Q1 2024 PetMed Express Inc Earnings Call
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Good afternoon, everyone and thank you for joining the pet Med Express first quarter earnings Conference call.
My name is Mel and I will be the operator for today's call.
I would now like to pass the conference over to our host Mr. Brian plentiful with Investor Relations.
Sir the floor is now yours.
Thank you operator, we would like to welcome everybody here today to the patent at express fiscal first 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.
Securities Exchange Act of 1934 as amended that May involve a number of risks and uncertainties. These statements are based on our beliefs as well as assumptions. We have used based upon information currently available to us because these statements reflect our current views concerning future events. These statements involve risks.
Certainties and assumptions.
Results could differ materially from those projected there can be no assurance that any forward looking results will occur or be realized 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 of the operations or business or.
<unk> financial condition of 10 minutes partners 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.
Genticide various risk factors associated with our operations in our most recent annual report and other filings with the Securities 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.
Let me introduce our CEO and President Bachelet, Matt.
Thank you Brian Thank you for making the time today to participate in our earnings call. We are looking forward to sharing our operational advancements and financial achievements with the investment and analyst community first we will provide an overview of our business progress since our last update on May 18th 2023.
This will offer insight into the significant developments and milestones achieved during this period.
Second.
We will provide a summary of our quarterly financial results, including a detailed analysis of our financial performance.
Pep minutes is a company that delivers prescription and nonprescription medications.
Food supplement 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 more than 11 million pet parents over our company's 27 year operating history.
While we have a loyal customer base, a pet parents, who value our brand service and quality. We believe our company in this industry can provide even more to the millions of pet parents across the country.
Such our goal is to be the market leader in pet wellness and health care, whereas we like to say the trusted pet health experts.
We believe every pet deserves to live a long happy healthy lives next slide please.
Since April we have been fully engaged in integrating our latest acquisition pet care Rx into the pet Meds family.
Significant milestone for our organization.
This acquisition presents a compelling opportunity for us to expand our product catalog and capitalize on the many synergies between Petcare Rx and pet meds.
By leveraging the pet care Rx catalog, we can offer a broader range of products to our pet meds customer base.
This strategic move aligns with our core investment thesis and positions us for further growth and success.
Since its inception pet meds has focused primarily on pet medications retail and pet care Rx accelerates our plan to improve the legacy pet business. Our aim is to enhance our merchandising capabilities and expand our product offerings with a particular emphasis on consumables, while continuing to leverage our core extra.
Ts and pet medications.
This evolution will meet the broader needs of our customers and will strengthen our market position as a comprehensive pet care provider. So far our efforts are yielding encouraging results since completing the acquisition we have undertaken a thorough data optimization process, ensuring that our AI based site recommendation engine is.
Fully optimized to suggest relevant nonprescription products to our customers.
Furthermore, we have enhanced the site experience for our valued returning customers encouraging them to purchase additional products personalized to their individual pets' needs. In addition, our newly designed checkout process provides a seamless and convenient experience further bolstering customer satisfaction and loyalty.
In line with our commitment to providing services from nose to tail, we have begun integrating the pet care Rx catalog into our operations, including our distribution facilities.
As part of the pet care Rx product integration, we now offer the complete food lineup purina products, including its prescription foodline.
Purina is one of the largest pet food product companies in the world.
Pyrena product line ranks in the top 10, best selling brands for pet care Rx and by integrating the pet care Rx product offering we.
We have extended this world class brand to our pet meds offerings with pet parents.
Purina focus on pet health and providing options that help with pet allergies weight management joint health and immune support among other targeted health benefits align so well with our goal to be the market leader in pet wellness and health care.
We will start to see other benefits from the unification of pet Meds and pet care Rx as an example, we have started to leverage our combined buying power and believe we will be able to deliver lower cost to our customers on a per unit basis.
Operationally, we have spent considerable time and focus on upgrading internal systems and controls we completed the migration of our legacy email systems to a modern cutting edge platforms. This transformation unlocks new marketing capabilities, enabling us to engage with our customer base more effectively through targeted in person.
Communication, we will be able to provide better product and service recommendations.
We believe that with the combined purchasing power coupled with our meticulous identification and execution of cost synergies, we are well on track to deliver on our objective of pet care Rx, becoming adjusted EBITDA accretive before the end of our fiscal year.
This achievement underscores our commitment to creating value for our shareholders and maximizing the potential of this strategic acquisition next slide please.
