such as gross revenue, EBITDA, and Adjusted EBITDA. Although the company believes that these non-GAAP financial measures 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 our press release and presentation issued on May 12, 2022 for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, let me hand it over to Scott. On our Q4 earnings call in late March, we focused on the steps we had taken in 2021 to deliver growth in 2022, with a focus on building a best-in-class team, creating an industry-leading innovation pipeline, and developing a go-to-market approach anchored by leading channel partnerships. We also noted that you would start to see this foundational work drive increased sales growth beginning in the first quarter of 2022. With that said, I'm excited to report that our internal expectations are now becoming a reality. In the first quarter of 2022, we generated a record $19.7 million of gross sales, representing sequential growth of 45% relative to Q4 2021, and $3.8 million more than the previous quarterly record set in Q3 2021. Our business is firing on all cylinders as roughly $2.5 million of this growth can be attributed to initial Halo Elevate orders placed by Petco and Pet Supplies Plus, with the remaining $3.6 million driven by a more than doubling of international sales relative to Q4 and continued growth in e-commerce. After taking into account trade spend and other discounts, this translates to $17 million of net sales growth or 57% growth relative to Q1 2021. However, we aren't only focused on the top line. Although input costs have generally risen in consumer goods over the course of the last quarter, our team has been laser-focused on gross margin improvement. As a result, we were able to improve gross margin to 28% in Q1, up from 25% in Q4, without any benefit from price increases. In addition, we took a number of key actions that we believe will help us realize continued gross margin improvement, which we'll discuss in more detail later on this call. This includes the communication of meaningful price increases to our domestic and international customers in January, which became effective in April and will start to have an impact beginning in Q2. I would view Q1 as a success in any environment, but given the number of macroeconomic challenges and inflationary cost pressures that we have faced, I'm incredibly proud of what our team has been able to accomplish. Not only is this evidence that our Win From Anywhere culture is working, but I also think it serves as validation that we're building something special at Better Choice. We have created a strong foundation for continued growth by rallying around the broader Halo brand umbrella. Our international business is growing rapidly, and we have already launched in over 1,500 pet specialty stores, including Petco and Pet Supplies Plus. Our e-commerce and DTC platforms give us a significant online recurring revenue base. The launch of Halo Elevate this year is only the beginning, and we have paired an exciting three-year innovation pipeline with our asset-light model to focus on growth across a variety of different types of consumable pet products. Our business is rooted in the Halo brand, where we plan to leverage our global omni-channel strategy to achieve rapid growth and exceed $100 million of gross sales by 2023. Our target is the millennial pet parent who can purchase our Halo products wherever, whenever, and however they choose. This is how the new breed of consumer shops, and it doesn't matter if they are in the United States, Asia, or any other part of the world. One day they might be in a Petco, the next day on Chewy, and the next day browsing our website. We really have to have a strong presence in our four main channels, pet specialty, e-commerce, direct-to-consumer, and international, to drive customer loyalty. On the flip side, our omni-channel strategy turns every consumer touch point into a dynamic opportunity to connect, convert, and retain customers with a consistent and immersive brand experience, which we believe is a key to increasing the lifetime value of our customers. This strategy also lets us develop and sell channel-specific products designed to maximize conversion and gross margin to avoid channel conflict. One of the issues you'll find in pet category if you try to play in every channel at once is that you see a lot of pricing competition. It can really affect both the brand as well as the retailer. We're avoiding that and looking to launch products built to succeed in specific channels to prevent margin erosion across our portfolio. For example, Halo Elevate is sold exclusively within the pet specialty channel. While you won't find Elevate on Chewy or Amazon, Halo Holistic will continue to drive growth on these third-party e-commerce sites while maintaining an existing foothold in pet specialty, particularly in the cat category. Our new DTC site, which just launched last month, carries all of our products, including a complete suite of freeze-dried raw offerings that were historically sold under the TruDog brand. Today, our international sales are driven by Halo Holistic, but we are excited to begin to introduce Halo Elevate to new geographies later this year. When we look at the pet food category more broadly, I do think it's important for investors to remember that the Halo brand is built for a new generation of pet parents. Over the last five years, we've seen a tremendous shift in our industry as millennials have become the largest cohort of pet parents in the United States. This transition has been accelerated by COVID-19, and for a growing pet food company focused on a new consumer acquisition, it's