Q2 2025 PetMed Express Inc Earnings Call
Greetings and welcome to Pet Med Express second quarter financial results Conference call. At this time, all participants are in a listen only mode.
Speaker Change: Question and answer session will follow the formal presentation. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Reid Anderson with ICR. You may begin. Thank you operator, and I'd like to welcome everybody here today to the Pet Med Express fiscal second quarter 2025 earnings Conference call.
Speaker Change: Certain information that will be included during this call may include forward looking statements within the meaning of the private Securities Litigation Reform Act 1995, and the Securities Exchange Act of 1934 as amended it may involve a number of risks and uncertainties. These statements are based on our beliefs as well as assumptions we have used.
Speaker Change: 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.
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Nothing contained in this presentation is or should be relied upon as a representation of warranty as to any future matter, including any matter in respect of the operations or business or financial condition of pet Meds pet.
Speaker Change: <unk> undertakes no obligation to update publicly these forward looking statements based on subsequent events, except as may be required by applicable law or regulation or other competent legal authority.
Speaker Change: Right.
Speaker Change: But their operations in our most recent annual report and other filings with the Securities Exchange Commission now, let me turn the call over to our CEO and President Sandra campus Sandra.
Sandra Campus: Thank you Reed and welcome to everyone joining our call. This afternoon. Following my remarks, Roger who will provide a more detailed overview of our financial results after which well open the floor to questions.
Sandra Campus: I've been in the CEO role for six months and in that time, we've sharpened our focus on core priorities and targeted operational initiatives, while strategically expanding our vision to become a leader in consumer pet health care.
Sandra Campus: Through our products and services, we aim to be a central partners for pet parents supporting them and enhancing their pets' wellness and longevity.
Speaker Change: I want to reemphasize that our focus remains steadfast on the strategic operational and financial initiatives that are pivotal to repositioning pet meds and pet care, our extra for long term success.
Speaker Change: I am pleased to report several positive developments this quarter.
Speaker Change: We improved gross margin year over year and sequentially and achieved a $3.6 million sequential increase in adjusted EBITDA.
Speaker Change: Additionally, G&A operating expenses decline underscoring the impact of our cost reduction initiatives, which are on track to deliver the $5 million in annualized savings as we communicated last quarter.
Speaker Change: These improvements contributed to an increase in net income and earnings per share and reflect our commitment to building a strong financial and operational foundation for long term growth.
Speaker Change: Beyond our financial progress, we've made significant strides on key priorities in our strategic plan with a strong focus on cost efficiency and operational excellence.
Speaker Change: First our management team.
Speaker Change: With the addition of our new CFO Robin to Leah who joined in mid September our refreshed executive team is now complete.
Speaker Change: Robin brings over 24 years of financial leadership experience from bed Bath and beyond where she played a key role during sustained periods of exponential growth, helping the company expand from a regional retailer into a multibillion dollar national enterprise.
Speaker Change: Her expertise and financial discipline operational rigor and technical accounting aligns perfectly with our strategic objectives our pets.
Speaker Change: Second the consolidation of pet meds, and pet care, our acts across functions and continued cost optimization.
Speaker Change: We streamlined resources across both organizations and I'm pleased to report that this initiative is largely complete.
Speaker Change: As previously mentioned, we're on track to achieve the $5 million in annualized cost savings, we outlined and with the elimination of redundancies that contributed to the margin improvements in Q2.
Speaker Change: We continue to assess our cost structure for additional opportunities to reduce expenses and we expect to operate at a lower cost base going forward.
Speaker Change: Third operational excellence, while operational excellence is an ongoing initiative, we're encouraged by early wins across the organization, including year over year gains in average order value and gross margin in this quarter.
Speaker Change: These early indicators reflect a shift towards greater efficiency and a stronger focus on customer centric value.
Speaker Change: We prioritize seamless customer service across every touch point for instance, our customer call Center. Our improvements have led to a 4.5 star customer rating on trust pilot at the end of October versus 1.5 starts at the beginning of June the team under Caroline can make Lianas leadership has been vigilant about.
Speaker Change: Providing a positive customer experience, while we still have opportunities during the third quarter, we have been able to prove.
Speaker Change: At 41%, while focusing on our staffing model and enhanced training to increase service levels and Upskill agents.
Speaker Change: Technology, we strengthened our techs back with improved data architecture upgraded business intelligence reporting added central pharmacy routing and enhanced cyber security.
Speaker Change: This quarter, we also strengthened our relationship with veterinarians are critical stakeholder for pets by redesigning our prescription flow, which has led to a user increase of 9%.
Speaker Change: Rebranding our updated tagline care you Trust is now reflected across the pet's, France, we have a new look inclusive of color and visual imagery and a new brand voice on all platforms.
