Q1 2021 Petmed Express Inc Earnings Call
Welcome to the 1.800 of Pet Meds conference call to review the financial results of the fish.
Excuse me of the first fiscal quarter ended on June 30 of 2021.
The request of the company. This conference call is being recorded.
All of it in 1990.618 hundred of pet meds in the Americas, most trusted pet pharmacy, delivering prescription and nonprescription pet medications and other health products for dogs cats and horses direct to consumer.
1.
At the foundry pet meds markets its products through national advertising campaigns, which direct consumers to order by phone or on the internet and which aimed to increase the recognition of the pet meds family of the brand name.
1 of the hedge at pet Meds provides an attractive alternative of obtaining pet medications.
1 of the gains in terms of convenience price ease of ordering and rapid home delivery.
At this time I would like to turn the call over to the company's Chief Financial Officer, Mr. Bruce Rosenbloom.
Thank you I would like to welcome everybody here today.
I would like to remind everyone that the first.
The case portion of this conference call will be listen only until the question and answer session, which will be later on the call.
Also of 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.
First the million ball, the 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.
Certainties 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.
On the factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission.
For today's conference call John Fulgoni Arch Board Chairman is joining US now we will review the financial results, we will compare our first fiscal quarter ended.
Rent of 32021 to last year's quarter ended June 30 of 2020.
And in some cases referred back to pre pandemic time periods as well.
And our first quarter of fiscal 2022, we faced the unique situation, we are coming off a very strong June quarter.
On <unk> that was primarily driven by increased e-commerce demand as a result of the pandemic.
Causing many retail stores to close in many veterinarians to be unavailable.
However, during the most recent quarter, while the pandemic wasn't dating in retail stores and veterinarians where reopening.
1 of the advertising market was rapidly recovering was surging demand drastically driving up the cost of the advertising on a per impression basis as a result, even the overall advertising spending for the quarter increased over the prior period.
We delivered fewer AD impressions than in prior years.
Our total net advertising per our income statement did in fact decrease due to increased cooperative marketing rebates, which were earned in the quarter.
For the first fiscal quarter ended on June 30 of 2021 sales were $79.3 million compared to sales of $96.
Here's a million for the same period the prior year of.
The decrease of 17, 6% the sales were relatively flat versus the quarter ended June 30th 2019 prior to the pandemic.
The decreases in sales was due to decreases in both new order and reorder sales.
2 our sales were negatively impacted by a much more competitive market in a crowded advertising space with substantially higher cost compared to the same quarter last year.
In addition, during the most recent quarter there was a dramatic increase in veterinarian visits by pet owners, who are unable to.
The veterinarian during the pandemic.
We believe the increase in veterinary in the business was primarily due the pet owners needing the visit the veterinarians for their pets annual exam and to renew their prescriptions since.
Since some pet owners purchase medications directly from the reverse during their visit the company believes.
The visits negatively impacted sales and especially reorder sales during the quarter.
Our reorder sales decreased by 11, 8% to $70.9 million for the quarter compared to reorder sales of $80.4 million for the same quarter last year.
<unk> for the quarter ended June.
And this 2019, our reorder sales were $67.7 million, we would expect to see stronger reorder sales in the back half of fiscal 2022, as we anticipate more prescriptions being rebuilt.
A positive trend the highlights for the quarter was the continued increase in our average order size.
Our average order value was approximately $95 for the quarter compared to $89 for the same quarter last year and $86 for the quarter ended June 30 of 2019.
The increase in EOD can be attributed to a shift in our product mix to more higher priced prescription items.
And the less lower priced over the counter items.
With the prescription items, having a higher gross margin profile in comparison to over the counter items.
As I mentioned earlier during the quarter ended June 30 of 2021, the advertising market.
It was extremely competitive.
And this increased demand drove up AD prices dramatically as a result of our advertising spending was less efficient than usual and delivered of fewer AD impressions than in prior years.
