Q3 2021 Petmed Express Inc Earnings Call
Welcome to the Pet Meds conference call to review the financial results for the third fiscal quarter ended on December 31 2021.
Request of the company. This conference call is being recorded founded in 1990 610 minutes as Americas, most trusted pet pharmacy, delivering prescription and nonprescription pet medications and other health products for dogs cats and horses direct to the customer.
There's 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 brand name <unk>.
This 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 Rosenbloom.
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 listen 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 masculine Matt.
Thanks, Bruce Good afternoon, and thank you for joining US my first several months as the CEO and president of pet has been incredibly busy and exciting.
I continue to believe that pet meds 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 Petzner Slide decks, you will see many original pictures throughout this presentation and 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.
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'll 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.
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 Pet Meds 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 and what our business focus is 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 retailing.
U S household pet ownership has increased and today seven out of 10 U S household.
Certainly the macro effects of Covid have accelerated this trend and now more than ever pet parents are keenly attuned to that 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 health care and wellness services to provide a 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 ecommerce verticals. The ongoing move towards Digitization of retail is accelerating today, our addressable market is largely dominated by offline sale, but we see the growing.
Trying to purchase online is 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 pets' care from diet, the veterinary services as well as the channels through which they access those products and services.
Lastly, COVID-19 also accelerate the increasing trend for the Digitization of health care.
Specifically in the pet market regulations related to in person veterinary visits and prescription fulfillment. We're temporarily waived for the first time during COVID-19 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 updates since our last earnings call. We just commission an extensive customer and market research study that showed that 55% of U S. Pet parents are aware of the peds brand, having a strong brand takes years to develop and our customers look to pet meds as their trusted pharmacy in pet.
Medication expert.
We had strong operational and quality efficiency as a pharmacy or 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 best platform. This operational efficiency is hard wired 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 bet networks and the online retail space with over 70000 veterinarians that we have worked with over the company's history.
Currently our online bet portal has 17000 accurate veterinarians and vet clinic. This is a core capability in asset because it enables us to expand our fulfillment capability as we scale our business.
A prescription medication authorization rates are the highest they've ever been which speaks volumes to the level of veterinarian 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 branded business going in the coming months pet.
<unk> currently enjoys a closing strategic bond with our many supply partners those relationships and developed over trying 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 100% lifetime guaranteed to customers that we are committed to.
We go the extra miles, where our customers are 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 pet meds 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 ask to talk to a manager because we all know from our experiences as consumers you typically asked to talk to a manager to escalate a problem or negative experience.
This customer started off the call, noting that quote theres always a complaint box, but never a complement box unquote. This customer was calling to give us a complement.
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.
Body 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 its just refreshing.
Sure.
These types of customer interactions are commonplace at pet meds and in my experience very uncommon in most companies.
Before I address our earnings performance I would like to address several reasons why pet meds as a strong investment opportunity.
Pet Meds has a lot going for itself, including pet.
Pet meds 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 31, 2021, and we were cash flow positive.
Pet Meds 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 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 in transformation and turnaround experience, taking a business from a low to no growth company to a growth company. It 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 would like to have Bruce review, our financials for the quarter.
Thanks, Bob.
Now we will review the financial results, we will compare our third fiscal quarter ended December 31st 2021 to last year's quarter ended on December 31, 2020, and in some cases, we will refer back to December 31 2019.
I would also like to highlight that we are introducing new non-GAAP financial metrics, adjusted EBITDA and adjusted EBITDA per share.
We decided to include these new metrics because they are key metrics used by management and our board to evaluate our operating performance generate future operating plans and make strategic decisions regarding the allocation of capital.
Adjusted EBITDA and adjusted EBITDA per share or a more accurate picture of our underlying profitability and it also highlights the increase in noncash stock based compensation, which increased significantly in the car.
Similar to our prior quarters, we faced a unique situation comparing two totally different environment.
Tween Twenty-twenty pandemic in 2020 , one mostly post pandemic.
