Srx Health Solutions Inc (SRXH) 2020 Q4 法說會逐字稿

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to Better Choice Company Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to Rob Sauermann, Executive Vice President of Strategy.

Thank you, operator, and welcome, everyone, to Better Choice's fourth quarter earnings conference call. By now, you should have received a copy of our earnings release and the earnings presentation, which we'll be discussing today. If you've not received both documents, they are available on our Investor website, betterchoicecompany.com. The earnings presentation is also available in the webcast window for those joining us online.

I'm joined today by Scott Lerner, our CEO; Sharla Cook, our CFO; and Donald Young, our Executive Vice President of Sales.

Before we begin, please remember that during the course of this call, we may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to the company's annual report on Form 10-K filed with the Securities and Exchange Commission and the company's press release issued on Wednesday, March 31, 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 on today's call, management will refer to certain non-GAAP financial measures, such as gross revenue, EBITDA, adjusted EBITDA and pro forma adjusted EBITDA, among others. 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 financial information presented in accordance with GAAP. Please refer to our press release and presentation issued on March 31, 2021, 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.

Thank you, Rob, and thank you again to everyone for joining our call. As this is my first time formally speaking with the broader investor community as CEO of Better Choice, I wanted to take a moment and thank our Chairman, Mike Young, as well as the rest of the Board of Directors for their support throughout the onboarding process. It has been a busy 3 months since my official start date, and I couldn't be more excited about the opportunity that lies ahead.

As we'll touch on later today, our collective goal is to become the most innovative premium pet food company in the world, with high-quality brands poised for rapid growth, led by a team of subject matter experts who have been there, done that.

Before we move into a discussion of our 2020 results, I also wanted to take the time to share a bit more about myself and what fundamentally attracted me to Better Choice. For those of you that don't know me, prior to joining Better Choice, I spent the last 20 years of my career in the food and beverage industry, where I managed iconic brands such as Naked Juice, Quaker Oats, Scott Tissue and Parkay Margarine at companies like PepsiCo, ConAgra Foods and Kimberly-Clark.

In 2008, I identified a market opportunity, left PepsiCo and founded my own beverage company called Solixir, which I sold in 2014 after several years of successful growth. After that exit, I partnered with VMG Partners, a San Francisco-based private equity firm, that specializes in building consumer brands and became the CEO of Kernel Season's. At Kernel Season's, I saw an opportunity to dramatically increase profitability, while simultaneously growing our product offering in a relatively short period of time, which ultimately led to a sale of the company to another private equity firm, Highlander Partners.

Most recently, I was the CEO of Farmhouse Culture, a food brand backed by General Mills' venture arm, where I led a repositioning of the brand to highlight the product's digestive benefits and capitalize on growing health and wellness trends.

I'd like to think of myself and, by extension, Better Choice, as a corporate-ready product with an entrepreneurial mindset, with my approach to leadership rooted in the 5 years I served as an officer in the United States Marine Corps.

These experiences taught me that successful brands have a clearly defined go-to-market strategy to deliver growth, a margin profile built for success in specific channels and a leadership team empowered to quickly and decisively make informed decisions. At Better Choice, this directly translates into our overarching mission, become the most innovative premium pet food company in the world. This is driven day in and day out by 4 key company values, making products with integrity, treating pets and their parents with respect, creating long-lasting and profitable relationships and working smarter and faster.

No matter how robust our strategy might be, establishing a strong company culture is at the heart of our ability to achieve our overall corporate mission. We believe that we already have these building blocks in place and have assembled a world-class team of individuals that are passionate about their pets and serving the broader pet parent community. Although I personally didn't have any pet experience prior to joining as the CEO, I've always wanted to find a way to get into the industry. Outside of being a huge dog lover and an informed consumer, I view my lack of pet experience as a tremendous competitive advantage since I bring a unique perspective to challenges and opportunities in an industry that is right for disruption. That said, I knew that for us to win, I needed to surround myself with A+ talent that understood existing pet industry dynamics and already had the relationships we need to be successful.