As we mentioned on previous earnings calls over the last year.
<unk> has been in a rebuilding mode.
The strategic transformation that we charted encompassing both organic and inorganic investments.
Aimed at positioning pet meds for long term success, enhancing our operational capabilities, expanding our product portfolio and ultimately creating sustainable value for our shareholders.
Today's call marks a slightly different telling from previous calls.
Pet meds has undergone rapid changes over the past two years and we firmly believe in the path, we have chosen as a premium specialty retailer brand.
We have been deliberate in the execution of our strategy as well as in the consistency and transparency of our external communication to ensure that our stakeholders are well informed about the essential criteria that serve as performance indicators for our transformation into a growth oriented business.
These indicators are year over year increases in new customers.
Continued gains in recurring revenue.
More product and service diversification beyond our core medication expertise.
Meeting and exceeding market growth rates for the entire pet med business.
These performance indicators serve to guide us as we navigate our journey towards becoming a thriving growth focused company.
I am thrilled to share the exciting news that this quarter signify a reacceleration in our company's trajectory, including early signs of promise in our ongoing business transformation.
It is important to note that a business transformation is an ever evolving process, particularly in the early stages. However, today I am delighted to announce that we have successfully positioned ourselves as a growth business meeting the four key performance indicators as previously outlined.
I would now like to summarize some of the key business and financial highlights for the quarter.
As a reminder, this includes the full quarter of results for pet care Rx.
Number one we had record setting year over year revenue growth.
Number two both new and returning customers increased year over year, new customers grew consecutively for three quarters in a row, which is a turnaround from a two and a half year decline.
Number three.
Reorder sales are now $68 million or 87% of our business, which represents growth of 7% year over year.
Number four we are launching a new insurance product in the market in conjunction with our insurance partner Pumpkin insurance next month.
While our CFO Christine Chambers will delve into a more comprehensive analysis of our quarterly financial performance later in the presentation.
I would like to provide a glimpse of some notable financial highlights.
For the quarter ending June 30th 20, twenty-three sales were $78 million compared to sales of 70 million in the prior year and 11% increase year over year as a result of the combined sales of our recent acquisition of pet care Rx as well as a more stabilized core patent business.
Furthermore, I am pleased to share positive results pertaining to our new customer base in the quarter, we achieved approximately 86000, new customers, representing a 25% year over year increase.
This marks the third consecutive quarter of net new customer growth decisively breaking the trend of declining net new customers since Q1 of 2021 and propelling us into our next chapter of growth.
This notable achievement is attributed to the continued growth of pet meds, new customer acquisition efforts combined with increased reach for the pet care Rx acquisition.
New customer acquisition efficiency metrics remain in line with our expectations customer.
Customer lifetime value to customer acquisition cost for the quarter stood at 2.0.
Affirming our commitment to optimizing our marketing investments.
We are delighted to report sustained improvements in the subscription part of our business our auto ship and save program has continued to expand during.
During the first fiscal quarter, 49% of our revenue was derived from recurring sources, where auto ship subscription and pet plus membership programs, marking a significant increase from 34% for the same period last year.
Lastly, I wanted to share our excitement regarding the emerging opportunity in pet insurance as one of the fastest growing nonmedical pet services pet insurance is projected to continue its upward trajectory. According to the North American Pet Health Insurance Association, a mere 4.4 million pets were insured in 'twenty.
'twenty, one which accounts for less than 5% of the total pet population.
Recognizing this is a significant untapped opportunity we envisioned that the introduction of our insurance product in partnership with Pumpkin insurance will be viewed as a valuable offering by our expansive community of over 2 million pet parents.
We plan to launch this new insurance offering within the next quarter further solidifying our commitment to comprehensive pet care solutions.
Turning to slide six.
Over the past several quarters, we've extensively discussed our strategy and future direction.
Meds is undergoing a transformation from being a prominent pet medication retailer.
Two positioning itself as the foremost authority in pet health care, a market leader in expertise on pet well being our goal is to become every pet parents go to destination for holistic health and wellness from nose to tail he'll recap.
Our pet health care strategy revolves around four key pillars medication care nutrition and wellness.
10 minutes has long established itself as one of the largest and most trusted pet pharmacies in the United States.
Our logistical expertise enables us to facilitate an authorized millions of prescription orders annually bridging the gap between veterinarians and pet parents.
The acquisition of pet care of Rx represents a significant growth opportunity for pet Med Express as we are now actively working on introducing premium in prescription food to our extensive base of over 2 million pet parents.
