Q3 2021 Better Choice Company Inc Earnings Call

Good morning, I will be your conference operator today at this time I would like to welcome everyone to the better choice company third quarter 2021 earnings conference call. Today's call is being recorded I would now like to turn it over to Mr. Rob Salmon Executive Vice President of strategy. Please go ahead Sir.

Speaker 1: Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the Better Choice Company Third Quarter 2021 Earnings Conference call. Today's call is being recorded. I would now like to turn it over to Mr. Rob Sauerman, Executive Vice President of Strategy. Please go ahead, sir. You may begin.

May begin.

Thank you operator, welcome everyone to better choices third quarter earnings Conference call. This morning, we issued our third quarter financial results press release and posted our updated earnings presentation under the IR section of our website, which we'll be discussing today.

Speaker 2: Thank you, operator. Welcome everyone to BetterChoices third quarter earnings conference call. This morning we issued our third quarter financial results press release and posted our updated earnings presentation under the IR section of our website, which we will be discussing today.

I'm joined by Scott Lehr, our CEO, Charlotte Cook, our CFO and Donald Young our executive Vice President that Phil.

Speaker 2: I'm joined by Scott Lerner, our CEO , Charlotte 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.

Speaker 2: 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.

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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission and the company's press release issued on Wednesday November 10, 2021 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.

Speaker 2: Please refer to the company's quarterly report on Form 10Q filed with the Securities and Exchange Commission and the company's press release issued on Wednesday, November 10, 2021, 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 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.

Speaker 2: 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 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.

Yep.

Please refer to our press release and presentation issued on November 10, 2021 for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.

Speaker 2: Please refer to our press release and presentation issued on November 10, 2021, for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, I'm going to close the webinar. Thank you.

With that let me hand, it over to Scott.

Thank you Rob and thank you again to everyone for joining our call.

Speaker 2: Thank you, Rob, and thank you again to everyone for joining our call. I think I am starting to sound like a broken record, but I can confidently say that with the passage of each quarter, I am increasingly excited and proud of the groundwork we have laid in preparation for a successful rapid growth stage in 2022.

Think I'm starting to sound like a broken record, but I can confidently say that with the passage of each quarter I am increasingly excited and proud of the groundwork we have laid in preparation for a successful rapid growth stage in 2022.

Our leadership team, which we brought together at the beginning of this year has done a tremendous job navigating one of the most challenging.

Speaker 2: Our leadership team, which we brought together at the beginning of this year, has done a tremendous job navigating one of the most challenging macro environments with CPG space has seen in recent memory.

ROE environments with CPG space have seen in recent memory.

In spite of pricing increases production delays and container shortages, we were able to deliver a record quarter posting an amazing 19% increase in net sales relative to Q3 last year and beating our historical high of Q1, 'twenty 'twenty, which include.

Speaker 2: In spite of pricing increases, production delays, and container shortages, we were able to deliver a record quarter, posting an amazing 19% increase in net sales relative to Q3 last year and beating our historical high.

Speaker 2: Q1 of 2020, which included significant COVID-19 stockpiling by roughly $1 million.

You did significant COVID-19, stockpiling by roughly $1 million.

It's now almost Thanksgiving and we were only months away from the official launch of Halo elevate.

Speaker 2: It's now almost Thanksgiving, and we're only months away from the official launch of Halo Elevation.

Donald will take us through the details of our launch plan in more detail. So I don't want to steal his thunder.

Speaker 2: Donald will take us through the details of our launch plan in more detail, so I don't want to steal his thunder.

But I am excited to announce that we have officially met our 2022 goal of sourcing distribution of Halo, elevate and 1500 pet specialty stores anchored by partnerships with pet supplies plus and petco.

Speaker 2: But I am excited to announce that we have officially met our 2022 goal of sourcing distribution of Halo Elevate in 1500 specialty stores, anchored by partnerships with pet supplies plus and petco. That said, we aren't stopping here. And today we are increasing our 22 2022 target store count from 1500 to a range of 2000 to 2500 stores.

That said, we aren't stopping here and today, we are increasing our 'twenty to 2022 target store count.

1500 to a range of 2000 to 2500 stores. This increase represents the addition of incremental independent pet stores and smaller regional chains, which are typically accessed.

Speaker 2: This increase represents the addition of incremental independent pet stores and smaller regional chains, which are typically accessed through.

Through distributor partnerships.

It's going to take us some time to build the ramp and achieve targeted velocities for growth. So don't expect us to realize the full run rate value of these incremental locations for the entirety of 2022.

Speaker 2: It is going to take us some time to build the ramp and achieve targeted velocities for growth. So don't expect us to realize the full run rate value of these incremental locations for the entirety of 2022. The key takeaway here is that our innovation is resonating with retailers in a big way, giving us confidence that we are set up for success and on track to achieve our medium term goal of $100 million in gross sales.

The key takeaway here is that our innovation is resonating with retailers in a big way, giving us confidence that we are set up for success and on track to achieve our medium term goal of $100 million in gross sales.

Although our primary focus is around driving growth in 2022, a year, which will mark the beginning of a step change for better choice and the Halo brand.

Speaker 2: Although our primary focus is around driving growth in 2022, a year which will mark the beginning of a step change for better choice in the Halo brand, we've been able to deliver a strong quarter on the back of record quarter over quarter revenue growth of 43% in international and 35% in e-commerce.

We've been able to deliver a strong quarter on the back of record quarter over quarter revenue growth of 43% in international and 35% in E Commerce when isolating for the Halo brand alone, which is the master brand that we plan to support going forward gross sales are up 24 per.

Speaker 2: When isolating for the Halo brand alone, which is the master brand that we plan to support going forward, gross sales are up 24% quarter over quarter. Jenny Condon and her team have done a tremendous job delivering growth on Amazon and Chewy with one hand tied behind their back. As we've had to navigate industry wide canned wet food capacity constraints driven by production downtimes and global supply chain challenge.

<unk> quarter over quarter, Jenny conduit and her team have done a tremendous job delivering growth on Amazon and chewy.

With one hand tied behind their back as we've had to navigate industry wide canned wet food capacity constraints, driven by production downtime and global supply chain challenges.

Robin our international partners have done a fantastic job driving demand in Asia, and I'm proud to announce that we are currently on track to exceed our yearly purchase minimums with our key distributors as a reminder, the number to remember is $100 million in aggregate gross sales in Asia.

Speaker 2: Rob and our international partners have done a fantastic job driving demand in Asia, and I'm proud to announce that we are currently on track to exceed our yearly purchase minimums with our key distributors. As a reminder, the number to remember is $100 million in aggregate gross sales in Asia from 2021 to 2025.

From 2021% to 2025.

None of this would be possible without the tireless work of Alex for nose and his supply chain team. Although we are seeing some temporary headwinds with regards to margin pressure and customer out of stocks. Even in spite of price increases that we have passed along to the consumer our September year to date fill rate was approximately.

Speaker 2: None of this would be possible without the tireless work of Alex Fornos and his supply chain team.

Speaker 2: Although we are seeing some temporary headwinds with regards to margin pressure and customer out of stocks, even in spite of price increases that we have passed along to the consumer, our September year-to-date fill rate was approximately 85% across all our SKUs, with canned wet food representing almost all of our out-of-stock to-date

85% across all our skus with can wet food, representing almost all of our out of stock to date.

Just on what we are seeing across the industry and observing on shelf I can say that we are outperforming the competition, particularly when compare it against other brands of our size.

Speaker 2: Based on what we are seeing across the industry and observing on shelf, I can say that we are outperforming the competition, particularly when compared against other brands of our size.

We will likely see some of these same trends continue into Q4. This year, but we don't anticipate that we will have issues with the supply of wet Halo elevate product as we're using a redundant co manufacturer and have secured incremental capacity.

Speaker 2: We will likely see some of these same trends continue into Q4 this year, but we don't anticipate that we will have issues with the supply of wet hail elevate products as we're using a redundant co-manufacturer and have secured incremental capacity.

For those of you that have experienced navigating us.

Speaker 2: For those of you that have experienced navigating a complex supply chain, new product launches and simultaneous rebranding initiatives, I think you can agree that meeting deadlines and following a linear programmatic approach is critical to success. Thinking linearly is a phrase that our team might be tired of hearing me say when we are presented with a challenge, but it's been a cornerstone of my past success.

Complex supply chain.