With that in mind, I want to introduce a few new faces that bring a wealth of knowledge and experience to our organization. You'll be hearing from Donald Young, our Executive Vice President of Sales, in a bit. But I'd be remiss to not mention how excited we are to have him on board. Donald has more than 29 years of experience leading the sales organizations of several prominent premium pet food brands, including The Nutro Company and Merrick Pet Care, which were ultimately sold to Mars and Nestlé, respectively. At Merrick, Donald was directly responsible for growing the company from a niche brand to the #3 natural player in the pet specialty retail channel. During that time, Merrick more than quadrupled sales, achieving approximately $500 million in sales and was acquired by Nestlé Purina. While at Merrick, Donald also worked with Jenny Condon, our new Executive Vice President of Digital Sales; and Ryan Wilson, our new Vice President of Marketing.

Jenny is an e-commerce expert with a phenomenal track record of success. At Merrick, she increased online sales to roughly $150 million, representing a 30% annual growth rate over a 5-year period. We will look to Ryan to lead our marketing and innovation efforts to drive future growth, as he has a history of leading successful brand launches. Alex Vournas joins us from Solid Gold, where he oversaw global distribution and logistics and was also responsible for managing their significant expansion into Asia, which culminated in the sale of the entire business to a Hong Kong-based conglomerate in late 2020. We are very excited for him to lead our global supply chain as the Halo brand is currently realizing a similar growth trajectory in Asia, which we'll touch on later.

Rob and Sharla are both familiar faces, and I'm counting on them to continue to give us a strategic advantage as we look to efficiently deploy capital, optimize our balance sheet, realize cost savings and evaluate potential M&A transactions.

As a reminder, for those listening that may be new to our story, Better Choice is comprised of a portfolio of animal health and wellness brands with a long history of success. Founded in 1986, the Halo brand consists of a diversified premium natural dog and cat portfolio, with products derived from real whole meat, no rendered meat meal and non-GMO fruits and vegetables, unlike many other kibbles and canned products currently in the marketplace. In addition to its dried kibble and canned wet food offering, Halo has a successful line of freeze-dried treats for dogs and cats and a growing line of award-winning vegan products for dogs.

Founded in 2013, the TruDog brand offers ultra-premium, freeze-dried raw dog food, toppers, treats and supplements sold predominantly on its D2C website. Freeze-dried raw dog food is one of the fastest-growing subcategories of premium pet food, with Packaged Facts reporting 39% year-on-year growth in the subcategory in 2019. We strongly believe that both brands are well positioned to take advantage of pet parents' increasing desire to feed only the highest quality ingredients to their pets and that there will continue to be innovative opportunities for brand consolidation over time.

Today, the Halo and TruDog brands are focused on serving consumers in the United States, Canada and select Asian markets, including China. With approximately $50 million in gross sales on a consolidated basis, we think we are at a true inflection point to become an innovation and growth engine in the industry. We also think our size as an advantage. We are nimble enough to quickly bring new products to market, but large enough to benefit from established economies of scale and strong existing customer relationships.

Although I'm particularly excited about where we are headed in 2021 and beyond, I'd like to spend a few moments discussing some of our key accomplishments in 2020 that have put us in an incredible position to achieve our future goals. In addition to onboarding the new team members that I just mentioned, 2020 was a transformative year for Better Choice across the board. Some of those highlights include the operational integration of the Halo and TruDog acquisitions that were made in 2019. This enabled us to realize significant cost savings via the consolidation of our supply chain and other back-office functions. And going forward, we believe there are a number of opportunities to jointly leverage our marketing and sales functions that will contribute to future growth.

Nearly doubling our international sales under the Halo brand, driven primarily by the securing of approval from the Chinese Ministry of Agriculture to ship 15 diets directly into Mainland China as of June 2020. And raising more than $20 million of equity to support growth and delever our balance sheet. This enabled us to fully complete the refinancing of our bridge loan in January 2021 and has dramatically reduced interest expense going forward. Sharla will touch on this later in our presentation, but we view this as a key catalyst that will help position us for a successful uplift to a major U.S. exchange this summer.

