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spk01: Ladies and gentlemen thank you for standing by. The program will start momentarily. Once again the program will start momentarily. Thank you for standing by. Thank you.
spk04: Thank you.
spk01: Greetings and welcome to PetMed Express fourth quarter financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills with ICR. You may begin.
spk02: Thank you, Operator, and I'd like to welcome everybody here today to the PetMed Express Fiscal Fourth Quarter 2024 Earnings Conference Call. 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 matters, including any matter in respect of the operations or business or financial condition of PEDMEDS. PEDMEDS 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've 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 turn the call over to our CEO and President, Sandra Campos. Sandra?
spk07: Thanks, John, and thank you to everyone for joining our conference call today. It is a true pleasure to speak with all of you for the first time, and let me just start by saying how incredibly honored I am to lead this company at such a pivotal point. PETS, which includes PetMeds and PetCareRx, is very much at the intersection of my personal and professional passions. That, along with the ability to transform a business within a growing sector, is what ultimately attracted me to join the board as an independent director just over a year ago. I personally have eight rescue horses, two rescue dogs, and one very talkative senior cat. I intimately understand the profound bond that exists between pets and their families and the importance of working with trusted veterinarians who provide the valuable patient care as well as the loyalty one has for a reputable retail provider that takes care of all of your animal's needs in an efficient, timely, and professional manner. Throughout my retail and CPG career, I have consistently prioritized the needs of consumers and strived to establish disruptive, vibrant, and enduring brands that fulfill their promises of quality and value to their communities. I've scaled startups, led entrepreneurial enterprises, billion-dollar brand portfolios, and have managed businesses that are global in scope. And I have an extensive background in end-to-end supply chain as well. In this new role, I have the ability to bring my knowledge and experiences to pets as we refocus our teams on being a customer-centric, mission-based company whose primary goal is to empower pet families so that they can provide the best possible care for their dogs, cats, and horses and help them in order to lead long and healthy lives. The market for pet medications, foods, and health products and services is continuing to grow, and servicing that market is what we've done really well since 1996. According to the American Pet Products Association, pet spending in the United States continues to increase and has increased by 7% to $147 billion in 2023. Veterinary care and prescription medications represented about 26% of that total spend for $38.3 billion. That leads us to pets, where we have an incredible opportunity ahead for growth in a sector that continues to expand. As an enterprise, we have some very positive key results. We filled almost 500,000 much-needed RX prescriptions and RX foods in the past 18 months. We continue to add new customers each year, 302,000 in fiscal 2024, 274,000 new customers in fiscal 2023, or a 10% year-over-year increase. Our average order value is healthy and had a slight year-over-year increase to $94 for fiscal 2024 from $93 for fiscal 2023. While I've only been at the helm of this company for four weeks, I would like to share my view on the future for Pets, as well as some short-term tactical and strategic objectives for our business. First, consolidation of our brands. We believe that our primary brands, namely PetMed and PetCareRx, are known as the incredible experts among pet owners and are synonymous with pet health and well-being. The consolidation of our brands into a single, united company is driven by our commitment to streamline operations, lower our overall cost structure, and increase the value proposition by enhancing efficiencies and providing a more cohesive customer experience. By bringing together brands that have the same mission in product assortment, we can leverage our combined strengths, reduce redundancies, and offer a unified, stronger presence in the market. In the short term, our focus will be on improving fundamental processes, reducing operating expenses, while enhancing some of our core offerings, such as our tiered membership model and our employer benefits partnerships. We still characterize this as a work in process as we continue enhancing the program with additional partnerships that help families provide preventive care during all life stages of their pets. Secondly, continue focusing on cash flow generation while enhancing key partnerships. The company entered fiscal 2025 with a healthy liquidity position and will continue to monitor and manage cash flow through the consolidation of our two brands. Actions to preserve liquidity and maximize cash flows during fiscal 2025 will include, but will not be limited to the following. Deepening our relationship with key suppliers to optimize our supply chain and improve margins. Managing future inventory through properly forecasting supply with expected demand, ensuring that customers can find the product when they need it. Reducing expenses to better align operating costs with sales through elimination of duplicative resources, including agency and vendor consolidation. And focusing on operational efficiency and reducing order processing time at our fulfillment centers, pharmacy, and call centers through