incredibly important that our brand voice resonates with these younger consumers. Our goal is to talk to pet parents about their pet's health the same way that human food and beverage brands do, with concise and transparent messaging focused on the day-to-day realities of what it means to be a pet parent, and all the concerns that come with that. Given so much of our excitement this year is tied to the Halo Elevate launch, our new marketing campaign will go live in June. If you've been paying close attention to Halo's social and digital channels, you might have noticed that we've already made a number of changes across our platforms to tie into this strategy. With that in mind, I'd like to hand it over to Donald to talk a little bit more about how the Elevate launch is going. Donald? Thanks, Scott. As you can see in our investor presentation, the launch of Halo Elevate is in full swing, and the purple packaging really stands out on shelves. This month, we launched our dry kibble and canned wet offerings in more than 1,500 stores, driven by our core anchor partnerships at Pet Supplies Plus and Petco. In Q1, this translated to $2.5 million of growth sales, with more initial orders expected over the course of Q2. At Pet Supplies Plus, we completed our April launch in more than 600 stores as a preferred brand. We have secured five feet of shelf space, and we're very excited about the initial feedback that we've heard from PSP corporate as well as individual franchise owners. In May, we're featured on their front store end cap with a strong promotional offer. We picked a great partner in Pet Supplies Plus. Pet Supplies Plus' model of franchise and corporate-owned stores drives significant new store openings each year. This allows us to have a built-in growth device for Halo Elevate. At Petco, we are featured on their seasonal wall in 900 stores beginning in May, and we move to the permanent dog aisle as a Better Choice brand in more than 1,000 locations beginning in July 2022. As a reminder, approximately 600 of these locations are allocated eight feet of shelf space, and the remainder are allocated four feet of shelf space. Our total footprint at Petco represents more than two-thirds of the total Petco store locations, and we're confident if we're able to demonstrate a successful launch, we'll have the opportunity to increase both the total number of doors at Petco as well as the amount of shelf space in the future. Now is an interesting time to be launching a new food, as a number of pet food brands in our competitive set are experiencing significant out-of-stock challenges. That said, we are once again standing out. As a result of some of our strategic decisions we made months ago, we're able to achieve 100% fill rate for Halo Elevate across all of our dry and wet SKUs. Given pet food is a need and not a want, we believe this gives us incremental firepower for store associates to want to recommend a brand that they know will be in stock at a time when pet parents are forced to switch foods more frequently than normal. In light of these supply chain dynamics, we have made a strategic decision to focus our sales efforts more aggressively on Petco and Pet Supplies Plus relative to a smaller independent pet store. We'll continue to leverage our relationships with Phillips to help drive independent distribution in launch year one, but we're gonna focus on the highest quality partners and the best performing stores to drive sales growth and margin rather than just the store count. As you can imagine, this will generate a significantly higher number of sales in a store like the one shown on slide six of the investor presentation relative to a standard two-four foot set. Halo Elevate is built to succeed in pet specialty. We are combining sales tactics that I've perfected over the last 30 years in the industry with a new augmented reality experience right on the back of our bag. I'll touch on this AR technology a bit later, but within the last two months, we've added five new sales team members to support our launch. Like some of the additions that we made last year, these are individuals that I've worked with previously and that I know will be able to hit the ground running. Our goal remains by the end of our first launch year, June 2023, we will be generating a little over $200 in sales per store per week. With any new product launch, there's a significant growth over quarter ramp that occurs as consumers trial new product, marketing efforts begin to take effect, and the in-store education of retail associates starts to pay off. In the first year, we'll also run special promotions to incentivize consumer trial with the goal of attracting high-value, long-term purchasers of our products. At the end of the day, there are five key factors that I think gives us the highest chance to be successful. Number one, Halo Elevate delivers best-in-class nutrition for pet parents. Number two, we can guarantee to the retailers, store associates, and pet parents that if they switch to our food, it will be in stock. Number three, our award-winning packaging stands out on shelf, and it speaks to pet parents like a premium human food or beverage brand. Number four, our sales team is a known quantity that doesn't require significant time to get up to speed. Our augmented reality experience gets store associates excited and gives them a tool to compare Halo Elevate against other competitive brands. Rather than explaining augmented reality experience, if you're listening today, I'll let you try it out for yourselves. If you scan the QR code in the top right corner of slide seven in our investor deck with your smartphone's