In terms of care, we recognize the potential of the nascent pet telemedicine market as a substantial opportunity as regulations continue to evolve we have closely observe the shifting regulatory landscape with more and more states embracing pet telemedicine.
Today, we offer our full telemedicine product in over 25 states starting in September we will offer telemedicine in Arizona, with Florida, Colorado, and California expected in Q4.
These new geographical areas present untapped markets encompassing a combined population of nearly 150 million people with 75% of them being pet owners in need of care for their pets.
Our partnership with Baxter is an important element of our growth strategy as it has enabled pet meds didn't become the first pet retailer to offer pet telemedicine for pet parents on a larger scale.
This important and strategic bet will continue to evolve alongside regulatory changes consumer education and awareness.
To further enable our pet parents towards accessing care and achieving wellness for their pets.
We are excited to soon be able to offer pet insurance, our partnership with leading insurance company Pumpkin insurance, which is now majority owned by J, a b holdings will bring incremental value to our customers and will bring incremental profitability to pet meds overtime.
We consider these four pillars medication care nutrition, and wellness crucial and establishing a unique preferred brand and experience for pet parents everywhere.
Additionally, ourselves as their go to destination.
We are now better positioned to offer our over 2 million pet parents more help options than ever before.
We have a wider variety of premium prescription food health food options and supplements pet.
Pet parents can book a bet telemedicine appointment on a website and starting soon through our partnership with Pumpkin insurance. We can soon begin offering health insurance for our furry family members.
Now I'd like to hand, the presentation over to Christine.
Thanks, Matt.
I'm delighted to report our Q1 fiscal year 'twenty 'twenty four results for the Kohl's you ending June said she is 2023.
This will be the first quarter of combined results, including the acquisition of pet care Rx compared to pet meds only in Q1 fiscal year 'twenty to 'twenty three in the prior quarter.
The pet care Rx acquisition closed on April 2023, and the consolidated results reflect almost a full quarter of a pet care Rx performance.
First quarter sales were $78 2 million compared to sales of $70 2 million in the same period last year.
11, 5%.
The growth year over year was due to incremental sales from the combination of pet care Rx as well as growth in pet meds, new customer sales with a slight offset in pet meds reorder sales, which is continuing to stabilize.
As Matt previously mentioned, we continued our trend of net new customer growth year over year.
We welcomed approximately 86000, new pet parents is cool jets compared to 69000 in the prior year.
This represents new customer growth was the 25% year over year.
In addition, reorder sales of $68 million for the quarter increased 7% compared to reorder sales of 63.3 million in the same period last year.
With the acquisition of Pet care Rx. We also added 2.4 million of revenue associated with our pet care Rx membership programs, which provide bulk wholesale offerings.
Desert product range, and an emphasis on value and savings which customers.
We've continued to grow our recurring revenues, including Ocean shipping Sage sales and pet care Rx membership sales as a percentage of total sales.
This drives greater and great engagement and strengthens our recurring sales base.
As Matt mentioned recurring sales as a percentage of total sales was 14, 9% in the quarter up.
5% sequentially and up from 34% compared to the same period last year.
Gross profit for the quarter as a percentage of sales was 28, 8% compared to 28, 4% in the same quarter last year and 27, 9% in the prior course yet.
G&A increased $6 4 million year over year in part due to the combination of take care of Rex and an increase in payroll expenses for new hires made in fiscal year 2023 as.
As well as one 1 million in acquisition costs.
Since the acquisition Petcare Rx has benefited from improved supply chain and direct manufacturing relationships driving synergies unimproved meant to gross margin.
In addition, we are combining operating procedures and teams.
What's really drive G&A cost synergies and more efficient processes.
Net loss for the first quarter. It was 900000 or four cents per diluted share compared to net income of $2 8 million or 14 cents per diluted share for the same period last year.
Excluding the acquisition related costs net income would have been 200000, a one cents per diluted share.
Adjusted EBITDA for the quarter was $3 3 million compared to $6 3 million in the same quarter last year.
Increased gross profit and other income of $2 9 million was offset by $5 million of higher adjusted EBITDA expenses.
Excluding nonoperating items and 900000 higher advertising expenses.
Turning to slide nine we ended the quarter with $61 5 million of cash on our balance sheet and no debt.
This takes into consideration that on April 3rd 2023 we paid $63 million in cash the pet care Rx.
Over the long run management remains committed to driving total shareholder return.
