Q2 2022 Better Choice Company Inc Earnings Call
Speaker 1: Good day and welcome to the Better Choice Company, Inc. second quarter 2022 earnings conference call. All participants will be in a 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. Please note that this event is being recorded. I would now like to turn the conference over to Rob Sowerman, COO. Please go ahead, sir.
Good day and welcome to the better Choice Company, Inc. Second quarter 2022 earnings Conference call all participants will be in a listen only mode.
Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask question to ask you. A question you May Press Star then one. Please note that this event is being recorded.
I would now like to turn the conference over to Rob Silberman.
Please go ahead Sir.
Speaker 2: Thank you, operator. Welcome everyone to Better Choices Second Quarter earnings conference call. This morning we issued our Q2 2022 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 Lerner, our CEO , Charlotte Cook, our CFO , and Donald Young, our chief sales office.
Thank you operator, welcome everyone to better choices second quarter earnings Conference call. This morning, we issued our Q2 2022 financial results press release.
Posted our updated earnings presentation under the IR section of our website, which we will be discussing today.
I'm joined by Scott Lerner, our CEO , Charlotte Cook, our CFO and Donald Young our Chief sales officer.
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 involves risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.
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 involves risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
Speaker 2: 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 Tuesday, March 29, 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-
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 Tuesday March 29, 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.
Speaker 2: Please note that on today's call, management will refer to certain non-GAAP financial measures such as gross revenue, adjusted gross margin, EBITDA, and adjusted EBITDA.
Please note that I imagine on today's call management will refer to certain non-GAAP financial measures such as gross revenue adjusted gross margin EBITDA and adjusted EBITDA.
Speaker 2: 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 is a substitute for the financial information presented in accordance with GAAP.
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.
Speaker 2: Please refer to our press release and presentation issued August 11th, 2022 for a reconciliation of the non- GAAP financial measures to the most comparable measures prepared in accordance with GAP. With that, let me hand it over to Scott.
Please refer to our press release and presentation issued August 11, 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.
Speaker 3: Thank you, Rob, and welcome everyone to our 2022 second quarter financial results conference call.
Thank you, Rob and welcome everyone to our 2022 second quarter financial results Conference call.
Speaker 3: I'm excited to share that for the second quarter in a row, we've delivered record sales growth while simultaneously improving gross margin.
I'm excited to share that for the second quarter in a row, we delivered record sales growth while simultaneously improving gross margin.
Speaker 3: In the second quarter, we generated grow sales of 19.8 million.
In the second quarter, we generated gross sales of $19 8 million.
Speaker 3: bringing total gross sales for the first half of 2022 to approximately $40 million.
Bringing total gross sales for the first half of 2022 to approximately $40 million.
Speaker 3: On a net basis, this translates to $33.5 million of revenue, a 50% increase relative to the same period last year.
On a net basis this translates to $33 $5 million of revenue a 50% increase relative to the same period last year.
In addition to driving incremental revenue growth, we also realized meaningful sequential gross margin improvement.
Speaker 3: We achieved an adjusted gross margin of 31% during the second quarter, representing a three percentage point increase relative to Q1. This adjustment takes into account one time pet specialty launch expenses associated with the seasonal wall placement at Petco, which enabled us to launch Halo Elevate in May, rather than waiting for full store resets in July .
We achieved an adjusted gross margin of 31% during the second quarter, representing a three percentage point increase relative to Q1.
This adjustment takes into account one time pet specialty launch expenses associated with the seasonal wall placement at Pepco, which enabled us to launch Halo elevate in may rather than waiting for full store resets in July .
Speaker 3: Today, halo elevate can be purchased more than 1500 pet specialty stores, which includes more than 1000 Petco locations and 600 pet supplies plus location.
Today Halo elevate can be purchased more than 1500 pet specialty stores, which includes more than 1000 pet co locations and 600 pet supplies plus locations.
Speaker 3: Although it has only been three months since we launched at Pet Supplies Plus and less than one month since we moved from the seasonal wallet Petco to permanent placement in the dog aisle, we have observed consistent week-over-week point of sales growth.
Although it has only been three months since we launched the pet supplies plus and less than one month since we moved from the seasonal wallet petco to permanent placement in the dog aisle, we observed consistent week over week point of sale growth.
Speaker 3: This has been supported by strong repeat consumer purchase rates at multiple retailers, which we've been able to track via customer loyalty program data suggesting that the product is being well received by pet parents.
It's been supported by strong repeat consumer purchase rates at multiple retailers, which we've been able to track be it customer loyalty program data, suggesting that the product is being well received by pet parents.
Speaker 3: In aggregate, this has resulted in 133% year-over-year growth of our brick and mortar business.
In aggregate. This has resulted in a 133% year over year growth of our brick and mortar business. This growth has been driven primarily by $3.7 million of elevate gross sales in Q2, bringing total elevate sales to $6 2 million for the first half.