camera, you'll be taken to the Halo landing page. Once you accept the prompts, pick a spot in your room, tap on the screen to activate the AR experience. If you'd like to compare brands, click on the Elevate Difference and select Compare Brands. If you talk to a store associate, there is no other brand out there that offers them a tool like this to be successful. I think it's a great example of how progressive we are in our marketing, packaging, and use of technology, all with the goal of driving awareness to our brand and customer loyalty. With that, I'll turn it back to Scott. Thanks, Donald. As you can see, we've made dramatic improvements to our online presence to coincide with our pet specialty launch, and I'm very excited that our new direct-to-consumer site, halopets.com, is officially live. I'd recommend you check out some of the new social and digital content now available on the Better Choice and Halo websites. Our new look and feel on social media has a lot of great information as our launch progresses this year. In addition, I'd also encourage you to visit your local pet specialty store to see Halo Elevate on shelf and hear directly from a store associate about the brand we are building. If you're interested in visiting an in-store location, I'd highly recommend that you use the store locator and filter by product type you're looking for on our website. Shifting gears a bit, now that our marketing innovation team has handed over the keys to Halo Elevate to Donald, we are now focusing on the Halo Holistic and TruDog rebrand, which we anticipate will launch in the second half of 2022. As you can see, our new packaging design is much more consistent with the new Halo Elevate packaging on shelf and Halo master brand look and feel on our website. Strategically, we believe that this will allow our master brand-focused marketing dollars to benefit every single product we sell going forward, as well as aligning the quality of our packaging to high quality products that we already sell today. With regards to timeline, Halo Holistic is estimated to be in production in the third quarter, and we anticipate launching in the fourth quarter on domestic e-commerce platforms and our own DTC site. In addition, the gradual phase out of TruDog and the phase in of Halo Freeze-Dried Raw is estimated to occur over the second half of 2022. We anticipate that both of these additions to our expanding line of pet specialty products will provide minimal disruption to the existing subscriber base and will be seamlessly transitioned into the Halo brand. With that, I now would like to turn the call over to Rob to discuss our international channel in more detail. Thanks, Scott. The international channel is a key growth driver for us and continues to exceed expectations. First quarter 2022 sales were $7 million, approximately three times first quarter sales from a year ago, and represent the largest quarter ever for international. Sequentially, this represents a 77% increase over fourth quarter 2021 international sales and puts us well on track to exceed our contracted volume in 2022. Although we saw strong performance in all our core international markets, China was by far our highest growth geography, and we made $5.7 million of sales into that market in Q1 alone. As we discussed in our Q4 call, growth in the Chinese market was driven by our ability to secure additional orders following Halo's strong performance during Singles' Day or 11.11, the largest online shopping event in the world. End consumer purchases of Halo products during this period increased more than four-fold, driven by significant new customer acquisition. We anticipate that we will continue to see strong growth internationally throughout 2022. Although there has been significant global uncertainty in recent months, we've been able to deliver our record international sales in core geographies and constantly work with our distribution partners to mitigate potential risk. With that in mind, we believe we are closer to building a $25+ million annual recurring sales platform sooner than we may have anticipated this same time last year. In addition to the strong dry kibble business we have built in Asia, which makes up the vast majority of the $100 million in aggregate contracted minimum sales from 2021 to 2025, we are focused on incremental expansion opportunities. These include the future launch of Halo Elevate Cat, a product with a higher percentage of animal protein relative to holistic, and expansion into the Mexican and Australian markets. With regards to gross margin, we have a strong pathway to significant international margin expansion in the second half of 2022, which I'll let Sharla touch on in more detail in her section. Sharla? Thanks, Rob. In the first quarter of 2022, we delivered record net sales of $17 million, representing an increase of $6 million or 55% compared to Q4 2021, while simultaneously improving gross margin to 28% from 25% in the same period. Net sales came in above internal expectations due to higher than expected gross sales, combined with lower trade spends driven by channel mix and the timing of promotional spend in the pet specialty channel. Q1 net sales also included $2.4 million of initial stocking orders for Halo Elevate and $3 million of incremental international sales relative to Q4 2021. Gross margin for the first quarter of 2022 was 28%, an improvement of over two percentage points from Q4 2021. Gross margin for the quarter also reflects a higher than normal inventory allowance as we evaluate reserves for finished goods and packaging ahead of the TruDog rebrand and Halo Holistic relaunch. Adjusting for