Successfully navigating the COVID-19 pandemic and continuing to deliver high-quality products to our end consumers, while dramatically improving our bottom line and achieving pro forma adjusted EBITDA of negative $1.6 million for the full year 2020. Fundamentally, and what I keep coming back to, is that the foundation of our success is built in delivering a high-quality product for dogs and cats that pet parents know and trust.

With that in mind, I'd like to hand it over to Donald to walk through our product offering today, where we see offer -- areas of opportunity with the consumer in the future and how is proven playbook for past success in premium pet food can be applied to the industry landscape today.

Thanks for the introduction, Scott, and thanks again to everyone for joining today. As Scott mentioned, I've spent the last 30 years of my career in premium pets, and have played a major role in the transformation and growth of 2 iconic brands: Nutro, which we took from roughly $20 million of sales in the 1990s to over $800 million of sales when it was sold to Mars. And Merrick, where I was brought in by Swander Pace, and more than quadrupled sales, ultimately leading to the sale of the business to Nestlé Purina, and approximately $500 million in annual sales.

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. In my experience, every great growth story in the premium pet food industry, whether that's Nutro, Merrick, WellPet or Blue Buffalo, has been driven by recommendation. And a big part of that still happens in-store even during the pandemic. Today, there are more pet owners than ever before, and pets are increasingly humanized as members of the family. With the demographic changes in millennial and Gen Z ownership, this provides a long-term opportunity for growth that's only accelerated as a result of COVID-19.

When I think about how to acquire a new pet parent, I group buyers into 3 categories. 1/3 have done their research and know what's best for their pet. Another 1/3 have heard some information and know there's something better for their pet, but they're counting on the store to make a recommendation. The final 1/3 just got a new pet. They don't have any education yet on what products might be best for them. Better Choice's job is to go after that concerned and uncertain pet food buyer. This consumer has a high willingness to pay for products that they know and trust, and they want to learn more about what's best for her pet, and that includes a high level of engagement with a brand online.

Our goal is to deliver innovative products for their dog or cat and to seize every opportunity we can to convince them why our products are best-in-class, whether this takes a form of cleaner and a more attractive packaging, the education of sales associates in store or expanding our online presence through social media and targeted digital advertising. The size of the prize is large because if we can get consumers to buy 3 bags of food in 3 consecutive months, the loyalty rate and the likelihood they will stick with us, in the long-term, is over 80%, in my experience.

Thanks, Donald, for walking us through the market opportunity and the consumer journey. As you can see, our approach is laser-focused and specifically targeted to reach the most attractive high-growth consumers in a cost-effective way. When I took a step back and looked at the entirety of the Better Choice through that lens, it presented an opportunity to simplify our business to drive success, rather than operating 2 independent businesses, Halo and TruDog, in isolation.

After incorporating learnings from consumer research, this took the form as One Halo brand with channel-specific points of difference, rooted in one master brand personality, with clear differentiation versus the competitive set. Our plan is to gradually introduce and incorporate this messaging over the course of 2021, with early 2022 representing our targeted relaunch date with key brick and mortar accounts.

We strongly believe that One Halo brand that spans across all channels domestically and internationally creates a smarter approach. This allows for a strong Halo marketing effect across all sub-brands to get the most out of the working advertising dollars we spend, while talking to the consumer at an efficient, higher master brand and emotional level. We also believe this will help us realize economies of scale in our supply chain and help optimize how we allocate capital across the organization, fundamentally aligning the interest across all of Better Choice to drive success.

What really sets us apart from the competition is that we can leverage our differentiated omnichannel strategy to design and sell products purpose-built for success in specific channels while maintaining our ability to leverage marketing and sales resources cross-channel. We believe that this allows us to deliver on core consumer needs and respond to changing channel dynamics that have only accelerated because of the COVID-19 pandemic.

For example, we can take learnings from the online environment, which represented 59% of our 2020 sales to the off-line environment, which we see is poised for growth at pet specialty stores in 2022. People who come online are feasting on information to understand what it is they're buying and what it is they're feeding their pets, and it helps us understand what the key triggers are motivating the purchase. With that information in hand, we can give Donald another tool to drive in-store purchases that he didn't have at Nutro or Merrick.

