Q3 2022 Petmed Express Inc Earnings Call
Good afternoon, everyone and thank you for joining the Pet Med Express third quarter earnings Conference call. My name is Doug the operator for today's call.
I would now like to pass the conference over to our host Mr. Brian <unk> Investor Relations, Sir the floor is yours now.
Thank you operator, and I'd like to welcome everybody here today to the Pet Med Express fiscal third quarter earnings call.
I would also like to remind everyone that the first portion of this conference call will be listen only until the question and answer session, which will be later in the call.
Also certain information that will be included during this call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities Exchange Act of 19th 34 as amended that may involve a number of risks and uncertainties. These statements are based on our beliefs.
As well as assumptions, we have used based upon information currently available to us because these statements reflect our current views concerning future events. These statements involve risks uncertainties and assumptions.
Actual results could differ materially from those projected there can be no assurance that any forward looking results will occur or be realized and nothing contained in this presentation is or should be relied upon as a representation or warranty as to any future matter, including any matter in respect to the operations or business or finance.
Condition of that.
Pet Meds undertakes no obligation to update publicly these forward looking statements based on subsequent events, except as may be required by applicable law regulation or other competent legal authority, we have identified various risk factors associated with our operations in our most recent annual report and other filings with the secure.
<unk> and Exchange Commission.
Also during the course of today's call the company will be discussing one or more non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release, we issued this afternoon.
Now, let me introduce our CEO and President Bachelet map.
Thank you Brian Thank you for making the time today to participate in our earnings call.
For anyone new to the Pet Med Express company and story that map.
As a company that delivers prescription and nonprescription medications food supplements supplies and vet services direct to the consumer.
Our expert online pharmacy is an established and trusted brand as evidenced by the fact that we have served over 11 million pet parent customers over our companies 26 year operating history.
<unk> is a leading pet retailer for both prescription and non prescription medication, we have a loyal customer base, a pet parents that value our brand service and quality. However, we believe our company in this industry can be more to the millions of pet parents across the country and our goal is to be the market leader in pet.
And that's in health care or as we like to say be the trusted pet health experts.
Because we believe every pet deserves to live a long happy and healthy life.
We will be walking through the following components in todays earnings call one an update on our strategic roadmap, including our recent agreement to acquire a pet care Rx shoe a detailed review of our full year Q3 earnings and three an overview of our go forward thoughts related to our capital allocation strategy.
From management's perspective, we are pleased with our results this quarter as well as the progress we've made on our company transformation next slide please.
Over this last year, putting us has been in a rebuilding mode with a new and experienced management team and updated strategy and a revised overall approach to the market as we transition to a growth oriented business I.
I will provide an overview of our third quarter results and then our CFO Christine Chambers, who will go into greater depth later in the presentation on our financial performance.
Third quarter sales were $58 9 million compared to sales of $60 7 million for the same period the prior year.
While this equates to a decrease in sales of 3% year over year compared to a double digit decline in fiscal year 2022.
One of the reasons that we were pleased with the quarter was that we saw an increase in net new customers of 9% year over year. This is an important milestone for the company since we have not seen an increase in net new customers since Q1 of 2021.
Most importantly, we achieved this while staying disciplined in terms of our customer acquisition efficiency metrics are new customer count for the quarter was approximately 72000 compared to 66000 in the prior year and our LTV to CAC for the quarter was 1.6.
Our average order value was $88 relatively flat to last year and last quarter.
We also saw continued growth in the recurring revenue side of our business, our auto ship and save program continues to grow and expand and approximately 42% of our revenue was recurring revenue derived from our auto ship subscription program during the second quarter.
This part of our business increased 8% on a sequential basis and doubled year over year.
Auto ship continues to be an important strategic lever for pet, especially considering that the focus of pet meds business has historically been solely focused on the prescription refills business.
Later in this presentation, we will walk through in detail our product catalog expansion strategy, especially as it relates to our agreement to acquire a pet care Rx.