tech enablement and automation. Third, customer retention, loyalty, and frequency of visits. At the heart of our business are our loyal customers who rely on pets for their dog, cat, and horse's regular wellness needs. We have initiated the process of advancing our customized technology that supports our auto-ship program. From new features to seamless integration and facilitating the shopping experience, this is a high priority that drives higher customer lifetime value and repeat purchases. We have just added a new Chief Digital and Technology Officer to lead these efforts who has tremendous background in this, Umesh Rupad. Our marketing strategy is a commitment to reinvigorate our communication initiatives and deepen our engagement with consumers. And that, we also have just added a chief marketing officer, Carla Dodds, who also has extensive retail and e-commerce experience. We are personalizing the customer journey through advanced AI customer segmentation marketing solutions. We're bundling and cross-selling opportunities across merchandising categories. And since Carla joined us just a couple of weeks ago, we are driving these initiatives today and going forward. The enrichment of our digital content library with the support of our veterinary advisory board is going to be something that will be connected to our easy checkout across all customer touchpoints. And lastly, we have some new customer acquisition priorities, which will also be part of our fully integrated marketing strategy as we go forward. Number four, investment in technology, AI, automation across departments. We have begun the work of integrating PetMeds and PCRx already as one business unit across the organization. Each brand has had different systems, but we've already launched a single solution best-in-class call center for our pet health specialists with a phone system that goes live in August for a more seamless communication with our customers and our veterinary partners. We are also at work on the following. Fulfillment logic to optimize operations across the two warehouse locations, along with adding 3PLs yet to be identified for reducing shipping costs and increasing speed to the customer's doorstep. Second, enhancement of the pharmacy software for increased digitization and greater efficiency for our teams. Third, business intelligence tools, revamped to be able to enable faster decision-making across our various operations that drive growth and profitability. The last, MarTech AI tools for end-to-end efficiency and automation throughout the customer journey. We are well-positioned to thrive as a leader in this growing industry. For over two decades, we've served millions of customers who've entrusted us with the care of their beloved pets. Our competitive advantage is proven by our dedicated employees, consumers, veterinarians, and vendors' confidence that pet meds and pet care acts are synonymous with providing the best healthcare products for preventative care and acute or chronic conditions for dogs, cats, and horses. We've invested heavily in our pharmacies at each location, and we have pharmacists with specialties in veterinary pharmacology and licenses in all 50 states. The pharmacies are also accredited by the NABP and LegitScript and have excelled in all federal and state regulatory requirements that include a five-point rigorous verification process from the time that we receive an order to the moment that we ship it to the customer. In creating an ecosystem for holistic pet wellness with a laser focus on the pet family needs, we believe that we have the ability to expand our position as a trusted go-to leader to best serve our customer needs We have established strong vendor and strategic services partnerships with brand names that consumers recognize and trust for any of their pet's health concerns. That includes our prescription and over-the-counter medication, supplements, supplies, food, both Rx and non-Rx, insurance, telehealth, employer benefits, our veterinary advisory board, our educational content that we provide, private label products that provide alternatives and accessible price points for the consumer. We are committed to connecting our customers to rich educational content from our professional resources. Recently launched, our Veterinary Advisory Board, or the VAB as we are calling them, has a goal of ensuring that all of our initiatives result in improved patient care. This esteemed board consists of five expert veterinarians across the country, each with decades of experience in private practice and academia, shaping the future of veterinary medicine. Dr. Lori Teller, DMV DAB VP for canine and feline, CVJ and clinical professor in the Department of Small Animal Clinical Sciences at Texas A&M University's School of Veterinary Medicine and Biomedical Sciences, serves as the liaison between the company and our veterinary advisory board. Dr. Teller and her four colleagues bring a wealth of knowledge and experience which will be instrumental in achieving our fiscal year 2025 goals and beyond. The VAB's extensive expertise will be leveraged across the organization from products to marketing, and they will play a crucial role in advising the company on regulatory updates. Additionally, the VAB will support the development of customer-facing educational content about the vital role that veterinarians play in protecting family health. And most importantly, the VAB will be instrumental as we improve our veterinary-facing portal through reducing friction, applying historical data, and increasing usage to increase internal speed of transactions. Another key area of strength is our in-house customer support team, who are pet health specialists. As a premium service to our customers, our in-health