Because of this we believe our advertising spending was less effective in the most recent quarter.
And its ability and the ended answer the ability to attract new customers.
New order sales decreased 47% to $8.4 million for the quarter compared to $15.8 million for the same quarter of the prior year.
We acquired approximately 92000, new customers in our first fiscal quarter compared to 186.
<unk> thousand for the same period the prior year.
However, we anticipate that advertising prices should revert back to more normal levels as the pandemic further subsides, which would increase the efficiency and effectiveness of our media spending.
And thereby continue to help us gain new.
Customers.
Encouragingly reorder sales in the most recent quarter, while down versus the year ago were up approximately 5% compared to the same period in 2019 pre pandemic.
For the first fiscal quarter net income was $4.4 million or 20.
The 2 diluted per share compared to $7.8 million or <unk> 39 diluted per share for the same quarter last year of decrease to net income of 43%.
There was a 1 time charge of $717000 related to the CEO separation agreement, which was.
The incurred in the quarter.
The company also incurred an additional $260000 related to brand and marketing consulting fees within the quarter.
For the first fiscal quarter, our gross profit as a percentage of sales was 27, 5% compared to 27, 8%.
<unk> for the same period a year ago.
The percentage decrease for the quarter can be attributed to some of the major manufacturers shifting their funding from discounting product cost 2 cooperative marketing rebates.
There may be an opportunity to improve gross margins in the second half of fiscal year 2022.
If the shift to prescription medications continue.
During the balance of this year. We will also continue investing in our e-commerce platform to better service our customers by adding additional features to our website to further drive sales for.
For example, like auto shipments.
Save which was recently launched on our web site about a week ago. Our customers responded very positively and enrollment in auto shipments Dave was very strong in its first week.
We expect many more of our reorder sales to eventually transition to auto ship and save by the end of our fiscal year.
We had $111.8 million in cash and cash equivalents and $29.2 million of inventory with no debt as of June 32021 the.
The board of Directors also declared a quarterly dividend of <unk> 30 per share on the company's common stock the dividend will be payable on August 13.2021.
To shareholders of record at the close of business on August 6.2021. The company continues to be committed to returning capital to our stockholders. However, the declaration of payment of future dividends is discretionary and will be subject to of determination by the board of directors each quarter. Following its review.
New of the company's financial performance.
This ends the financial review, let me turn it over to G. On our board Chairman to say a few words.
Thank you Bruce and good morning, everyone. So I'd like to take this opportunity to make a few comments about the future of of the company, which despite the challenges.
Some of the most recent quarter I believe remains exceedingly bright.
Why do I say that well the vet numerous reasons. The first I would point out that the pet care market is growing rapidly.
On many consumers have become the new pet on us during the pandemic.
Second the markets.
Rapidly shifting to online buying with pet meds thrives.
Good.
Many new products and services, the which are often driven by technology and other innovations of being introduced and we anticipate making some selective strategic equity investments in these innovative enterprises.
By leveraging some of the capital that we have on hand.
Paul.
We plan on revamping, our marketing positioning and the increasing our product offerings.
We'll do that along with the retooling of our marketing strategies and tactics. So the bill about customer base and ensure that the company's success will continue and tomorrow.
With the digital World.
And then finally.
We're enhancing our leadership with 2 new experienced directors up for election by all shareholders Michiel nausea hold the meeting is later this week.
Yeah.
The search for a new CEO is well underway, we are seeing some very very interesting.
Candidates, and we anticipate being able to make announcements there of in the near future.
So bottom line, we believe that the companies find the style was lie ahead.
On this point.
The recognized Mento act at the outgoing CEO Who's led the company for all of a 20 years.
And we thank him for his leadership and wish him well in the future endeavors.
I'd also like to thank our over 200 dedicated employees, many of whom who have been with us for more than the decade.
So to sum up today the company is in an enviable financial position, we have a very strong balance sheet.
