Q4 2021 Petmed Express Inc Earnings Call

[music].

Wow.

Welcome to Pet Meds conference call to review the financial results for the fourth quarter and fiscal year end March 31st 2022.

During the presentation, all participants will be in a listen only mode.

Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.

If at any time during the conference you need to reach an operator, Please press star zero.

At the request of the company. This conference call is being recorded founded in 1969 pet Meds as your trusted pet health expert and America's most trusted pet pharmacy.

Liberty prescription and nonprescription pet medications and other health products for dogs cats, and horses direct to the customer pet meds 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 pet that's brand name.

Pet Meds provides an attractive alternative for obtaining pet medications 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.

I would 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 90, 95, 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 results could differ materially from those projected.

The company undertakes no obligation to update these statements based on subsequent events, we have identified various risk factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission.

Now, let me introduce our CEO and President Matt Hewitt, Matt.

Thanks, Bruce good afternoon, and thank you for joining us.

This earnings call is the eight month Mark since they started.

Ellen.

Throughout this time I remain committed to clarity and transparency with investors and key stakeholders as to the progress of our strategic transformation.

To be clear pet meds pioneered the online pet prescription business over 26 years ago.

That is a legacy of which everyone.

Very proud however in recent years growth has slowed and outside of the significant 2020 uptick in sales related to the pandemic our leadership position.

I continue to believe that pet meds, they terrific company with a talented and dedicated workforce, serving a large and loyal customer base. During today's earnings call. We will share with you. Some early indications regarding the stabilization of our core business and articulation of our new strategy and tangible evidence of Apo.

Wording progress towards the execution of that new strategy.

I reiterate that my commitment is to be open and transparent as to how we are engineering the transformation of this iconic company.

Today I'm going to divide my prepared remarks between our core prescription business and our pet health experts strategy with more time spent on the ladder, including some specific steps we've already taken towards executing on this broader strategy.

I have a number of key points I want to communicate to you today, so for clarity organize them into three themes.

The first thing is the stabilization of the core business, where the significant revenue declines we've experienced over the past year have begun to moderate.

For example, our revenue in the fourth quarter decreased seven 9% year over year compared to a decrease of 12, 7% for the preceding nine months period, while January and February had revenue declines in the low single digits, whether in March had a more material impact on our quarter.

Specifically, a cooler march and much of the country delayed the start of the flea and tick.

A season, which normally represents a ramp up in customer demand.

Leading to a slower than expected final month of the quarter we.

We expect sales in this category will rebound as higher temperatures returned to much to the point, where you can stimulate a more normal clean tick and heartworm medications.

Uh huh.

Based on historic customer purchase patterns.

The sales for this year will it be a delayed start to the seasonal sales.

Rather than a compression or loss on sale over the course of this summer.

Adjusted EBITDA for the fourth quarter exceeded our expectations by being down eight 4% as compared to that 31% decrease reported for the third quarter.

Bruce will cover this in more detail, but we achieved these results despite double digit.

In general and administrative expenses year over year due to purposeful investment in headcount and infrastructure to stimulate to support our future growth.

Notably we kept our variable marketing spend relatively flat year over year as you may recall last quarter, we had a testimony.

That resulted in unexpected inefficiencies in our marketing spend we have now settled into a good place with our marketing operations.

We are actively testing our key customer learnings from last quarter and remain laser beam focus on activity.

To grow our new customer number.

While we have not fully crack the code on new customer growth. We are executing on several strategic steps, having just started out new customer segmentation strategy and recently, bringing on new team members like our new Chief marketing Officer.

The second thing is the acceleration of our subscription business today I am pleased to report that as of March 37% of our revenue is recurring revenue derived from our office yet.

Scripture program.

This is a whopping 41% increase from the previous quarter.

As mentioned in our last earnings call. We are introducing two new metrics that are strategically important as our business evolves into a subscription e-commerce business.

As a result of this evolution over time, we expect to see an increase in our LTE. That's a subscription program creates a more reliable recurring revenue stream from our customers.

Our new customer counts for the quarter is approximately 66000, and our LTV to CAC for the quarter is $2 five yet the.

The new customer count is calculated using the more specific definition of new customers as being those who have not previously purchased from us within the past three years as I mentioned earlier, we believe the LTV to CAC is a more meaningful measure of the marketing value creation versus using our traditional ROE as a metric.