Speaker 3: This growth has been driven primarily by $3.7 million of elevate growth sales and Q2, bringing total elevate sales to $6.2 million for the first half of 2022.
From 2022.
Speaker 3: Although we don't expect that Q3 elevate sales will be as high as Q2 since Q2 elevate sales represent a mix of initial stocking orders and repeat customer purchases, current POS data is in line with our expectations as we continue to ramp.
Although we don't expect that Q3 sales will be as high as Q2 since Q2 elevated sales represent a mix of initial stocking orders and repeat customer purchases.
Current Pos data is in line with our expectations as we continue to ramp.
Speaker 3: Internationally, we generated $7.1 million in sales in Q2, representing 75% year-over-year growth and another quarterly record.
Internationally, we generated $7.1 million in sales in Q2 reps.
Representing 75% year over year growth and another quarterly record.
Speaker 3: Most importantly, we saw continued and consumer sales growth during the June 18th promotional event in China despite all the noise around COVID associated lockdown.
Most importantly, we saw continued end consumer sales growth during the June 18th promotional event in China.
All of the noise around Covid associated Lockdowns.
Speaker 3: demonstrating the strength of our business and the importance of high quality pet food to consumers around the world.
Demonstrating the strength of our business and the importance of high quality pet food to consumers around the world.
Speaker 3: A portion of the sales made in June were also in preparation for a level 11.
A portion of the sales made in June we're also in preparation for <unk> 11.
Speaker 3: Normally international sales are highest in Q3 as they represent the inventory build-up ahead of November promotion.
Normally international sales are highest in Q3 as they represent the inventory buildup ahead of November promotions, but given some of the recent challenges associated with the global supply chain, we worked with our partners to bring some production forward and ensure that we'd be in stock to meet end consumer demand.
Speaker 3: But given some of the recent challenges associated with the global supply chain, we worked with our partners to bring some production forward and ensure that we'd be in stock to meet end consumer demand.
Speaker 3: While we still expect that second half international sales will be strong, it is likely that Q2 will be the largest international quarter this year, unlike Q3 in years past.
While we still expect that second half international sales will be strong.
Likely that Q2 will be the largest international quarter. This year. Unlike Q3 in years past.
Speaker 3: Offsetting our growth internationally and in pet specialty, e-commerce delivered lower than expected sales growth.
Offsetting our growth internationally and in pet specialty and e-commerce delivered lower than expected sales growth.
Speaker 3: Although e-commerce sales increased 28% in the second quarter relative to the same period last year, year-to-day e-commerce growth was only 8%, which we believe is driven in large part by changes in working capital management by our customers.
Although e-commerce sales increased 28% in the second quarter relative to the same period last year year to date E. Commerce growth was only 8%, which we believe is driven in large part by changes in working capital management by our customers with that in mind, our point of sales sales growth for e-commerce, particularly on the <unk>.
Speaker 3: With that in mind, our point of sales growth for e-commerce, particularly on Amazon, materially exceeds our sales growth, indicating that our e-commerce partners are holding less inventory on hand. Our response that has been seen cross-category admits the current economic environment.
Zahn materially exceeds our sales growth, indicating that our E. Commerce partners are holding less inventory on hand.
Our response to that has been seen cross category amidst the current economic environment.
Speaker 3: While we've seen this trend persistent in early Q3, we are optimistic that e-commerce sales will more closely align with cornice sales growth in the future.
While we've seen this trend persistent in early Q3, we are optimistic that E. Commerce sales will more closely align with core net sales growth in the future.
Speaker 3: In addition, as we noted on our last call, rebranded Halo Holistic is estimated to be in production in the third quarter in time for a late Q3 early Q4 launch, which should further bolster our e-commerce business.
In addition, as we noted on our last call rebranded Halo holistic is estimated to be in production in the third quarter in time for a late Q3 early Q4 launch, which should further bolster our e-commerce business.
Speaker 3: With regards to our direct consumer platform, the integration of the TrueDog brand underneath the broader Halo umbrella occurred on schedule in early July with no disruptions in our ability to supply loyal TrueDog customers and subscribers.
With regards to our direct to consumer platform.
The integration of the two dogs brand underneath the broader Halo umbrella occurred on schedule in early July with no disruptions in our ability in supply loyal treat all customers and subscribers.
Speaker 3: The transition of the TrueDog brand to Halo couldn't come at a better time, as it allows our direct-to-consumer platform to benefit fully from the launch of our multi-million dollar media campaign and newly revamped consumer-facing website.
The transition of the true brand to Halo couldn't come at a better time as it allows our direct to consumer platform to benefit fully from the launch of our multibillion dollar media campaign and newly revamped consumer facing website.
Speaker 3: In addition, we are exploring the opportunity to expand the Halo Freeze Drive RAW offering into other channels, including PET Specialty and International, now that they are sold underneath the broader Halo brand.