Overall, we group these channels into 4 distinct categories. E-commerce, which includes the sale of product to online retailers, such as Amazon and Chewy, the vast majority of which are made under the Halo brand. In 2020, this was our largest channel trade and represented 34% of our total sales. Going forward, we anticipate that our e-commerce business will grow at 20%-plus on an annual basis, with strong customer subscription rates between 50% to 80%, providing a solid foundation for growth.

Direct-to-consumer, or D2C, which includes the sale of products through our online web platform. In 2020, D2C accounted for 25% of our total sales. Today, all D2C sales corresponds to sales under the TruDog brand, representing an opportunity for us to expand the Halo brand customer base. We anticipate that our online D2C business will have a similar growth profile to our e-commerce business.

Brick & Mortar, which includes the sale of products to pet specialty chains such as Petco, select grocery chains and neighborhood pet stores. In 2020, Brick & Mortar accounted for 21% of our total sales, and our products are sold in about 3,000 stores. We are focusing most of our efforts on growth in the pet specialty channel in 2022, which we view has the potential to be a hockey stick year for us via the launch of new production innovation.

And international, which includes the sale of products to foreign distribution partners and to select international retailers under the Halo brand. In 2020, international accounted for 20% of our total sales with growth in Asia most notably, China, driving a 95% year-on-year increase in sales under the Halo brand. We view this as a particularly compelling opportunity for future growth, which I'll let Rob take us through in more detail.

Thanks, Scott. I think it's clear to everyone that follows Better Choice how excited we are about the growth we've been able to achieve internationally. It's taken its time, but we've built strong distribution partnerships in China, Korea, Taiwan and Japan, all of which played a major role in the growth we were able to achieve in 2020.

Although our go-to-market strategy in Asia is a bit different than the United States, our commitment to delivering real whole meat certified protein and no antibiotics has resonated strongly with Asian pet parents that have the same, if not, heightened product quality concerns as their American counterparts.

Looking forward to 2021 and beyond, we've been able to secure aggregate minimum purchases with our Asian distribution partners, totaling $25.6 million over the next 2 years. We believe that this figure represents more of a floor than a ceiling, as we've recently announced our plans to enter the freeze-dried market for dog and cat food internationally, adding to our strong lineup of products that are already sold to Asian consumers under the Halo brand. While ambitious, we believe it's reasonable to see growth that's in line with our historical performance going forward.

As we look to the future, we believe China represents the largest macro growth opportunity in the global pet food industry. It's a market where we already have a strong foothold, with roughly half of our international sales in 2020 coming from China. And there are several structural considerations that we believe give us a first-mover advantage relative to the competition. First, we secured approval from the Chinese Ministry of Agriculture to sell 15 dry diets to Mainland China, which very few western-manufactured brands have achieved. We have a strong multiyear distribution partner in Penefit with a dedicated team of more than 20 individuals in countries that are solely focused on selling the Halo brand. And lastly, we have an established supply chain partnership with white-listed approvals to import products.

Just like our approach in the United States, our target consumer is a young, educated urban dweller, but instead of living in L.A., they live in Shanghai. To put it in perspective, more than 50% of Chinese consumers that are purchasing Halo were born after 1990, and roughly 80% purchase our products online. Demographics are also working in our favor as the number of households that own a pet in China has doubled in the last 5 years, with younger pet owners leading growth. Even though the absolute number of Chinese households that own a pet recently surpassed the same figure in the United States, only 20% of those households own a pet compared to 67% in the United States. That's translated to a 28% annual growth rate in the premium dry cat food market and a 20% annual growth rate in the dry dog food market.

Clearly, this is an opportunity that's worth going after, and one that we'll continue to update the investor community on as we look to grow.

Thanks, Rob. I think that's a good segue to discuss how we plan to maximize shareholder value before handing it over to Sharla to walk through our full year 2020 financial performance. As we have covered in detail, our omnichannel strategy is designed to be complementary with e-commerce, DTC, Brick & Mortar and international, all working together to create a halo effect. We believe that this is an attractive proposition for both financial and strategic investors going forward and creates clearly defined lanes for growth.