In fact, we saw a stronger month of December 2020 than our historical averages, which was primarily driven by increased E. Commerce demand as a result of the second wave of the pandemic in December 2020, which caused many retail stores to close and many veterinarians to be unavailable.
During the quarter ended December 2020 . One we also executed on a number of new changes to our marketing partnerships agencies and processes that were more important investments to help transform the company into a growth business. During this transition phase or is that likes to call. It our test.
Burnt days, we were less efficient in the deployment of our variable marketing investments.
During the quarter, we ended up spending approximately 34% more in advertising year over year, where we spent $4 3 million in the quarter ended December 31st 2021.
Compared to $3 2 million for the same period. The prior year approximately 50% of this increase was due to rate increases across our marketing channels.
And the remaining portion was due to an increase in the number of advertising impressions, we delivered across a variety of advertising platforms.
As we move into our first full quarter the quarter ending March 31st 2022, with our new marketing partnerships agencies and processes, we expect to be much more efficient with our variable marketing spend with improved results.
For the third fiscal quarter ended on December 31, 2021 sales were $60 7 million compared to sales of $65 9 million for the same period. The prior year, a decrease of seven 9%, but sales actually increased by 1.3% versus the quarter ended December 31.
2019 prior to the pandemic.
The decrease in year over year sales was due to decreases both in new order and reorder sales our sales were negatively impacted by a competitive market and inefficient variable marketing spend in the quarter in a crowded advertising space.
Stanchion higher cost compared to the same quarter last year.
In addition, during the past nine months there was an increase in veterinarian visits by pet owners, who are unable to visit their veterinarian during the pandemic.
We believe the increase in veterinarian visits was primarily due to pet owners needing to visit their veterinarians for their pets annual exam and to renew their prescriptions. So some pet owners purchase medications directly from their pets. During their visit the company believes that negatively impacted sales and especially reorder sales during the quarter.
And nine months ended December 31st 2021.
We were disappointed with our sales results during the quarter compared to the prior year results. However, sales were trending more positively in the months of November and December 2021 when you compare them to the pre pandemic months of November and December 2019.
Reorder sales decreased by six 5% to $56 3 million for the December 2021 quarter compared to reorder sales of $60 2 million for the same quarter of the prior year, while for the quarter ended December 31, 2019, our reorder sales were $53 8 million income.
Originally reorder sales in the most recent quarter, while down versus the year ago were up approximately 5% compared to 2019 pre pandemic.
Auto ship revenue continues to grow and currently approximately 25% of our revenue was generated from our auto ship and stage subscription program.
Some of our more popular brands, having exceeded 30%.
Growing our subscription revenue is one of our main priorities in 2022, we would expect to see stronger reorder sales in 2022 as our auto ship revenue continues to grow.
A positive trend to highlight for the quarter was the continued increase in our average order size.
Our average order was approximately $89 for the quarter compared to $88 for the same quarter last year.
And $85 for the quarter ended December 31st 2019.
For the nine months ended December 31, 2021, our a O D was $92 compared to $88 for the same period the prior year.
New order sales is obviously one area that needs improvement.
Actively deploying new thinking and initiatives around reengineering new customer growth.
New order sales decreased by 22% to $4 4 million for the quarter compared to $5 7 million for the same quarter of the prior year.
We acquired approximately 53000, new customers in our third fiscal quarter ended December 31, 2021, compared to 73000 for the same period. The prior year. However, we anticipate that our spend will be more efficient as the advertising prices stabilize and as the pandemic further subsides.
Yeah.
More importantly, we expect improved marketing effectiveness.
Media spending as we continue to deploy our new marketing initiatives.
For the third fiscal quarter net income was $4 3 million or 21 cents per diluted per share compared to $7 6 billion or 38 cents per share for the same quarter last year, a decrease to net income of 44% adjusted.
Adjusted EBITDA for the third fiscal quarter was $7 6 million or <unk> 37 cents per diluted per share compared to 11 million or 55 cents per share for the same quarter last year, a decrease to adjusted EBITDA of 31% adjusted EBITDA and adjusted EBITDA per share.
