Our stronger-than-expected 2023 net sales led to favorable leverage of our costs and expenses and strong profit contribution, which helped fuel record annual cash from operations of $61.9 million and free cash flow of $52.7 million, much higher than the $30 million to $40 million we projected. And finally, our net leverage was a record low 2.9 times as of December 31, 2023. Looking to our total growth in 2023, I'd like to emphasize the power of the Product segments and most importantly, PetIQ's portfolio brands. As we've discussed in the last few quarters, when you look at all sales channels combined for 2023, we had one of the strongest seasons in the last 10 years for the over the counter flea and tick category. For 2023, Product segment net sales were $968.2 million, an increase of 21% compared to 2022.

And more, even impressive are the net sales of PetIQ's brands, which increased 28% and exceeded our growth expectations for the year. These results demonstrate the strength in the planning and execution of our entire team. We are building significant brands in the pet categories that are growing online and at brick-and-mortar retail, while capturing disproportionate amount of market share. Across our PetIQ manufacturer brand, we continue to see great returns on our enhanced advertising and promotional efforts as evidenced by our growth recall. We told you that we plan to spend more on marketing in the second half of 2023. Our marketing budget for 2023 was $40 million. Midway through the year, we communicated that we would spend an incremental $4 million on marketing, $3 million of which we recorded in Q4 of 2023.

So in total, for 2023, we spent $44 million to support our brands. We expect this investment to have a longer-term payback for our brands beginning in 2024. Included our 2024 adjusted evidence guidance, which Zvi will review is an incremental $12 million of market expense, this is on top of the $44 million that we spent in 2023. $6 million of this we told you on our last earnings call will be funded by the savings from the Services segment optimization and the remaining $6 million we expect to fund from cash from operations. Our team will continue to lean into prioritizing investments and initiatives that we expect to support the long-term success of our brands. We expect these efforts to drive outpace growth in the coming year and beyond. Now I'd like to discuss our product segment in more detail.

For Q4 of 2023, the Product segment contributed net sales of $191.3 million, an increase of 22% compared to the prior year period. The growth in Q4 of this year was broad-based across all product categories. In the fourth quarter of 2023, the flea and tick category grew at a positive 13.2% and PetIQ's brands increased 28.2%. PetIQ's portfolio brands continued to capture a disproportionate amount of the growth online and dramatically outperformed the broader category as evidenced by our market share results. For the 12 weeks ended December 30, 2023, PetIQ's over-the-counter flea and tick brands captured 17.5% of the category dollars, which is an increase of 205 basis points versus the prior year period. Most of this share growth was driven by gaining unit share as we picked up 190 basis for the quarter.

The Pet Supplement category also maintained its growth trajectory in the quarter, gaining 14.4% over the prior year period. This fast-growing category has now more than doubled over the last four years and has surpassed the over-the-counter flea and tick category. Pet supplements now represent the largest category that we compete in. Our pet supplement products continue to see accelerated consumption and growth in the fourth quarter of 2023, where our offerings in this space grew plus 23.5% compared to the prior year period. Our strong household penetration trends, along with expanded need states in the pet supplement category, give us confidence that these double-digit growth rates should continue for many years to come and PetIQ is positioned very well to continue to gain share in this important category.

Recently we've completed tests for a premium supplement offering under the Rocco & Roxie brand and are excited about a full product launch at the end of Q1. We look forward to providing you more details on the product performance in the coming months. In addition, our pet dental and treat offerings outperformed the catering in Q4. The Minties and Pur Luv brands both grew at two times the category, leading to meaningful share gains. The Minties brand grew plus 36% and gained 61 basis points of share in the dental treats category. The Pur Luv treat brand also continued to gain momentum as it posted outstanding growth of 184% in Q4 versus a year ago. The newest brand in our product portfolio, Rocco & Roxie, grew at a positive 21.2% (ph) for the fourth quarter of 2023, also well ahead of our projections.