COVID-19 has also had a permanent impact on the pet food industry, which has, once again, proved to be recession resistant. Dog and cat ownership has continued to grow, and we believe increasing rates of millennial and Gen Z pet ownership during the pandemic will continue to drive long-term tailwinds. We are also very encouraged by recent transactions in both the public and private markets. Not only has this reaffirmed the financial investor community's interest in the pet sector, but valuation multiples continue to remain robust.

A few notable highlights include: Petco's IPO in January 2021, which priced above the target range and valued the retailer at almost $4 billion; Freshpet's follow-on offering in February 2021, which raised $300 million and valued the company north of $5 billion, roughly 20x 2020 sales; the sale of Solid Gold, one of Halo's closest competitors in China, in November 2020 to an Asian strategic buyer for $163 million; Clearlake Capital Group's $1 billion-plus acquisition of WellPet in November 2020; and finally, the completion of a merger between 2 prominent contract manufacturers, C.J. Foods and American Nutrition in June 2020, creating Alphia.

In addition to these transactions, we would continue to highlight the attractiveness of Better Choice versus our only publicly traded direct competitor, Freshpet. The overall takeaway is that there's a clear road map for Better Choice to create meaningful shareholder value in the public markets and an exciting opportunity for investors to participate in the next growth play in pets.

We spent the majority of our time this morning discussing our organic growth strategy, but I do want to remind investors that we remain committed to locating the right assets that meet our investment criteria. Our strong industry contacts increase our ability to source transactions internally and avoid highly competitive auctions. 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 both cash and stock.

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

With that, I will now turn it over to Sharla to provide an overview of our financials.

Thanks, Scott, and good morning, everyone. We're excited to discuss our fourth quarter and full year financial results with the investor community today. As you will see, we've prepared a very detailed reconciliation of our income statement to pro forma adjusted EBITDA in order to provide a clear picture of our revenue base and cash flow profile at Better Choice.

In addition to our detailed financial statements, which you can review in our 10-K published yesterday, I want to touch on several key components of our 2020 results. Relative to our 2019 results, Better Choice financials now include a full year of Halo performance, highlighting our strong existing revenue base that is poised for future growth.

In 2020, we generated approximately $51 million of gross sales, $43 million of net sales and $16 million of gross profit. After adjusting for noncash and nonrecurring charges, we achieved negative $1.9 million of adjusted EBITDA and negative $1.6 million of pro forma adjusted EBITDA, a significant improvement relative to 2019.

We've realized significant operational synergies and have set long-term profitability targets to more concretely define the internal financial requirements that must be met prior to launching new products. Our long-term gross margin target is 40% to 45%. Our long-term contribution margin target is 20% to 25%, and our long-term EBITDA margin target is 10% to 15%. For reference, our adjusted gross profit margin was 40% in 2020, and we believe that realizing economies of scale via top line growth will only increase our profitability.

As we have previously disclosed, we are currently planning to uplist to a major U.S. exchange, such as the NASDAQ or New York Stock Exchange, in the summer of 2021. In Q4 of 2020, we raised more than $20 million of equities to complete the refinancing of our bridge loan, which we viewed as a key gating item prior to an uplist transaction. We've already made significant progress behind the scenes in the first quarter of 2021, and we're looking forward to updating the investor community as we get closer to a potential uplist this summer.

Slide 19 provides a detailed reconciliation of quarterly and full year EBITDA, adjusted EBITDA and pro forma adjusted EBITDA, on a consolidated basis. For reference, pro forma adjusted EBITDA includes annualized cost savings resulting from the outsourcing of warehouse operations to a third-party logistics facility in Q4 2020.

We can make the following conclusion. Full year pro forma adjusted EBITDA of negative $1.6 million is a significant accomplishment for Better Choice and highlights our focus on cash flow positivity. Full year EBITDA of negative $48 million includes over $43 million of noncash expenses and over $3 million of nonrecurring items. Of these noncash expenses, $23 million was the result of the change to the fair value of our warrant liabilities, which we were required to classify as a liability as they include certain anti-dilutive features. A further $19 million can be attributed to noncash expenses related to equity awards and dividends, with a majority of this charge relating to a noncash contract termination of a third-party consulting agreement.