We have declared a cash.
Cash dividend in June this year at the same level as prior courses.
As always we will continue to balance the need for capital to fuel growth opportunities with the payment of dividends.
Our business continues to perform well with a more stable pet meds cool business that continues to build recurring revenues to a growing customer base combined with our recent acquisition of pet care Rx.
For the balance of the year, we will continue to focus efforts on setting up the expanded product catalog, which will drive future organic growth.
Operating synergies continue to provide us with opportunities to improve margin.
And in the longer term, we believe in value creation from adding differentiated services with all that stuff and pumpkin partnerships with a more immediate upside to our pet meds business through expanding our wallet share through selling food on a broader assortment of consumables.
I will now turn the call back over to Matt for some concluding remarks prior to Q&A.
Thank you Christine.
Upcoming fiscal year holds significance for pet meds as we transition into a growth focused business. Our goal is to deliver healthy top line revenue growth, while maintaining relative stability in fixed costs, we anticipate achieving operating leverage as we scale our revenue.
As I have previously emphasized investors should expect our management team to remain intensely focused on integrating our recent investments and executing on our strategic vision.
We are confident that we've assembled the necessary components to deliver sustainable long term growth and profitability.
Pet Meds, we are highly optimistic about our growth strategy and future performance. We are enthusiastic about the strategic direction, we are pursuing as a premium specialty retailer brand.
We firmly believe that the expansive pet market offers ample opportunities for us to navigate and thrived by providing distinctive solutions for pet parents.
As we have consistently emphasized our aim is to become the trusted pet health expert for pet parents.
Over the past year, we have shared our growth strategy with you and we have made substantial progress in building a resilient profitable and continually growing pet health company with that we conclude our prepared remarks, operator, we're now ready to address any questions you may have.
Yeah.
Thank you 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.
One moment, please while we poll for questions.
Thank you and our first question comes from the line of Ryan Meyers with Lake Street Capital markets. Please proceed with your question.
Hey, guys. Thanks for taking my questions first one for me I'm just curious if we strip out the pet care Rx business.
What did the legacy business revenue for the legacy business looked like during the quarter and how have you seen kind of further stabilization there.
Hey, Ryan this is Matt I'll take that.
That answer and then Christine feel free to jump on if I don't cover it.
In the detail that's required.
Ryan you know just to step back from the question you know, we've really made as you know and effort to consolidate the pet care of Rx and pet Meds financials, primarily for two reasons. One is we're running the pet care Rx business as an integrated part of the business from a operating perspective, but also pet care Rx.
<unk> is really a mini version of pet Meds has the same unit economics, we've talked about similar gross margins. So that's how we kind of think about it and then two we think about our pet care acts from an acquisition thesis perspective is really delivering on and unlock for catalog expansion as you know pet meds has.
A very high concentration of medications sales and very little in everything else, including food and other largely popular consumables and so we think about pet care acts as a natural extension of the business.
That said, we have talked about pet care acts as being the majority step up of improvement year over year in the business and then we called out net new customer growth for pet meds and pet care acts, but we can say that pet meds.
Did experience on a standalone basis year over year growth and again kind of the heart of your question is the stabilization of the returning based Brian we're feeling that the retraining base is much more stabilized than it has been especially since.
When I started a couple of years ago.
And that's kind of how we think about the business from a consolidated perspective, and really our eyes towards selling more products to the same customer utilizing that pet care Rx cataloging Christine I don't know, if there's anything else you'd like to add to that.
I think you captured it Matt on the on the top line and you know as you know Ryan we are bringing the two companies together like Matt mentioned them in a way that you know, we're looking to drive cost synergies over time as well. So that's just something to consider is when we bring those genes. The two companies together that really.
Operating them as one one entity.
Got it that's helpful. And then obviously I know, it's only been a quarter with the pet care Rx acquisition, but is there any way to quantify sort of the cross selling revenue that you guys have been able to see.
Or how you kind of expect that to play out over the next couple of quarters.
Yeah, So I think Brian in terms of the as Matt said, we're really thinking about the leverage that we have between the two itchy businesses and operating them. As you know is very focused on driving the expanded catalog onto a pet meds customizing they.
Well, we'll see the growth associated with that without overtime.
Matt do you want to add anything.
Yes, I think the natural extension of that will be larger L. T V for our customer base and in previous.
Earnings calls, we get a lot of questions around average order value, where you actually don't think average order value will be the the best metric to follow because when we do our job successfully with getting more repeated purchases outside of the irregular prescription refill cycle that we're on.