Speaker Change: Modernized website, our website has been relaunched with a modern UX UI interface design. The new site provides a personalized streamlined shopping experience, enabling customers to find products more quickly and easily navigate the purchase journey I am proud of the tech team under Master paths leadership and in part.
Speaker Change: Shaft with software development partner in Cora, who worked expeditiously to deliver an upgraded and stable platform.
Speaker Change: With this solid foundation, we can now enhance the user experience by adding an AI enhanced product recommendation engine buy now pay later solutions cross sell upsell capabilities, along with our updated mobile App all of which are planned to go live in Q3.
Speaker Change: While it's still early to quantify all of the related Kpis, we anticipate positive trends, including lower bounce rates higher conversion rate and increased order value.
Speaker Change: As a consumer focused pet health care company, we stay closely attuned to our customers' needs. We've refined our product assortment to align more closely with consumer demand and recurring shopping intent by reducing redundancy, while adding exclusive and new products several of which we plan to launch before black Friday.
Speaker Change: These foundational improvements set the stage for our next phase focused on growth initiatives.
Speaker Change: First marketing will play a pivotal role here after emphasizing retention and operational upgrades in Q1 and Q2, we're now prepared to increase investment in our gross marketing spend to drive new customer acquisition, along with the re engaging lapsed customers.
Speaker Change: Next our new content site pet health M. D. Dotcom launching later this month, we'll focus on rich educational content.
Speaker Change: T O and driving additional new customer growth.
Speaker Change: Additionally, strategic partnerships and expand our ecosystem for pet wellbeing and longevity are key to our long term growth strategy. These currently include telehealth through Baxter pet insurance and grooming services.
Speaker Change: Through all of these efforts we've gained a deeper understanding of our market positioning and the evolving needs of our customers.
Speaker Change: Our stellar pharmacy business remains one of our strategic Differentiators.
Speaker Change: Pet's value lies in the unique advantages of our Rx pharmacy with expert pharmacists and license technicians, who have decades of experience with the company importantly.
Speaker Change: Importantly, our pharmacy licenses across all 50 states gives us a competitive advantage, we prioritize auto ship as a means to create convenience and recurring revenue that drives long term value for our customers and our shareholders with.
Speaker Change: With the Rx business at the center of our value proposition, we see a substantial opportunity to broaden our positioning as a trusted consumer pet health care company.
Speaker Change: Enhances our growth potential and aligns with our mission of helping pets live healthy habits.
Speaker Change: We've developed deep knowledge and expertise over nearly 30 years and continued to be trusted by millions of customers.
Speaker Change: While the turnaround will take time, we're encouraged by their early key indicators that show we are on a clear path to restoring the company to profitable growth and increasing shareholder value.
Speaker Change: Before I conclude my remarks, I want to acknowledge the efforts of our team our customers and the local communities that supported animal shelters and rescues and need after experiencing nearly back to back Hurricanes between September and October at.
Speaker Change: That pets, we are proud to have contributed to our time and financial resources by distributing product donations across various locations in our home state of Florida and are providing financial support to shelters located in additional states that were impacted.
Speaker Change: These organizations are a vital part of our extended ecosystem and we greatly appreciate their commitment to improving animal welfare.
Speaker Change: With that I'll turn it over to Robin to discuss our financial results in more detail.
Robin: Thank you Sandra I will now provide an update on second quarter fiscal year 2025 results for the period ending September 30th 'twenty 'twenty four.
Robin: We welcomed approximately 77000 new customers this quarter.
Robin: Sales were $60 million compared to 71 million in the same period last year, a 16% decline, reflecting continued consumer pressure as well as an intentional reduction in our marketing investment as we rebalanced for profitability.
Robin: Gross profit margin was 29, 1%, an 80 basis point improvement compared to the prior year quarter and up 270 basis points sequentially.
Robin: The year over year increase in the gross profit margin was primarily due to a favorable sales mix and lower discount activity.
Robin: General and administrative expenses for the second quarter were $10 5 million versus 12 million last year, a 12.3% decrease.
Robin: This year over year improvement was driven by a decrease in stock based compensation expense, which was primarily related to an executive departure.
Robin: Also contributing to the benefit were lower payroll and payroll related expenses and lower transaction processing fees, partially offset by higher professional fees.
Robin: Included as a benefit to G&A.
Robin: For the second quarter.
Robin: Our sales tax settlement of $1 2 million and $1 3 million for this year and last year respectively.
Robin: Our advertising expenses for the second quarter were $4 6 million compared to $5 5 million last year.
Robin: On a gross spend basis. This 20% reduction reflects an intentional decrease in our marketing investment as we rebalanced for profitability and solidified our go forward brand strategy.