We expect to see this LTV to CAC that request as we migrate more of our returning customers through our auto ship subscription program and expand the basket size or average order value over the life of our customers.

The final theme is the rapid acceleration of our pet health expert strategy with the first building block of the strategic pillar being telemedicine on April 19th we announced our initial deployment of an investment and partnership strategy that greatly accelerates our experts in pet health strategy. You may recall on that date, we announced an exclusive partnership.

The fastest growing and industry, leading telemedicine platform that Sir this is the exciting first that many transactions that will build the strategic pillar of our expert pet health strategy I hinted at telemedicine during our last call and to enter that space. We delivered a novel approach to capital allocation that I'll talk about a bit later on this.

Paul.

Now, let us dive deeper into the details with the presentation material as always we like to feature pictures of our customers and employees in our slide deck, you will see many original picture throughout this presentation and in fact this slide features my dog Harry a patented customers since he was eight weeks old.

I'll start with a look at the current market and our perspective on the overall opportunity.

As we covered in our previous earnings calls that <unk> operates in a very large and growing addressable market.

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 in approximately $10 billion and growing rapidly.

We are actively working on improving our core business that had been on the decline while also setting our sights on expanding our addressable market into the broader wellness market, which is estimated to be over $30 billion.

Today, we are one of the leading pet pharmacies pet Meds is also an important part of the strategy of many of the past.

And players in the industry. Additionally, because I've learned over these months since I started the business there are not many trusted online prescription providers for these.

And players to partner with which puts us in an enviable position, our core asset and demonstrated competency around prescription will enable us to move much more quickly to execute on our broader pet health experts strategy.

I'll elaborate on in a moment.

Not only are we operating in a large addressable market, but we also operate in a market that is growing with underlying behavioral trends that are favorable to digital retailers.

Household pet ownership has increased over time and today seven out of 10 U S households have a pet.

Covid has accelerated this trend and now more than ever pet parents are keenly attuned to the health needs of their pets.

Post Covid world those pet parents are going to need and we will seek out health and wellness care provided by a trusted brand I believe <unk> is uniquely positioned to take advantage of this trend.

Consumers also now expect everything to be real time.

Digital a trend which has impacted every industry as we've seen in other digital ecommerce vertical the ongoing move towards Digitization of retail is accelerating today, our addressable market is largely dominated by offline sample, but we see the growing trend to purchase online is very favorable to us.

Pet parents and their pets as an extension of their own families and they are increasingly demanding more healthy pets are options. We see this as a positive trend for pet meds and an opportunity for growth Similarly aligned with those trends and human health pet parents are thinking through the entire spectrum of their pets' care from diet to veterinary services.

And from infancy to all the acreage as well as re examining the channels through which they access those products and services.

Lastly, the pandemic accelerated increasing trend for the Digitization of healthcare.

Specifically in the pet market regulations related to in person and veterinary visits and prescription fulfillment. We're temporarily waived for the first time during COVID-19 and the services moved online in unprecedented ways as I mentioned in our previous earnings call. Our team has spent a considerable amount of time conducting research with the industry in general.

As well as specifically with Petrobras.

As I noted earlier in April we announced an important strategic partnership and investment in pet medicines with Dexter with this groundbreaking partnership. We believe we are enabling the first mainstream pet telemedicine platform and the one that will prove to be an accelerator widespread adoption of our medicine.

And it's been over a decade, where pet meds has been hit first and fast mover and my commitment is we will continue to do so.

During the last earnings call, we discussed some key pet that differentiator.

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 both widely known and trusted our own market research indicates that 55% of U S. Pet parents are aware of this happening.

Having a strong brand takes years to develop and our customers look at their trusted pharmacy and pet medication expert.

Second we have a strong operational and quality efficiency as a pharmacy or customer care integration with their pharmacy as low class, which ensures that customers get their products delivered quickly and accurately. Additionally.

Additionally, our debt partners receive quality service delivered through that platform.

We'll be looking to expand our network and provide enhanced service to them with new technology delivered through our partnership with Dexter.

Our deep experience with the vet community as a significant competitive advantage as we discussed in our last earnings call. We currently have one of the largest direct to consumer that networks and the online retail space with over 70000 veterinarians that we've worked with over the company's history currently our online vet portal at 17000 veterinarians in that point.