In addition, we are exploring the opportunity to expand the halo freeze dried raw offering into other channels, including pet specialty and international now that they are sold underneath the broader Halo brand.
Speaker 3: Although our sales growth is very exciting, I'm most proud that we have been able to realize meaningful sequential gross margin improvement despite a challenging macroeconomic environment.
Although our sales growth is very exciting I. Most proud that we have been able to realize meaningful sequential gross margin improvement despite the challenging macroeconomic environment.
Speaker 3: When possible, we've looked to take preventative rather than reactionary measures to address raw material price increases, worldwide supply disruptions and inflationary pressures.
When possible, we look to take preventative rather than reactionary measures to address raw material price increases worldwide supply disruptions and inflation inflationary pressures.
Speaker 3: These measures coupled with the implementation of domestic and international price increases in mid-April helped us deliver an increase of approximately 300 basis points in Q2, with further improvements expected in the back half of this year.
These measures coupled with the implementation of domestic and international price increases in mid April helped us deliver an increase of approximately 300 basis points in Q2.
With further improvements expected in the back half of this year.
Speaker 3: This improvement in Q2 2022 was driven by several key factors, which included
This improvement in Q2 2022 was driven by several key factors, which included.
Speaker 3: The shift of domestic kibble production to a new co-manufacturer in January 2022, which resulted in an 8-10 percentage point increase in skew gross margin for new production, offsetting raw material price increases.
The shift of domestic cable production to a new co manufacturer in January 2022, which resulted in an eight to 10 percentage point increase in SKU gross margin for new production offsetting raw material price increases.
Speaker 3: consolidating and in some cases pre-preying production runs to capture gross margin, reducing contracted inbound.
Salivating and in some cases prepaying production runs to capture gross margin.
Reducing contracted inbound freight per pound.
Speaker 3: And finally, optimizing ingredient procurement where possible to mitigate supply chain challenges.
And finally, optimizing ingredient procurement where possible to mitigate supply chain challenges.
Speaker 3: As we look to the second half of 2022, we expect to realize continued gross margin improvements, driven primarily by the transition of our international dry cable guides to a new co-manufacturer.
As we look to the second half of 2022, we expect to realize continued gross margin improvements driven primarily by the transition of our international dry kibble diets to a new manufacturer.
Speaker 3: This transition was completed in mid-June and resulted in an immediate 1500 to 2000 basis point improvement to gross margin.
This transition was completed in mid June and resulted in an immediate 1500 to 2000 basis point improvement to gross margin.
Speaker 3: Prior to the transition, these diets represented approximately $10 million of net sales in the first half of 2022.
Prior to the transition. These diets represented approximately $10 million of net sales in the first half of 2022.
Speaker 3: If we had been able to make this change at the beginning of Q2 rather than at the end, we'd be looking at a 35% gross margin for Q2.
If we had been able to make this change at the beginning of Q2, rather than at the end we'd be looking at a 35% gross margin for Q2.
Speaker 3: While we are very excited by our sales growth in the first half of this year, we remain laser focused on driving continued margin improvements across our portfolio. As we continue to scale our business, launch margin accretive innovation, and realize further cost improvements, we believe we have sufficient liquidity to reach profitability and are well positioned to succeed in the current economic environment.
Well, we are very excited by our sales growth in the first half of this year.
We remain laser focused on driving continued margin improvements across our portfolio as.
As we continue to scale our business.
Launched margin accretive innovation and realize further cost improvements. We believe we have sufficient liquidity to reach profitability and are well positioned to succeed in the current economic environment.
Speaker 3: The good news is that despite these challenges, the pet food industry remains one of the most recession-resistant categories within CPG. And while prices have risen, consumer demand has remained strong.
The good news is that despite these challenges the pet food industry remains one of the most recession resistant categories within CPG and while prices have risen consumer demand has remained strong.
Speaker 3: In addition, we've also picked great retail partners that are growing rapidly and continuing to invest in premium cut consumers, our target demographic.
In addition, we've also picked great retail partners that are growing rapidly and continuing to invest in premium cut consumers our target demographic.
Speaker 3: Before turning it over to Donald, I wanted to highlight how some of our channel partners have publicly responded to recent inflationary trends.
Before turning it over to Donna I wanted to highlight how some of our channel partners have publicly responded to recent inflationary trends.
Speaker 3: since our channel strategy is a fundamental key to our success.
Since our channel strategy is a fundamental key to our success.
Speaker 3: In March, Peco announced their 14th consecutive growth quarter and called out their commitment to maintaining strategic investment levels and remained confident in their mid to long-term guidance, specifically because their customers are typically higher spend.
In March Petco announced their 14th consecutive growth quarter and called out their commitment to maintaining strategic investment levels and remain confident in their mid to long term guidance, specifically because their customers are typically higher spending.