pet specialists in the call center support more than 100,000 pet parent calls each month. Pet owners have the ability to contact our agents and pharmacists for assistance with their animal's well-being via telephone, chat, and email. We're in the process of consolidating our two teams and phone systems into one in order to ensure efficiency, consistency, scalability, and reduced costs. The quality of our senior management team has been a key area of my initial focus for the past four weeks, and I am thrilled to welcome three exceptional leaders who will play pivotal roles in driving our company's future growth and success. Carla Dodd joined us on May 28th as our new Chief Marketing Officer Carla is a dynamic and inspiring marketer who brings a wealth of experience in consumer behavior, integrated marketing solutions, creating meaningful loyalty and partnership programs, and increasing brand equity from enterprise companies such as Walmart, MasterCard, and Penske Media Corporation. Caroline Canigliano joined us on June 10th as Chief Operating Officer, a newly created position for Pets, underscoring the importance of having a singular focus leader in this role. Her ability to seamlessly integrate analytical insights with creative solutions, along with her proven track record in scaling businesses, makes her an invaluable asset for our organization. Umesh Tripad, our new Chief Digital and Technology Officer, also joined the company on June 10th. Umesh's expertise in driving successful technology implementations and creating seamless customer experiences from the likes of IKEA.com, Overstock.com, and Bed Bath & Beyond will significantly enhance our operational efficiency and effectiveness. Additionally, we as a board determined that we needed an independent director who could bring experience specific to technology, cybersecurity, and digital transformation. As such, we've added technology veteran Justin Menon to the independent board of directors. Justin brings enterprise-level technology infrastructure, healthcare, and cybersecurity expertise that will be extremely valuable as we modernize and transition our tech sector. I have no doubt that these key additions will allow us to be positioned to execute our strategy and to accelerate the growth of pets. Our ultimate goal is to position pets as the go-to resource for pet health and wellness products, services, and experiences through our ecosystem. Ensuring sustained growth and a thriving customer community requires a broad roadmap and a disciplined execution. First, we're going to create personalized customer experiences across channels through modern technology that incorporates AI, automation, and product management that drives scale. Second, optimizing our order processing and transportation management system to deliver with speed and efficiency from time of order to the customer's doorstep. Third, develop mission-first, purposeful marketing campaigns that are authentic and improve customer engagement while increasing brand awareness across all touchpoints. Fourth, leveraging data analytics to gain timely customer insights that will accelerate responsiveness to customer demand and create automation for improved daily workstreams. Fifth, innovate product offerings, increasing high-margin private label assortments for greater accessibility. And lastly, curating strategic partnerships that further promote health and wellness during all life stages for dogs, cats, and horses. Our company-owned and third-party operated management information system consists of a full range of retail, merchandising, human resource, and financial systems. These systems include applications related to digital operations, inventory management, supply chain, planning, sourcing, merchandising, payroll, scheduling, and financial reporting. We will prioritize these technology investments in order to upgrade our core systems, create efficiencies to support our digital operations, our pharmacy operations, our fulfillment center effectiveness, and our customer relationship management tools with the loyalty programs. Through our planned integrated marketing campaigns and deepening our focus on customer segmentation, we believe we have the ability to acquire new customers in the underpenetrated regions, including Midwest, Northwest, Southwest. More than 50% of our current revenues come from the Northeast and the West Coast states, as well as Southwestern Florida, where we will continue to focus our retention efforts. These initiatives are part of the strategy to achieve greater levels of success while creating significant value for both customers and shareholders. Christine will provide a detailed summary of our latest results, but in general, performance in the fourth quarter reflected a continuation of the trends we've seen throughout much of fiscal 24, as net sales were up 6.6% on a year-over-year basis, driven by the Pet Care Rx acquisition. We continue to make progress leveraging the combined pet business with our expanded product offerings by focusing on attracting new customers as well as driving recurring revenues from existing customers. As a leader, I have an unwavering commitment to transparency, whether speaking to customers, vendors, employees, or shareholders. When I joined as CEO four weeks ago, I knew the overall technology stack was going to be an area of focus and opportunity for near-term improvement. We are dedicating additional technology resources to modernize our tech stack and, as mentioned, have added Umesh Rupad, our very experienced new Chief Digital and Technology Officer, to strengthen the leadership team. The PetCareX business that we acquired last year brings increased distribution capability and experience geographic diversity, technology