New product launches and simultaneous rebranding initiatives I think you can agree that meeting deadlines and following a linear programmatic approach is critical to success, making linearly as the phrase that our team might be tired of hearing me say when we are presented with a challenge, but it has been a cornerstone of my past successes.

In practice success is ultimately decided by the strength and resiliency of the team from the top down not a perfect plan drafted in the boardroom as the CEO. It's my job to make sure that we have a plus talent across all levels of our organization.

Speaker 2: In practice, success is ultimately decided by the strength and resiliency of the team from the top down. Not a perfect plan drafted in a board.

Speaker 2: As the CEO , it's my job to make sure that we have A plus talent across all levels of our organization.

And that we are deploying our team members in a way that maximizes their potential and promotes personal growth.

Speaker 2: and that we are deploying our team members in a way that maximizes their potential and promotes personal growth.

Some of you may have heard this from me before but in the past year. We've had we've added almost 20, new team members, while simultaneously seeking cycling out approximately 15 legacy positions.

Speaker 2: Some of you may have heard this from me before, but in the past year, we've added almost 20 new team members while simultaneously cycling out approximately 15 legacy positions.

Although change inherently comes with risk. These new team members bring a diversity of knowledge and experience from companies like Amazon Crate and barrel Mars Petcare.

Speaker 2: Although change inherently comes with risk, these new team members bring a diversity of knowledge and experience from companies like Amazon, Creighton Barrel, Mars Petcare, Nestle Perina, Cliff Barr and Coca-Cola, with an intentional mix of pet experience and outside industry perspective.

Trina Clif bar and Coca Cola with an intentional mix of pet experiencing outside industry perspectives.

I'm counting on every individual in our group of almost 50 to drive our Omnichannel growth strategy forward. It's also worth noting that we filled every single position through our personal networks and having paid a single dollar to recruitment firms this year.

Speaker 2: I'm counting on every individual in our group of almost 50 to drive our omni-channel growth strategy forward.

Speaker 2: It's also worth noting that we filled every single position through our personal networks and haven't paid a single dollar to recruitment firms this year. Not only does this showcase our leadership team's professional network, but it also significantly de-risks each hire that we make. Our chairman always likes to say, bet on the jockey, not the horse. And I'd be hard-pressed to find a better jockey out there than the BTPR.

Not only does this showcase our leadership team's professional network.

But it also significantly derisked each hire that we make our chairman always like to say that on the jockey not the horse and I'd be hard pressed to find a better jockey out. There then the BTT our team.

Okay.

With that in mind as we lay the groundwork for the future professionalization has been a core theme for better choice in 2021 are.

Speaker 2: With that in mind, as we lay the groundwork for the future, professionalization has been a core theme for better choice in 2021.

Our team is an obvious callout, but this extends to the retailers and distributors that we work with.

Speaker 2: Our team is an obvious call out, but this extends to the retailers and distributors that we work with. Our supplied centre is a, um, oyster that helpswitzk humanity in a highly sustainable way.

Our supply chain and distribution network, the marketing and creative agencies that we hire our board of directors and even the investors that were looking to partner with.

Speaker 2: the marketing and creative agencies that we hire, our board of directors, and even the investors that we're looking to partner.

I don't have enough time to list every change we've made in the past year.

Speaker 2: I don't have enough time to list every change we've made in the past year, but there are a few highlights that are worth discussing.

But there are a few highlights that are worth discussing this quarter.

Starting this month we.

We are producing our innovative dry kibble with a new co manufacturing partner in the Midwest.

Speaker 2: Starting this month, we are producing our innovative dry kibble with a new co-manufacturing partner in the Midwest.

Over the course of the next three to six months, we plan to shift all our dry kibble production to this partner, including our M O a approved international diets no.

Speaker 2: Over the course of the next three to six months, we plan to shift all our dry cable production to this partner, including our MOA approved international dye.

Not only do they produce some of the highest quality dry Campbell and the industry. Securing this partnership means that we have officially locked down the incremental capacity, we need to support the launch of Halo elevate.

Speaker 2: Not only do they produce some of the highest quality dry cable in the industry, securing this partnership means that we have officially locked down the incremental capacity we need to support the launch of Halo Elevates.

In addition, we anticipate that we will gain approximately 15 percentage points of margin on our Halo holistic dry kibble lives, which is the primary reason behind our temporary decline in gross margin.

Speaker 2: In addition, we anticipate that we will gain approximately 15 percentage points of margin on our halo-holistic dry kibble lines, which is the primary reason behind our temporary decline in gross markets.

Charlotte will touch on the financial impact in a bit more detail later.

Speaker 2: Charlotte will touch on the financial impact in a bit more detail later, but unprecedented raw material price increases and shortages for several key ingredients, most notably dry egg and potato protein have been the primary culprit.

Unprecedented raw material price increases and shortages for several key ingredients.

Notably dry egg and potato protein had been the primary culprit.

Once this manufacturing changes in place I feel confident that our 2022 gross margins will be closer to 40% an increase from there as we progress through year, two and year three of the Halo elevate launch.

Speaker 2: Once this manufacturing change is in place, I feel confident that our 2022 gross margins will be closer to 40% and increase from there as we progress through year two and year three of the halo elevate launch.

Led by Ryan Wilson, we've on boarded several key marketing agencies to assist us as we develop top of the line creative advertising, new product packaging and improve the online customer experience.

Speaker 2: Led by Ryan Wilson, we've unborted several key marketing agencies to assist us as we develop top of the line creative advertising, new product packaging, and improve the online customer experience.

Our partners have worked with innovative millennial focused brands, such as Bombous organic valley, West Elm and liquid death mountain water.

Speaker 2: Our partners have worked with innovative millennial focus brands such as Bombas, Organic Valley, West Elm and Liquid Death Mountain Waters.

And I can assure you that we are holding true to our mission of becoming the most innovative premium pet food company in the industry.

Speaker 2: And I can assure you that we are holding true to our mission of becoming the most innovative premium pet 2 company in the industry.

We are looking forward to having content that speaks directly to millennial pet parents in a way that's very similar to how their own food and beverage brands in daily essential products already do.

Speaker 2: We are looking forward to having content that speaks directly to millennial pet parents in a way that's very similar to how their own food and beverage brands and daily essential products already do. Lastly, I'd like to extend an official welcome to our panelists.

Lastly, I'd like to extend.

An official welcome to two new board members.

Well, I know Konica and Arlene Dickinson.

<unk> joins better choice with over 30 years of financial experience, including several positions with public companies investment banking firms and private equity and venture capital funds. Mr. Conoco currently serves as chairman of a NASDAQ listed company EXL group, where he has successfully guided the retail.

Speaker 2: Lionel joins better choice with over 30 years of financial experience, including several positions with public companies, investment banking firms, and private equity and venture capital funds. Mr. Connaker currently serves as chairman of a NASDAQ listed company, the Excel Group, where he has successfully guided the retail chain through the COVID-19 pandemic.

Chain through the COVID-19 pandemic.

Arlene is a well known entrepreneur and general partner of district venture capital a venture capital fund focused on helping market fun.

Speaker 2: Our lean is a well-known entrepreneur and general partner of district's venture capital. Adventure capital fund focused on helping market, fund and grow entrepreneurs in their companies in the food and health space.

<unk> and grow entrepreneurs and their companies in the food and health space.

She is widely recognized for her role as a dragon and venture capitalists for over 12 seasons on the CBC television series Dragon's den for those of you for those of you who aren't Canadian St Shark tank.

Speaker 2: She is widely recognized for her role as a dragon and venture capitalist for over 12 seasons on the CBC television series Dragon Finn. For those of you who aren't Canadian, thank you.

Arlene has won numerous awards, including Calgary business owner of the year profit magazine's top 100 business owners in Canada. Its most powerful women top 100.

Speaker 2: Arlene is one numerous awards, including Calgary Business Owner of the Year, Profit Magazine's Top 100 Business Owners, and Canada's most powerful women Top 100.

Lino and Arlene replace Laurie Taylor and Jeff Davis.

Speaker 2: Lionel and Arlene replace Lori Taylor and Jeff D.

Long serving members, who helped establish better choice as an emerging player in pet health and then Laura use case, the founder of the true dog brand.

Speaker 2: long-serving members who helped establish Better Choice as an emerging player in pet health, and in Lori's case, the founder of the TrueDog brand.

Before handing the call over to Donald to talk through more details regarding the Halo elevate launch I wanted to quickly remind those on the call of our commitment to an omni sales channel approach rooted in them one master Halo brand.