Speaker 3: In June , CUE delivered double digit sales growth, calling out that the results were driven by resilient consumer demand and pricing strength in consumables and healthcare, the categories we play while seeing continued pressure in discretionary categories such as hard goods.
In June she we delivered double digit sales growth, calling out that their results were driven by resilient consumer demand and pricing strength in consumables in health care. The categories. We play while seeing continued pressure in discretionary categories such as hard goods.
Speaker 3: In August , PES supplies plus announced eight new store opening and 20 new franchise agreements.
In August pet supplies, plus announced eight new store openings and 20 new franchise agreements.
Speaker 3: On top of 7% sales growth in Q2 at their existing franchise location.
On top of 7% sales growth and keeps you at their existing franchise locations.
Speaker 3: With that in mind, let me turn it over to Donald to cover some of our key channel partnerships in detail.
With that in mind, let me turn it over to Donald to cover some of our key channel partnerships in detail.
Donald.
Speaker 4: Thanks Scott, in addition to getting product on shelf in more than 1,500 locations.
Thanks Scott.
In addition to getting product on shelf in more than 500 locations. One of the most exciting events. This quarter for me was scaling up the sales team.
Speaker 4: One of the most exciting events this quarter for me was scaling up the sales.
Speaker 4: Although we began the year with only three team members, we've now grown to 10 individuals, all who have proven track records, working with me in the past.
Let me begin there with only three team members. We've now grown depend individuals all of them have proven track records working with me in the past.
Speaker 4: It's very easy for these new team members to get up to speed, and we've been able to hit the ground running.
It's very easy for these new team members to get up to speed and we've been able to hit the ground running.
Speaker 4: Since Goddust mentioned Petspice Plus, we completed our April launch in more than 600 Petspice Plus stores as a preferred brand. We would like to emphasize again that we really picked a great partner here. As their franchise and corporate own store model drives significant new store openings each year, which is a built in growth driver.
And Scott just mentioned pet supplies, plus we completed our April launch and more than 600, Petabytes plus Sars as a preferred brand.
To emphasize again that we really picked a great partner here as their franchise and corporate owned store model drive significant new store openings each year.
Which is a delta in growth driver for Halo elevate.
Speaker 4: As a result of our time in the field working with managers and store associates, we've been able to partner closely with PSP's merchandising team to promote Halo Elevate as a premium option alongside of their three core private brands.
As a result of our time in the field working with managers and store associates, we've been able to partner closely with PSP merchandising team to promote Halo elevate is a premium option alongside of their three core private brands.
Speaker 4: which has helped us nearly double our weekly POS sales within the last month. It's a strong growth of a relatively small base, but the early trends are looking very positive.
This helped us nearly double our weekly pay wests sales within the last month.
Strong growth off of a relatively small base, but the early trends are looking very positive.
Turning to Petco.
Speaker 4: Turning to Pekko, we officially moved as planned from the seasonal wall, 900 store-cept beginning in May, to the permanent dog isle in July , where we are now in more than 1,000 local...
<unk> moved as planned from the seasonal wall 900 stores beginning in May to the permanent dog Isle in July where we are now in more than 1000 locations.
Speaker 4: While the seasonal wall is ideal for retail store of social education and brand awareness, moving to the permanent dawn aisle is the key step as this is where consumers shop every day.
While the seasonal lull is ideal for a retail store associates education and brand awareness.
Moving to the permanent dog is the key step as this is where consumers shop everyday.
Speaker 4: Even though July represents a new location for us in the store, like Petsplace Plus, we've observed a nearly doubling of weekly PLS sales within the last month.
Even though July represents a new location for us in the store.
<unk> plus we've observed a nearly doubling of weekly pls sales within the last month.
Speaker 4: Since I launched on the seasonal Walnut May, we've observed 14 consecutive weeks of incremental sales growth.
Since our lunch honestly isn't the wall in May we've observed 14th consecutive week of incremental sales growth.
Speaker 4: This has been coupled with a 43% repeat consumer purchase rate at PET.
When coupled with a 43% repeat consumer purchase rate at Petco.
Speaker 4: which we're able to track via the customer loyalty data.
Which we're able to attract via the customer loyalty data.
Speaker 4: With that, I'd like to turn the call over to Rob, discuss a few marketing updates.
With that I'd like to turn the call over to Rob discussed a few marketing updates and our progress in the international channel and more detail.
Speaker 4: and our progress in the international channel in more detail.
Thanks Donald.
Speaker 2: At the same time that we brought out new sales team members and launched in PECCO, we also kicked off a global marketing kit.
At the same time that we brought out a new sales team members and launched and Petco. We also kicked off a global marketing campaign in June .
Speaker 2: Although we are only six weeks in, our campaign is resonating with Millennial and Gen Z pet parents in the way that we at...
Although we are only six weeks in our campaign is resonating with millennial and Gen Z pet parents in the way that we had hoped.