Slides 20 and 21 provide a reconciliation of our fourth quarter and full year P&L, respectively. The purpose of this analysis is to remove any noise from our income statement as a result of these noncash and nonrecurring charges.

I also want to mention that our net sales in Q4 2020 were $9.3 million, which is lower than prior quarters. That said, the majority of this difference can be attributed to the timing of international orders that occurred in Q3 relative to Q4 as our Chinese distribution partner made elevated purchases in order to prepare for Double 11 in China, the largest online shopping event in the world. This event takes place each year on November 11 and saw the Halo brand achieve first place in sales for first-time imported foreign premium pet food brand, which has positioned Halo for a great start to 2021 internationally.

Before I turn it back to Scott for closing remarks, I also want to highlight several key subsequent events that have positively impacted our balance sheet since December 31, 2020. In January 2021, we completed the refinancing of the bridge loan and concurrently closed a $12 million 3-year credit facility with Wintrust Financial at LIBOR plus 250. In addition to extending our debt maturities, this reduced our annual cash interest expense by approximately $2 million and our senior leverage by $2 million.

In January and February of this year, we also closed a $4.1 million equity investment and received $1.3 million in warrant proceeds, which we used to replenish our cash cushion post the refinance of our bridge loan and to accelerate future innovation opportunities.

As we look forward to a potential uplist in the summer, I also want to point out 2 liabilities: the convertible notes, the majority of which were issued to the sellers of Halo and the Series F warrant liability that should either automatically convert to equity or be reclassified to equity upon an uplist.

We've already discussed the Series F warrants when we touched on our noncash adjustment to the P&L in Q4. But taken together with the automatic conversion of the seller notes, this represents a potential reduction in our total liabilities and a potential increase to our total shareholders' equity of nearly $59 million, assuming the 12/31 balances were to remain static.

Now I'd like to turn the call back over to Scott before we open the line up to Q&A.

Thank you, Sharla, and thank you again to everyone that has joined our earnings call today. Before we open the line to Q&A, I would like to also thank my team for successfully navigating the first and hopefully, the last year of the COVID-19 pandemic, while continuing to deliver high-quality foods to pets and their pet parents around the world. I have a tremendous amount of confidence that our new Halo brand strategy will drive meaningful growth in the next 24 to 36 months. It's relatively easy to execute in market, it creates a halo effect that the consumer experience, while leverage internal scale, and it allows for selective M&A opportunities over time.

Ultimately, you're betting on a proven team that has a history of successful exits, knows the sector cold and is purpose-built to capitalize on opportunities for growth worldwide.

Now I would like to open up the call for questions. Operator, please.

(Operator Instructions) Our first questions come from the line of Brian Holland with D.A. Davidson.

Yes. Thanks, and good morning, everyone, and appreciate the detailed overview of the business this morning. Scott, if I could just start with you. You mentioned coming out from outside the pet food industry. What particularly do you see is the opportunity to take your expertise and improve upon the business or maybe a pivot directionally, again, just thinking about this -- looking at this through fresh eyes. I'd love to hear some specifics there.

Yes. Thank you, Brian, and I appreciate you joining the call this morning. I think one of the interesting trends that we're seeing in pet, and it's pretty common out there to most folks, is the humanization of pets. If you think about pets and their pet parents, the majority of them are seeing them as almost a child in their family. And coming from the food and beverage industry, where obviously, we're delivering products to human beings, not pets, I think there's an opportunity to take a lot of the learnings that I have over the 20-plus years in food and beverage and apply it over into the pet space to really create a differentiated brand to the consumer that is relevant to how they view their pet through the humanization eyes.

And with that being said, looking at how we can deconflict our omnichannel approach to deliver specific points of difference in each channel. If you look at the consumer today, whether it be a Gen Z or millennial pet parent, they're shopping based on where they're -- it's convenient for them. One day, it might be online. One day it might be in their local Petco store. I think the opportunity for a brand and a company like Better Choice is to be available at any given point in time when the consumer wants to shop and have product offerings that match what they're looking for in providing benefits to their pet.

