PetMed Express, Inc.

Welcome to the PetMeds conference call to review the financial results for the third fiscal quarter ended on December 31st, 2021. At the request of the company, this conference call is being recorded. Founded in 1996, PetMeds is America's most trusted pet pharmacy, delivering prescription and non-prescription pet medications and other health products for dogs, cats, and horses direct to the customer. PetMeds markets its products through national advertising campaigns, which direct customers to order online or by phone. and which are intended to increase the recognition of the PetMeds brand name. PetMeds provides an attractive alternative for obtaining pet medications in terms of convenience, price, ease of ordering, and rapid home delivery. At this time, I'd like to turn the call over to the company's Chief Financial Officer, Mr. Bruce Rosenblum.

Thank you, and I'd like to welcome everybody here today. I would also like to remind everyone that the first portion of this conference call will be listened only until the question and answer session, which will be later in the call. Also, certain information that will be included in this press conference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or the Securities and Exchange Commission that may involve a number of risks and uncertainties. These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, These statements involve risks, uncertainties, and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance, or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission. Now, let me introduce our CEO and President, Matt Hewitt. Matt?

Thanks, Bruce. Good afternoon, and thank you for joining us. My first several months as the CEO and President of PetMeds has been incredibly busy and exciting. I continue to believe that PetMeds is a terrific company with a talented and dedicated workforce serving a loyal customer base. By the way, we like to feature pictures of our customers and employees' pets in our slide decks. You will see many original pictures throughout this presentation. In fact, this slide features my dog, Harry. As CEO, my continued commitment is to be open and transparent with all of our stakeholders as to how we are engineering the transformation of this iconic company. So today, I will spend some time on our current status and share with you how we're thinking about our transition into a growth company because we believe that this will provide some helpful insight into the business, our most recent results, and our future plans. We will kick off that discussion today by describing the overall market and the opportunity, as well as our financial progress through the December quarter. In addition, I will be providing a more detailed perspective on the actions and initiatives that we have begun since I joined in September. As we've covered in our previous earnings call, PetMeds operates in a very large and growing addressable market. The U.S. pet market is over $100 billion in annual sales, and it is expected to reach $120 billion by 2024. The addressable pet medication market where we participate today is approximately 10 billion and growing rapidly. We are one of the leading pet pharmacies today. I hinted at a broader vision in our last earnings call, and we've been actively testing and investigating opportunities against this broader vision throughout the last quarter. Based on our research and testing, we now believe that pet meds has exciting opportunities to address more customer needs than what our business focuses on today. Going forward, these opportunities will further expand our addressable market and allow us to bring even greater value to our customers. More on that later in this presentation. Not only are we operating in a large addressable market, we operate in a market that is growing and the behavior is favorable to digital retailers. U.S. household pet ownership has increased and today seven out of ten U.S. households have a pet. Certainly the macro effects of COVID have accelerated this trend and now more than ever, pet parents are keenly attuned to the health needs of their pets. We believe these trends indicate that both new and existing pet parents will need more pet medications and other related healthcare and wellness services to provide the healthy and happy lifestyle they want for their pet family members. Consumers also now expect everything to be real-time, fast, and digital, a trend which has impacted every industry. As we have seen in other digital e-commerce verticals, The ongoing move towards digitization of retail is accelerating. Today, our addressable market is largely dominated by offline sales, but we see the growing trend of purchase online as very favorable to us. Pet parents see their pets as an extension of their own families, and they are increasingly demanding more healthy pet care options. We see this as a positive trend for pet meds and an opportunity for growth. Similarly, aligned with the trends in human health, pet parents are thinking through the entire spectrum of their pet's care, from diet to veterinary services, as well as the channels through which they access those products and services. Lastly, COVID also accelerated the increasing trend for the digitization of healthcare. Specifically in the pet market, regulations related to in-person veterinary visits and prescription fulfillment were temporarily waived for the first time during COVID, and moved online in unprecedented ways. We have spent a considerable amount of time conducting research with the industry as well as with pet parents, and we are excited that these market dynamics should facilitate the acceleration of digital-based telehealth services in the pet industry. During the last earnings call, we discussed some key pet med differentiators. I want to reiterate those because they are important, and I believe they provide a real edge for our company's transformation. First, our brand is