With $111 million on cash and cash equivalents of no debt.
On this provides us with the financial resources, we believe of necessary to accomplish ambitious growth objective.
We are the leader in our space.
We celebrated the 25th anniversary the issue and we've been operating.
Profitably now for over 2 decades.
We're proud of that since the company's inception, we observed more than 11 million customers.
And since declaring our first dividend back in 2009, we've returned over $200 million to our shareholders in dividends.
In conjunction anybody's accomplish.
Complishments. We are of I think you can tell very excited by the opportunities that lie ahead for the company.
So that ends our prepared remarks, I know Bruce and I would be happy to take the questions. So operator, we're now ready to take questions.
To ask the question press Star, 1 where of course.
The first and last name and state your company name in order to get into the queue.
1 of them on it as we wait for the question.
Our first question.
Comes from Ben Rose with Battle Road Research your line is open.
Yes, good morning, gentlemen.
A few questions.
Ben.
Excuse me.
Several months since you hinted at the potential to introduce new products. So I was hoping.
Either Bruce or Johnny if you could give us some insight into what kind of the products you might be thinking of are these complementary too.
Pet medications are the.
Sort of the adjacent segments that you might be addressing.
Yeah.
Yeah.
I think just on you spent a couple of comments both of them I'm sure you know some of them all I think that the the market. The word in which is really the health and wellness market, but there are a lot of products that we could add.
2 of our product mix.
Still remain within that broad definition.
On the nation of the market.
There are also as I mentioned in my comments are innovative.
Technology based products for the coming along that we may be able.
The to carry on.
In our product mix, so I would imagine that the I'm the new CEO is gonna be taking a very hard look.
Look at what can be done to expand the product line.
While taking care of that the weight. If you will of the products of on caused US a problem of the cost of shipping routes and the other comment I mean, yes.
We talked about this true for ban we were always continuing looking to add more product offerings.
To a website.
Most recently, we've added more Rx and high end food Skus of premium dog food Skus gives us a better chance for profitability, but we're always exploring additional ways to acquire new customers too many partnerships fulfillment or any value added services.
Offering on other new opportunities within the pet health space as she mentioned.
That will be our focus this year and we'll give you more information of the later part of the year when we have something to report.
Okay, and if I may just a couple of more 1.
Runs 1 strategic question was.
Noted.
Sure.
Desire to potentially make selective strategic investments does this mean that you'd be looking more to invest in other companies as opposed to acquiring them outright.
Well always look aggressively at acquisition and other investment.
The opportunities in the past Theres always seem to be a little GAAP between.
The expectation of both the buyer of the seller, but we plan to be aggressive this year end.
Based on our press release, 1 of the comments you made today I would probably say yes.
Alright.
I'm, sorry, I'm sorry.
Yeah from my perspective, I spent a lot of years in the technology sector, and it's pretty clear that technology is rapidly accelerating.
The accelerating in the pet care.
The market broadly often in times of Inc, and examples of new services.
And I think that.
So the investments in those types of products.
Coupled with then the ability to introduce them broadly to our customer base represents a pretty attractive opportunity of I think we should we should be pursuing.
Okay.
Certainly makes sense and then if I may finally.
The auto ship and save Bruce can you start can you comment on how long that's been available did I hear you say that it's just been available on the last week or has it been computers, but.
Let us know when that started correct. Yeah. It was launched last week or maybe 8 or 9 days ago.
We're really excited I mean, we're looking to add this for some time our customers have been asking for this feature especially for the customers of water of monthly medications.
That's pretty critical I think I think or we anticipate all of the ship will continue to drive future reorder sales and it will also strengthen our.
Our relationship with our customer base.
Okay. Thank you very much.
Welcome.
Erin Wright with credit Suisse. Your line is open.
I have a quick follow up on that last question on the auto ship what percentage of customer do you anticipate will use the operating or what.