this impact, Q1 gross margin would have been 29% or about 3.5 percentage points better than Q4. During the first quarter, we saw significant improvement in our fill rates as production levels begin to normalize. However, we are still navigating through out-of-stocks, primarily within our Halo Holistic wet portfolio, as the industry continues to be impacted by supply shortages and labor constraints. We estimate the impact of out-of-stocks to Q1 gross sales to be $1.5 million-$2 million, primarily felt within our e-commerce channel. On the plus side, we anticipate that we will return to near normal levels on Halo Holistic wet by the end of Q2 2022. Fill rates for Elevate were 100% as we realize the benefit of proactive measures taken last year to ensure production capacity. We continue to take significant steps to increase our long-term growth margin in 2022 and beyond, noting that we anticipate domestic growth margin expansion in the first half of 2022 and significant potential upside to international growth margin in the second half of 2022. During the first quarter of this year, we completed the transition of our domestic dry kibble production to a new co-manufacturer and have seen double-digit margin improvement on those SKUs. We are also on track to receive approval from the Chinese Ministry of Agriculture at this new facility, which will enable us to transition the manufacturing of dry kibble bound for China by the end of Q2 and realize these same margin benefits. Additionally, we have implemented two price increases, one in Q3 of last year and one at the beginning of April, as we execute our margin improvement initiatives and ensure we are aligned with the premium and super premium categories. While the macroeconomic environment has remained volatile and could impact costs in the future, we expect to see improving margins as we progress through the year and realize the benefit of pricing, cost optimization, innovation, and new co-man partnerships. Additionally, we launched Halo Elevate, which was formulated and priced with an understanding that we were entering an inflationary macro environment. In aggregate, these actions taken in Q1 allowed us to expand our domestic growth margin from 28% in Q4 2021 to 33% in Q1 of 2022. With regards to our international business, we anticipate that the key drivers of growth margin improvement in the second half of 2022 will be the implementation of a 10% price increase in April 2022 and the transition of our international dry kibble manufacturing bound for China in June 2022. Given the importance of these two events, we've provided an illustrative range of the potential impacts an increased international growth margin in Q1 would have had on Better Choice's consolidated growth margin. As you can see, a 5%-15% improvement in international margin, even without any potential improvements to domestic growth margin, has a significant positive margin impact. Turning to our balance sheet. We ended the first quarter with $23.4 million in cash and cash equivalents and restricted cash as compared to $28.9 million in Q4 2021. As we, like our competition, navigate a challenging macro environment, the strength of our balance sheet has proven to be a significant advantage and one of our keys to success. In Q1, we strategically utilized our strong cash position to build inventory to support the Halo Elevate launch, which allowed our sales team to guarantee the 100% product fill rate that has been a challenge for the rest of the industry while locking in Q1 2022 production costs for sales that may be made later in the year. In addition, we were able to secure ingredients and realize a 1.5% margin benefit by prepaying our international production, enabling us to ship over 40 forty-foot shipping containers of product to Asia in March 2022. Naturally, these changes are reflected in our accounts receivable and inventory balances, both of which increased materially following a record month of sales in March. In total, this represented a $5.4 million increase in net working capital. As we look to the remainder of the year, we expect that our working capital position will fluctuate as we collect cash from outstanding receivables and return to more normalized inventory levels in the back half of 2022. We may also use our strong cash position to take advantage of opportunities to increase margin through higher order quantities and possible inventory builds ahead of pricing pieces that may or may not arise. Net loss for the first quarter was $4 million. After adjusting for non-cash and non-recurring charges, Adjusted EBITDA for the first quarter was -$2 million, which is consistent with our prior estimates for quarterly cash burn. This figure reflects the inflationary impacts that we just discussed, along with incremental investment in our international business to support its exponential growth, an increase in marketing costs to support the Elevate launch and our overall brand positioning across a variety of platforms, including the addition of new team members to support growth. As we've previously discussed, Adjusted EBITDA is generally a good proxy for quarterly cash burn from operations since the majority of the adjustments made are non-cash. Although we are not looking to provide guidance at this time, we anticipate that our cash burn will be meaningfully reduced over time as we realize continued gross margin improvements and operating leverage. Based on where we sit today, we are comfortable knowing that we have ample liquidity to support growth, going forward. As referenced, we've also provided a detailed reconciliation of Q1 EBITDA and Adjusted EBITDA. With that, I will