widely known and trusted. In fact, here is an important update since our last earnings call. We just commissioned an extensive customer and market research study that showed that 55% of US pet parents are aware of the PetMeds brand. Having a strong brand takes years to develop and our customers look to PetMeds as their trusted pharmacy and pet medication expert. Second, we have strong operational and quality efficiencies of pharmacy. Our customer care integration with our pharmacy is world-class, which ensures that customers get their products delivered quickly and accurately. Additionally, our vet partners receive quality service delivered through our vet platform. This operational efficiency is hardwired into the fabric of the company, which will enable us to effortlessly move into new health and wellness adjacencies. Our deep experience with the vet community is a competitive advantage. As we discussed in our last earnings call, We currently have one of the largest direct-to-consumer vet networks in the online retail space, with over 70,000 veterinarians that we have worked with over the company's history. Currently, our online vet portal has 17,000 ACRA veterinarians and vet clinics. This is a core capability and asset because it enables us to expand our fulfillment capability as we scale our business. Our prescription medication authorization rates are the highest they have ever been, which speaks volumes to the level of veterinary cooperation we receive on a daily basis. Our pet pharmaceutical category expertise is something that I view as a towering strength. Many retailers can sell dog bones, but not everyone can provide medication and health advice at scale. Being a differentiated pet medication provider allows pet meds to focus on our health and wellness offering, especially as the market continues to become even more competitive, again, More to come on where we see our brand and business going in the coming months. PetMeds currently enjoys a close and strategic bond with our many supply partners. Those relationships have developed over time to become even more strategic. We have direct relationships with all of our major suppliers, and we work together closely to market their products to our customer base. Our customer service and overall customer centricity ethos permeates throughout the culture and our team. We have a 100% lifetime guarantee to customers that we are committed to. We go the extra mile for our customers with truly empathetic and expert service. We just don't have a transactional interaction with our customers. We have built trusting, genuine relationships. Our customers view PetMeds as a trusted pet health expert, and we take that responsibility seriously. I recently had the pleasure of listening to a phone interaction from a loyal customer of three years from Rhode Island. This customer in particular asked to talk to a manager. As we all know from our experiences as consumers, you typically ask to talk to a manager to escalate a problem or negative experience. This customer started off the call noting that, quote, there's always a complaint box, but never a compliment box, unquote. This customer was calling to give us a compliment. She was amazed with the conversations that she has had with our employees over the last several years. She stated, quote, every time I call, Everybody that answers the phone is always willing to go above and beyond to help me out to get it to me as soon as they can. I don't know what group of people you're pulling this pool of people that you're hiring from, but every single person has always been pleasant and helpful. It's unlike anything I've ever experienced. It's just refreshing, unquote. These types of customer interactions are commonplace at PetMed, and in my experience, very uncommon in most companies. Before I address our earnings performance, I would like to address several reasons why PetMeds is a strong investment opportunity. PetMeds has a lot going for itself, including PetMeds is profitable with a pristine balance sheet. We do not have any debt. We have approximately 109 million in cash and cash equivalents as of December 31st, 2021, and we are cash flow positive. PetMeds is moving from a transactional direct-to-consumer brand to a subscription business. Subscription businesses are clearly compelling business models to their predictable and stable recurring cash flows. We ended last quarter with approximately 25% of our customers enrolled in ordering via our auto ship and save subscription program, and that number continues to rise. We also continue to have a large base of returning customers, which is an indication of the quality service and the value that we deliver. We are fortunate to have a large base of over 2 million pet parents that have purchased from us over the last two years. We have over 25 years of experience as a pure play pet pharmacy, fully licensed in 50 states, delivering outstanding service and value. This domain expertise is what I would call the more complicated part of the pet ecosystem, which makes our progression into other segments much easier. Our customers just love our brand and our service. Our NPS score is over 80, which puts us in the upper quartile along with some of the most beloved brands in the world. Before Bruce Rosenbloom, our Chief Financial Officer, runs through Q3's financial results, I would like to contextualize how we thought about this quarter. I would characterize this quarter as a transitional quarter. After my years of transformation and turnaround experience, taking a business from a low to no growth company to a growth company does not happen overnight. It usually takes several quarters of investment and foundational work in order to show meaningful operational progress when executing a business transformation. I will detail the operating rationale behind the numbers after Bruce's presentation. Now, I'd like to have Bruce review our financials for the quarter.