Speaker 2: In these first six weeks, we already generated more than 42 million impressions and 22 million video views led by a high level of engagement on social and extremely strong results versus other pets.
In these first six weeks, we already generated more than 42 million impressions and 22 million video views led by a high level of engagement on social and extremely strong results versus other pet brands.
Speaker 2: On TikTok alone, our video content has been viewed more than 9 million times, with the video completion rate roughly four times higher than benchmark metrics.
Tick Tock alone our video content has been viewed more than 9 million times with the video completion rate roughly four times higher than benchmark metrics.
Speaker 2: Most importantly, our message is resonating with our target demographic, and we are seeing significant increases in landing page visits and followers.
Most importantly, our message is resonating with our target demographic and we are seeing significant increases in landing page visits and followers.
Speaker 2: As we look to the third quarter, we're playing to ramp our marketing spend and use our initial learning to drive efficiency.
As we look to the third quarter.
And to ramp our marketing spend and use our initial learnings to drive efficiencies.
Speaker 2: So far, we are pleased with initial results and are excited to see what the future holds.
So far we are pleased with the initial results.
Cited to see what the future holds.
Turning to international it was another record quarter of sales as we generated $7 $1 million of gross sales in Q2, representing 75% year over year growth and another quarterly record.
In Q2, a significant portion of these sales were attributable selling ahead of the 618 promotional event, which takes place in age average Ya.
Historically 618 is the second largest sales have ended the year surpassed only by singles day, which takes place in November .
Speaker 2: This year, end consumers purchased an equivalent of $4.5 million of Halo products in May and June alone, representing an approximate three times increase relative to last year's sales during the same period.
This year and consumers purchasing equivalent of $4 $5 million of Halo products May and June alone, representing an approximate three times increase relative to last year sales during the same period.
Speaker 2: On our flagship store, Halo branded sales were roughly in line with last year's 11-11 promotion.
On our flagship store Halo branded sales were roughly in line with last year's 11 11 promotion of <unk>.
Nitpicking achievement given the 11 11 sales are typically twice June 18 sales.
Speaker 2: These results demonstrate the strengths of our business, the strengths of our partnerships, and the importance of high quality pet food to consumers around the world.
These results demonstrate the strength of our business the strength of our partnerships and the importance of high quality pet food to consumers around the world.
Speaker 2: As Scott did mention early in our call, international sales typically are highest for us in Q3 as they represent the buildup ahead of November promotions. But given some of the recent challenges associated with the global supply chain, we did work with our partners to bring some production forward and ensure that we would be in stock commute and consumer demand for November 11th.
Scott did mention early in our call International sales typically our highest for us in Q3 as they represent the buildup of AR ahead of November promotions, but given some of the recent challenges associated with the global supply chain. We did work with our partners to bring some production forward and ensure that we would be in stock can be that consumer demand for them.
November 11th promotions.
Speaker 2: While we still expect that second half international sales will be strong, and in line with the $25 million run rate we discussed in our Q1 call, it is likely that Q2 will be the largest international quarter this year, unlike Q3 and prior years. Although there has been significant-
We still expect the second half international sales will be strong and in line with the $25 million run rate. We discussed in our Q1 call. It's likely that Q2 will be the largest international quarter. This year, Unlike Q3 and prior years.
Although there has been significant global uncertainty in recent months we've.
Speaker 2: We've been able to deliver record international sales growth in our core geographies and consistently work with our distribution partners to mitigate.
We've been able to deliver record international sales growth in our core geographies and consistently worked with our distribution partners to mitigate potential risks.
Speaker 2: Additionally, the strong, dry-cule business we built up in Asia, which makes up a significant majority of $100 million in aggregate contract minimum sales from 2021 through 2025. We remain focused on high margin incremental expansion opportunities.
Additionally, the strong dry kibble business, we built up in Asia, which makes up a significant majority of the $100 million in aggregate contracted minimum sales from 2021 through 2025.
Main focus on high margin incremental expansion opportunities.
Speaker 2: In the second half of this year, we are prioritizing the expansion into Latin America, and have made significant strides in the regulatory side to make this a reality.
In the second half of this year, we're prioritizing expansion into Latin America, and they've made significant strides in the regulatory stride to make on the regulatory side to make this a reality.
Speaker 2: With regards to gross margin, we begin to capture significant international margin expansion, which I'll let Charlotte touch on in more detail in our section. Charlotte?
With regards to gross margin, we began to capture significant international margin expansion, which I'll, let Charlotte touch on in more detail in her section Charlotte.
Speaker 5: Thanks Rob. In the second quarter of 2022, we delivered record growth sales of 19.8 million and net sales of 16.5 million, representing an increase of 5.5 million or 50 percent compared to the second quarter of 2021. While simultaneously improving growth margin to 29 percent or 31 percent on an adjusted basis, as compared to 28 percent in Q1 of 2022.