We're taking research that we recently completed and the years of experience with folks like Donald Young and Jenny Condon and Ryan Wilson, and pairing those together to create a unique opportunity within all channels, with our focus also in 2022 being pet specialty. So we're excited about a lot of the opportunities in the future. And really, in the end, it's taking the experiences that we have as a collective team with the research that we've used to validate the opportunities and deliver an exciting launch in the future.

Appreciate the color, Scott. If I could just -- we talked about 2022 as a time frame for sort of the relaunch into the pet specialty channel. What can you share with respect to any specifics there? Or what that's going to look like? What form that's going to take? And also how that complements what you're doing in other channels?

Right. So I go back to the call and Donald's comments about recommendations drive purchase. And I think that's a proven commodity within the pet industry. And it's one area that I'd say there's opportunity for us in terms of our brick and mortar footprint.

And so when I brought Donald in, it was also because I knew we wanted to be stronger in that channel. And I see it as all tides rising. If we have a strong presence in pet specialty, where recommendations are provided to pet parents, it's only going to help our e-commerce and D2C businesses as well. So that is a proven case study, if you will, in the industry. Every brand, as Donald has personally led, has been driven by a strong pet specialty brick-and-mortar approach, alongside that omnichannel focus in terms of e-commerce and now D2C. So we see that as a strong focus for us in the future.

And as we grow, it's about deconflicting these channels to move very fast and avoid confrontation from channel to channel in terms of product offering, in terms of pricing. So creating lanes for growth is really our focus, with pet specialty being a major emphasis for us in 2022 and beyond.

That's great. Last one for me this morning. I wanted to ask about China, and kind of the secular trends that are happening there, how you comp them against what's clearly established U.S. market? Again, I'm speaking at a category level. And then sort of what your -- what the competitive landscape looks like? I know you're, if not one of the first movers, the first mover. So would love to just hear a little bit more about that opportunity and how you continue to maintain your competitive advantages going forward? How you plan to do so?

Sure. We obviously see Asia and China specifically as a huge opportunity for the business. We're 1 of roughly 3 companies right now with MOA approval in Mainland China, which gives us a competitive edge over the competition. I think what's most exciting for us is you view China as the U.S. maybe 10 years ago in terms of where they're at in terms of pet ownership. The rapid growth of pet ownership in China and the discretionary income that's being applied to that category is immense.

What's really exciting is that, through our research, Chinese consumers are looking for American brands because they trust them, and they want to purchase the exact products that are being delivered in the United States. So it gives us an opportunity to have minimal disruptions in our supply chain and really leverage our economies of scale in what we're doing in the United States and into Asia.

And more importantly, the product innovation that we're creating for the future is pretty much going to be simultaneous with what we do in Asia, because the functional benefits that are needed for a Golden Retriever in Shanghai is no different than someone in L.A. So that's exciting for me because it creates simplicity in our business model and, at the same time, it gives us access to millions of new households in China and Asia that are looking for specific benefits.

So our partnership with Penefit in China is extremely strong. We view them as one of the best distributors going into that country. And our ability right now to maneuver online, on sites such as Tmall, has gained us access to many households. And as we move into more brick-and-mortar retail locations, we're going to have access to even more households.

So I'd say, in summary, the opportunity is untapped right now for us, and it requires -- obviously, requires resources for us moving forward, but the simplicity of the business model is what's most exciting because it's not a disruption in terms of what we do domestically. It only further enhances our ability to grow in the United States because of the economies of scale and providing leverage with our suppliers.

(Operator Instructions) There are no further questions at this time. I would like to hand the call back over to management for any closing comments.

This is Rob. And thanks again for everyone joining today. We're incredibly excited where we're headed, as I think everyone on the team has pointed out. And we're going to continue to update the investor community as exciting things happen in 2021 and in 2022. So looking forward to staying connected, and I hope everyone has a great day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.