Speaker 2: Before handing the call over to Donald to talk through more details regarding the Halo Elevate launch, I wanted to quickly remind those on the call of our commitment to an omnisales channel approach rooted in a One Master Halo brand.

Our goal is to be there for consumers, where and when they want to shop, whether that's in store on Amazon or chewy or through our own branded consumer website.

Speaker 2: Our goal is to be there for consumers where and when they want to shop, whether that's in store, on Amazon or Chewy, or through our own branded consumer website.

To maximize our operating leverage and deliver on this promise we've made the strategic decision to focus on the development and growth of the Halo brand, especially as we near the launch of Halo elevate and look to fold in true dogs existing customer base underneath that umbrella.

Speaker 2: To maximize our operating leverage and deliver on this promise, we've made the strategic decision to focus on the development and growth of the Halo brand, especially as we near the launch of Halo Elevate and look to fold in true dogs with just in customer base underneath the umbrella.

As I touched on earlier these decisions are reflected in our Q3 final financial results.

Speaker 2: As I touched on earlier, these decisions are reflected in our Q3 final financial results.

Which saw Halo branded gross sales increased 24% and shoe dog branded gross sales declined 11% getting us to our overall net sales growth figure of 19%.

Speaker 2: which saw halo branded gross sales increase 24% and true dog branded gross sales decline 11%. Getting us to our overall net sales growth figure of 19%.

All in all I'm incredibly proud of the third quarter results and can confidently state that we are on track to achieve the ambitious plan that we presented to investors and our board concurrent with the capital raise and uplift in June.

Speaker 2: All in all, I'm incredibly proud of the third quarter results. It can constantly state that we are on track to achieve the ambitious plan that we present it to investors in our board, concurrent with the capital rates and uplifting June .

In light of the ongoing macro inflation and supply constraint challenges, we have pivoted when needed ultimately with one goal in mind to keep product on the shelf and available for our loyal customer base in the short term without sacrificing growth or margin opportunity in the long term.

Speaker 2: In light of the ongoing macroinflation and supply constraint challenges, we have pivoted when needed, ultimately with one goal in mind.

Speaker 2: We keep product on the shelf and available for our loyal customer base in the short term without sacrificing growth or margin opportunity in the long term. With that, I'll leave it at that.

With that I'll turn it over to Donald.

Thanks for the introduction, Scott and thanks again to everyone for joining today as I mentioned on our prior call I spent the last 30 years of my career in premium pet and played a major role in the transformation and growth of two iconic brands neutral, which we took from low double digits to over $800 million of sales when it was sold to Mars and Merrick more.

Speaker 3: Thanks for the introduction Scott, and thanks again to everyone for joining today. As I mentioned on our prior call, I spent the last 30 years of my career in Caribbean pet and played a major role in the transformation and growth of two iconic brands, Neutro, which we took from low double digits to over 800 million of sales when it was sold to Mars. And Merrick, where more than quadrupled sales, ultimately leading to the sale of the business, the Nephle Prina, and approximately 500 million in annual sales.

Quadrupled sales ultimately leading to the sale of the business the Nestle Purina and approximately 500 million in annual sales.

In my experience every great growth story in the premium pet food industry, whether that's neutral Merrick Walter for Blue Buffalo has been driven by recommendation.

Speaker 3: In my experience, every great growth story in the premium pet food industry, whether that's neutral Merrick, wall pet, or blue Buffalo has been driven by recommendation.

And a big part of that still happens in store even during the pandemic.

Speaker 3: And a big part of that still happens in store, even during the pandemic.

With the brands that we have and the opportunity that's in front of US I think better choice has an even greater chance to achieve similar success.

Speaker 3: With the brands that we have, and the opportunity that's in front of us, I think Better Choice has an even greater chance to achieve summer success.

And I can honestly say I have never been more excited about our new product launch in my career.

Speaker 3: And I can honestly say I have never been more excited about a new product launch in my car.

Before we talk about what makes our food unique and different let's get into the specifics of the launch.

Speaker 3: Before we talk about what makes our food unique and different, let's get into the specifics of the law.

As Scott noted our prior target for new stores carrying elevate 2022 was 500 stores, which we have now achieved.

Speaker 3: Scott noted our prior target for new stores, Perian, Elevate in 2022 was 1500 stores, which we have now achieved. This target was continued.

This target was contingent on two factors.

One securing a national launch with pet supplies, plus we announced this partnership publicly in August and we have landed four feet of shelf space with all their location.

Speaker 3: One, securing a national launch with pet supplies plus. We announced this partnership publicly in August , and we have landed four feet of shelf space at all their local...

We expect that the full lineup of Halo elevate dog skills will be on shelf beginning in Q1 of 2022.

Speaker 3: We expect that the full line of Halo Elevate Dog skills will be on shelf beginning in Q1 of 2022, with the full line of Halo Elevate Cat skills available in Q4 2022.

With a full lineup of Halo elevate cat Skus available in Q4 2022.

We will make our first sales of Halo elevate two pet flights plus in January.

And two.

So carrying a significant portion of <unk> current footprint as Scott alluded to this earlier on the call, but I'm officially announcing our partnership with Petco for Halo elevate.

Speaker 3: Scott alluded to this earlier on the call, but I'm officially announcing our partnership with Petco for Halo Elevator.

And anticipate that will be carried in roughly 900 locations beginning in late Q2 2022.

Speaker 3: and anticipate that we will be carried in roughly 900 locations beginning in last June to 2022.

This represents the majority of their stores with a concentration on some of their highest value geographies with.

With regards to the timing of shelf space will be launching our full line of Halo elevate gods and anticipate that we will have between four and eight feet of shelf space.

Our goal is by the end of our first launch here. So by June 'twenty 'twenty, three we will be generating a little over $200 in sales per store per week at least 1500 large pet, especially location.

With any new product launch there was a significant quarter over Colbert ramp.

Speaker 3: With any new product launch, there's a significant quarter over cover ramp that occurs as consumers trial new products.

That occurs as consumers trial new product.

Marketing efforts start to kick in and take effect and in store education retail associates starts to pay off.

Speaker 3: Marking effort, start to kick in and take effect, and insert education of retail associates starts to pay off.

In the first year will also run specific and special promotions to incentivize consumer trial with the goal of attracting high value long term purchasers of our product.

If you do the math this represents a 15 million dollar run rate of revenue opportunity at the end of year, one our Q2 2023.

Speaker 3: If you do the math, this represents a $15 million run rate of revenue opportunity at the end of year one or Q2 2023.

This will serve as a launching pad for incremental shelf space and revenue for launch in years, two and three.

Speaker 3: This will serve as a launching pad for incremental shelf space and revenue for launch in years two and three.

As in the prior success of America as a proxy but at the end of my tenure, we were able to secure over 50 feet of shelf space and generate more than $300 million of revenue in pet, especially alone.

Speaker 3: Using the prior success of Merrick as a proxy, by the end of my tenure, we were able to secure over 50 feet of shelf space and generate more than $300 million of revenue in Pet Specialty alone. This is the opportunity to secure over 50 feet of shelf space and generate more than $300 million of revenue in Pet Specialty alone.

This is the opportunity that sits in front of us now.

Incremental to these bigger direct retail partnerships are the independent pet stores and regional change.

Speaker 3: Incarned to these bigger direct retail partnerships are the independent pet stores and regional change. These compromise the majority of the

These compromise the majority of the pet specialty stores.

These tend to be small to medium footprint location that are often serviced by national and regional distributors, but they come with a very much a fierce loyalty of dependable consumers.

Speaker 3: These tend to be small to medium footprint location that are often served by national and regional distributors.

Speaker 3: but they come with a very much a fierce loyalty of dependable consumers.

Based on our conversations that we've had to date, we anticipate that we'll be able to secure distribution for Halo elevate and then an additional 500 to 1000 of these locations in 2022.

Speaker 3: Based on our conversations that we've had to date, we anticipate that we'll be able to secure distribution for Halo Elevate and an additional 500 to 1000 of these locations in 2022.

In order to support our launch in pet, especially and indeed pet I'm looking forward to adding to my team in 2022.

Speaker 3: In order to support our launch in Pet Specialty and Indie Pet, I'm looking forward to adding to my team in 2020.

Our goal is to have a halo rep in almost every store that carries our product once a month.

