PetMed Express, Inc.

Good afternoon, everyone, and thank you for joining the PetMed Express Third Quarter Earnings Conference Call. My name is Doug, the operator for today's call. I would now like to pass the conference over to our host, Mr. Brian Prenneveau, Investor Relations. Sir, the floor is yours now.

Thank you, operator, and I'd like to welcome everybody here today to the PetMed Express Fiscal Third Quarter Earnings Call. I would also like to remind everyone that the first portion of this conference call will be listen only until the question and answer session, which will be later in the call. Also, certain information that will be included during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. As amended, 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 results could differ materially from those projected. There can be no assurance that any forward-looking results will occur or be realized. and nothing contained in this presentation is or should be relied upon as a representation or warranty as to any future matter, including any matter in respect to the operations or business or financial condition of PetMeds. PetMeds undertakes no obligation to update publicly these forward-looking statements based on subsequent events, except as may be required by applicable law, regulation, or other competent legal authority. 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. Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release we issued this afternoon. Now, let me introduce our CEO and President, Matt Hewlett. Matt?

Thank you, Brian. Thank you for making the time today to participate in our earnings call. For anyone new to the PetMed Express company and story, PetMeds is a company that delivers prescription and non-prescription medications, food, supplements, supplies, and vet services direct to the consumer. Our expert online pharmacy is an established and trusted brand, as evidenced by the fact that we have served over 11 million pet parent customers over our company's 26-year operating history. PetMeds is a leading pet retailer for both prescription and non-prescription medication. We have a loyal customer base of pet parents that value our brand, service, and quality. However, we believe our company and this industry can be more to the millions of pet parents across the country, and our goal is to be the market leader in pet wellness and healthcare, or as we like to say, be the trusted pet health experts. Because we believe every pet deserves to live a long, happy, and healthy life, we will be walking through the following components in today's earnings call. One, an update on our strategic roadmap, including our recent agreement to acquire PetCareRx. Two, a detailed review of our full-year Q3 earnings. And three, an overview of our go-forward thoughts related to our capital allocation strategies. From management's perspective, we are pleased with our results this quarter, as well as the progress we have made on the company transformation. Next slide, please. Over this last year, PetMeds has been in a rebuilding mode with a new and experienced management team, an updated strategy, and a revised overall approach to the market as we transition to a growth-oriented business. I will provide an overview of our third quarter results, and then our CFO, Christine Chambers, We'll go into greater depth later in the presentation on our financial performance. Third quarter sales were 58.9 million compared to sales of 60.7 million for the same period the prior year. While this equates to a decrease in sales of 3% year over year compared to a double digit decline in fiscal year 2022. One of the reasons that we are pleased with the quarter was that we saw an increase in net new customers of 9% year over year. This is an important milestone for the company, since we have not seen an increase in net new customers since Q1 of 2021. Most importantly, we achieved this while staying disciplined in terms of our customer acquisition efficiency metrics. Our new customer count for the quarter was approximately 72,000 compared to 66,000 in the prior year, and our LTV to CAC for the quarter was 1.6. Our average order value was $88, relatively flat to last year and last quarter. We also saw continued growth in the recurring revenue side of our business. Our auto ship and save program continues to grow and expand, and approximately 42% of our revenue was recurring revenue derived from our auto ship subscription program during the second quarter. This part of our business increased 8% on a sequential basis, and doubled year over year. Autoship continues to be an important strategic lever for PetMed, especially considering that the focus of PetMed's business has historically been solely focused on the prescription refills business. Later in this presentation, we will walk through in detail our product catalog expansion strategy, especially as it relates to our agreement to acquire PetCare Rx. We believe that there are clear expansion opportunities for more customer engagement in the non-medication space, which will increase our pet parent wallet share, generate more recurring revenues, and lead to an increase in customer lifetime value. Simply put, with a broader catalog assortment, we see an opportunity to attract new customers while selling more to our existing customers. We have previously discussed what the company's strategy has been historically and what it will be going forward. PetMeds is shifting from being simply a leading pet medication retailer to being the pet health experts, a market leader in pet healthcare expertise. We want to be every pet parent's go-to destination for holistic health and wellness, from nose to tail, and be that go-to destination over a pet's entire life cycle. On that journey to becoming trusted pet health experts, we believe the strong relationships we've established with pet parents through pet medication prescriptions is an entryway to providing them with further goods and services including prescription food, tele-vet services, supplements, and soon pet insurance. The four points of our paw print are medication, care, nutrition, and wellness. We view these points as being key to building a differentiated brand and experience to pet parents everywhere. We recognize the shifts that are occurring in the regulatory landscape, which led us to our first big investment, pet telemedicine. Our investment in and partnership with Vetster enabled PetMeds to become what we believe to be the first pet retailer to offer pet telemedicine at scale. VetLive, our new co-branded offering with Vetster, connects pet parents to thousands of licensed veterinarians, providing quality online vet services through video chat appointments 24-7, and is exclusive to the PetMeds platform. We see the virtualization of vet services as being a key pillar of the pet's business. and a differentiator in the pet space. So VetLive is a strategic advantage that will continue to develop as regulation changes and as consumer education and awareness develops. The pending acquisition