turn it back over to Scott. Thank you, Sharla, and thank you again to everyone that has joined our earnings call today. As I hope you can tell, we are all incredibly excited for what is shaping up to be a breakout year in 2022 for the new and improved Halo brand. As I mentioned at the beginning of our call today, our goal remains $100 million of gross sales by 2023, and we are laser focused on gross margin improvement as we drive towards profitability in the medium term. In addition, we feel strongly that our current cash balances are more than sufficient to support the growth that we have planned. I am confident that we have the team, strategy, and partnerships to get us there. Now, I'd like to open up the call for questions. Operator, please. Thank you. We will now begin the question and answer session. To ask a question, you may press Star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Michael Baker with D.A. Davidson. Please go ahead. Hey, thanks, guys. Good quarter. A couple of things, a couple of points that you talked about that I wanted to follow up on. There's a lot there. One, did you say that 2Q reorders for Halo Elevate were ahead of plan? Could you give us some detail on that? Then, Scott, at one point you said exceed $100 million by 2023. That sounded more bullish than in the past to me. Right at the end there, you said $100 million, not exceed $100 million. Could you clarify that? To me, they both sound like things are going better than expected, and that's sort of what I'm getting at. Can you sort of, you know, flesh that out a little bit? Thanks. Yeah, absolutely. Donald, do you want to take the Elevate question? Yeah. Mike, thanks so much. Yeah, as far as again, I just wanna make sure I understand the question correctly. You're just again, Mike, asking again about Q2 projection? Yeah. I thought you said something about, 2Q reorders were better than expected, or, you know. If that's not what you said, can you just talk about, you know, what you're seeing in terms of, anyone reordering the product after the initial launch? This is relative to the Elevate at Pet Supplies Plus and Petco. Absolutely. Yeah, so yeah, there's no doubt from when our Q1, we had a fantastic Q1, as you saw the results that Scott has. Our orders are definitely ahead of forecast on Q2. What we're seeing, again, is the reorders. The seasonal wall for Petco now is set. It's been very successful for us, even 11 days into it. Again, what we've already seen reorders as we get ready to get on shelf space as well. Looks again like a very strong quarter for us. In reference to the second question, Mike, you know, our ongoing target is still remains at that $100 million mark. I think the team is extremely bullish on the opportunity based on the continued feedback we've gotten from retailers and now, to be frank, with consumers, now that the product's out on shelf in Petco, PSP, and some independent pet food stores. Specific to Halo Elevate, we're getting tremendous feedback and converting customers on a daily basis. As we look at opportunities both domestically and also internationally, you know, we think the numbers that we have in the models are well within reach and that's what we're working towards. Okay. Fair enough. Two more follow-ups. The 100% fill rate for the Halo Elevate product, you know, do you have visibility into how long that can last? At some point, you know, is your demand gonna outstrip your supply or, you know, 'cause it seems to me as if you did a great job getting in front of the launch, but now as the launch progresses, I just wanna make sure you have the capacity. Right. One more. There was a timing difference between net sales and gross sales, which to me, I think benefited net sales relative to gross sales. Does that reverse at some point? Thanks. Right. I'll let Sharla touch on your second question in a minute, but in terms of our supply chain, as we've discussed in the past, you know, we spent the last 12 months really refining and improving our supply chain footprint to prepare ourselves for not only the launch of Halo Elevate, but the support of all our brands and all our channels. You know, with our moves around from a co-manufacturing perspective, we have more than enough capacity going forward. Our partner on the dry kibble side is doubling capacity in July, so we don't foresee any issues in terms of maintaining those high level of fill rates with Halo Elevate. We see some optimism in terms of capacity opening up for our wet business over the summer and into Q3, Q4. Overall, you know, we feel really good about our ability to supply our customers. You know, back to when we went and IPO'd and raised $40 million for this business, you know, that was also to support the growth plan of Halo, and with that, making sure we have inventory to sell. Our ability to have cash on hand to, you know, purchase inventory and then our partnerships with our co-manufacturers to make sure that we have capacity really have put us in a great position going forward. 