Thanks, Rob.
And the second quarter of 2022 we delivered record gross sales of $19 8 million net sales of $16 5 million, representing an increase of $5 5 million or 50% compared to the second quarter of 2021, while simultaneously improving gross margin to 29% or 31% on an adjusted basis.
As compared to 28% in Q1 of 2022.
Speaker 5: The increase in net sales is driven by yet another strong quarter for international, which grew 3.1 million or 75% versus Q2 of last year. Brick and mortar contributed 2.3 million to the increase driven by elevate sales ahead of the July Reep Store Reset at Petco. Ecom grew roughly 28% or 0.8 million versus the prior year quarter.
The increase in net sales is driven by yet another strong quarter for international which grew $3 1 million or 75% versus keeps you up last year brick and mortar contributed $2 3 million to the increase driven by elevated sales ahead of the July week store reset at Pepco and E. Com grew roughly 28% or <unk> 8 million versus the prior year.
Uh huh.
Speaker 5: Partially offsetting the strong growth for the quarter was a 0.6 million decrease in DTC driven by a planned reduction to customer acquisition spend ahead of the brand migration that we successfully completed in early July .
Partially offsetting the strong growth for the quarter was $8 6 million decrease in DTC driven by a planned reduction to customer acquisition spend ahead of the branch migration that we successfully completed in early July .
Speaker 5: We anticipate that net sales with the percent of growth sales to decrease slightly into Q3 and Q4 as we ramp up promotional activity within the pet specialty channel.
We anticipate that net sales as a percent of gross sales decreased slightly into Q3 and Q4 as we ramp up promotional activity within the pet specialty channel.
Speaker 5: Gross profit for the second quarter totaled 4.7 million yielding a gross margin of 29%. On an adjusted basis, excluding the impact of one time watch costs for elevate, gross margin was 31%. Reflecting an improvement of almost 3 percentage points from Q1 of 2022, and a 6 percentage point improvement from Q4 of 2021.
Gross profit for the second quarter totaled $4 7 million, yielding a gross margin of 29% on an adjusted basis, excluding the impact of one time launch costs for elevate gross margin was 31%, reflecting an improvement of almost three percentage points from Q1 of 2022, and a six percentage point improvement from <unk>.
Q4 of 2021.
Speaker 5: As we mentioned on our first quarter call, we were on target to complete the transition of our China production to our new co-manufacturer, and I'm pleased to report that we completed the transition in mid-June, resulting in a doubling of gross margin on this use.
As we mentioned on our first quarter call. We are on target to complete the transition of our China production to our new co manufacturer and I'm pleased to report that we completed the transition in mid June resulting in a doubling of gross margin on those skus.
Speaker 5: To provide context as to how this transition will impact growth margin going forward, international growth margin would have been 37% in Q2 versus actual growth margin of 27% for that channel, assuming we had completed the transition at the beginning of the quarter.
To provide context as to how this transition will impact gross margin going forward International gross margin would have been 37% in Q2 versus actual gross margin of 27% for that channel assuming we have completed the transition at the beginning at the corner.
Speaker 5: This would have resulted in an adjusted, consolidated, better choice gross margin of 35% for the quarter.
It's whatever it's all tied in a in an adjusted consolidated better choice gross margin of 35% for the quarter.
Gross margin improvement continues to be one of our highest priorities and we expect the back half of 2022 to benefit from the improved international margin pricing action in the E. Comm channel that will be effective at the beginning of Q4 and the relaunch of Halo holistic planned for late Q3 early Q4 with recipes reformulate it.
Speaker 5: Growth margin improvement continues to be one of our highest priorities and we expect the back half of 2022 to benefit from the improved international margin, pricing action in the E-COM channel that will be effective at the beginning of Q4 and the relaunch of Halo Holistic planned for late Q3 early Q4, with recipes reformulated to provide even higher levels of nutrition while also providing margin up.
I'd, even higher levels of nutrition, while also providing margin upside.
Speaker 5: even after taking into account potential for further raw material cross-increases.
Even after taking into account the potential for further raw material cost increases.
Speaker 5: We also continue to focus on margin of creative innovation as we plan for 2023 and the US.
We also continue to focus on margin accretive innovation as we plan for 2023 and beyond.
Speaker 5: Starting for our balance sheet, we ended the second quarter with 17.8 million in cash and cash of Publinson restricted cash, compared to 23.4 million at the end of Q1.
Turning to our balance sheet. We ended the second quarter was $17 8 million in cash and cash equivalents and restricted cash compared to $23 4 million at the end of Q1.
Speaker 5: The change in our cash balance during the quarter reflects a few non-recurring working capital items related to our growth margin improvement initiatives, including briefing our international production prior to the coal man transition in June , which allowed us to realize a 1.5% margin improvement on new shipment.