We believe that there are clear expansion opportunities for more customer engagement and the non medications space, which will increase our pet parent wallet share generate more recurring revenues and lead to an increase in customer lifetime value.
Simply put with a broader catalog assortment, we see an opportunity to attract new customers, while selling more to our existing customers.
We have previously discussed what the company's strategy has been historically and what it will be going forward.
It's shifting from being simply a leading pet medication retailer to being the pet health experts a market leader in pet health care expertise.
We want to be every pet parents go to destination for holistic health and wellness from nose to tail and be that go to destination over a pet's entire lifecycle.
On that journey to becoming trusted pet health experts, we believe the strong relationships, we've established with pet parents through pet medication prescriptions is an entry way to providing them with further goods and services, including prescription food TV services supplement and soon pet insurance.
The four points of our pop at our medication care nutrition and wellness.
We view these points as being key to building a differentiated brand and experience to pet parents everywhere.
We recognize the shifts that are occurring in the regulatory landscape, which led us to our first big investment pet telemedicine.
Our investment in and partnership with Bester enabled pet meds to become what we believe to be the first pet retailer to offer pet telemedicine at scale.
That live our new co branded offering, but that's fair connects pet parents to thousands of licensed veterinarian providing.
Quality online bet services through a video chat appointments 24, seven and is exclusive to the pet meds platform.
We see the virtualization of that services as being a key pillar of the pets business and a differentiator in the pet space. So.
So vet live as a strategic advantage that will continue to develop as regulation changes and as consumer education and awareness develops.
The pending acquisition of pet care Rx represents a significant opportunity to expand our pet meds catalog with a broader set of consumable products and nutrition.
Pet care Rx a catalog offerings include over 13000 of the best non medication health and wellness products, including food supplements and other similar products.
They also bring us an incremental distribution center capability outside of our core medication distribution.
We have been rapidly filling in the strategic pieces of our strategy to take advantage of a growing industry, which is the topic of our next slide.
As we have covered in our previous earnings calls pet Meds operates in a growing addressable market because of our pending acquisition partnerships and core improvements in the pet business Pet Meds is now able to actively participate in a broader addressable market across the pet wellness space with.
With our investments in vet care and a broader product selection, we are in an enviable position to gain market share and expand our relationship with our customers over time, we expect our revenues to be more diversified as we address a broader range of pet parents needs.
Management is excited about how we've positioned pet meds to be a growth company.
The pet space has proven to be a resilient vertical even in recessionary times.
Currency their pets as an extension of their own families and increasingly demand premium pet care options.
There are some reasons why management is excited about pet meds growth opportunities from a macro perspective, one pet parents are less likely to reduce their pet purchasing budget, especially in the consumable and medication categories. Two U S household pet ownership has increased over time and today, 70% of U S households, now own a pet.
As pet parents will need and seek health and wellness care provided by a trusted brand.
Three consumers also now expect everything to be a real time fast and digital a trend impacting every industry. The E. Commerce channel continues to expand rapidly we expect the pet vertical to follow this expansion just like we have seen in other digital ecommerce verticals.
They are addressable market is largely dominated by offline sales, but we see the growing trend the purpose online as an opportunity which would be very favorable for us.
Four we also see a real trend towards the Digitization of Pet health care, just like we have in human health.
Parents are thinking through the entire spectrum of their pets' care from diet to veterinary services from infancy through old age and they're examining the channels through which they access those products and services.
We believe pet meds is uniquely positioned to take advantage of these trends.
By focusing on total wellness, we can offer products and services to pet parents that are diet and health focused in the areas of pet medications premium prescription and nonprescription food.
Supplements and tell them that services.
Before we dive into the quarterly financial results I want to remind our stakeholders of several important achievements that signal the beginning of the transformation of pet meds into a growth business.
Net new customer growth.
Year over year customer growth shows the vitality of any growing business and we shared good news on this front on today's earnings call as.