As I've said in earlier earnings calls this is a core capability and a unique asset because it enables us to expand our fulfillment capability as we scale our business. Our intent is to drive incremental revenue through a powerful platform offered to our best partners in the near future. Unlike other online players, we don't view versus competitors.

For revenue, we view that as partners and jointly provided a greater array of pet health services to Petro two.

To that end, we will continue working together holistically to improve that ability to care for pets because of our industry, leading service relationships with that are prescription medication authorization rates are the highest they have ever been which speaks volumes to the veterinarian cooperation we receive on a daily basis.

Ultimately, we believe if we held that our profits for both the vet and for cabinets will follow.

Our pet pharmaceutical category expertise is something that I view as a green screen.

Many retailers can sell dog food.

Can provide medication that sound advice at scale as I've said before being a differentiated pet medication provider allows pet meds to sell in our health and wellness offerings and continue to be viewed as pet health expert, especially as the market continues to become even more competitive.

<unk> is currently enjoying a close and strategic bond with our many supply partners and those relationships have developed over time to become even more strategic we have direct relationships with all of our major suppliers and we work together closely to effectively market their products to our customer base.

Our customer service and overall customer Centricity emails permeates, our culture and has demonstrated throughout our team we have.

Provide a 100% satisfaction guarantee to our customers and we go the extra mile for our customers with truly empathetic and expert service. We don't just have a transactional interaction with our customers. We have built trusting genuine relationships our customers view patent.

The pet health expert and we take that responsibility seriously.

I recently had the pleasure of listening to a phone interaction from make loyal customer here's what they had to say.

I just want to complement the two people that I spoke with a call from the parking lot of the emergency clinic, which is open night and weekend.

Patent isn't about my situation the representative that I talked to name Cindy bent over backwards to get this prescription to be the next date before the hospital, even open Monday morning.

And then I call later that day to make sure that I could get the medication I spoke to go and I explained the situation and how I had to have this medication and he said I'm going to make sure that it's in the mail for you. They were above absolutely wonderful I can't Thank you guys enough.

They were just fantastic and so sympathetic and they understood. How I was feeling it's kind of a cultural rehab youre not selling at Pac man. This is not like buying food or music. These are and when they are sick. They are in real need. This is important kind of quote <unk>.

And Gus are perfect examples of our employees dedication to our customers and our pest wellbeing and I'm delighted to share the story and recognize them for their exemplary customer service.

<unk> has historically been a somewhat low growth yet high dividend based company. We are intent however, upon becoming a higher growth company.

We're in a great position to do that.

Pet meds is profitable with a pristine balance sheet, we do not have any debt, we have approximately $111 million in cash and cash equivalents as of March 31, 2022, and we are cash flow positive.

Pet Meds is moving much of our business from a transactional direct to consumer model to a subscription business subscription businesses are clearly compelling business models due to the predictable and stable recurring cash flows.

As I mentioned at the beginning of the call. We ended the month of March with approximately 37% of our customers enrolled in order it can be our auto ship and save subscription program and we anticipate that this number will continue to rise.

We continue to have a large base of returning customers, which is an indication of the quality of service and the value that we deliver.

We are fortunate to have a larger base of over 2 million pet parents that have purchased from us over the last two years.

We have over 26 years of experience as a pure play pest pharmacy fully licensed in 50 states delivering outstanding service and value.

Main experience 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 the 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.

Now I'd like to have Bruce review, our financials for the quarter.

Thanks, Matt during the review of our financial results, we will compare our fourth fiscal quarter, which ended on March 31, 2022 for last year's quarter that ended on March 31 2021.

I'd also like to highlight that we introduced new non-GAAP financial metrics last quarter, adjusted EBITDA and adjusted EBITDA per share.

We decided to include these new metrics because they are key measures used by management and by 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 provide a more accurate picture of our.

Underlying profitability and also highlight the more recent increases in non cash stock based compensation.

Throughout our most recent fiscal year, we think it's a unique situation comparing two totally different environment between 2020 pandemic in 2021, mostly post pandemic.

As we move forward into our first full fiscal year the year ending March 31 2023.