'Cause we know Donald and his team's gonna sell, and Ryan and the marketing group is gonna kick in a lot of momentum here over the summer. We wanted to make sure we had product and we feel confident about that. I'll turn it over to Sharla, and maybe you can answer the net sales question. Definitely. Thanks for the question. You're right on the observation there. Really what you're seeing is international being a higher percentage of total sales in Q1, but also with the pet specialty launch. The trade and promotional spend that hits there is really gonna ramp throughout the year. As we do the fill orders, that promotional spend isn't gonna hit exactly at the same time. I wouldn't say it's gonna reverse what I think you'll see throughout the year. Q2 could trend possibly higher net as a percent of growth, and then Q3 and Q4 get back to kind of what we've seen historically. just noting that, you know, trade spend within pet specialty itself could be a little bit lumpy through the first quarters of the launch as that in-store promotion ramps. Okay. That makes sense. Thanks. I'll turn it over to someone else. Our next question comes from JP Wollam with ROTH Capital Partners. Please go ahead. Hey, good morning, and thank you guys for the time. I just kinda wanted to talk about, maybe breaking down COGS a little bit. I'm just curious to know kinda what is you guys thinking around the components that are. You know, I know you talked about price increase and the co-manufacturing, but outside of that kinda what are the biggest headwinds there that you see, and has that trended, better or worse kind of since quarter end? Secondly, just about pricing, how are you thinking about it relative to competitors? Is there still room for further price takes? If you see elevated costs, have you taken everything you can? Any clarity there would be great. Thanks. Yeah, 100%, and thanks for the question. The way I look at it, those two questions are very much interlinked. Our real benefit with BTTR is the team that we have in place, the experience within the industry and the expertise. Because of that, we've really been able to navigate the macroeconomic environment in terms of commodity cost increases and whatnot. As we look at our business, you know, obviously we see increases in certain areas, and we've been really responsive, not only in terms of our ability to increase price in spots, you know, to maintain margin, but also to improve our formulations, both from a performance perspective and cost basis. We're not really in the game of predicting what's gonna happen in the future. We're in the game of protecting our margins and making sure that we craft a path to profitability in the fastest way possible. With that being said, because we're playing in the super premium segment of the market. There's a lot less price elasticity, so we have the ability to maneuver pricing around a little bit more than if we were in the value segment. We do see there's an opportunity in certain spots, again, to potentially take price and make sure that we're more strategically aligned with our competitive set from a pricing perspective. As you might know, you know, many of our competitors are taking price currently. We wanna make sure that we just are in line with the competitive set from a brand perspective. Overall, you know, that is something that we spend a lot of time on a daily basis, is not only, you know, thinking about the current but also the future. Really that's our expertise, I'd say, is looking out into the future and saying, "Hey, where do we wanna be from a price perspective?" and hedge our bets there. That's the game we're playing, and I think we've already represented that in the gross margin growth we've received in Q1 versus Q4, and we hope to increase that over time. Great. Thank you. Just one quick follow-up. Kind of in terms of Petco, you know, I think, and correct me if I heard incorrectly, I think it was about two-thirds of total Petco stores. Kind of as you go through the Halo Elevate launch, what do you need to see and perhaps what are you looking at in order to kinda go back to Petco and say, you know, "Here's what we've proven out, and we'd like kinda that last one-third of stores." I'd be curious kind of what's the timeline on when you might have that data to really renegotiate that store count? Right. I'll chime in real quick, and then I'd love to pass it on to Donald for his thoughts. The real key thing here to remember is that we're in two-thirds of the most productive stores within their store list, if you will. We're really focused on driving volume through the best stores in their chain. I'll turn it over to Donald to kind of expound on that. Yeah. Thank you, Scott. Yeah, JP, the reality for Petco is as they start to look at store sales, that's what we look at, and that's how we forecast, it's turns per store per week per store. Right now, we've already exceeded. Again, it's early, but again, of our 39 SKUs that we have in there directionally, you know, you have some SKUs that are right on target, and you have some that we have already doubled their forecast. So right now, they've been very happy with the launch. Going forward with the process, you're really looking at the end of Q4 when you sit down with Petco, you evaluate, you do your joint business plan with them, review with them, and then they start making their space plans for next year. Again, we're very excited, again, already what we're looking at, what the partnership is allowing us to do. Again, being a Better Choice brand, it's very rare for Petco to bring a new manufacturer in and give them that type of trust and confidence in what you're delivering to them. We're very excited. I like what we're already seeing from Petco shoppers, and that's really, at the end of the day, when we talk about their store associates and also what pet parents are saying about the brand. This week alone, as we make our sales call, we had one of the Petco associates tell us that they were already extremely excited when they heard about the unique five pillars of Elevate, what we stand for, how the performance is unique and different. Again, our prebiotic and probiotic level is the highest in the industry. What we always thought we would do is generate that store-by-store activation, and right now