enhancements, additional vendor relationships, and a long-tenured and experienced staff whose capabilities will only enhance and accelerate our efforts to improve productivity. A key to driving growth and profitability is a successful execution around these initiatives. Our future hinges on the commitment to innovation, delivering seamless experiences, and positively contributing to a brighter, healthier outlook for pets everywhere. At Pets, everything we do is rooted in consistently delivering high-quality, value-based products and services to millions of pets and their families while enhancing speed and efficiency. I'm eager to build upon our foundation and to foster even more personalized and meaningful relationships at every touchpoint through advanced technology solutions, generative AI, and integrative marketing initiatives. Equally important, we are also committed to providing exceptional value across PEP through our loyalty program and ongoing savings benefits that make high-quality products accessible to everyone. This will be an expansion of our existing loyalty program, including plans to add members to our National Employee Benefits Partnership, which is our PEP Plus program. Our Veterinary Advisory Board will be instrumental, as I mentioned earlier, in furthering our mission of enhancing our ecosystem of products and services. We currently offer free live chats with veterinary technicians, access to the VetLive on-demand veterinary telehealth service through our partner, Vetster, and offer valuable benefits of lifelong savings through our pet insurance pumpkin partnership. We plan to utilize the exclusive veterinary community approved and credible publishers to create and maintain our educational platform for dogs, cats, and horse owners. In summary, after my first four weeks in the role, I am even more convinced that our developing strategic business model will promote increased shareholder value. Our foundation is proven, and we have the liquidity, including a balance sheet with over $55 million in cash and no debt as of March 31, 2024, that enables us to use a thoughtful, balanced approach to allocating capital. As mentioned, over the near term, our top priority will be consolidating the businesses, right-sizing our infrastructure, and investing in our technology to drive sustainable growth and profitability. We are confident that our strategic initiatives will drive growth will improve profitability outcomes, and will increase our key customer satisfaction metrics. I am grateful for a dedicated team of partners internally and externally, each of whom play crucial roles in ensuring that pets becomes the go-to resource for dog, cat, and horse health and wellness. With that, let me hand the call to Christine to cover the fourth quarter results in more detail.
spk06: Thank you, Sandra. I will now provide an update on the fourth quarter fiscal year 2024 results for the quarter ending March 31, 2024. Fourth quarter fiscal year 2024 sales was 66.5 million compared to sales of 62.4 million in the same period last year, representing growth of 6.6% year-over-year. The growth was due to incremental sales from the acquisition of PetCare Rx, partially offset by a slowdown in call center response times due to the implementation of our new order management system and order ship platforms during the fourth quarter. We welcomed approximately 73,000 new pet parents this quarter, relatively flat to the same period in the prior year. Consolidated reorder sales were $58.9 million for the quarter an increase of 4.6% compared to reorder sales of 56.2 million in the same period last year. We've continued to grow our recurring revenue, including auto ship and save sales and PetCareRx membership sales as a percentage of total sales to 54% in the fourth quarter of fiscal year 2024 compared to 52% in the third quarter of fiscal 2024 and 44% in the same quarter last year. Increasing our recurring revenue remains a focus for us as it drives greater engagement and strengthens the predictability of our sales base. Prescriptions and premium food are some of the top categories for our customers, and we believe they continue to offer significant potential to help us increase order size, purchase frequency, and customer LTV in addition to attracting new customers. Gross profit margin was 27.3% compared to 27.9% in the same quarter last year and 27.4% in the third quarter. The decrease year over year was due to lower manufacturing rebates, higher promotional activity, and a lower prescription medication sales mix, offset by an increase in pet care Rx membership fees. Adjusted EBITDA was $500,000 for the fourth quarter, compared to an adjusted EBITDA of $3.6 million in the same period last year. The decrease was due to an increase in G&A and advertising expenses, partially offset by an increase in gross profit. Net loss for the fourth quarter was $5 million, or $0.25 per diluted share, compared to a net loss of $200,000, or $0.01 per diluted share, for the same period last year. The change year-over-year was due to the increase in G&A and advertising expenses of $3.5 million due to the Pet Care Rx acquisition, an increase in depreciation and amortization of $900,000, as well as an increase in the tax provision of $870,000 and a decrease in interest income of $400,000, partially offset by an increase in gross profit related to the acquisition of $800,000. Turning to the balance sheet, as of March 31, 2024, we had over $55 million of cash and equivalents and no debt. we continue to look for ways to maximize cash through driving networking capital improvements, negotiating leases with our tenants, and reviewing vendor agreements for efficiency. With that, I will now turn the call back to Sandra for concluding remarks.