As we expand our product catalog over the longer term, we anticipate that pet medics grass will benefit from having a higher LTV and more operating leverage to acquire customers at scale.
More subscription revenue.
We haven't seen substantial progress here and we'll continue to see more recurring business that enables pet meds to be a more predictable business model with higher LTV and increased mobility.
Sell more non medication products.
Expansion of our product catalog and services has been a key initiative for us.
We decided to turbocharge this effort through the pending acquisition of pet care Rx.
Pet meds will benefit by having more recurring sales increased regular visits that's delivering a higher LTV our customers desire a wider selection from us and we look forward to working with the pet care Rx team once we close the transaction to work towards these expansion opportunities.
Unique and differentiated services via digital based health care services.
Our goal is to continue to move more health and wellness services online with our long term perspective that this will be driven by pet medications and veterinary care.
Our next slide summarizes how these products and services are tied together.
Pet meds is uniquely positioned at the starting point with a highly regulated and complex pharmaceutical segment of the pet industry.
Last month, we announced the agreement to acquire a pet care Rx, a leading supplier of pet medications premium food and supplies. The combination of the two long operating companies will greatly impact the longevity and happiness of pets on a larger scale.
Take care of Rx has been operating as a privately owned pet health and wellness company for over 20 years.
The acquisition is intended to provide the following advantages a greatly expanded addressable market beyond our current pet medication market.
Immediate revenue and customer growth and.
And greater non medication sales for the core pet meds.
We are confident that we will see similar expansion of buying behavior with our pet meds customers and we'll rapidly move and supplier relationships and products from the pet care Rx portfolio overdue pet meds over the next several quarters.
Once the transaction closes pet meds, we'll be working towards integrating the pet care Rx brands and catalog onto the pet Meds E Commerce platform.
Longer term the wind for pet parents, and our stakeholders is that pet meds will now be able to service a wider range of products and services or what we like to refer to as from nose to tail.
Operating expanded catalog to a recurring customers is a great place to start but that alone doesn't create an adequate moat around the pet meds business.
As a result of consumer demand, we believe strongly that pet health services will become more digitally enabled a trend that we have already seen in human health.
We're very excited about our strategic relationship and minority ownership stake investor our exclusive partner that accelerated our entry into the virtual telehealth and telemedicine space.
We also believe pet telemedicine is going to be a huge trend over time not unlike what we've seen with other services like online and mobile food and delivery services.
There are a slew of innovations that you can expect to see from patent that as we integrate the technology from our various partnerships and unique differentiated and bespoke ways and all of these efforts are designed to provide high efficacy outcomes for pets to live healthier and happier lives.
Spec to see more innovations and product catalog extensions over the coming quarters that will deepen the benefit of our strategic pillars.
I would like to now turn the call over to Christine to walk you through our Q3 financial performance and the company fundamentals Christine.
Thank you much.
<unk> has a strong set of core assets and capabilities that we plan on leveraging just say agree with independent business.
Pet Meds maintains a strong balance sheet of over 102 million of unrestricted cash as at December 31st 2022.
Our brand is widely known and trusted our market research indicates that 55% of U S. Pet parents are aware of the pet Meds brand.
Having a strong Brian it takes years to develop and our customers tell us they look at pet meds as their trusted pharmacy and pet medication exit.
We have one of the largest direct to consumer that Netflix in the online retail space with over 70000 veterinarians that we've worked with over the company's history.
Because of our industry, leading service relationships with that.
A prescription medication authorization rates are the highest they've ever been which speaks volumes to the level of veterinary cooperation that we receive on a daily basis.
Oh customers less all brand in that service.
Our NPS score is over 80, which puts us in the upper quartile alongside some of the most beloved brands in the world.
We provide a 100% satisfaction guarantee to our customers and we go the extra mile with genuine and Pathic and expert service.
As Matt previously mentioned, our oldest ship program continues to grow and expand.
Approximately 42% of our revenue was recurring revenue derived from our Ultrashape subscription program during the third quarter.