Remember, we exited several non-core Rocco & Roxie offerings in the first half of 2023 that we determined were not a strategic fit for us. And yet, our team has executed well and we are very pleased to have grown the base business better than expected for the quarter and full year. Our core Rocco & Roxie products are focused on the premium pet and Stain & Odor category and pet parents continue to look to Rocco & Roxie for their Stain & Odor needs in Q4. We believe the Rocco & Roxie brand can expand its growth in other premium categories like supplements and treats. We are very encouraged about the brand's success thus far. For 2024, we are excited about increasing distribution of Rocco & Roxie's premium pet offerings as we increase advertising and promotional investments to build brand awareness and consumption over the next several years.

Now focusing on the Services segment. On an annual basis, in 2023, the Services segment net revenue increased 10.4% to $133.8 million compared to 2022. And for Q4, the Services segment net revenue was $28.6 million, an increase of approximately 7% compared to the prior year period. The segment gross profit dollars and margin showing decreases due to our optimization efforts. We closed 149 wellness centers in the second half of 2024, this includes 45 wellness centers in Q3 and the remaining 104 in Q4 to improve future profitability. We ended 2023 with 133 wellness centers in operation. We believe this is the right decision for our total business. Our optimizations have helped us to better align our investments in the areas of our business where we expect to achieve the highest rate of return.

Our collaboration with an existing retail partner on a new pilot wellness center offering continues to go well. We offer a variety of pet services, including veterinarian services as well as grooming and hygiene care. We are testing and learning together and remain optimistic about the options for this format in 2024. In closing, I'd like to thank our PetIQ employees located in our headquarters, our facilities in Omaha, Springville and Daytona, and everyone in the 39 states offering our veterinarian services that always help us to achieve our strong annual results. Your commitment to our mission and core values creates our strong culture for success. With your consistent work and dedication, we are well positioned in 2024 and beyond to capitalize on the robust pet industry tailwinds and provide smarter, more convenient access to affordable pet health and wellness products and veterinarian services.

With that overview, I'd like to now turn the call over to Zvi.

Zvi Glasman: Thank you, Cord. We are very pleased with the company's strong finish to 2023. Our team capitalized on our opportunities for growth as evidenced by the strong growth in our PetIQ brand portfolio and we took important strategic steps in the second half of the year to increase operating efficiencies and make planned marketing investments to fuel our growth and success into 2024 and beyond. I will now discuss our quarterly financials in more detail and finish with reviewing our first quarter and full-year 2024 guidance. We've reported record Q4 net sales of $219.9 million, an increase of 19.5% compared to Q4 of last year, driven by an increase in sales from both the Products and Services segments as well as the addition of Rocco & Roxie.

As Cord mentioned, we had strong broad-based growth across sales channels and product categories. Adjusted gross profit for the fourth quarter of 2023 was $45.6 million and adjusted gross margin was 20.7%. Our adjusted gross profit included a drag of approximately $1.2 million or 60 basis points from our Services segment optimization and the related cost inefficiencies that we did not adjust for in the quarter. If you take this into account, our fourth quarter 2023 adjusted gross margin would be essentially flat compared to the prior year period at 21.3%. Q4 adjusted SG&A was $40.6 million compared to $34.7 million in Q4 last year. As a percentage of net sales, adjusted SG&A was 18.5%, a decrease of 40 basis points compared to the prior year period.

This improvement was primarily as a result of continued leverage of costs and increased business expense efficiencies relative to the growth in net sales partially offset by incremental and planned marketing expense of approximately $3 million to support the long-term health of our manufactured brand portfolio. Total restructuring and related charges attributable to the Services segment optimization were $5.1 million for the fourth quarter of 2023, $1.6 million of which were cash charges, so the majority of the restructuring was non-cash in the quarter. We included a financial table in today's press release to provide you with the components of expenses included in restructuring and cost of services for modeling purposes. We currently expect our cash costs associated with the services optimization to be less than $5 million below the initial expectations we provided last quarter of over $6 million.