The change in our cash balance during the quarter reflects a few nonrecurring working capital items related to our gross margin improvement initiatives, including prepaying, our international production prior to the call me on transition in June which allowed us to realize the 1.5% margin improvement on the shipment.
Speaker 5: Additionally, we offered temporary extended payment terms to one of our key international partners while we switched co-manufacturing partners and to coincide with a material price increase that was effective at the beginning of Q2.
Additionally, we offered temporary extended payment terms to one of our key international partners well, we switched to co manufacturing partners and to coincide with a material price increase that was effective at the beginning of Q2 lastly, our inventory balance reflects the return to near normal levels on our holistic production as well as the.
Speaker 5: Lastly, our inventory balance reflects the return to near normal levels on our holistic wet production, as well as the final build of our elevate inventory, which will allow us to continue to guarantee 100% solar rates and provide margin protection in an environment which continues to be impacted by inflation.
A final build up our elevate inventory, which will allow us to continue to guarantee 100% fill rate and provide margin protection in an environment, which continues to be impacted by inflation.
Speaker 5: While working capital could continue to fluctuate a bit more than historical levels, we expect to see a benefit to cash flow in the back half of the year.
While working capital could continue to fluctuate a bit more than historical levels, we expect to see a benefit to cash flow in the back half of the year.
Speaker 5: Net loss for the second quarter was 4.4 million. After adjusting for non-cash and non-recurring charges, adjusted EBITDA for the second quarter was negative 2.1 million, which is consistent with our prior estimates for quarterly cash.
Net loss for the second quarter was $4 4 million after adjusting for noncash and nonrecurring charges adjusted EBITDA for the second quarter was negative $2 1 million, which is consistent with our prior estimates for quarterly cash burn.
Speaker 5: Although we are not looking to provide guidance at this time, based on where we sit today, we continue to believe that we have sufficient cash on hand to achieve profitability. As a reference, we've also provided a detailed reconciliation of Q2 EBITDA and adjusted EBITDA and Q2 net sales in gross profit and adjusted net sales in gross profit. With that, we'll turn it on.
Although we are not looking to provide guidance at this time based on where we sit today. We continue to believe that we have sufficient cash on hand to achieve profitability.
As referenced we've also provided a detailed reconciliation of Q2 EBITDA and adjusted EBITDA in Q2, net sales and gross profit and adjusted net sales and gross profit with that I will turn it back over to Scott.
Speaker 3: Thanks, Cheryl, and thank you again to everyone that joined the call today. Although we have a lot.
Thanks, Cheryl and thank you again to everyone that joined the call today.
Although we have a lot to be proud of.
Speaker 3: $40 million of gross sales in the first half, a 1,500-plus store launch of Halo, LB, a rapidly growing international business. So solid subscriber base on our online platform.
$40 million of gross sales in the first half of.
1500, plus store launch of Halo elevate.
Our rapidly growing international business, a solid subscriber base on our online platforms.
Speaker 3: There's still more work to do. As I hope you can tell, we are focused on driving continued margin improvements over the back half of 2022 and into 2023 as we push towards profitability.
Theres still more work to do.
As I hope you can tell we are focused on driving continued margin improvements over the back half of 2022 and into 2023 as we push towards profitability.
Speaker 3: While we still are investing meaningfully behind the launch of Elevate, particularly in Q3, we believe our current position is sufficient to support our growth plan, particularly since we expect to benefit from positive changes to net working capital beginning in the second half of 2022.
While we still are investing meaningfully behind the launch of elevate particularly in Q3, we believe our current position is sufficient to support our growth plan, particularly since we expect to benefit from positive changes to net working capital beginning in the second half of 2022.
Speaker 3: Our entire team remains extremely excited and we look forward to our third quarter results. Now I'd like to open it up for questions. Operator, please.
Our entire team remains extremely excited and we look forward to our third quarter results now I'd like to open it up for questions operator. Please.
And we will now begin the question and answer session.
Speaker 1: To ask a question, you may press star then one on your touch tone for
You ask a question you May press Star then one on your Touchtone phone.
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If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two once again that is star then one to ask a question at this time, we will pause momentarily to assemble the right.
Speaker 1: And again, if you'd like to ask a question, please press star then 1.
And again, if you'd like to ask a question. Please press Star then one.
Speaker 1: And our first question will come from Jim McElroy with Dawson James. Go ahead.
And our first question will come from Jim <unk> with Dawson James. Please go ahead.
Speaker 6: Yeah, thank you and good morning. I just want to understand the gross margin.
Yes, Thank you and good morning.
Just wanted to understand the.
Gross margin.
Speaker 6: from the international manufacturing. When you talked about total gross margins being 35% assuming that you would move.
The impact from the from the International Manny.
Manufacturing.
You talked about.
Total gross margins being 35% assuming that you had moved.
Speaker 6: the manufacturing for the full quarter. Is that total gross margin?