As back certain noncash expenditures. These noncash expenditures are stock compensation interest income and expense income taxes depreciation and amortization.
Again, adjusted EBITDA and adjusted EBITDA per share are non-GAAP measures used by management and our board to evaluate our operating performance generate future operating plans and make strategic decisions regarding the allocation of capital.
We will continue to disclose this financial measure in our future filings.
For the third fiscal quarter, our gross profit as a percentage of sales was 29, 2% compared to 29, 8% for the same period a year ago.
Percentage decrease for the quarter can be attributed to some of the major manufacturers shifting their funding from discounting product cost two cooperative marketing rebates.
There may be an opportunity to improve gross margins in 2022, if the shift to prescription medications continue and we can grow future sales with minimal price promotions.
We had $108 9 million in cash and cash equivalents and $27 6 million in inventory with no debt as of December 31, 2021.
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 February 18, 2022 to shareholders of record at the close of business on February seven 2022.
Company continues to be committed to returning capital to our stockholders. However, the declaration and payment of future dividends is discretionary and will be subject to a determination by the board of directors each quarter. Following its review of the company's financial performance now I'd like to hand the presentation.
Back over to Matt Maddox.
Thanks Bruce.
My commitment is to be clear and transparent with all of our stakeholders as we start to unpack the plan for growth in our strategic plan. So let me jump in.
It has been almost four months since I started the company and rapidly dived into looking at the key elements of the business that includes people process and strategy.
During major transformation periods in our business. It is common in even expected they have some uneven execution and we have been no exception.
But equally we've made some huge inroads into our strategic journey, here's the status of our 90 day transformation Blitz.
Let us start with our people pet Meds has historically had a thinly staffed executive management team I have recently brought in three new executive team members that I believe are perfectly suited to help execute our business transformation.
You may have seen that we've announced these three new executive team members earlier. This month in case you missed it I am pleased to tell you about the following additions to our team who I'm confident will be game changers as part of this new chapter of Pet meds.
Our new Chief information and Technology officer as Mark Moseley.
Joins us from Rosetta Stone, where he spent 17 years driving every aspect of our technology and operations.
His unique experience includes I T scaled product.
Product development infrastructure and operation.
Our new Chief Marketing Officer, Dan Pingree, he joins us with a diverse set of digital retailing experiences, including seven years as the Chief marketing officer at Moose jaw mountaineering and this experience includes being part of a team that successfully sold the business to Walmart.
In addition, he has public company direct to consumer pharmaceutical experience as an executive of drugstore Dot com.
Our new Vice President of people is Jaclyn Smith <unk>.
She joins us from her previous role at on Juice software as the Vice President of HR, where she led global HR operations. She has over 20 years of extensive experience in change management and business transformations and has already been critical to revamp our human resource tools and best practices.
We are very excited to have all three of these talented individuals now contributing their valuable skills to pet.
Now, let's shift our process.
That's a very agile culture, which I discovered in my very first days of the company and recognize as a real benefit when performing a business transformation.
I mentioned on our last earnings call. Several areas that we were looking at as organic upside. The first area of focus has been our marketing spend as you might have seen our variable marketing for the quarter ended December 31, 2021 increased to $4 3 million from $3 2 million last year.
Over the quarter, we unbundled, our legacy marketing relationships and transition to New agency partners and marketing operation tools. This work happened towards the back half of the quarter.
This transition in November has given us additional time to test and learn as we spend and analyze the effectiveness of our marketing across the many channels that are available to us and ahead of the important flea and tick season.
Starting in March while we lean into this transition we are assuming some level of marketing inefficiency, while we refine our messaging and spend.
I would expect the following as we enter into next quarter.
Our marketing effectiveness will get better and our overall spend and variable marketing may increase in certain channels on a year over year basis as long as we see the appropriate return and performance.
As part of our shift to a subscription based E. Commerce company, we plan on introducing new metrics that better reflect how we are managing the business for.
For instance in future earnings calls, we plan to introduce LTV to CAC as a key operating ratio.