Adjusted EBITDA for the fourth quarter of 2023 was $12 million. This exceeded our implied guidance of $6.2 million to $10.2 million for the quarter. Adjusted EBITDA for the fourth quarter of 2023 also includes the approximately $3 million of incremental and planned marketing expense I mentioned prior. Turning to our balance sheet and liquidity. The company ended Q4 with total cash and cash equivalents of $116.4 million. The company generated a record $61.9 million of cash from operations for 2023. And we generated the highest free cash flow in the company's history of $52.7 million well in excess of our initial expectations of $30 million to $40 million. For 2024, we expect to generate annual free cash flow in excess of $45 million. The company's total debt which is comprised of its term loan, ABL, convertible debt and capital leases, was $445.2 million as of December 31, 2023.

In addition to our cash on hand, the company's $125 million ABL is undrawn. Total liquidity, which we define as cash on hand plus debt availability was $241.4 million as of December 31, 2023. While we have no intention of making additional borrowings, we would note that our liquidity is ample and our credit facilities are flexible. Our net leverage, as calculated under terms of our credit facilities at the end of 2023, was a record low, 2.9 times, much better than our expectation for 2023. Our net leverage, as calculated under terms or accredited facilities at the end of 2023, was a record low, 2.9 times, much better than our expectations for 2023, and net leverage improved from 3.7 times in 2022. Looking ahead, keep in mind, Q1 is always our highest leverage quarter of the year.

So for Q1 of 2024, you will see our net leverage increase a bit due to seasonal changes in working capital, primarily potential timing of increased inventory to position us well for the flea and tick season. However, on a year-over-year basis, we expect an improvement in our net leverage ratio relative to Q1 of last year. Now, turning to our guidance. As stated in today's earnings release, our 2024 full year and first quarter 2024 outlook is inclusive of the Services segment optimization, the expected sale of the company's foreign subsidiary Mark & Chappell, and a return to a more normal flea and tick season as compared to the record seasonal patterns experienced in 2023. These three items total approximately $52 million in net sales and $8 million of adjusted EBITDA on an annual basis.

If you take these into account, our growth in 2024 would be significantly higher or represent a net sales increase of approximately 10% and an adjusted EBITDA increase of approximately 15% as compared to 2023. We have broken these variables out for reference in the outlook section of today's earnings presentation posted on the Investors section of our website. Inclusive of the variables I just mentioned, we expect 2024 net sales of $1,130 million to 1,180 million, an increase of approximately 5% based on the midpoint. An adjusted EBITDA of $109 million to $114 million, an increase of approximately 6.5% based on the midpoint, which includes the step up in marketing expense Cord mentioned. For the first quarter of 2024, we expect net sales of $290 million to $310 million, an increase of approximately 3% based on the midpoint.

Adjusted EBITDA of $31 million to $33 million, an increase of approximately 4.5% based on the midpoint. As noted in today's release, we expect our annual net sales to be weighted to the first half of 2024 with approximately 56% of our projected annual net sales recorded in this period versus 55% in 2023. Annual seasonality can vary based on the timing of shipments, promotional activity, product launches and a number of other factors. Additionally, for modeling purposes, we wanted to mention that going forward, our share count will vary during the course of the year due to the accounting rules regarding the company's convertible notes. This will depend on a number of factors, including quarterly earnings. For certain quarters in 2024, the share count will increase by approximately 4.8 million shares and our diluted EPS will be calculated on the same basis.

Importantly, we currently have no intention of satisfying our convertible note obligation with shares but are required to report the company's share count based on the theoretical increase. In closing, we reported strong record 2023 financial results. Our team continues to execute well and deliver on our strategic initiatives to fuel growth and increase operating efficiencies. For 2024, we expect to increase value for all stakeholders as we deliver on our mission of smarter, convenient and affordable pet health and wellness for parents. That concludes my financial review. Cord, Michael, John and I are now available for your questions. Operator?

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