What's the goal there just based on the mix of business, that's considered more chronic therapy or prevent it is it would it be purely focused on some of that monthly flea and tick medication or or are there categories or what percentage of your customer do you anticipate that targeting yeah. I don't think we're going to give any specific targets or internal targets at this time.
Time, but as you know Erin the overwhelming majority of you know.
Of what we sell of especially on the prescription medications are of those monthly every 3 months every 6 months so that would qualify for a large portion of our business. So we'll give more updates.
As we go along but we're very excited about the launch.
Okay, Great and then how is how would you characterize the flea and tick season. This year I guess, what are you seen across the category of products this quarter and how would you characterize the shifts that you're seeing between the prescription only product in the over the counter.
Counter flea and tick products and how that's impacting your business financially right.
We really of C has been a tale.
Of 2 different years of being last year, we saw a greater amount of over the counter products and thats because many of the pet stores, and obviously veterinarians pet stores and other brick and mortar stores.
For clothes, so typically.
We saw an unusual lift and over the counter products last year. This year was back to more normalized levels between the between the breakdown between Rx and OTC.
Okay. Thanks, and then.
Given some of the AD.
Spend dynamics, you were referring to how should we be thinking about the quarterly progression of advertising spend for the balance of the year and separately for the balance of the year as well should we anticipate further additional costs associated with the brand and marketing consulting fees similar to what we incurred in the first quarter.
Right. That's a good question.
You know when we look at the overall AD spend for the quarter. It was in fact slightly up versus a year ago.
However, when we looked at the net number of course with the amendment with the manufacturer rebates that we received Youre looking at the income statement when you see a decline on that spend.
And we were aggressive with advertising, but the environment was on.
Difficult environment you.
On a per impression basis costs increased significantly as a result of the crowded advertising landscape, which of course delivered fewer overall ad impressions.
Going forward we.
We will continue to be rest of of their AD spending you know our budget is flexible depending on the ROI, we may adjust it.
From time to time.
You know rapid changes in net advertising landscape requires some real time adjustments.
Yeah, I think overall like I said of AD spending was up for.
For the quarter of.
And we will continue to be aggressive going forward and I think as we move into the second half of the year traditionally as we get out of season, we have some better opportunities on the AD front historically.
Yeah, Bruce I, just I'll just add the Jeremy loved and you said the just out of it.
Instead of a couple of comments on 1 of the things that is increasingly possible, especially with digital media. This to examine the degree to which there's an overlap across the different channels.
Because if 1 doesn't do that 1 risks delivering just increasing number of impressions on the same number.
Of people and I think there's a there's a significant opportunity for us to review that in greater detail on make more informed decisions about where to put out of AD dollars.
So I'm not sure at this point, how that would shake out, but I do it in terms of the total dollars.
The dollar of spend but I think that at some pretty compelling opportunities to increase the efficiency and effectiveness of on media spend.
And the consulting fees will those continue.
Something that's something that we will be considering.
As the year progresses, I mean of what will depend on.
When we bring new leadership in and what his preference will be and if there is will flow.
But you know if it's a material amount.
Okay. Thank you.
Yeah.
As a reminder to ask the question.
In the press Star 1 record your first and last name of State Your company name in order to get into the queue.
Anthony let the Jetski with Sidoti and company. Your line is open.
Thank you on the good morning of the taking of thanks for taking the question so yeah.
My first question is.
G on the yeah. Thank you for joining the call here nice to get a perspective from the board of directors. So.
As you look to.
Higher of new CEO, what are the top qualities that you're looking for for your new leader of <unk>.
Wanted to get your perspective.
So that's the good question. Thank you.
Question, I think that the definitely shouldn't experiences of the the.
We would look at as being important the E Commerce senior executive leadership of an E. Commerce business is important if we can add to that experience in the pet care market. So I'd say, that's all of them also.
The important but I would rank the e-commerce experiences of being.