Speaker 3: Our goal is to have a halo rep in almost every store that carries our product once a month.

This is what drive conversation and translates to revenue.

Speaker 3: This is what drives conversation and translates to revenue.

I can secure all of their shelf space in the world, but unless we have a great product that truly deliver superior results we won't win.

Speaker 3: I can secure all the self space in the world, but unless we have a great pride if that truly delivers superior results, we won't.

With Halo elevate our product performance, which has cleared all testing must now in the process of commercial packaging with our co Packers is unmatched.

Speaker 3: With Halo Elevator product performance, which has cleared all testing, and is now in the process of commercial packaging with our co-packers is unmatched.

Although we are not planning to provide more details regarding specifics of product claims and performance and 10 were in market.

Speaker 3: Although we are not planning to provide more details regarding specifics of product claims and performance until we're in market.

Halo elevate is uniquely formulated to address five key areas of pet health.

Speaker 3: Halo Elevate is uniquely formulated to address five key areas of pet health.

That is not.

Just a health have been joined support strength in energy heart and community support and a healthy skin and coat.

Speaker 3: That is, that just of health, hip and joint support, strength and energy, heart and immunity support, and a healthy skinning.

Not only as a product amazing and I'm also proud to share that we are able to deliver product level gross margins that exceed our current gross margin without any compromises to product quality.

Speaker 3: Not only is the product amazing, but I'm also proud to share that we are able to deliver product level growth margins that exceed our current growth margin without any compromises to product quality.

Size of the prize is large because we can get consumers to buy three bags of fluid in three months, the loyalty rate and the likelihood that they will stick with us in the long term is about 80% in my experience.

Speaker 3: the size of the price is large. Because if we can get consumers to buy three bags to fill it in three months, the loyalty rate, and the likely hug that they will stick with us in the long term is about 80% in my ex.

I now would like to turn the call over to Rob to discuss our international channel in more detail.

Speaker 3: I now would like to turn the call over to Rob to discuss our international channel in more detail.

Thanks, Donald International revenue during the third quarter with a key growth driver is revenue totaled $4 3 million, an increase of 43% quarter over quarter, and our largest international revenue quarter ever.

Speaker 3: Thanks Donald. International revenue during the third quarter was a key growth driver, as revenue totaled 4.3 million, an increase of 43% quarter over quarter in our largest international revenue quarter ever.

Our year to date international revenue totaled $10 8 million, an increase of 46% year over year for the same year to date period, which has surpassed its channels revenue for all of 2020, which references $8 6 million.

Speaker 3: Our year-to-date international revenue totaled $10.8 million, an increase of 46% year-over-year for the same year-to-date period, which has surpassed this channel's revenue for all of 2020, which for reference was $8.6 million.

During the quarter, we continued to deliver on contracted revenues with our Asian distribution partners, which totaled more than $100 million over the next five years.

Speaker 3: During the quarter, we continued to deliver on contracted revenues with our Asian distribution partners, which told them more than $100 million over the next five.

These contracts contemplate incremental investment in sales and marketing to support growth as well.

Speaker 3: These contracts contemplate incremental investment in sales and marketing to support growth, as well as structured margin increases over the life of the cons.

Structured margin margin increases over the life of the contract.

If were able to successfully execute upon these contracts. We believe we can build an annually recurring international business north of $25 million in sales.

Speaker 3: If we're able to successfully execute upon these contracts, we believe we can build an annually recurring international business north of $25 million in sales.

In addition, we believe these figures represent more of a floor and a ceiling is we're also looking to introduce halo elevate international product offering and expand our trade offering.

Speaker 3: In addition, we believe these figures represent more of a floor than a ceiling. Is we are also looking to introduce Halo Elevate to an international product offering and expand Earth's ReDoP.

It's ambitious, but we believe it's reasonable to see growth that's in line with our historical performance going forward.

Speaker 3: It's ambitious, but we believe it's reasonable to see growth that's in line with our historical performance going forward.

While our international go to market strategy is tailored for these regions. Our target audience is the same as in the U S.

Speaker 3: While our international go-to-market strategy is tailored for these regions, our target audience is the same as in the US. A young, educated, urban dwelling woman who, in Asian particular, often owns the cap.

A young educated urban dwelling woman, who in Asia in particular are oftentimes the cat.

Perspective, more than 50% of consumers that purchase Halo were born after 1990, roughly 80% of purchase our products online roughly 80% of the sales were cat cells.

Speaker 3: Put it in perspective more than 50% of consumers that purchase hail it were born after 1990. Roughly 80% that purchased our products online. Roughly 80% of those sales were cats.

Demographics are also working in our favor is the number of households own a pet has doubled in the last five years with younger pet owners leading route.

Speaker 3: Demographics are also working in our favor. As a member of households that own a pet has doubled in the last five years, with younger pet owners leading roads.

In China, even though the absolute number of households own a pet recently surpassed the same figure in the U S only 20% of Chinese households own a pet compared to almost 70% in the United States.

Speaker 3: In China, even though the absolute number of households at Ona Pett recently surpassed the same figure in the US, only 20% of Chinese households own a pet, compared to almost 70% in the United States. That's translated to a 28% annual growth rate in the premium dry cat food market, and they've got 20% annual growth in the dog market.

That's translated translated to a 28% annual growth rate in the premium dry cat food market and about 20% annual growth in the dog market.

To give you an example of the sheer size and scale of what's possible in Asia. We ran an influencer campaign with a well known local mail model.

Speaker 3: We give an example of the sheer size and scale of what's possible in Asia. We run an influencer campaign with the well-known local mail model.

For minimal marketing spend we're able to achieve over 55 million impressions on our AD generating significantly higher ROI metrics as compared to other digital marketing campaign.

Speaker 3: From minimal marketing spend, we're able to achieve what we're 55 million impressions in our on our ad, generating significantly higher ROI metrics as compared to other digital marketing campaigns.

Right now we are in the middle of 11, 11, which is the highest volume online sales day in the world and I'm happy to say that the initial results look really promising.

Speaker 3: Right now we are in the middle of 11-11, which is the highest volume online sales day in the world. And I'm happy to say that the initial results look really problem.

Before I hand over the call to Charlotte I wanted to quickly update the investor community on our progress with regards to M&A.

Speaker 3: Before I handle with the colleague, Tisharlah, I wanted to quickly update the investor community on our progress with regards to M&A. This has been a component of our strategy that we've previously highlighted.

Been a component of our strategy that we've previously highlighted.

Like we said in our last call we've been focusing on identifying treat businesses that complement our existing innovation pipeline and benefit from sitting underneath the larger platform. They prefer asset light models that are complementary to our existing brands and our public company structure has historically enabled better choice to offer transaction consideration in the form of cash and stock.

Speaker 3: Like we say in our last call, we've been focusing on identifying treat businesses that complement our existing innovation pipeline and benefit from sitting underneath a larger platform. We prefer asset light models that are complementary to our existing brands, and our public company structure has historically enabled better choice to offer transaction consideration in the form of cash and stock.

Beyond structuring benefit smaller private acquisitions may also represent opportunities for us to benefit or potential dislocation between private and public valuation multiples.

Speaker 3: The on structuring benefits, smaller private acquisitions may also represent opportunities for us to benefit or potential dislocation between private and public valuation multiples.

We have been in serious discussions to date, but in all candor had been cautious given how unpredictable the global supply chain has proven to be in the last six months.

Speaker 3: We've been in serious discussions to date, but in all candor have been cautious given how unpredictable the global supply chain has proven to be in the last six months.

Priority number one remains executing on the opportunities that sit in front of us today underneath the Halo brand.

Speaker 3: Priority number one remains executing on the opportunities that sit in front of us today underneath the Halo brand. With that, I'll hand it over to Charlotte to walk through the financial.

With that I'll hand, it over to Charlotte to walk through the financials in more detail.

Thanks, Rob.

Net sales for the third quarter were in line with expectations at $13 2 million, an increase of $2 1 million or 19% as compared to Q3 of 2020.

Speaker 4: Net sales for the third quarter were in line with expectations at 13.2 million, an increase of 2.1 million or 19 percent as compared to Q3 of 2020.

Gross sales for the third quarter F. 2021 totaled $15 9 million, an increase of 14% as compared to $13 9 million for the same period last year.

Speaker 4: Gross sales for the third quarter of 2021 totaled 15.9 million an increase of 14% as compared to 13.9 million for the same period last year.