LTV to CAC, which stands for lifetime value divided by the cost to acquire customer is a common ecommerce measure to track sales and marketing efficiency and customer profitability, we have loyal customers that stay with pet meds for a long time.
In an environment, where we are moving our customers to our auto ship and save subscription program, we feel LTV to CAC will provide investors with additional visibility to the ongoing value that we're creating with our loyal customers.
The second area of focus is identifying new customer segments.
Historically pet meds has used a similar marketing approach for over 10 years.
We have just completed an extensive consulting project that included a large study which featured a representative sample of all U S pet parents as well as our own customers.
Based on that comprehensive work, we have identified several new large and attractive customer segments to target and we are testing and learning against these segments right now one interesting finding that speaks to what I discussed last time during our earnings call in terms of company assets is that 55% of the U S. Pet parents surveyed were already familiar with the patents.
Brent that.
That is a huge advantage for us as we efficiently and effectively restart our growth initiatives.
Now, let's shift to strategy.
To be really clear pet meds is in a fantastic market position and focus on one of the highest gross margin categories in the pet market.
But <unk> has the opportunity to cement its position by becoming a premium leader and the larger vertical in which it participates today.
During our last earnings call, which is my first earnings call with the company I mentioned in our early thoughts on our new strategy moving the company into a broader health and wellness play.
We have continued to test and validate the strategy at a rapid place I'm, a big believer in being a measured capital allocator, we see a lot of opportunity in expanding into new health and wellness Adjacencies. This last quarter. We have been successfully testing a pet telehealth service as a partnership to a cohort of our customers and the customer feedback has been extremely positive.
This type of quick and agile testing will continue and we look forward to forthcoming announcements in terms of partnerships in the future, we see a great future in adding more health and wellness services to our business and especially growing our e-commerce subscription base well beyond our current level of 25%.
I would like to end my prepared remarks by reiterating that changes Ive. Just described regarding people process and strategy have been executed at a rapid pace as necessary investments and are all pursuant to a well thought out strategic plan for our transformation.
I hope this transparency will demonstrate our confidence in the future of the business. While also providing some insight into the associated investment costs as they appear in our operating results.
This ends our prepared remarks, operator, we are now ready to take questions.
To ask a question. Please press star one on your phone. Please note that you may not be able to ask a question. If you are listening via the webcast you must dial directly into the call in order to ask a question.
Our first question is from Erin Wright with Morgan Stanley . Please proceed with your question.
Great. Thanks, Thanks for taking my.
Questions here can you elaborate on some of the changes you've made in the marketing strategy and the partnerships bearing and can you give us an update on the traction on that funny, you said that some of us didn't really pick out far wasn't initiated until later in the quarter, but how should we be thinking about the advertising spend then in the coming quarter and then over the course of fish.
2023 is this the sort of level, we should anticipate going forward.
Erin Thanks for the questions great to hear from you.
Several things and Bruce why don't you I'm jumping at the N.
One is what.
What I mentioned on the call today is that we really changed out a legacy set of partnerships and went into several others.
A couple of reasons. One is you know really the way we've been targeting customers has been pretty much the same way we've been targeting customers for the last 10 years, we've identified some new customer segments to go after because we've really been going after a small cohort of customers for a long time.
And so as part of that unraveling or I call. It the unbundling of these relationships, which was kind of in the middle to late in the quarter.
We are testing a lot of net new channels as well as.
You know some new spend levels and I think as you heard from the call. Today, you can expect rollout, which is a metric will deemphasize.
But the LTV to CAC should be at much healthier levels and the variable marketing spend to revenue could go up but we would associate with that with more efficiency going forward. The reason why we hit the gas so hard to be blunt is.
Flea and tick season starts in March I want to make sure that we are ready to go with rock solid go to market plans.
Before March and so I'm really confident that we've got the right people and processes around spans and then Bruce is there anything you want to add to that.
As far as the increase in marketing return.
Eh call earlier, 50% was due to rig rate increases across our marketing channels.
And you know the remaining portion was due to increase in a number of advertising impressions. So.
We definitely made an effort to grow new customers, but obviously, we're a bit more inefficient than we would expect it to be.