The most important the somebody who has of desire on some experience and transformations of the companies.
And what's interesting at this point in time is that it used to be the transfer of digital traffic.
Transformations would be applied to companies with the win Yep digital.
The increasingly today were seeing given the the rate of change of the digital technology. We are seeing some significant opportunities to revamp the operations of companies that are already digital.
And so somebody.
The who has been through transformations and has that kind of experience that would also be the pretty important to us.
So I think that I think those I would say out of the most important characteristics of what we're looking for.
Got it okay. Yeah, that's very helpful and I guess what will.
The tender for weather.
With the announcement of the regards to that so.
So the pet net are traditionally has had a very strong cash rich that's the balance sheet the.
Just wondering apart from the Board's perspective are you looking to maintain that the same type of capital allocation.
Or would you be willing to do anything differently with with new leadership.
Yeah. That's another good question, yeah suddenly if you'd look at pet meds.
On the Internet based company, it's profitability has been surprisingly strong right given the number of companies.
But from the tech space suddenly that are out there.
Growing rapidly, but not yet making a profit so I personally think that I'm continuing to be nicely profitable is important but I think that can be of cheese and I think we we kind of establish a roadmap of how to achieve that.
Uh huh.
So in any situation in my experience of the way you have the change of the CEO level, it's very possible that there might be some investments required in the short term to establish the new strategic plan and the new path forward.
But I would hope that that would be done as I say on a short term.
Temporary basis that then leads to on acceleration in both topline and bottom line growth.
Hope the hope that helps you got it.
Yeah, Okay, yes, if the shorts and then you know in terms of the AD spending.
Would you say are you still going to be more of it mostly.
The digital you think or will you do more TV kind of of that just broadly thinking about the different media channels as far as of the advertising is concerned of or what are your thoughts there. Yeah. Yeah. So you know obviously 1 of the trends, but just you know accelerated dramatically in large part because of the pandemic is connected TV right over.
The top of.
[noise] of content a lot of it which is content that was being distributed on legacy T V and continues to be but now it's increasingly being.
Being delivered over the top.
Hum.
It's getting a significant of audience and so I don't think we can ignore it.
I think it's important to look at the Denver is always to look on the demographics of.
The uses of the different video channels.
That said I can suddenly we put back to work we did at Comscore extensive worth looking at the effectiveness of static display ads versus video.
And it was pretty clear the video with significantly more effective.
So I would imagine that there are some really attractive opportunities for us to put some money against connected T. The in the all of the talk of maybe the broaden our investments in video.
And.
And.
I'd certainly encourage the new CEO to look at those kinds of of opportunities, but digital I mean over the top T V digital when all of the 7 done. So there's there's kind of this transition from what was.
T V content distributed over the year or by a K.
And all of US being described the digitally so that the the term digital becomes broader in today's world, but I think that there again, there are significant opportunities that we should be pursuing the.
Got it okay and the.
You know lastly from me as far as the you know the loyalty.
The program have you can give us an update of what you've seen there on whether you whether you expect to make any changes to that going forward.
Along with the loyalty plans with them, we're always looking to improve on any of our.
Uh huh.
Anything that we have especially with the concerns to the website, we're very happy with the performance of the plan on.
To date. It has helped reorder sales from our initial launch, but I'm you know I think with adding auto shipment sales in conjunction with our loyalty plan and the loyalty plan.
The change to its not necessarily the way. We initially launched it may not be the way that plan will be working in the future. So.
I think as we move forward, we'll see some sort of changes and when we make those changes, we'll let you know.
Got it alright.
Alright, well. Thank you the best of luck.
Thank you.
I'm showing no further question Mr. Rosenbaum of Mr. Fulgoni I'll turn the call back over to you.
Okay. Thank you this ramps of today's call. We really appreciate your time. Thank you for joining US operator. This ends the conference call.
Thank you for participating you may now disconnect.