This is an 8% increase on a sequential basis.
I also wanted to say that I'm really excited with the speed at which we've begun to see business improvements.
Investment in G&A has provided greater transparency.
Decision, making and better analytics.
Let me turn to our financial results for the quarter ending December 31st 2022 third.
Third fiscal quarter 2023.
My remarks will compare this year's quarterly results to the same quarter last year.
Third quarter revenue was $58 9 million compared to revenue of $60 7 million in the same period last year.
This is a decrease of 3% is an important milestone to highlight.
Net new customer growth.
We welcomed approximately 72000, new pet parents this quarter compared to 61000 in the prior cool, which means 66000 in the prior year.
This represents growth of over 9% year over year, and an increase of 18% sequentially.
We are actively targeted acquisition of lapsed customers through competitive promotions in the quarter to drive new customer acquisition.
Repeat sales of $53 million for the quarter decreased 4% compared to repeat sales of $55 million in the same period last year.
Gross profit as a percentage of sales was $25 nine compared to 29, 2% in the same quarter last year and 28, 2% in the prior call it yet.
The decline in gross profit was primarily due to higher seasonal promotions during the quarter as consistent throughout the industry.
Our promotional activity. However, we specifically focused on reactivating a large base of lapsed customers.
With a more modern marketing stack and refresh the marketing team, we will lean into optimizing this customer base and fully expect to cross sell additional catalog to these customers in the future.
Well, we're always evaluating our promotional strategies, we don't expect to repeat the deep promotions that we offer this past quarter to re engage the specific customer set.
G&A increased $2 9 million year over year, when normalized for nonoperating costs relating to the pending pet care Rx transaction.
G&A increased $2 3 million year over year.
This is due to an increase of one 4 million related to payroll expenses, which includes 400000 related to stock compensation.
500000 related to the state punchy resources and some increases in software expenses and other G&A.
With the exclusion of non operating items, we do not expect G&A to continue to increase at the same rate next fiscal year.
We believe the right team is largely in place now and the G&A will be fairly flat exiting fiscal year 2023 and going forward.
Please note today's we push to close the acquisition in the fourth quarter, we will expect to see additional acquisition related expenses.
We received and accrued for sales tax assessment in the second quarter of fiscal year 'twenty to 'twenty three.
Based on the assessment received the company initiated a process to evaluate the potential for further sales tax contingency.
The result of this evaluation could have a material impact on the company's financial statements.
We expect to complete the review in the quarter ending March 31st 2023, and we will provide a further update after we complete a full analysis.
Net income was breakeven for the third quarter and zero cents per diluted share and includes $500000 or two cents per diluted share for items not indicative of our ongoing operations.
This is compared to a full point 3 million or 21 cents per diluted share for the same quarter last year.
Adjusted EBITDA for the quarter was $2 7 million compared to $7 6 million in the same quarter last year.
Year over year decline reflects a decline in gross margin and targeted increases in G&A.
As we look forward, we'll be primarily focused on closing and integrating the pending acquisition and driving we changed under recent investments.
Management believes that the organic and inorganic investments that we've made over the last year in the business are sufficient to drive long term sustainable growth going forward.
<unk> been focused on operating execution and integration is paramount in order to realize those future region.
Now I'd like to talk about the pending pet care Rx acquisition.
We covered some of this material in our analyst day in January but we'd like to reiterate in the structure and strategic rationale for the transaction.
Total consideration of 36 million.
Trailing 12 months revenue of $42 million.
200000 customers.
More than 10000 brands and products Skus.
Around 80 employees in our headquarters and distribution center located in long Island, New York.
Gross margin approximately the same as pertinent.
As mentioned, we expect the deal to close this quarter.
Well the pet care Rx brand will continue to operate independently as part of the pet meds wellness and consumables business is expected to immediately deliver topline revenue growth.
Overtime, we expect it to be bottom line accretive as we leverage synergies and streamline infrastructure.
Now I'd like to discuss our capital allocation.