I think we are we definitely have some better insights from the quarter.
It's going to help us in the current quarter in the March quarter as you move forward.
Okay, Great. Thanks, and then you mentioned auto ship penetration I believe at 25% where can that go over time realistically just given the mix of the products that you have what percentage of revenue would be tied to more chronic treatments as opposed to a cute and and and how far can that ultimately go.
Yeah.
Yeah, no we haven't really guided to kind of.
Ah Paredo.
<unk> that would be ideal for the business, but I can tell you what.
Our supplier partners tell us is that you know over 50% would be.
On benchmark or above.
Because the good news is not only chronic but also even non chronic medications in this marketplace are highly consumable.
So that's not our official number but that's what we're hearing from our supply partners.
50% or above and love to see the auto ship numbers grow more aggressively which we're working on this quarter.
Okay, great. Thank you so much.
Our next question is from Anthony loved Penske Lebed's density from Sidoti <unk> Company. Please proceed with your question.
Yes, good afternoon, and thank you for taking the question. So I guess first question on the E. O V increase Oh, you know what.
Are the main reasons for that and how do you see that trending.
In the future quarters here.
Okay.
Hey, Anthony you want to take that.
Or were you doing.
I mean, I think it's a function of we talked about previously where we're seeing a movement more so to Rx were doing were during the pandemic. We actually saw a large uptake in OTC, which was a little bit unusual with our trends that we were seeing previously.
Russia is a pre pandemic.
We're going back to a more normalized distribution between Rx and OTC.
That obviously helps as.
As you know, we do buy direct from the major manufacturers as well and we do have map pricing that we need to adhere to when there are when there are the annual increases that our manufacturers have on the price of products. The map pricing will also increase so it gives us an opportunity to pass.
Those additional increases to the customers.
Got you, Okay, and then in terms of G&A expenses those were higher than we anticipated can you just quickly go over like what drove that increase from last year and then as far as the expected G&A quarterly G&A run rate.
What should we anticipate going forward.
Right.
Would say that often the G&A perspective, the majority of that is stock compensation and that's one reason why we introduced the new metric adjusted EBITDA.
To account for that.
Stock compensation increased significantly during the quarter and we expect that number to increase year over year moving forward. So that's one of the reasons behind that as far as the other items I don't there's really nothing else that was really.
Specific driver of the increase in G&A.
Stock compensation, obviously, Matt mentioned, we did increase.
Our head count in our executive management team so both Sal.
Salaries and stock compensation were the main reason for the increase in G&A.
Got it Okay, and then you know longer term question. So as you work to transition the business to be more of a subscription based business and you look to add more pet health telehealth, how should we think about long term operating margin profile of the company.
Yeah. It's a good question I have kind of a.
Our flank the answer to that Anthony and then Atlanta, Bruce It answered as well as the reason why the shift from LTV to CAC and.
And versus ROE as and it's a little bit it's a law.
Little bit nuanced for some folks who are not used to that metric is the fact that the company used to think about returning capital in terms of variable marketing, but then in the quarter and that's somewhat not realistic with kind of modern day marketing practices. So theres, some things that you'd be doing like connected TV linear TV.
Not pay off in three months, but may pay off over time, and so it's important to make sure that youre not doing bottom of the funnel marketing only is that not really getting expanded into customers that that's some of the margin profile shifts in terms of the variable marketing between LTV and CAC and Thats why we reinforced that.
From an LTV basis, Bruce I think we can say that we expect LTV as we introduced that metric to go up over time, because we haven't done a great job as a business attaching net new products and certainly at 25% auto ship I would anticipate L. T. LTV to go up over time, because we have you know.
Recurring on file customers versus anything you'd like to add.
No I would agree with that 100% of it theres definitely.
And opportunity there you know one one item is more related to gross margins, but you know.
Our vendors recently shipping this year to co op marketing.
Negatively impacted margins, but we are going to go on a year over year Anniversarying. Those changes so hopefully over time, there may be an opportunity for gross margin expansion moving forward.