With our new marketing partnerships AGM season processes and with many of our highway to initiatives firmly in place we expect to be much more efficient with our variable marketing spend with improved results for the current year fourth quarter sales were $66 million compared to sales of $71 7 million.

For the same period the prior year.

Kris was seven 9%.

While we were disappointed with the overall sales results for the quarter compared to the prior year. We were encouraged by the sales trends we saw in January and February .

Which were only down in the low single digits. However, as Matt mentioned earlier as a result of colder weather. This spring we've tried to weigh in the fleet tick and heartworm season, resulting in a decrease in demand for flea tick and heartworm control products in the month of March and contract in the prior year season start.

In early March.

Positive trend to highlight for the quarter was the continued growth of our auto ship and phased subscription program approximately 37% of our revenue in the month of March was generated from our auto ship and save subscription program with some of our more popular brands exceeded 41%.

Referring to the alignment of our discount promotional offers which required enrollment and the auto ship program.

Growing our subscription revenue is one of our main priorities in fiscal 2023 and.

And we expect to see stronger reorder sales as our auto ship revenue continues to grow.

During the quarter, we saw decreases in both new orders and reorder sales.

Order sales are obviously, one area that needs improvement.

Simply deploying new thinking and initiatives around re energizing new customer growth new order sales decreased by 35% to $4 9 million for the quarter compared to $7 4 million for the same quarter the prior year.

We acquired approximately 53000, new customers in our fourth fiscal quarter ended March 31, 2022, compared to 88000 for the same period the prior year.

Reorder sales decreased by four 8% to $61 1 million for the quarter ended March 31, 2022, compared to reorder sales of $64 2 million for the same quarter of the prior year.

For the full year reorder sales decreased by 2% to $250 4 million compared to $272 6 million for the prior year.

With the increasing auto ship subscription adoption rates, we will see more opportunities to continue to build our relationships with our world customer base.

We will also work to continue to improve our reorder sales by marketing to our loyal customer base with increased product offerings and services.

For the fourth fiscal quarter, our gross profit as a percentage of sales was 29, 4% compared to 28, 6% for the same period a year ago.

This percentage increase was due to some of our major manufacturers shifting their funding through cooperative marketing rebates to discounting product cost and also the funding of discount promotion related to auto ship.

There may be an opportunity to improve gross margins in fiscal 2023, if the shift to prescription medications continues and we can grow future sales without the reliance of price promotions.

Net income was $6 1 million or <unk> 30 diluted per share.

For the fourth quarter of fiscal 2022, compared to $6 8 million or 34 cents diluted earnings per share for the same quarter last year, reflecting a decrease to net income of 11%.

Net income during the quarter was also aided by two tax benefits of one.

196000 state tax rebate related to 2020, and 131000 state rate reduction in 2021, which was recognized in the March quarter.

Adjusted EBITDA for the March quarter was $9 5 million or <unk> 47.

On a diluted basis compared to $10 4 million or <unk> 52 on a diluted basis for the same quarter last year, reflecting a decrease to adjusted EBITDA of eight 4% adjusted EBITDA and adjusted EBITDA per share add back certain noncash expenditures, including stock compensation.

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 the financial measure in our <unk>.

<unk>.

As Matt mentioned earlier in the earnings call adjusted EBITDA for the March quarter exceeded our expectations by being down only 44% for the fourth quarter ended March 31, 2022 compared to being down 31% for the third quarter ended December 31 2021.

Over the past six months, we have seen double digit percentage increases in general and administrative expenses year over year.

Due to the intentional strategic incremental investments in both head count and infrastructure.

We will continue.

Purposeful investments in the business to fuel and support future growth.

We also expect to see a continued investment in capital expenditures to the tune of approximately $5 million in fiscal 2023 of which $4 2 million is incremental to the business.

We had $111 million in cash and cash equivalents and $32 5 million in inventory with no debt as of March 31, 2022. The company continues to be committed to returning capital to our stockholders as such the board of directors declared a quarterly dividend of <unk> 30 per share on the company's common stock that will be payable on <unk>.

May 27, 2022 to shareholders of record at the close of business on May 22022. Please note that 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 would like to hand, the presentation back over to Matt.

Thanks, Chris Liam.