we're very excited where we stand and where we're going forward. Great. Thank you guys very much. Our next question comes from James McIlree with Dawson James Securities. Please go ahead. Thank you. Good morning. I was hoping you could comment a little bit about the impact you're seeing or how you're mitigating the lockdowns in China and your ability to serve that market. I was pleasantly surprised with your strength there. I'm just wondering how are you going to manage that going forward. Yeah. Rob, why don't you take that one? Sure. Thanks. Thanks, Jim. What I would note is that, you know, like in the U.S., you know, pet food is a core product that is sold, so it's one of those that impacted a little bit less than the lockdowns. You know, what I think is really important is that our partners over there are doing a phenomenal job of importing product, getting it into our distribution centers and getting it sold to consumers. We're seeing really strong end consumer demand in China through our partnership there. I'd also add that we have kind of the added benefit of, you know, our partners taking ownership of that product in the United States. We're not responsible for shipping the product over. We're not responsible for, you know, managing those port dynamics, and that's a real, you know, benefit for us as we think about sales. Continued growth in those markets regardless of COVID, and we're in the right place. Okay. That helps. Thanks. Sharla, you talked about inventory reserves. I'm wondering how much of the existing inventory would be subject to further inventory reserves, as you transition to Holistic and away from TruDog. Is there a big inventory amount that's associated with the old products? Yeah, good question. I would say kind of going forward, we've really taken the bulk of that now. We have, as part of our transition strategy, looked at all of our SKUs, the runouts on those, and really kind of planned accordingly to time transition, to time runouts of inventory so that we take the most minimal impact to inventory allowance as possible. You know, kind of from an accounting standpoint, right, we have to kind of take that as we see it. I'm not expecting significant incremental allowance for the remainder of the year. We'll continue to evaluate that each quarter as we look at the stocks and the runout from the sales on that older product. I'm not expecting that to significantly impact the rest of the year. Okay, great. Thank you. That's it for me. Thank you. Thanks. Our next question is a follow-up from Michael Baker with D.A. Davidson. Please go ahead. Hey, thanks. Not sure if you're willing to go into this level of detail, but a lot of moving parts on the gross margin between, you know, domestic first half plans and international second half and the inventory allowance, et cetera. Can you just help us frame what's the proper expectations for gross margins for the year? Last year, you came in at 33.4%, which was down about 400 basis points. You know, with all those moving parts, should 2022 be in line with 2021, better or worse, et cetera? As part of that question, last call, you had talked about planning on being EBITDA positive in 2023. With some of the changes in the cost environment, et cetera, is that still a reasonable expectation? Thank you. Yeah. Thanks, Mike. Sharla, you wanna answer this one? Definitely. We've kind of mentioned this on past calls, but this is the way I kind of see 2022 playing out. If you go back to 2021 and look at our gross margin through the year, the Q1 through Q4, you kind of see these declines throughout the year. You're gonna see the opposite of the inverse of that in 2022. We improved a couple points. It would have been over three points in Q1 without the inventory reserve. That's what you're gonna see throughout the remainder of the year, is these couple point increases. I think for a full year basis, 2021 is generally a good index as we ramp back up and definitely expect to get back over 30% in that, you know, 30%-35% range. I kind of look at it, like I said, the inverse of last year is what you'll see this year. On your question on EBITDA positivity, that's still our expectation is that by midyear of next year, we're cash flow positive, EBITDA positive, and that you know we're moving on that path to profitability now, and the timing expectations have not changed. When you say, just to follow up on that, when you say EBITDA positive by mid next year, does that mean on a trailing 12-month basis or more like either the second quarter or third quarter for that particular quarter, EBITDA will be positive? Correct, the latter. I midyear, we'll start to hit positivity. On a trailing twelve months, you're gonna still see some of the, you know, the burn from the prior twelve months, but we'll start ramping that EBITDA positivity in midyear. Makes perfect sense. Thanks. This concludes our question and answer session. I would like to turn the conference back over to Scott Lerner for any closing remarks. Thank you. Thank you to all that have joined us this morning. As you can see from the earnings call, my team, as well as myself, are extremely excited about what we've done to date in Q1 of 2022, and we couldn't be even more excited about our progress into the rest of this year. When we went and IPO'd on the New York Stock Exchange last year, we set out a roadmap of certain things we needed to tackle in order to build a business for success, and I'm really pleased to say we've nailed all those. We welcome any other questions, as we move forward into the year and really appreciate your support. Thank you very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.