It also is dependent on how much.
Additional discounting remains.
To attract new customers.
Got you, Okay, and then lastly, with your strong cash position what are your thoughts about buying back your shares.
As far as the buyback alright, Matt let me.
Yes.
Have about $20 million currently authorized and I don't think we have been active in the share buybacks in 2019.
And that's something that we discuss with the board periodically.
And.
As of as of today, they have been more keenly.
They've been concentrating more so on the dividend to return.
The equity back to shareholders.
More so than the share buyback, but we.
Have been active in the past and there may be opportunities going forward.
And we'll just we'll see how that shakes out.
Okay, Alright, thank you very much best of luck.
Thanks Anthony.
Our next question is from Korea, Grady with Jefferies. Please proceed with your question.
Hi, Thanks for taking my question I wanted to ask about reorder sales how did your results for the quarter compare to your expectations coming in and then can you expand on what Youre seeing in terms of visit trends and overall performance from the vet channel.
Yeah.
Matt you want me to grab that does go ahead sure.
The first part as far as you know reorder sales after the quarter down about 7%.
For the nine months down about 9% so obviously.
We're off from year over year, a year over year perspective, but if you look at reorder sales from <unk>.
Pre pandemic levels.
31, 2019 were actually up 5%. So I think we're moving in the right direction as far as reorder sales.
Yes.
The success the early success that we've seen in our auto ship and save.
Subscription program is.
It's going to be.
Huge determining factor moving forward with reorder sales and as we grow that percentage that will also.
I'm sure she'll do a reorder numbers so.
One part Matt do you want to touch base on the second part of that question. Yeah. I just wanted to add one thing that Bruce you mentioned in the in the prepared remarks is December was an odd months, where typically you would never have a strong December in the business and we had one and so there was these weird base effects and it's still pop up when there is no COVID-19 restrictions.
And that was just a weird year over year comparison for us because we were feeling pretty good.
Back in November for instance year over year and December was a little bit of a anomaly British don't you think that's accurate.
That's very true.
Yeah. So we're feeling pretty good overall, just the reorder base, it's been a really that's a better than a bad rock to the business. It's been extremely loyal base will provide exceptional service.
I'm not as Ah that's one area that we're not as worried about and were clearly focused on it and then we're going to enhance the benefits to the dealership subscribers as well. So I think that's just going to get stronger what Bruce mentioned, it's the new customer space that obviously, we're like a laser beam very focused on did that answer your question, though.
Yes. It did thank you okay.
And then my other question I wanted to ask about performance within OTC and Rx Meds I mean, maybe within OTC can you talk about what subcategories are outperforming in which were underperforming and then maybe the same on the Rx side.
Yeah.
Matthew.
Sure Yeah, just maybe general I think.
And we wouldn't be coy about it Bruce real quick is I think the.
The one thing about our business that's surprising.
Diving into it is that we don't attach a lot of additional products.
And that's one area of that.
Obviously, we have a high concentration in Rx.
And it won't surprise you because you can go to our site and see exactly what are our top sellers.
I think that's a big area of opportunity to have a bigger basket overtime and Bruce what are you going to say sorry, right I mean as far as the categories.
Yes.
Pretty much the same tried and true flea tick heartworm preventative.
It's really.
Concentrate around the maintenance medications.
We really don't give a breakdown per.
Third category, but.
In the past, we've always mentioned flea tick and heartworm.
Makeup.
The majority of our business that's held true today, there's definitely more opportunity moving forward with new Skus that are coming to market and also the opportunity.
To add on with additional items, so that will continue but.
I think the breakdown by channel is not something that we're willing to share with the public today.
Got it thank you.
Yeah.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your phone.
Yes.
Our next question is from Ben Rose Battle Road Research. Please proceed with your question.
Yes, good afternoon.
But Bruce a couple of questions with regard to.
The pet Telehealth service.
That you've been hinting at Matt is there anything you can reveal in terms of.
You know what sort of benefits you might be.
Taking a look at what the timing might be for actually launching such a service. So we can sort of prepare ourselves for that kind of time frame.