We embarked on a new journey eight months ago, when I joined the company and evaluating and planning for our future. We wanted first to reexamine, how we saw ourselves as a culture and company and then we dealt into redefining our company's core purpose, we looked at where we sell today in the market and how we consistently solve our customers' team.

And we use that as the starting place for a re envisioning process.

Through that work, we identified a clear market need to have a brand company focused on being the trusted pet health expert in many ways. We have served this function for our customers for over 26 years. If you think about it selling prescription medications represents perhaps the most difficult quarter of the pet.

Yes.

It involves both collaboration with an authorization from veterinarian combined with dispensing controlled substances and complying with regulatory requirements et cetera in short, yes, hard when you contact us either online or over the phone were paying extra attention to your pet's specific health needs with important and customers.

Specific details like monitoring for drug interaction and ensuring the accuracy of your pet prescription. We now have the capability to extend the demonstrated competencies much further to that end I am pleased to unveil our new vision and mission are revision every pet deserves to live a long happy healthy life.

Our mission at <unk>.

<unk> aims to be the most trusted expert by providing incredible care and services that are affordable to the broadest group of pet parents.

In order to realize this vision, we need to execute on our mission through this strategy I would like to share with you next next slide please.

We are now ready to talk about our long term strategy with some degree of specifics we have been hinting at a larger strategy. Since I started at that business. Just eight months ago <unk> is moving from being just a leading pet medication retailer to a market leader and expert pet health care, we have already been given permission by your customers over the last 26 years.

It has to be our pet parents trusted partner and caring for their pets.

Pet parents are getting permission to do more and they want more we have taken important steps towards executing on our long term strategy starting with the announcement that we made recently in the telemedicine space.

Tejas pillars that we will be executing on our nutrition medications.

And care with data about driving and being at the heart of our services are.

Our recent announcement with Investor is the first building block of our care offering.

The auto ship is a fantastic program that pet parents to improve their pest care your cost savings convenience and most importantly help compliance for their pet, but we think we can do more in the future we will be adding more capability in utility to this auto ship service being the trusted pet health expert also means that we are not the.

Same thing for all people like I said before anyone can sell daunted, but that is a far different proposition than being the trusted health experts and consistently solving our customers' individual and unique pet health and wellness needs.

Onto the next slide so we can cover this recent partnership announcements.

We are really excited about telemedicine, we just announced a strategic new investments and partnerships this quarter, including an exciting set of innovations that we think truly revolutionizing petcare.

We announced a partnership with an early stage venture capital based company called Investor that there is a leading startup in the pet space, providing incredible services for both pet and that.

The company is led by a phenomenal team of seasoned and successful entrepreneur.

We are excited to offer what we think is the most advanced telemedicine platform on the planet with this partnership pet Meds leaps ahead of the other pet retail and intermediary and most importantly supports that and perhaps like never before.

Now I'd like to provide an overview of the deal on deal structure I've been intimating since I started at the company that we're big believers in telemedicine. This deal is one of the many steps of patents will be taking to cement our place as the go to expert pet health brand <unk>.

<unk> continues to have a strong balance sheet and we have indicated we intend to put some of our 100 million plus capital to work. This deal is evidence of that strategy to not only make smart deals additional management's willingness to move quickly to turn <unk> into a growth company here is an overview of our deal with <unk>.

As the exclusive pet medication provider divestiture investor is the exclusive telemedicine providers.

The $5 million investment minority stake investor as part of this series B round.

Ability to grow pet meds ownership share in the form of performance based warrants based on specific performance objectives.

Mutually exclusive long term agreement to work together to build new distribution channels and never before seen customer experiences.

The technology and E. Commerce integration provides a powerful combination that has never been introduced in the pet category. We are seeing a panoply of upsides and opportunities, including first mainstream launch. We believe we are the first company to introduce pet telemedicine into the mainstream.

Over 2 million pet parent customers with over 70000 veterinarians and the patent.

Network close the loop.

Direct connect access to a telemedicine experience that closes the loop between the pet parent.

So that the prescription medications can be prescribed directly to our pet parents in many cases without the need of an in office visits.

New revenue streams.

This partnership creates new revenue streams within pattern and the potential for new revenue streams from traffic driven from Masters platform.

Go to market acceleration unique investment and partnership terms allow <unk> to accelerate our go to market our new strategy for example.