This increase was primarily driven by record quarter over quarter revenue growth of 43% and international and 35% in E Commerce.

Speaker 4: This increase is primarily driven by record quarter-over-quarter revenue growth, a 43% in international and 35% in ePOMER.

Our top line revenue has been impacted throughout the year, but the supply chain issue being felt globally as the Covid pandemic continues for that challenge it.

Speaker 4: Our top-line revenue has been impacted throughout the year by the supply chain issues being felt globally as the COVID pandemic continues for that challenge.

We are navigating through short term shortages and raw materials, such as dry egg and potato protein key ingredients in our dry kibble.

Speaker 4: We are navigating through short-term shortages in raw material such as dry egg and potato protein, key ingredients in our dry kibble, as well as production delays for our canned wet food, as canaries continue to face supply shortages and labor constraints.

Well as production delays or I can't let it cannot continue to face supply shortages and labor constraints.

As a result, our safety stocks have been stretched in Q3 as inventory levels have decreased by more than 30% from Q2.

Speaker 4: As a result, our safety stocks have been stretched in Q3, as inventory levels have decreased by more than 30% from Q2.

We estimate the QUADRA today impacts your revenue, resulting from these headwinds was one $5 million to $2 million and $2 $5 million to $3 million on a year to date.

Speaker 4: We estimate the quarter to date impact to revenue resulting from these headwinds was 1.5 to 2 million and 2.5 to 3 million on a year to date.

We expect our candidate production to return to normal levels by Q2 of next year that said I do think it's very important to note that we continue to have ample customer demand for our products, which gives us confidence in our ability to deliver future growth.

Speaker 4: We expect our canned wet production to return to normal levels by Q2 of next year. That said, I do think it's very important to note that we continue to have ample customer demand for our products, which gives us confidence in our ability to deliver future growth.

I'm counting on supply chain issue broad scale inflation across CPG and pet food company continues to impact our gross margin.

Speaker 4: Some founding on supply chain issues, broad scale inflation across CPG and Petsuit companies continues to impact our growth margins.

We estimate that the inflation related price increases from our co manufacturers impacted Q3 margin by roughly four to five percentage points with our dry kibble skus absorbing the majority of the impact.

Speaker 4: We estimate that the inflation-related price increases from our co-manufacturers impacted Q3 margin by roughly 4 to 5 percentage points with our dry kibbles fuse absorbing the majority of the impact.

As Scott mentioned earlier in the call, we will transition to a new dry kibble manufacturer by the end of the year and we'll see substantial margin improvement going forward.

Speaker 4: As Scott mentioned earlier in the call, we will transition to a new dry kibble manufacturer by the end of the year and we'll see substantial margin improvement going forward.

As announced in Q2, you had also taken price increases to our customers effectively in the third quarter to help cover the cost increases.

Speaker 4: As announced in Q2, we have also taken price increases to our customers, effectively in the third quarter, to help cover these costs.

We will continue to refine and optimize our overall pricing strategy as we evaluate the teacher impacts of inflation and align ourselves with the market.

Speaker 4: We will continue to refine and optimize our overall pricing strategy as we evaluate the future impacts of inflation and align ourselves with the mark.

While growth in our international Channel, specifically Asia continues to be very strong COVID-19 has impacted our ability to launch into new international markets. This year.

Speaker 4: While growth in our international channel, specifically Asia, continues to be very strong. COVID-19 has impacted our ability to launch into new international markets this year.

Due to the surge in some cases and concerns about the variant launch.

Speaker 4: Due to the resurgings of cases and concerns about the variant, launches in Australia and Latin America have been delayed, shifting 1.5 million of potential new volume from 2022 into 2023.

Launches in Australia, and Latin America have been delayed shifting $1.5 million of potential new volume from 'twenty to 'twenty two into 2020 three.

As it relates to our DTC channel third quarter net sales declined 12% versus Q3 of 2020, driven by declines in repeat purchasers and softer customer acquisition and retention.

Speaker 4: As it relates to our GTC channel, third quarter net sales declined 12% versus Q3 of 2020, driven by declines in repeat purchasers and software customer acquisition and retention.

As many other DTC brands have experienced cost to acquire valuable customers has increased due to the impact of Apple's iOS update on Facebook advertising and data capability.

Speaker 4: As many other GTC brands have experienced, cost to acquire valuable customers has increased due to the impact of Apple's iOS update on Facebook advertising and data capability.

<unk> begun the migration of our DTC brand tradeoffs into Halo and will launch an entirely new Halo DTC platform next year.

Speaker 4: We have begun the migration of our DTC brand, TruDogs, into Halo, and will launch an entirely new Halo DTC platform next year.

In the meantime, we are being selective in our AD spend and focusing investments on our longer term DTC strategy, rather than chasing short term revenue gain.

Speaker 4: In the meantime, we are being selective in our ads spend and focusing investments on our longer term DTC strategy rather than chasing short-term revenue gain.

In addition, we observed a 7% decline in brick and mortar net sales, which was anticipated as we reshuffle. Our product lineup ahead of launching halo elevate on a large scale in 'twenty two.

Speaker 4: In addition, we observed a 7% decline in brick and mortar net sales, which was anticipated, as we reshuffle our product lineup ahead of launching Halo Elevate on a large scale in 2020.

Gross profit for the third quarter was $4 4 million or 34% compared to $4 5 million or 40% for Q3 of 2020.

Speaker 4: Gross profit for the third quarter was 4.4 million or 34% compared to 4.5 million or 40% for Q3 of 2020. The quarter-over-quarter decline was driven by the inflationary pressures we just discussed.

Quarter over quarter decline was driven by the inflationary pressures, we just discussed.

Net loss for the third quarter with $3 5 million after adjusting for noncash and nonrecurring charges adjusted EBITDA for the third quarter was negative $1 4 million and reflects incremental investment in upfront marketing costs ahead of our 2022 brand relaunch incremental investment in our international business and the.

Speaker 4: Net loss for the third quarter was 3.5 million. After adjusting for non-cash and non-recurring charges, adjusted EBITDA for the third quarter was negative 1.4 million, and reflects incremental investment in upfront marketing costs ahead of our 2022 brand remanche. Incremental investment in our international business and the addition of new team members to support growth.

Additionally, new team members to support ground.

As we looked at the fourth quarter, we anticipate that will be you will see 15% to 20% quarter over quarter net sales growth relative to Q4 of 2020 consistent with our record results this quarter.

Speaker 4: As we look to the fourth quarter, we anticipate that we will see 15 to 20% quarter over quarter net sales growth relative to Q4 2020 consistent with our record results this quarter.

Although we do expect the impact of inflation to impact Q4 margin.

Speaker 4: Although we do expect the impact of inflation to impact the Q4 margin, the incremental co-packaging relations, tips we've onboarded, and the steps we've taken to secure a supply of halo elevates ahead of our 2022 launch, give us confidence in our ability to execute next year.

Incremental co packing relations Yep, we've on boarded and the steps we've taken to secure supply of Halo elevate ahead of our 2022 launch give us confidence in our ability to execute next year.

As referenced we've also provided a detailed reconciliation of quarterly EBITDA and adjusted EBITDA with that I will turn it back over to SaaS.

Speaker 4: As reference, we've also provided a detailed reconciliation of quarterly EBITDA and adjusted EBITDA. With that, I will turn it back over to Scott.

Thank you sharla and thank you again, everyone that has joined our earnings call today.

Speaker 2: Thank you, Charlotte, and thank you again to everyone that has joined our earnings call today. As you can see from each of our team members, 2022 shaping up to be an exciting and transformative growth year for better choice.

As you can see from each of our team members 2022 is shaping up to be an exciting and transformative growth year for better choice. We are pleased to see our laser focused strategy come to fruition in Q3 into Q4, this year, and we expect new online products and significant brick and mortar.

Speaker 2: We are pleased to see our laser focus strategy come to fruition in Q3 and to Q4 this year. And we expect new online products and significant brick and mortar ramp to further accelerate financial growth in 2022.

Ramp to further accelerate financial growth.

'twenty two.

We've taken all the necessary steps needed from a capital markets perspective.

Speaker 2: We've taken all the necessary steps needed from a capital markets perspective to ensure that we have a world-class platform as a public company to achieve all our growth initiatives in 22 and beyond.

To ensure that we have a world class platform as a public company to achieve all our growth initiatives in 'twenty two and beyond.

Very short period of time, we have uplifted the company onto the NYSE.