Robin: Net income for the second quarter was $2 3 million or 11 cents per diluted share compared to net income of <unk> 7 million or three cents per diluted share for the same period last year.
Robin: The improvement in net income was mostly driven by a 1.4 million tax benefit in the latest quarter.
Robin: Adjusted EBITDA of $2 1 million compared to $3 4 million in the prior year period and improved sequentially versus the $1 5 million adjusted EBITDA loss, we reported in the first quarter, reflecting continued progress on cost reduction initiatives.
Robin: Our balance sheet remains strong and as of September 30th 'twenty 'twenty, four we had $52 million of cash and equivalents.
Robin: We would like to now open the call for questions and then after that it's Andrew will provide some concluding remarks.
Robin: Operator.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Robin: Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Robin: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from Brian Meyers with Lake Street Capital. Please proceed with your question.
Brian Meyers: Hey, Thanks for taking my questions.
Brian Meyers: First one for me you know I know you guys don't give guidance and aren't giving guidance, but if we think about the two consecutive quarters of double digit revenue decline you know maybe how should we think about.
Brian Meyers: The growth rate for the second half of the year I mean have you guys seen any sort of stabilization in the part of the business and I know, you're making a decent amount of marketing investments.
Brian Meyers: But just directionally, how should we think about the kind of growth rate in the second half of the year.
Brian Meyers: Yes.
Speaker Change: Yeah. Thanks, Thanks, Brian for asking the question. So first of all we as we mentioned we intentionally reduced our marketing spend but we are pushing now going after for customer acquisition and that will happen in the third quarter as well as the fourth quarter that goes long from top of the funnel to the bottom of funnel.
Speaker Change: Activities.
Brian Meyers: It will be brand awareness focused and transactional bonuses transactional focused around all the products that we have our key product Differentiators and Archie campaign for Q3, which it will take a straight through the holidays. So as we look to the stabilization of where we are now we are focused on our lapsed.
Brian Meyers: Customer focus on retaining customers and now it's really about the new customer growth. So that's where we're pushing all of our marketing efforts starting in the Q3 time period and really accelerating that more so as we go into Q4.
Brian Meyers: That'll be it for dice will increase from Q3 going into Q4.
Speaker Change: Okay got it and then thinking about gross margin for the colder obviously I came in pretty healthy.
Speaker Change: Should we kind of look at that as a sustainable rate going forward. You know is there going to be any changes from Q3 and Q4, maybe how should we think about where the gross margin came out for the quarter and how we should look at that for the rest of the year.
Speaker Change: Yeah. So the gross margin for the quarter as we indicated was up 80 basis points, but.
Brian Meyers: But we're heading into a heavier promotional period as Sandra indicated and I think historically, if you look at our our trending I'm. It is Q3 is that the lower corner from them from a gross margin perspective. So I think I would just kind of follow our are trending in the past just knowing that we're going to more heavily invest in our marketing.
Speaker Change: Got it and then last question for me thinking about kind of some of the macro dynamics impacting the business you know walk us through that is it just youre not seeing as many customers maybe ordering as many products as they have before customers are ordering products from the different competitor.
Brian Meyers: Just kind of walk us through those.
Speaker Change: Sure. The customer is still very pressured that is something that we're seeing consistently whether it's through the visits that we have no time, they're spending on the site or the comments and questions and ask for a promotional codes as they're coming onto our customer call Center site. Additionally, when we do have pre.
Speaker Change: Motion and it's been a very heavily promotional environment. If you look at just across our competitive set.
Brian Meyers: That's when we actually have a lot more conversion during those time periods. So we know the customer is showing us and telling us that they are looking for more so.
Brian Meyers: The products so that we're definitely seeing we do believe and we continue to speak with not only our veterinary advisory board, but also within our own pharmacy in the calls that we're getting from both veterinary clinics as well as the customers that there are not a they're not as compliant as they've been in the past as it relates to the medication and they.
Brian Meyers: Ah reducing frequency to the veterinary clinics overall, so that is definitely impacting us a bit more but that's why we're focusing now on the new customer growth and the new customer acquisition.
Speaker Change: Great. Thank you for taking my questions.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: This concludes the question and answer portion of our call I will now turn it back to Sandra for closing remarks.
Sandra Campus: Thank you and thank you for your time and interest in pet Meds and pet care. Our Ax, we really appreciate your support although we're still in the early stages of our transformation as I mentioned, we have made steady measurable progress on many of the key initiatives discussed today that will improve customer experience drive new customer growth.
Speaker Change: And improve profitability I want to thank all of our employees for their commitment and the dedication to our core mission, they're ongoing passion for pet health and wellness and their understanding and rapid execution of our new priorities. We do look forward to updating you on our progress during our next conference call and we thank you very much.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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