As we transform the pet meds business the acquisition of Pet care Rx is the first catalysts that provides immediate growth.
As well as the ability to spend more in variable marketing as we went to sell more products to our customer base.
Over the long run management remains committed to driving total shareholder return.
As such for the third quarter, we will pay a dividend at the same rate as we have in prior quarters at 30 cents per share.
Consistent with prior practice the board will evaluate it.
Declaration of dividends on a quarterly basis as part of our normal quarterly business cycle.
In addition management strongly believes that investors will see a higher return over the long Chen to stock appreciation with a growing company in a growing market.
And with that I'll turn the call back to Matt.
Thanks, Christine again management is very encouraged by the performance of the business this quarter as well as the impressive acceleration in our long term business drivers, we announced today that pet meds is poised for growth.
As we have stated over the last several quarters pet meds is pursuing a vertical specialty retailer strategy, we aim to be pet parents trusted pet health expert.
We have been sharing our strategy with you for a little over a year and we have substantially filled in the pieces to build an enduring profitable and growing pet health company to be crystal clear on the measures for success.
New customer growth.
More subscription revenue, we have seen a rapid progress here and we'll continue to see more recurring business that enables pet beds to be a more predictable business model.
Sell more non medication products via product catalog expansion.
Unique and differentiated services via digital based health care services and veterinary care.
We will continue to add more virtual care and wellness services that will contribute to greater loyalty or less customer churn and uniqueness in the market.
With over 2 million indeed customers, we are a well known and trusted brand and we operate in a market that is resilient to economic headwinds.
A strong balance sheet that provides us with the financial flexibility to take advantage of a large and growing market.
We are excited to welcome our new pack members pet care Rx pet meds job is certainly not done well.
We will be working hard to integrate execute and go to market with these new assets and initiatives.
This ends our prepared remarks, operator, we are now ready to take questions.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
Like to ask a question you May press star one on your telephone keypad a.
A confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing that starkey.
Our first question comes from the line of Erin Wright with Morgan Stanley . Please proceed with your question.
Oh, great. Thanks for taking my question first.
First how should we be thinking about and congrats on the new customer growth, but how should we be thinking about new customer growth in the coming quarters. Do you think that we've hit an inflection point here or are there any other factors that we should be thinking about in terms of that quarterly progression.
Thanks for the question Erinn I'll take I'll take that one.
Yeah, we're pretty excited that we saw net new customer growth for the first time in.
Two and a half years, what a couple of things are going on behind that number one is.
And one of the interesting things about pet meds versus in early stage businesses that we've got a huge database of customers that up until recently, we really didn't have a lot to talk to about.
So we've done a much better job of re engaging lapsed customers as you may recall, we changed the definition of our new customers to anyone that's purchased with with US in the last three years, and so where we're doing more specific targeted offers to our our lapsed customer base, which we have found.
Largely as being very cash efficient customer acquisition efficiency. So that's kind of one theme and the future Aaron that youll see from US. The second theme is a little bit of what you heard around the thesis around pet care Rx and the expansion of our non medication catalog as well while CAC overall in our.
Space has generally flattened in terms of trends in terms of Tac trends, we do see an opportunity to increase lifetime value as we start selling more products to both the net new customers that we are bringing on but also existing so I think the trends that you'll see from us are probably less in terms of gross margin hit related to.
Reignites <unk> lapsed customers, but more focus on getting those customers to purchase more from us and so on a go forward basis, we are leaning more optimistic about our ability to grow our customer base I hope that answered your question.
Right Yeah, no. Thanks that was great color and then also looking at just underlying demand trends across your customer base.
Whether its dynamics around the upcoming flea and tick season, what you're seeing in terms of consumer behavior around trade down dynamics. What are you seeing any sort of macro environment just from an underlying demand perspective.
Yeah, It's a great question, Eric and that's such an important question for US as you know we are a seasonally driven business highly weighted towards the flea and tick season, I think I think it's not a it's not.