I had a feeling that was going to whet. Your appetite you in particular, because I know you've asked me about this before.
Not yet and the reason why I'm, bringing it up because I don't want to surprise investors.
And you know it's like yourself.
I can tell you this that our customers absolutely love it.
And there was a unique case that will have on this type of service that no one else.
It was really thought through and when we launch it it's going to be.
Really thoughtful.
The reason why I'm not pronouncing it on an earnings call, but I'm talking about the pilot is I think there are a lot of investors and stakeholders are expecting deployment of capital on partnerships and M&A and that's certainly hinted at that and we're pretty active in thinking through all that.
But the pet Telehealth service in particular is pretty is pretty unique departments, because we already seen by our customers as experts so that when we deploy this and rolled it out the feedbacks been incredible so stay tuned.
I hope to have something paulson to just us.
Your next earnings call.
Okay great.
With regard to the advertising mixed Matt I know you know this is a big.
A big part of your expertise and you've been taking a closer look at what's been going on can you, maybe just give a little bit of perspective on whether you're seeing.
Are any of the advertising rates, you know for keywords and so forth on some of the major social media platforms, whether that's starting to stabilize or do you expect that to continue to be competitive going forward.
Hmm.
Yeah, No I think the well, there's there's kind of a macro micro answer the macro is.
The social media platforms in particular anything on by Facebook, certainly, there's less supply the Apple <unk>.
<unk> has limited the amount of supply and you just can't target as well as it used to and so you know a lack of supply same demand prices go up and I think that's that's the macro piece, particularly on on social.
Terms of C.
<unk>, increasing I think micro piece would be the fact that.
We've had the same playbook for many years on returning and new customer acquisition.
Very optimized for returning capital very quickly and that precludes you from doing discovery.
Of top of the funnel and broader awareness in the category, which you know like like you heard in the prepared remarks really does that inefficiency. When you start testing, but overall I'm pretty I'm pretty confident over time, we'll figure out that mix of top of the funnel marketing.
Because we're so widely known as a brand. So long winded answer is the market in general for social impressions is it was pretty high I don't think it's going to get a lot higher I think the other channels actually settle down and then I think for US it's not the right segments on the right message to go after within those channels, but I'm I'm.
Overall very confident that the hard work of unwinding everything has been done this quarter and then we should see that improvements every time, we talk.
Okay, Great and if I may just one more question you know with respect to your relationships with the veterinarian.
Community It sounds like that's a real strength.
The strength of the company. The question I asked the question I have specifically is there any thought.
Thought too are making more of an outreach to sell directly to the vets.
Selling prescription and OTC medications, so that they can in turn our turn.
Turnaround and so that product to their customers since so many.
Pet owners are turned to their bets for purchasing this kind of prescription medication.
Yeah, Great Great question, nothing to announce here, but the reason why I keep emphasizing that stat as it is a asset that we have that I think is.
Really really angry utilized and that would make a lot of sense. Because if you think about the $10 billion of medication market, 75% of that market.
Is distributed through does that we're fans of that we talked about is all the time.
We have about pharmacy, and we're interacting with that every day, we're just not having business relationships with them, we're having very transactional relationships with them around authorization. So very clearly to have 75% of our market not being active either by a retailer is something that is interesting to us.
But nothing to announce now and I would say overall.
The more you can do with that to make our lives easier in terms of whether it's telemedicine, whether its appointments everything else that they have to deal with outside of treating pets I think would be welcomed so I do think it's an advantage that it's something that we're definitely looking at as a future opportunity.
Okay. Thanks very much.
Welcome.
Our question and answer portion of the call has ended I would now like to turn the call back to Matt Hulett, the company's CEO for his concluding remarks.
Thank you operator as you just heard the future of pet meds is much broader than just a prescription E. Commerce company. We are building our strategy and working hard to transform into a broader e-commerce and subscription plan that reflects and leverages our status as the trusted pet health experts.
I will continue to detail our progress and look forward to providing you with updates in the not too distant future. Thank you for listening and operator. This ends the conference call.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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