We will leverage the vascular platform can provide virtual that clinics are embedded with our pet medications in our retail platform directly into their platform.

Finding up the sales funnel, we believe that offering telehealth will enable us to acquire new customers and to create more incentives for pet net subscribers.

<unk> customers will be able to get instant care, whether a business tax or live video chat with your back or any of that provider and exclusive that marketplace access on your smartphone or desktop 24 seven.

Veterinary alignment.

Think of this partnership is a huge win for vets too. We believe this partnership will allow us to provide attractive capabilities and additional revenue streams to our core of that network and beyond.

And we also plan to dream up a bunch of new innovations that we're not ready to talk about.

The deal in the short term should do the Hoffman to the patent business.

Attracting new customers.

Adding more utility to our auto ship capability will help us attract new customers through adding new and exclusive telemedicine and pet parent medical functionality. This will greatly differentiate us in the marketplace and allow us to not focus solely on pricing and discounts.

Driving more subscribers, adding.

Adding more utility like I mentioned above will also enable us to increase the acceleration of converting our existing customers to our subscription offering today that number is 37% and we would like to see that number exceed 50% and the full year of 2023.

Driving more prescription business today.

Today, the process of getting pet authorization required well home pharmacy to obtain an authorization from the pulp plant in central Oregon, While authorizations are high we still have some prescriptions due to the need to physically see is that with this technology customers will be able to connect to their established that for a virtual visit and subsequently have their.

Authorized.

Additional revenue streams will be connecting pet parents to that and we will be able to participate on a revenue share basis for each pad virtual that appointment book on the <unk> platform. In addition, <unk> will participate in incremental Rx and OTC revenues that are booked through the vascular platform.

We have long thought that there was more we can do to support that.

<unk>, plus investor enables that and vet clinics and the flexibility to work whenever and wherever they want.

Quality pet health care World literally now will be at the fingertips of patents.

I have talked about how our network of over 70000 beds is a strategic asset with.

Hope to turn that asset into a partnership that helps them that simione by allowing more productivity flexibility and more revenue for our vet partners. We have been very intentional about continuing to build our best relationship.

We believe that this is a real game changer for that.

Pet parents are.

Combined goals to make quality pet health care more accessible affordable and available to pet parents and pets everywhere. We believe telemedicine will be as big a trend as it is in human health care and we are excited about the possibilities that this partnership will unlock for all of our shared stakeholders.

We see a great future and having more health and wellness services to our business and especially growing our e-commerce subscription base well beyond our current levels.

We have a lot left to do and growing our new customers is certainly a huge focus for the company I.

I hope this level of detail and transparency and demonstrates our confidence in the future of the business. While also providing some insight into the associated investment costs and activities. They are reflected in our operating results. This ends our prepared remarks, operator, we're now ready to take questions.

Thank you.

And if you would like to register a question. Please press the one followed by the four on your telephone keypad right now.

You'll hear a three tone prompt to acknowledge or request.

The question has been answered and he would like to withdraw your registration. Please first of one followed by the three.

And as a reminder to register for a question.

That's the one followed by the four on your telephone keypad right now. The first question is from the line of Erin Wright with Morgan Stanley . Please proceed with your question.

Great. Thanks for taking my questions here, what are you seeing quarter to date in terms of demand trends and the progression of the flea and tick season that you said was off to a somewhat slower start here, but should we anticipate a meaningful bolus here associated with parasiticide in the current quarter, how do you anticipate that playing out.

Thanks.

Bruce do you want to take that and I can follow.

Sure Aaron how are you doing.

As we mentioned during the quarter, we started out very strong obviously once we hit March.

We definitely saw a drop in demand. Unlike what we saw in the previous March.

2021.

We've also have.

Similar information for manufacturers of the slow flea and tick season.

So that's something that I think all of us have.

Have you seen in the past we've gone through.

Delays in season, our season coming early in the year I would say.

Traditionally it's a six month period.

In the past it has extended.

Just have to see how it plays out in the current quarter and but yes, we definitely saw that in March.

And we'll see how it shakes out for.

For the June quarter.

Yes, the only thing okay.

The only thing I'd add to that Bruce.

A number of incentives.

Do you have a concentration of plant check on heartworm.