spk07: Our strategic plan provides a robust foundation guiding our organization with a clear compass and ambitious KPIs. This plan is underpinned by these key pillars. First, delivering pets combined growth across all categories. Second, executing an enterprise-wide consolidation of businesses. Third, executing digital transition initiatives. And lastly, operating with financial discipline across every department and function. As we embark on a multi-year transformation to achieve top line growth across our distribution channels, we remain steadfast in our commitment to our core purpose, Our focus is on our pet families, ensuring that they have access to the best products for preventive and acute care at all stages of their companion animal's lives. We celebrate the veterinarians who provide exceptional care to their patients nationwide, and we welcome the support of our newly formed Veterinary Advisory Board as part of our fiscal year 2025 initiative. Additionally, we value our strategic partners who help us create a comprehensive ecosystem supporting pets throughout all of their lives. We also prioritize our employees by investing in upskilling and providing ample career development opportunities. And with that, I am very thankful and honored once again to be able to lead this organization during this pivotal time and look forward to further discussion. Thank you very much. We are now ready for the question and answer session.
spk01: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Ryan Myers with Lake Street Capital Markets. Please proceed with your question.
spk03: Thanks for taking my questions today. First one for me, given all the initiatives you guys just laid out, do you feel like you can generate top line growth this year?
spk06: Hi, this is Sandra.
spk07: And absolutely, our initiatives are focused on generating top line growth. we have started to already implement some changes across not only our marketing initiatives, but also as we continue to impact the technology as we were, as I was mentioning earlier, and all the technology advancements. We know that we have the opportunity to increase sales, not only with the addition of our auto ship subscriptions with current and recurring customers, but also in terms of new customers through creating these more seamless customer journeys and seamless experiences so that they can actually have better access to the products that they need at the right time. In addition to that, as it relates to as we look at our supply chain and our distribution and the way that we can actually get the product closer to the customer and with speed and efficiency that we also believe is going to absolutely help in top line sales.
spk03: That's very helpful. And then next one for me, just switching over to the fundamentals of the business. Have you seen any further stabilization in the core business? You know, besides the consolidation you guys talked about, what else do you feel like needs to be done here to drive growth in that business?
spk07: In the core fundamental business, we're really looking at our overall vendors, our top vendors, our top performing SKUs, With the help of our veterinary advisory board, we're looking at what those most important medications in the RX part of the business are and how we can ensure that we have those products from an inventory management perspective at all given points in time. We're actually seeing the returning customers increase. We're seeing an improvement in conversion. because we're actually doing that through not only our customer care and health specialists who are on the phone communicating with those hundred thousand plus pet families every month, but also online through chat, through email and through their online purchases. So we are seeing that every piece, every initiative is going to absolutely help us propel these initiatives forward and not only top line growth, also profitability and margin improvement, because we are also making some slight deductions and changes as it relates to promotions, where as we focus on the top products that are core to a patient's pet family's health and their health care of their pets and their lives, the more of that that we offer, the better we're going to be able to improve our own margins on those products, not be focused on driving it at a value discount price, but really providing true value as it relates to the services and the products and the enhancement of those that we deliver as a company.
spk01: Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Erin Wright with Morgan Stanley. Please proceed with your question.
spk00: Great, thanks. So you gave a lot of great detail there on a lot of the changes you're making across the organization. And in light of that, how should we think about the cost structure going forward and going into next year and how we should think about investments that you're making and the timing of that and how lumpy that can be kind of quarter to quarter and just broadly kind of your philosophy on growth versus profitability in terms of your priorities. Thanks.
spk07: Thank you for that question. Well, we are absolutely focused on profitability. And as I mentioned, as it relates to consolidation of these two businesses, we are creating synergies with them and reducing redundancies. We are looking at that across literally every line item that has to do everything from vendors and agencies where we have had two separate businesses on two separate systems and duplication of costs there. That initially an upfront and right away is going to be able to make some immediate impact as it relates to reduction of operating expenses. So we're finding better efficiencies. We'll be focusing on the profitability through first and foremost, reducing those duplications across those businesses in order to synergize what we have together.
spk00: Okay, and then can you give us some metrics around sort of what the organic growth across the base business actually was in the quarter, kind of excluding the pet care Rx or new customer growth or across the base business or any metrics from an organic perspective?
spk07: Yes, Christine, I'm going to hand this to you because I know you are coming in with these statistics.
spk06: Yes. Thank you. Thanks, Erin, for the question. So we don't break the metrics out separately, but we did report, you know, the new customer number for the quarter, and it was relatively, you know, flat to last year on a consolidated basis. But we are very focused on key metrics that are going to be focused on new customer acquisition, retention of customers, and really, as Sandra mentioned, sort of selling more to customers as we focus on, you know, the lifetime value of those customers and the repeatability of those customers. So for the quarter, yes, new customer growth. We did a relatively flat for the quarter, and we don't necessarily split them out between the two businesses.
spk05: Okay. All right. Thank you.
spk01: Thank you. We have reached the end of our question and answer session, and with that, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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