The manufacturing for the full quarter is that total gross margin.
Speaker 6: excluding the launch costs or that include the launch costs.
Excluding the launch costs or does that include the launch costs.
Yeah.
Rob do you want to take that one.
Charlotte.
Speaker 5: Yeah, I can take that one Scott. Hi, thanks for the question. That is an adjusted view of the margin. You can do the same math as far as the points that it would have added. But that does include the exclusion of the launch cost and the incremental pickup that we would have gotten if we had switched it April 1st.
Yes, I can take that one Scott.
Hey, Thanks for the question.
That is an adjusted do you have the margin.
Can do the same math as far as the point that it would have added.
That does include the exclusion of the launch cost and the incremental pick up that we would have gotten if we had switched it people first.
Speaker 6: Right, thank you. And then looking at gross margin for the...
Great. Thank you and then looking at gross margin for the.
Speaker 6: Second half, are there any special launches or any other issues that we should be aware of that would?
Second half are there any.
Special.
Launches or any other issues that we should be aware of that would.
Speaker 6: Impact gross margins on a one time or one time-ish basis for the second half.
Impact gross margins on a one time or one time ish basis for the second half.
Speaker 5: There's a couple of things that I would think about. I think these are the gross margin that we showed. Kind of...
There's a couple of things that I would think about I think the gross margin that we showed.
Speaker 5: gives a good idea of where we're trending, what will impact that in the second half is a couple things.
<unk>.
Give us a good idea of where we're trending well what will impact that in the second half with a couple of things first we do have a price increase on the E comm side effects at the beginning of Q4.
Speaker 5: First, we do have a price increase on the E-commerce side effective at the beginning of Q4.
Speaker 5: But what we'll also see is some timing of trade spend within the pet specialty channel. So trade spend in that channel has been pretty light the first half just as we get into the store and on shelf.
We'll also see is some timing of trade spend within the pet specialty channel could trade spending that channel has been pretty light in the first half just as we get them into the store and on shelf, you'll really see the promotional activity picking up in the second half.
Speaker 5: You'll really see the promotional activity kicking up in the second half.
Speaker 5: that will kind of, I mentioned in my prepare remarks that you're
What kind of I mentioned in my prepared remarks that you're.
Speaker 5: Net sales as a percent of growth can decrease slightly so that will have an impact on margin in the back half
Net sales as a percent of growth can decreased slightly so that will have an impact on margin in the back half.
Speaker 6: And so is second half gross margin likely to be close to that 35% or higher or lower?
And so as second half gross margin likely to be close to that 35% or higher or lower.
Speaker 5: I expect it to be close. I think you could have a little bit of lumpiness in Q3 and Q4, just depending on how that promotion then hits. But I think that same kind of sequential improvement that you're seeing will see in Q3 and in a Q4. So on a total second half basis, yes, I do expect it to be closer to the adjusted margin you're seeing in the presentation.
I expect it to be close.
Thank you could have a little bit of Lumpiness in Q3, and Q4, just depending on.
How that promotion spend hit.
But I think that same kind of that same kind of sequential improvement that you're seeing we will see in Q3 and end of Q4.
So sue on us on a total second half basis, yeah. Thank you expect it to be closer to the adjusted margin you are seeing in the presentation.
Speaker 6: Okay, great. And I just want to also understand
Okay, Great and I just want to also understand.
Speaker 6: The sales trajectory for Q3. It sounds like you brought some sales in.
The sales trajectory for Q3, it sounds like you brought some sales in.
Speaker 6: from what you would have normally expected for Q3, you brought it into Q2. So it sounds like...
From what you would have normally expected for Q3, you brought it into Q2, so it sounds like.
Speaker 6: Q2 is a little bit higher than normal, Q3 is a little bit lower than normal. Is that a fair way to look at it? Yes. That's a fair way to look at it. Exactly right.
Q2 is a little bit higher than normal Q3 is a little bit lower than normal is that a fair way to look at it.
Yes, that's a fair way I'll get it exactly right.
Okay.
Yeah.
Yeah, that's it for me Thanks, a lot.
Thank you thanks, Jim.
Speaker 1: And again, if you would like to ask a question, please press star then one.
And again, if you would like to ask a question. Please press Star then one.
Speaker 1: And this will conclude our question and answer session. I'd like to turn the conference back over to Scott Lerner for any closing remarks.
And this will conclude our question.
And answer session I would like to turn the conference back over to you Scott later for any closing remarks.
Speaker 3: Thank you, everyone, for joining our Q2 earnings call today. The whole team at Better Choice Company is excited about the future growth of the Halo brand, and we look forward to continuing the journey with you. Thank you.
Thank you everyone for joining our Q2 earnings call today.
The whole team at better choice company is excited about the future growth of the Halo brand and we look forward to continuing the journey with you. Thank you.
Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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Okay.
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