And I think this season is going to be very different than last season. I think last season was very abnormal on many different vectors.
Very unseasonably cold we are looking very carefully at what we're seeing in the vet channel and also macro economically with our supplier partners. We are cautiously optimistic that the flea and tick season will be much better than it was last year I think it would be very difficult to say it would be worse.
But it's too early to tell.
But I don't think you're going to see as colder temperatures as we did last year, but we're staying very attuned to all the macro data.
In terms of trade Downs, we are not seeing trade down behavior in our business. As you know we are very medication focus and very prescription focus in terms of the weighting in our business and those customers, particularly diet and health focused customers generally we'll stick with the brands that they love whether their favorite flea and tick brand or if it's a <unk>.
<unk> brand whatever it is we don't see consumers wanting to trade down.
Which is good news for us and I would say that trend will likely continue and we're relatively recessionary resilience and we haven't seen a lot of trained down behavior. So in terms of the macro we're going to stay very focus obviously as we get into March that's when sales historically have inquiries for clean tech.
And we'll be watching.
Watching very carefully around seasonality around temperatures.
Did that answer your question Erin.
Yep. Thank you so much appreciate it thank.
Thank you.
Our next question comes from the line of Corey Grady with Jefferies. Please proceed with your question.
Hi, Thanks for taking my question I wanted to follow up on that and just talk about other factors that impact customer growth. So we've seen that industry visits down over the past year and this is kind of a seasonally weak quarter for flea and tick.
So you got to customers by activating lapsed customers, maybe you can talk about what youre seeing in the market in terms of like customer intents, and how youre thinking about trends that might impact customer growth over the next year. Thanks.
That's a great question in.
In terms of the rig night of the existing lapsed customers really that the new conversations and that's why we changed the definition.
We have a huge opportunity and what we've got is a lot of interesting net new data around what those customers want from a brand like what pet meds and so it's almost the way we think about it as having a completely new conversation some of those customers actually.
Have a strong affinity obviously to the brand, but they haven't really been introduced to us in a while and so we're treating them like they're new customers because they are new customers.
And those customers that are new seem to want a one stop shop, one place to get more of their products versus just one item that could be and this is speculation related to in flight inflationary concerns it could be pre recessionary concerns.
But going to one place to get all of your needs.
Is it is a developing theme and we've seen this in other ecommerce retailers in terms of the net new components to the strategy for both the existing customers as well as new.
It's hard to predict the customer acquisition trends, it's a dynamic marketplace, but we've certainly seen those trends flatten in terms of increase in overall customer acquisition or customer acquisition costs on an absolute basis have been relatively flat.
But we see a lot of interesting demand, which was the thesis for pet care Rx to add more premium products like prescription food and premium food to the mix.
And so longer term, we see an opportunity to potentially lean into customer acquisition costs and expand our customers more rapidly, but again, we are not in a position to comment on that yet we havent closed pet care Rx.
And we will focus very much on digesting the acquisition and working with that team and executing core did I answer your question.
Yeah, you did that's really helpful for my follow up.
I wanted to just get some more color on gross margin. So you talked about going forward focusing less on promos and more on cross selling but how should we think about gross margin for Q4 and into next year. Thanks.
Thanks, Corey Christine would you mind answering that question.
Yeah. Thanks, Cory for the question so as I mentioned on Nicole.
Gross margin in the quarter.
Really impacted by the targeted acquisition of those lapsed customers and we really did lean into that and with some of the sort of one time promotions and you know that was an intentional moves on our part to acquire those customers because of the opportunity that we see with cross.
Selling products and an expanding the instead of pushing of that customer's basket going forward and as I mentioned you know what there was theres that and also I would say that there was hum.
We haven't had coop rebates that hit our cost of goods sold and those can vary from quarter to quarter now both of those things negatively impacted gross margin.
This quarter, we really don't expect those to repeat and to that extent going forward and so we do expect to see our gross margin more in line with kind of the historic trends and what we've seen in the past.