And so we're feeling quite confident that costs were starting to even out in January and February and so Unfortunately, you can't control the weather.

And we do have category concentration of those areas. So we're confident that we have a very long loyal returning base. So when the earth heats up.

Dissipate that reorders will kind of get back to where we expected them.

Okay, and then two quick follow ups here, given some of the initiatives around advertising spend for the quarter, how should we be thinking about advertising spend in fiscal 2023.

I mean should we anticipate a step up from here as a percentage of sales in the coming quarters, I guess help us frame that.

In terms of how youre thinking about advertising spend and then in terms of the town to Madison partnership can you describe a little bit more on the financial contribution for you and will this be material for your near term. Thanks.

Yes, I'll take the last question first and then throw it over to Bruce.

On the telemedicine piece.

Is a pretty exciting opportunity since we are the prescription space with our core offering to consumers. Obviously, we want to be in front of that trend with having consumers literally at their fingertips have the ability to connect to have that.

They're on their desktop or on their mobile device and have prescriptions delivered to their to their doors.

We arent really guiding to how big this opportunity is it's really really new.

<unk> relations, which connects the consumer whether that are relatively.

As well, we see the regulations loosening over time and that we see more demand for consumers. So we're not really guiding per se and we love to excite.

On the upside of this partnership develops partnerships are very hard to forecast as you know, but we're very excited about it and we think this is the best team in the Pet medicines Vegas Investor. This is a seasoned team that we started to get to know very well.

Wiley recommendation from the travel space and they know marketplace is extremely well and have had multiple.

Successes in building out marketplace and so we're highly confident that this is the right time product and business model for us to put.

Our bet around and to start growing demand around on the.

The other comment Bruce do you want to take that and I'll follow up.

Sure as far as advertising so for the quarter advertising was done.

About 800000 or about 20% from where we were last year.

And I would say that we were somewhat on target to spend somewhat similar to where we spent in the previous year.

Obviously, the slow start to season.

We pared back our spend due to that.

We expect to spend probably similar to what you saw last year, but we expect to be more much more efficient with our spend and if there's areas that we can lead in that are producing a much better return obviously, we will take advantage of that when we see it.

Yes, the only thing I'd add to that too.

Exactly right is we wanted to make sure we were spending money. When there is demand because consumers were carrying back claims in chicken heartworm, we decided not to accelerate that the other thing that we decided to do is introduces LTV to CAC number in the two five X that you saw that could that could change over time as we start doing front end that we wanted to be.

Very smart about how we scale are demanding two five maybe on the high end it.

It could be lower than that and just depends on the types of consumers that we're finding and where we think there is a spot to invest so that gives you some direction of where we're going but it should be.

Higher than you've seen in the past, but we're going to be very performance oriented around the <unk>.

So the $2 five actually was a pretty efficient LTV to cap I think that might move around a little bit.

Okay, great. Thank you so much.

And the next question comes from the line of Corey Grady with Jefferies. Please proceed with your question.

Hi, Thanks for taking my questions I wanted to follow up on the new marketing strategies and partnerships. Maybe after you spend a little more time talking about areas, where you're seeing signs of validation in terms of return in areas, where you are continuing to test.

Hey, Thanks for the question.

I'll jump in on this one.

Yeah, again, I want to remind you this.

After our discussions that much of what we've done to date has been really building kind of a basis a platform for growth as you can recall last quarter. We had some inefficiencies we implemented new marketing operations technology, New marketing partners and we've been really testing a lot we've been testing new customer.

Segments that are younger more digital natives and I think the headline is we're seeing a lot of interest.

Experts strategy.

Funding for something Thats more positioned around your pet's health versus kind of a broader play.

Everything in store for our Pat really consumers are responding to that so we're going to adjust our positioning with our creative around that theme and we're starting to see some early positive signals around that and as that starts to scale I think our media mix will scale I think well the way we spend our dollars will definitely scale and scale profitably.

I would like to point out there is a thousand that over 3000 Russell 3000 companies are not profitable we tend to grow profitably and find new customers and like I said on the earnings call really customers understand that pet that stands for pet healthcare and I think thats really exciting proposition for customers.

Got it that's helpful. And then I was wondering for my second question. If you could quantify the sales impact from that.

<unk> and then how did results for the quarter in terms of sales composition reorder versus new order, how does that compare to your expectations coming into the quarter.