Oh, you can could actually vary quite a bit.
And again the measure for us long term will be L. T V.
Growth overtime.
The last thing I would say is we just started successfully integrating large swaths of the pet care acts catalog like we said on the call, including the Purina line of products, which we didn't have access to up until just a couple of months ago and just recently went up on our site several weeks ago. So it's early days, but we're already seeing traction.
On our ability to cross sell and up sell different products. So stay tuned, but we think that the best measure will be L. T V.
Great. That's helpful. Thanks for taking my questions.
Thanks, Brian .
Thank you and our next question comes from the line of Anthony <unk> with Sidoti <unk> Company. Please proceed with your question.
Good afternoon, and thank you for taking the questions. So just first as a follow up just to clarify so.
On slide number five you guys talked about reorder growth of 7% year over year, but then.
I think in 15 when you got on you said that there was a slight.
Slight offset in reorder sales. So I'm just trying to put the two together I don't know if you were.
Talking about the core business or the legacy business being down just just wanted to get more clarity on that please.
Yeah, Hi, Anthony and thanks for the question. So we did talk about them on it.
The pet meds, a new customer base growing and obviously the majority of the growth from the quarter around the combined Pizza Alright acquisition. What I did also mention is that the pet meds returning base and again, we are looking at this very much on a combined basis, but specific to the <unk>.
That nets retaining base, we did see a slight decline and that's the base that we continue to focus on and we see ads starting to decline starting to stabilize.
So it was specific to choose to that business, but like I said and Matt mentioned earlier, we are looking at the results more on a consolidated basis, and that's where you're seeing that 7% reorder sales growth.
Okay. Thank you for that so are you. So so far you're one month into the.
Second fiscal quarter have you seen signs of continued stabilization or can you give us an early read on sort of what youre seeing so far I mean, obviously the summer is.
The peak time for our flea and tick medications and.
Just wondering if you could comment on what you're seeing thus far into the second quarter.
Yeah, I think we see you know.
Anthony we were very much looking at this on a like I said on the on a combined basis I think that that business is returning base. We're really excited about the expanded catalog how that expanded catalog continues to drive additional reorder sales and then enables you know that.
Bed space to grow over time, we're really focused on increasing that wallet share of the existing patented space and others at existing.
Pet meds, returning orders and seeing that change in that trajectory over time based on that expanded catalogs that we're really focused on at this stage.
Okay Gotcha, and then in terms of the synergies are.
Can you expand on that and maybe just maybe talk a little bit more in terms of.
Timing and is this mostly on gross margins. So you think you can achieve some operating expense synergies.
Yeah. That's a good question, we very much see similar unit economics gross margin assumptions across both businesses I think the way I will expect to see an improvement in the bottom line as any other time is the cost synergies that improved SG&A as a percentage of revenue I. Just mentioned these businesses are very soon.
In that you know what.
He is bringing some of those operations together and also you know we see this expansion of L. T V. Without you know a huge increase in CAC and so will like Matt mentioned very much focused on that LTV to CAC ratio overtime.
As we see the expansion of the catalog and then separately the SG&A improve over time based on those cost synergies across you know vendor relationships and.
Efficiencies that we're driving across our operations.
Gotcha, Okay and then my last question I know you guys declared the dividend I'm just.
Uh huh.
Do you have any updated thoughts on how investors should think about the dividend or is this just kind of more of the same issues as you talked about it on your last call.
Yeah, but you know the dividend is always something that.
We think about as well you know we do think there are opportunities for growth and investment and we believe you know as we train in the corner to being or as we are now a growth company. We have shown you know year over year growth for the first quarter. It right and I think as we drive momentum over more than one fortunate there could be a scenario where.
We see higher returns from using free cash flow for reinvestment. This is paying the dividend and so we're always looking at the balance of the needs the capital allocation needs.
The capital's capital to feel growth, so I think there'll be more to come.
Got it well, thank you and best of luck.
Thank you Anthony.
Okay.
Thank you our question and answer session portion of the call has ended and I would like to now turn the call back over to Matt Hulett The company CEO for his concluding remarks.
Thank you for joining our call today and I am 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.
And will lead to increased operating results and shareholder value.
That means brand expertise and reputation are unparalleled we have greatly accelerated our operating roadmap and we look forward to sharing our progress as we go to market with products and services that positively changed the lives of our pet parents and pets.
Thank you for your continued support.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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