Got it thank you.
Thanks Corey.
Our next question comes from the line of Anthony <unk>.
<unk> with Sidoti <unk> Company. Please proceed with your question.
Good afternoon, and thank you for taking the questions. So it's really nice to see you.
New order sales growth.
Sure.
Well you know you repeat sales of reorder sales were down about 4%.
So kind of going forward I mean.
I mean do you expect I mean, obviously.
You repeat sales drive around 90% of your total revenue.
So how are you thinking about maintaining that repeat.
The base of customers do you expect to perhaps be more promotional to those customers or are you just just broadly thinking about that making sure that you are.
At least able to maintain those repeat customers.
Yeah, Hey, Christine I think Anthony Thank you for that question Christy why don't you answer the overall returning revenue trends and then I'll follow up with maybe a strategy answer.
Yeah that sounds great and hate and take your questions.
So as we look at the retaining customers you're right. We did see that 4% decline year over year. If you look at that can take surely within the last six school, which is that's the lowest.
Lowest decline that we've seen year over year, and then we've seen like I say over the last six quarters. So we really do see some of the the trend studying studying to change there and actually starting to see.
Less of a decline in that customer base and then of course as we're thinking about the new customer acquisition and building sit at the top of the funnel and then having a repeat.
Having the repeatability was our oldest ship program as well as that expanded catalog, we really see that opportunity to drive greater stickiness and I'll hand back to Matt because I know hill.
I have some additional comments here.
Thanks, Christine No you answered you actually added a couple of elements that I was gonna add Anthony I would say that.
We don't have a lot of shots on goal with our customers today, meaning.
Primarily our customer engagement is over a year around prescription refills and so that that gives ample opportunity for customers to not engage with us and not house reengagement in and likely either go to another retailer or were actually forget that they're on.
Some type of program with us and so we're looking to get more engagement with those customers.
Through auto ship, but also through selling more products, we think selling more products and auto ship is kind of a one two punch to answer that question.
Because there is more competition in the market, but also our customers want more products from us and so we think the advent of those two things will really help bolster and stabilize the returning base over time, and then as I've as I've mentioned more speculative investments that we've made on pet Tele medicine, I think we're going to be really interesting to see.
See how over the long term the regulatory environment changes, but also how customers view pet meds as not just a place to get your meds, but it's also a place to get all your other services that you would expect to get and our customers are very much aligned with how they think about their vet and so which is why we really focus on pet Tele medicine and.
Connecting with that through our about live service. So overtime, we think differentiation through services is going to be.
The ability for us to lower churn and provide a more meaningful experience for our customers.
Got it thanks for that and then your advertising spending was up 7% I'm. Just wondering are you seeing any changes in ad.
Rates, you know given kind of where the economy is right now just wanted to get your thoughts on that.
Yeah, I'll take that one Christy and anti of grid question, Yeah, when I say relatively flat, obviously, there was a little bit of an increase.
No largely the fluctuations that we've seen are how we get incentive from our supplier partners, which add some variance. So we feel like overall from what we see inside.
Our marketing spend that we've.
We've been relatively flat there can be some variances based on the amount of discounts that flow through the P&L from our supplier partners, but overall when we look at the industry.
Whether it's <unk> or C. P M.
We're not seeing a lot of fluctuation in price right now that that can change and it has changed significantly.
<unk> over quarter base, usually on the macro environment, but it has somewhat stabilized in terms of our customer acquisition costs and we're not we're not super concerned about that.
Got it okay, well, thank you and best of luck.
Thanks, Anthony for your questions.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Thank you for joining our call today I'm confident that the future we envisioned for pet meds, along with the foundation that we've been laying will meet the market opportunity and unique and innovative ways and will lead to improved operating results and increase shareholder value.
That's brand expertise and reputation are unparalleled.
We have greatly accelerated our operating road map and we look forward to sharing our progress and positively changing the lives of our pet parents and pets.
For your continued support.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.