Speaker 2: In a very short period of time, we have uplisted the company onto the NYSE.

Closed on an underwritten public offering of $40 million in gross proceeds.

Speaker 2: closed on an underwritten public offering of $40 million in gross

Converted $23 million of outstanding debt into common equity.

Speaker 2: Converted 23 million of outstanding debt into common equities.

Increased our term loan credit facility capacity to $7 5 million at LIBOR, plus 250 basis points.

Speaker 2: increased our term loan credit facility capacity to $7.5 million at LIBOR plus $250 basis

And repurchased approximately one $3 million of common stock through our buyback program.

Speaker 2: and we purchased approximately $1.3 million of common stock through our buyback program.

Today, we have $29 2 million common shares outstanding.

Speaker 2: Today we have 29.2 million common shares outstand.

$33.3 million in cash as of September 30th 2021.

Speaker 2: 33.3 million in cash as of September 30th, 2021. 5.6 million in term loan debt and insider ownership of 27%.

$5.6 million in term loan debt and insider ownership of 27% we.

We are executing on all fronts and we wanted to thank all our investors and our coverage analysts for their support and our vision.

Speaker 2: We are executing on all fronts, and we want to thank all our investors and our cover-ging analysts for their support in our vision. Now I'd like to open up the call for-

Now I'd like to open up the call for questions.

Operator please.

At this time, we'll be conducting 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 no question queue. You May press star two to remove your question from the queue for participants using speaker equipment. It maybe.

Speaker 5: At this time we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in a question queue. You may press star two to remove your question from the queue for participants using speaker equipment. It may be enough very free to pick up your hand step before pressing the star key. One moment, always pull for questions.

Be necessary for you to pick up your handset before pressing the star key one moment, while we poll for questions.

Our first question comes from the line of Michael Baker with D. A Davidson you May proceed with your question.

Speaker 5: Our first question comes on of Michael Baker with DA Davidson. You may proceed with your question.

Hey, guys. Thanks.

Speaker 6: Hey guys, thanks. A lot of interesting stuff going on. One long term question, one short term question. The Halo L8 launch in the 1500 doors, 4 feet, pets by plus, 4 to 8 in PECO. How does that compare with your expectations? And I guess if you get a run rate of $15 million by mid 2023.

A lot of interesting stuff going on.

One long term question one short term question.

The Halo elevate launch in the 1500 doors four feet pet supplies, plus four to eight and petco, how does that compare with your expectations and I guess, if you get to a.

Our run rate of $15 million by mid 2023 is that you know sort of enough to get you is that within your goal of getting to $100 million in gross sales by the end of 2023.

Speaker 6: Is that, you know, sort of enough to get you, is that within your goal of getting to $100 million in gross sales by the end of 2023? I guess you'll need some help from some other areas, but I just want to sort of...

I guess, you'll need some help from some other areas, but I just wanted to sort of put that outlook in context to the long term goal of $100 million in gross sales by 2023.

Speaker 6: put that outlook in context to the long-term goal of $100 million in gross sales by 2023.

<unk>.

Yeah. Thanks for the question, Mike I really appreciate it. So you know we've exceeded our goal in terms of distribution.

Speaker 2: Yeah, thanks for the question Mike, really appreciate it. So, we've exceeded our goal in terms of distribution.

Doors in 2022 to include PSP Petco and then.

Speaker 2: stores in 2022 to include PSP Peco and then signing on a national distributor to get us into an incremental amount of independent pet food stores in terms of the launch and linear

Signing our international distributor to get us into an incremental amount of independent pet food stores.

In terms of the launch and in linear.

Space, If you will in store I'd say, we'd all we're also very pleased in the fact that as a you know a newer brand back into the channel, we're able to secure shelf space that's equivalent to established players.

Speaker 2: space, if you will, in store. I'd say we're also very pleased in the fact that as a newer brand back into the channel, we're able to secure shelf space that's equivalent to established players.

Those retail stores within petco alone half of our footprint will be in eight feet of space and I'd also mentioned that we're going to be in the majority of the most productive stores. So the footprint is really strong in terms of our pet specialty launch I think as we get into market and.

Speaker 2: within those retail stores, you know, within Peco alone, half of our footprint will be in eight feet of space.

Speaker 2: And I'd also mentioned that we're going to be in the majority of the most productive stores. So the footprint is really strong in terms of our pet specialty launch. I think as we get into market and our marketing plan via Ryan Wilson supports the launch.

Our marketing plan B Orion Wilson supports the launch we're going to expect velocities to increase and that that run rate that we're projecting out of the $15 million Mark is well within reach and so.

Speaker 2: We're going to expect velocities to increase and that run rate that we're projecting out of the $15 million mark is well within reach. And so in terms of any sort of guidance in the 2023, we're sticking to that $100 million mark.

You know any sort of guidance into 2023, we're sticking to that $100 million Mark.

In that timeframe and its a combination of our Omnichannel strategy as we've spoken in the past the pet specialty channel with Donald leading it is a it's a big part, but we have the Asian business growing at a strong rate R. E. Commerce is going to continue to grow with the refresh of Halo holistic, which I'll also mention is.

Speaker 2: In in that time frame and it's a combination of our omni channel strategy as we spoke in the past the pet specialty channel with Donald leading

Speaker 2: is a big part, but we have the Asian business growing at a strong rate. Our e-commerce is going to continue to grow with the refresh of Halo holistic, which I'll also mention is going to get a new package and also new market.

Going to get.

New package and also new marketing support and then our own DTC platform. So all in all I mean, we're extremely pleased with what we've been able to accomplish and the excitement from our retail partners is extremely high.

Speaker 2: and then our own DTC platform. So, you all know, I mean, we're extremely pleased with what we've been able to accomplish and the excitement from our retail partners

Okay, Yeah that makes sense. Thanks for that and then the short term question understanding that the new manufacturing capabilities will.

Speaker 6: Okay, yeah, that makes sense. Thanks for that. And then the short-term question, understanding that the new manufacturing capabilities will should turn around gross margins at some point. I guess the question is that we probably shouldn't expect that in the fourth quarter. Is that right? That's more of a 2022 issue. And so if that's the case, you know, anyway to think about the fourth quarter gross margin relative to where it came in in the third quarter, should we think about something similar towards where we start to show some improvement?

Should turn around gross margins at some point I guess, the two questions, we probably shouldn't expect that in the fourth quarter or is that right. That's more of a 2022 issue and so if that's the case you know any way to think about the fourth quarter gross margin relative to where it came in in the third quarter should we think about something similar or do we start to show some improvement.

Right I'm going to turn that over to sharla, our CFO to answer.

Speaker 2: Right, I'm about to turn that over to Sharla, our CFO to answer.

Yeah. Thanks, Scott Yeah, I think that's right. We will continue to see margin compression in Q4, as we talked about we did take price increases to our customers late in Q3. So we will have the full quarter benefit of that but.

Speaker 4: Yeah, thanks Scott. Yeah, I think that's right. We will continue to see large income pressure in Q4. As we talked about, we did take price increases to our customer's late in Q3, so we will have the full quarter benefit of that. But our continuing to see margin pressures and the transition to our co-manufacturer will really start to see the full benefit of that in 2022.

But are continuing to see margin pressures and the transition to our car manufacturer will really start to see the full benefit of that in 2022.

Okay. Thank you.

Our next question comes from the line of George Kelly with Roth Capital. You May proceed with your question.

Speaker 5: Our next question comes from a line of George Kelly with Roth Capital. You may proceed with your question.

Hi, everybody and thanks for taking my questions and congrats on a nice quarter.

Speaker 6: Hi everybody, thanks for taking my questions and congrats on a nice quarter. Questions just to continue on the same theme as the last question on Gross Margin. Curious if you can give us any more help just on the kind of path throughout 2022 that you expect, I know that there's so much uncertainty now when it comes to inflation.

Question just to continue on the same theme as the last question on gross margin.

Curious if you can give us any more help just on.

The kind of path throughout 2022 that you expect to I know.

That there's so much uncertainty now when it comes to inflation.

Trade and the like.

Speaker 6: and the like, but should we, do you expect it in the first half as you bring on this new supplier and you start to ramp up with them? Will it take some time for gross margin improvements to materialize during 2022 or is it a pretty quick

Should we do you expect it in the first half as you bring on this new supplier in Europe.

You start to ramp up with them I mean will it take some time for gross margin.