of PetCareRx represents a significant opportunity to expand our pet meds catalog with a broader set of consumable products and nutrition. PetCareRx's catalog offerings include over 13,000 of the best non-medication health and wellness products including food, supplements, and other similar products. They also bring us an incremental distribution center capability outside of our core medication distribution. We have been rapidly filling in the strategic pieces of our strategy to take advantage of a growing industry, which is the topic of our next slide. As we have covered in our previous earnings calls, PetMeds operates in a growing addressable market. Because of our pending acquisition, partnerships, and core improvements in the pet med business, PetMeds is now able to actively participate in a broader addressable market across the pet wellness space. With our investments in vet care and a broader product selection, we are in an enviable position to gain market share and expand our relationship with our customers. Over time, we expect our revenues to be more diversified as we address a broader range of pet parents' needs. Management is excited about how we've positioned PetMeds to be a growth company. The pet space has proven to be a resilient vertical, even in recessionary times. Pet parents see their pets as an extension of their own families and increasingly demand premium pet care options. Here are some reasons why management is excited about PetMeds growth opportunities from a macro perspective. One, pet parents are less likely to reduce their pet purchasing budget, especially in the consumable and medication categories. Two, U.S. household pet ownership has increased over time, and today 70% of U.S. households now own a pet. Those pet parents will need and seek health and wellness care provided by a trusted brand. Three, consumers also now expect everything to be real-time, fast, and digital, a trend impacting every industry. The e-commerce channel continues to expand rapidly. We expect the pet vertical to follow this expansion, just like we have seen in other digital e-commerce verticals. Today, our addressable market is largely dominated by offline sales, but we see the growing trend to purchase online as an opportunity, which would be very favorable for us. Four, we also see a real trend towards the digitization of pet healthcare, just like we have in human health. Pet parents are thinking through the entire spectrum of their pet's care, from diet to veterinary services, from infancy through old age, and they're examining the channels through which they access those products and services. We believe PetMed is uniquely positioned to take advantage of these trends. By focusing on total wellness, we can offer products and services to pet parents that are diet and health focused in the areas of pet medication, premium prescription and non-prescription food, supplements and tele-vet services. Before we dive into the quarterly financial results, I want to remind our stakeholders of several important achievements that signal the beginning of the transformation of PetMed into a growth business. Net new customer growth. Year-over-year customer growth shows the vitality of any growing business, and we share good news on this front on today's earnings call. As we expand our product catalog over the longer term, we anticipate that PetMed Express will benefit from having a higher LTV and more operating leverage to acquire customers at scale. More subscription revenue. We have seen substantial progress here and will continue to see more recurring business that enables PetMeds to be a more predictable business model with higher LTV and increased loyalty. Sell more non-medication products. The expansion of our product catalog and services has been a key initiative for us. We decided to turbocharge this effort through the pending acquisition of PetCare Rx. PetMeds will benefit by having more recurring sales, increase regular visits, thus delivering a higher LTV. Our customers desire a wider selection from us, and we look forward to working with the PetCareRx team once we close the transaction to work towards these expansion opportunities. Unique and differentiated services via digital-based healthcare services. Our goal is to continue to move more health and wellness services online with our long-term perspective that this will be driven by pet medications and veterinary care. Our next slide summarizes how these products and services are tied together. PetMeds is uniquely positioned as a starting point with a highly regulated and complex pharmaceutical segment of the pet industry. Last month, we announced the agreement to acquire PetCareRx, a leading supplier of pet medications, premium food, and supplies. The combination of the two long-operating companies will greatly impact the longevity and happiness of pets on a larger scale. PetCareRx has been operating as a privately owned pet health and wellness company for over 20 years. The acquisition is intended to provide the following advantages. A greatly expanded addressable market beyond our current pet medication market. Immediate revenue and customer growth. And greater non-medication sales for the core pet meds business. we are confident that we will see similar expansion of buying behavior with our PetMeds customers and will rapidly move the supplier relationships and products from the PetCareRx portfolio over to PetMeds over the next several quarters. Once the transaction closes, PetMeds will be working towards integrating the PetCareRx brands and catalogs onto the PetMeds e-commerce platform. Longer term, the win for pet parents and our stakeholders is that pet meds will now be able to service a wider range of products and services for what we like to refer to as from nose to tail. Offering an expanded catalog to our recurring customers is a great place to start, but that alone doesn't create an adequate moat around the pet meds business. As a result of consumer demand, we believe strongly that pet health services will become more digitally enabled, a trend that we have already seen in human health. We are very excited about our strategic relationship and minority ownership stake in Vetster, our exclusive partner that accelerated our entry into the virtual telehealth and telemedicine space. We also believe pet telemedicine is going to be a huge trend over time, not unlike what we have seen with other services like online and mobile food and delivery services. There are a slew of innovations that you can expect to see from PetNet as we integrate the technology from our various partnerships in unique, differentiated, and bespoke ways. And all of these efforts are designed to provide high efficacy outcomes for pets to live healthier and happier lives. Expect to see more innovations and product catalog extensions over the coming quarters that will deepen the benefit of our strategic pillars. I would like to now turn the call over to Christine to walk you through our Q3 financial performance and the company fundamentals. Christine?