I'll start and then Bruce do you want to finish.

Sure.

Yeah.

Yes, as we said on the earnings call January and February were trending.

Actually to where we wanted to and we are starting to see the evening out on those comments that was a really important metric for us and I think we've been really transparent about net new customer growth has been an issue for the company for a while it's something that we're going to continue to work on and we're actually pretty optimistic that that will that will improve.

And Unfortunately March was just colder than anticipated. So we are anticipating returning customers to be more flat year over year than what you saw and Bruce do you want to add any other color to that.

I would say that.

I think the obviously the surprise in March I mean, we look at the two marches season was really strong last year, so our reorder numbers.

We're much higher I would just say that you are comparing two totally different marches between early on time season versus a delayed season.

And so you have those two dichotomy is there.

But again I think reorders were probably out of the two if we were that was probably more.

More effective from the delay in the season than when.

What we would have expected going into the.

The March quarter.

Got it thank you.

And as a reminder to register for a question what's the one followed by the four on your telephone keypad.

Okay.

And the next question comes from the line of David mainly with one one O. Two partners. Please proceed with your question.

Hi, Bruce Hi, Matt.

You mentioned.

The <unk> deal is the first of many transactions should we expect transactions of use of a similar size.

Or is it likely that there might be something that's much bigger down the road and I guess, if so would that be the deal that would lead you to eventually pair the dividend.

Thanks, David for your question.

I think there's two parts to that obviously the I'll take the first part and then I'll take the second part.

The capital allocation side as we have a lot of cash and the cash he hasn't really been put to use and so.

As we fill out those puzzle pieces that I mentioned on the call around care around wellness diet medication, we think we're pretty good at medication and there's other areas, where you really need to fill in and what's driving that is really our customers really want to have more products. They want more basket from us.

More services that are aligned around health and that's driving really.

Some of our thoughts around how to accelerate whether it's an investment M&A warrant investment partnership that you saw investor. So we're going to continue to look at those types of opportunities.

Things that we've discussed in earnings calls like insurance, certainly that lead to more of a partnership type of profile, but certainly we are open to M&A as well.

As asset prices start to settle down as the economy starts to change I think there could be some more buying.

Buying opportunities there, but we are open to selling in those puzzle pieces using cash and on the dividend side, we have a commitment to the dividend.

One of the things that we're looking at as a management team that we discuss all the time as new customer growth starts to get figured out and we have better calculus around that we understand the types of <unk>.

Recurring customer acquisition, we can start driving that's probably the time that we would start discussing how fast we want to grow the company.

But as you know, we struggled with new customer growth and so we've decided to support the dividend and we've also decided to also not grow the company unprofitable.

Deciding to take this business down to a.

Profitable and unprofitable business, which a lot of E. Commerce companies have decided to do and I actually think that will be a problem and you start entering into some of these more difficult periods that we're starting to see now so in short we're going to support the dividend, we're certainly having conversations with the board all the time.

But we're actually excited about growing through investment through partnerships and M&A and we generate a lot of cash. So there is an opportunity for us to do for.

For us to do both and so the good news about the pet health space is there's a lot of company, that's $100 billion space and Theres a lot of companies don't want to work with us like I said on the call Theres not many pet prescription of <unk> companies.

Lot of folks want to work with us and it gives us an opportunity to generate terms like you saw in the investor deal that are probably a little bit more unusual than you've seen somewhere else with the performance warrants. So that's a long winded answer to look when we decide that we can really ramp new customer growth will certainly discussed at the board until there is a lot of opportunity.

For us to find inorganic or semi organic growth through partnerships I hope that answers. Your question if not I can keep going.

Yes, no. That's good that's good color really appreciate it thank you.

Great question. Thank you.

And there are no further questions at this time I will now turn the presentation back to the house.

Thank you operator.

As you just heard the future patent has as much broader than just the prescription E. Commerce company. We are building our strategy out and working hard to transform into a broader e-commerce and subscription brand that reflects and leverages our status as a 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 as always thank you to all of our employees customers partners suppliers and investors for your continued confidence and support. Thank you for listening and operator. This ends the conference call.

That does conclude today's conference. We thank you for your participation and ask that you. Please disconnect your lines.

Okay.

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