<unk> to materialize during 2022 or is it a pretty quick.

Snap when when you transition to the new supplier.

Speaker 6: Snap when you transition to the new supplier.

Yes. Thanks for the question George really appreciate it we're going to see an immediate pick up on margin in 2022 is the Halo elevate brand rolls out that product will be fully produced at the new manufacturer as of the first of the year and that margin is significantly.

Speaker 2: Yes, thanks for the question, George, really appreciate it. We're going to see an immediate pickup on margin in 2022 as the Halo Elevate brand rolls out. That product will be fully produced at the new manufacturer as of the first of the year. And that margin is significantly better than our current Halo holistic line. So we'll see an immediate increase in terms of gross margin.

Significantly better than our current Halo holistic line. So we will see an immediate increase in terms of gross margin.

As soon as we hit the new year I'd also say that our supply chain footprint is much improved going into 2022 as well we're relocating our three P. L to be closer to our new manufacturing site, as well, which there'll be some savings and all in all outlets for notes and our ops team has been doing a tremendous job.

Speaker 2: as soon as we hit the new year. I'd also say that our supply chain footprint is much improved going into 2022 as well. You know, we're relocating our 3PL to be closer to our new manufacturing site as well, which there'll be some savings. And all in all, Alex Warnos and our ops team has been doing a tremendous job navigating this challenging...

Navigating this this.

Challenging supply chain market.

Speaker 2: by chain market. So, they answered the short answer to your question. Yes, we'll see an immediate improvement in terms of gross margin going forward in 2022.

So the answer.

Short answer to your question, Yes, we will see an immediate improvement in terms of gross margin going forward in 2022.

Okay.

Speaker 3: Okay, I think what I'd add to that George too is just what's important to also consider is it's really as it relates to dry kibble. And when you think about our international business, which is predominantly dry kibble, and that shift in manufacturing really occurring likely in q1, there's a there's also a laddering effect that occurs from q1 into q2 into q3 as we move through inventory.

I think what I'd add to that George too is just what's important to also consider is this really as it relates to dry kibble.

And when you think about our international business, which is predominantly dry kibble and that shift in manufacturing really occurring likely in Q1. There is there's also a ladder in effect that occurs from Q1 into Q2 into Q3 as we move through inventory.

Okay. Okay got you and then next question different topic can you talk about.

Speaker 6: Okay, okay, Gacha. And then next question, different topics. Can you talk about expectations? And I'm not asking for specific guidance, but the international business next year. You mentioned a partnership with celebrity, I think I kind of miss part of that, but how do you keep moving the needle there? What's planned to keep driving growth next year? Yala.

Expectations and I'm, not asking for specific guidance, but the international business next year.

You mentioned, a partnership with celebrity I think I kind of missed part of that but how.

How do you keep moving the needle there what's planned.

But keep driving growth next year.

Yeah, I'll, let Rob take that one.

Perfect. Thanks, George So I think what's what's really important you know as we center a lot of our promotional activity around these big.

Speaker 3: Perfect, thanks George. So I think what's really important, you know, is we center a lot of our promotional activity around these big.

Nine days you know this is a well.

Speaker 3: online days. You know, this is a, we're literally right in the middle of that right now and our results are very promising. And what that's doing is acquiring a new customer base and a new recurring revenue base that then promotes growth into 2022.

We're literally right in the middle of that right now and our results are very promising and what that's doing is acquiring a new customer base and a new recurring revenue base that then promotes growth into 2022.

We posted percentage growth rates of roughly 40% for international you know and it's it's pretty reasonable to assume that will be sort of in that <unk>.

Speaker 3: Uh, you know, we, we posted percentage growth rates of roughly.

Speaker 3: 40% for international, you know, and it's pretty reasonable to assume that will be sort of in that

30% to 40% range for growth into into the future. You know, we're obviously building off of a larger base here too.

Speaker 3: 30 to 40% range for growth into the future. You know, we're obviously building up a larger base here, Q.

Okay. Okay.

Speaker 6: Okay, okay, and then last question from me just relates to a fourth quarter guidance I believe.

And then last question for me just relates to fourth quarter guidance I believe.

The expectation I may have misheard, it, but its 15% to 20% year over year growth, which would.

Speaker 6: The expectation, I may have misheard it, but it's 15 to 20% year over year growth, which would show a sequential decline in net revenue if I heard that right. So just curious, is it related to out of stocks or what's the cause of that? Nature?

So the sequential decline in net revenue if I heard that right. So just curious.

Is it related to out of stocks.

What's the cause of that.

Yeah in terms of Q4.

In general.

Speaker 2: In general, our demand has been up. It's been supply issues.

Our demand has been up.

Been supply issues.

Everyone else has been suffering against so that's something that we're continually navigating but as we look into Q4, we see some challenges in the supply chain in terms of our ingredient availability as.

Speaker 2: everyone else has been suffering against. So, that's something that we're continually navigating. But as we look into Q4, we see some challenges in the supply chain in terms of ingredient availability.

As well as some capacity and this is why again, we're moving to the new manufacturer it's going.

Speaker 2: as well as some capacity. And this is why again we're moving to the new manufacturer. It's going to alleviate these issues, specifically from a drikeable standpoint, in Q1 of next year. But in terms of the health of the business, with the man there, it's really a supply issue.

To alleviate these issues.

Specifically from a dry kibble standpoint.

In Q1 of next year, but you know in terms of the health of the business. The demand is there it's really a supply issue.

I think I think the other point I'd note George is that.

Speaker 3: I think the other point I'd note George is that we've intentionally, you know, we're not going to recognize any halo revenue or halo elevate revenue, excuse me, in Q4 of this year, you know, we could have pulled some of that forward if we wanted to, but we really want 2022 to be all about halo elevate. So that's why our product shipping out right at the beginning of January .

We've intentionally.

We're not going to recognize any halo revenue, our halo elevate revenue excuse me in Q4 of this year, we could have pulled some of that forward. If we wanted to but we really want 2022 to be all about halo elevate so that's why our product shipping out right at the beginning of January.

Okay, Thanks, and best of luck.

Yes.

Our next question comes from the line.

Speaker 5: Our next question comes from Jim McLear with Donald to James. You may proceed with your question.

Jim Mccleary with Dawson James You May proceed with your question.

Thank you good morning, I just wanted to clarify from the prior question.

Speaker 7: Thank you, good morning. I just want to clarify from the prior question. I thought I heard in the commentary that it was 15 to 20%.

What I heard in the commentary that it was 15% to 20%.

Quarter to quarter growth in Q4, but the prior question said year over year can you just clarify.

Speaker 7: quarter to quarter growth in Q4, but the prior question said year over year. Can you just clarify which?

Which is correct.

Sure sure.

Yeah, when we think quarter over quarter, we met quarter versus prior year corner.

Speaker 4: Yeah, when we say quarter of our quarter, we meant quarter versus prior year quarter. So it's your over here.

Okay.

Great. Thank you.

And I think my next question has already been answered, but so there is is there an inventory fill to be expected.

Speaker 7: And I think my next question has already been answered, but so is there an inventory fill to be expected?

In Q4 for the launch of pet supplies, plus or is that really going to occur in Q1 of.

Speaker 7: In Q4 for the launch of pet supplies plus, or is that really going to occur in Q1? Up next year.

Up next year.

So is your question.

Good go ahead sure sorry, sorry, Scott now Youre thinking about that right, we'll probably you'll see pretty high inventory levels at the end of the year.

Speaker 1: Go ahead, Charlotte. Sorry, sorry, Scott, now you're thinking about that right. We'll probably, you'll see pretty high inventory levels at the end of the year as we get that product in and prepare a dish of an early Q1. So I think you're thinking about that correctly. Great.

We get that part again and preparing to ship in early Q1.

About that correctly.

Okay, Great and then.

Lastly.

When I'm looking at our GAAP operating expenses Q3 around $8 4 million.

Speaker 7: When I'm looking at gap operating expenses, Q3 around 8.4 million.

What does what does that GAAP opex number looked like at the end of next year. So Q4 of 2022.

Speaker 7: What does that gap op-x number look like at the end of next year? So Q4 of 2022?

And if you don't want to give an exact number maybe a range would be great.

Speaker 7: You don't want to give an exact number, maybe a range, be great.

Sure one thing I would note that our GAAP Opex is there is a lot of noncash.

Speaker 4: Sure, one thing I would note about our gap, off X, is there is a lot of non-cash items in there.

Noncash items in there.

I would say when you back that out and kind of look at it from an operational perspective I would expect next year to be generally in line knowing that we are in.

Speaker 4: I would say when you back that out and kind of look at it from an operational perspective, I'd expect next year to be generally in line, knowing that we are investing significantly behind Scott mentioned.

Investing significantly behind them you know Scott mentioned, the Halo holistic brand renovation, so theres going to be some investment into that earlier in the year still some investment in it and the elevate launch and we've also talked about you know.

Speaker 4: the Halo holistic brand renovation. So there's gonna be some investment into that. Earlier in the year, still some investment in the elevate launch. And we've also talked about, you know, making sure that our human capital is...

Making sure that our human capital is best in class until ramping that and so I think you'll really see a similar trajectory.

Speaker 4: best in class until ramping that. And so I think you'll really see a similar trajectory.

Heading into late 2022 into 2020 three you'll really see scale from the topline perspective as you look at.

Speaker 4: that heading into late 2022 into 2023 to really see scale from the top line perspective as you look at operating expenses as a percent of revenue.

Operating expenses as a percent of revenue.

So cash opex as a percent of revenue next year ending the year at kind of where we are right now did I hear that right.

Speaker 7: So, cash op-ex has a percent of revenue next year, ending the year kind of where we are right now. Did I hear that right?

I think as a percent of revenue it'll come down a little bit just because the top line look around I think from a dollar perspective, it should be pretty consistent.

Speaker 4: I think there's a person of revenue that'll come down a little bit just because the top line will grow. I think from a dollar perspective, it should be pretty consistent. And again, you're referring to the cash operating expenses.

Got it and and again, you're you're referring to the cash operating expenses.

Yeah.

Great.

Okay. Thanks, a lot appreciate it.

Thank you.

Our next question comes from the line of Steve Silver with Argus Research you May proceed with your question.

Speaker 5: Our next question comes from a line of Steve Silver with Argus Research. You may proceed with your question.

Okay. Thank you and congratulations everybody on navigating the supply chain environment out there.

Speaker 8: OK, thank you and congratulations everybody on navigating the supply chain environment out there.

Mike Quick question is just I know we've spoken in the past about.

Speaker 8: My quick question is, I know we've talked in the past about the plans to just optimize the product mix over time and managing the number of skews in the portfolio. Just trying to get a sense as to whether the supply chain issues going on have changed your thinking at all in terms of the number of skews the company will be managing just to protect the gross margin profile moving forward. Well, whether you think that these new suppliers coming on board next year should alleviate a good majority of the pressure that some are there right now. Thanks.

The plans to just optimize the product mix over time and managing the number of Skus in the portfolio just trying to get a sense as to whether the supply chain issues going on have changed your thinking at all in terms of the number of Skus. The company will be managing just to protect the gross margin profile moving forward or whether you think that these new suppliers coming on board.

Next year should alleviate a good majority of the pressure that's out there right now thanks.

Yeah. Thanks, Steve So I mean, our plans in terms of any type of SKU rationalization are still in place and it's really driven off of making sure. We're selling the most productive skus at the highest margin possible. So we will be pruning some of the existing portfolio and we've been doing that as well.

Speaker 2: Yeah, thanks Steve. So, I mean, our plans in terms of any type of skewer rationalization are still in place and it's really driven off of making sure we're selling the most productive skews at the highest margin possible. So we will be...

Speaker 2: pruning some of the existing portfolio. And we've been doing that as we've been going along this year. But it's not driven anything related to the supply chain per se. It's just being proactive in managing our PNL and getting as much throughput in as possible. I think one thing that's exciting to us as we launch the Halo Elevate brand and also the relaunch of Halo holistic, our goal is to capture more of the large breed dog market out there, which will drive both revenue and margin for us.

Been going along this year, but it's not driven anything related to the supply chain per se, it's just being proactive in managing our P&L and getting as much throughput in as possible I think one thing that's exciting to us as we launch the Halo elevate brand and also the relaunch its paywall holistic.

Our our goal is to capture more of the large breed dog market out there, which will drive both revenue and margin for us over time. So it's a combination of both in terms of the architecture of our.

Speaker 2: over time. So it's a combination of both us in terms of the architecture of...

Portfolio from a SKU perspective, and also what makes sense to sell in market. So theres perfect alignment there and overall you know you can see we've demonstrated being proactive versus reactive and even as we've navigated. This challenging supply chain time, you know, it's all been very aggressive in <unk> and <unk>.

Speaker 2: Portfolio from a SKU perspective and also what makes sense to sell in market. So there's perfect alignment there and overall You know You can see we've demonstrated being proactive versus reactive and even as we've navigated this this challenging supply chain time You know, it's all been very aggressive and forward thinking versus reactive Great

Forward thinking versus reactive.

Great. Thanks, so much for the color and congratulations again.

Thank you.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker 5: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.

Our next question comes from the line of Michael Baker with D. A Davidson you May proceed with your question.

Speaker 5: Our next question comes in the line of Michael Baker with DA Davidson. You may proceed with your question.

Hey, one more bigger picture follow up to just to just to make sure and just to reality check. It are you. You said you know you're on track for all the financial plans that you that you laid out during the.

Speaker 9: I hate one more bigger picture follow up just to just to make sure and just to reality check it out you said you know your on track for All all the financial plans that you that you wait out during That the road show and in the the IPO so that includes still even with supply chain issues and in higher cost and all that you still you still think you're being reasonable to expect 10 to 15% EBITDA margins against that $100 million dollars and

The road show and the the I P O.

That includes still even with supply chain issues and higher costs for all that you still you still think it is reasonable to expect a 10.

10% to 15% EBITDA margins against our $100 million and net sales in 2023, you know, which is frankly, a significant ramp from where you are now just just wanted a reality check that one one more time.

Speaker 9: in 2023, which is a significant ramp from where we are now. Just want the reality to check that one one more time.

Yeah, Rob you wanted to go on.

Sure.

That's right, Mike I think there's a there's a potential that as we look at where we are in 2023 and if we're really.

Speaker 3: Sure. That's right, Mike. You know, I think there's that

Speaker 3: You know, there's a potential that as we look at where we are in 2023 and if we're really, you know,

Outperforming honestly what were some of our launches in pet specialty we may continue to reinvest but that 10% to 15% range potentially a little bit closer to 10% is where we expect to be you know I think Scott touched on that in the past, but we really have a benefit.

Speaker 3: outperforming, honestly, with some of our launches and PEP specialty, we make continue to reinvest. But, you know, that 10 to 15% range, potential of it closer to 10% is where we expect to be. You know, I think Scott's touched on the

Speaker 3: in the past, but we really have a benefit of formulating and really preparing for the Halo Elevate launch during all these supply chain challenges.

Formulating and are really preparing for the Halo elevate launched during all these supply chain challenges. So we've been able to think about what our gross margin looks like starting from scratch and you know we can be really selective about what we're putting in our product and what we're not putting in our product to maximize that margin.

Speaker 3: So we've been able to think about what our gross margin looks like starting from scratch.

Speaker 3: And we can be really selected about what we're putting in our product, what we're not putting in our product to maximize our work.

Yep Yep makes sense, yeah that would be that'd be great number.

Speaker 2: Yep, yep, makes sense. Yeah, that would be a great number. Thanks for the update on that.

Thanks for the update on that.

Definitely thanks, Mike.

This concludes today's question and answer session I would like to turn this call back over to Mr. Scott Lerner for closing remarks.

Speaker 5: This concludes today's question and answer session. I would like to turn this call back over to Mr. Scott Learner for closing remarks.

I'd like to thank everyone for taking time out of their day to listen to our amazing growth story for the better choice company. We appreciate the support from the Investor community and we look forward to continuing on our growth plan into 2022 with the launch of Halo elevate the rebranding of Halo holistic and.

Speaker 2: I'd like to thank everyone for taking time out of their day to listen to our amazing growth story for the Better Choice Company. We appreciate the support from the investor community and we look forward to continuing on our growth plan into 2022 with the launch of Halo Elevate, the rebranding of Halo's Lisbick and the increased distribution in market to gain more pet parents into our portfolio over time. Thank you.

The increased distribution and market to gain more pet parents into our portfolio over time.

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And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation during the rest of your day.

Speaker 5: It concludes today's conference. You may just connect your lines at this time. Thank you very much for participation and your the rest of your day.

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Speaker 10: The that.