Q3 2025 PetMed Express Inc Earnings Call
Greetings and welcome to Pet Med Express third quarter financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded it.
Speaker Change: It is now my pleasure to introduce your host read anything with ICR, maybe yet.
Speaker Change: Thank you and welcome to the Pet Med Express fiscal third quarter 2025 earnings conference call. Certain information included during this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities Exchange Act of 1934 as amended it may involve a number of risks and uncertainties.
Speaker Change: These statements are based on our beliefs as well as assumptions we have used based on information currently available to us.
Speaker Change: 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.
Speaker Change: 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 patents pet Meds undertakes no obligation to update publicly. These forward looking statements based on subsequent events, except as may be.
Speaker Change: Required by applicable law regulation or other competent legal authority we.
Speaker Change: We have identified various risk factors associated with their operations in our most recent annual report and other filings with the Securities and Exchange Commission now, let me turn the call over to our CEO and President Sandra campus Sandra.
Speaker Change: Thank you Reed and welcome to everyone joining our call. This afternoon. Following my remarks, Robin who will provide a detailed overview of our financial results after which we'll open the lines for your questions.
Speaker Change: Over the past nine months I've emphasized that our focus remains steadfast on our strategic initiatives pivot all its repositioning pet meds and pet care or ask for long term success.
Speaker Change: It clearly outlined our vision to position pets as a leader in consumer health care, while we're still in the early stages of this transformation and much more work ahead I am pleased to report that we have made significant progress in validating our strategic direction. We're confident that the actions, we're taking will drive differentiation and sustainable.
Speaker Change: Brown.
Speaker Change: Our highest priority has been to return the company to profitability.
Speaker Change: We achieved this by implementing cost cutting measures and consolidation strategies to integrate petcare, our ex operation into the pet Meds organization targeting $5 million in annualized savings and we remain on track to meet this milestone.
Speaker Change: For this quarter Q3, we achieved $2 million and adjusted EBITDA, representing a $1 1 million dollar improvement year over year, while lowering G&A expenses by $2 $6 million compared to last year.
Speaker Change: As we continue to execute our turnaround strategy, we remain committed to driving shareholder value through growing our customer base operational discipline and financial efficiency.
Speaker Change: At pets, we serve three core communities first our pet parents, we're continuously enhancing the digital shopping experience to provide convenient access to pet health solution.
Speaker Change: Second our veterinarian partners our investments in Rx approval efficiency through an optimized that portal are driving increased adoption and streamline workflows and.
Speaker Change: And third the pets dogs cats, and horses that we love and care for innovation is at the heart of our approach ensuring that we offer proven premium health solution across all categories and by stages.
Speaker Change: Expanding our customer base and increasing market share remains a top priority to grow and acquire customers as a digital retailer we require a modernized tech stack and a seamless shopping experience that meet evolving customer expectations.
We have made meaningful progress in this area, including website and mobile enhancements, where we executed a full website refresh in November and also relaunched our iOS and Android mobile apps.
Speaker Change: We implemented buy now pay later as a new payment option at checkout, expanding on affordable and accessible choices for our consumers.
Speaker Change: And in collaboration with our Veterinary Advisory Board, we continue to enhance our veterinary portal and also launched pet health M D Dot com and educational platform offering expert back pet health guidance.
Speaker Change: These improvements led to 84000 gross new customers or 63000, new customers that had orders shipped during the quarter.
Speaker Change: Our gross order average order value or a O V increased by 7% at $108 versus $101 last year, while our ship order a ob rose by 4.3 per cent of $97 versus $93 year over year.
Speaker Change: We are committed to pet health and wellness through product differentiation and best in class customer service, our SKU optimization strategy ensures that we offer a comprehensive health solutions across all life stages, while maintaining strong margins and growth thresholds to enhance efficiency, we eliminated 4000.
Speaker Change: Arming skus, making room for high value products that align with our strategy and also resonate with consumers.
Speaker Change: Notably our inventory efficiency has improved with inventory turn rising to 1.5 in Q3 compared to 1.1 in Q2 and 0.9 last year.
Speaker Change: This improvement comes alongside a 66% reduction in total inventory on hand totaling $11 8 million at the end of our third quarter versus $34 6 million last year.
Speaker Change: During Q3, we advanced our customer call center operations by integrating and AI, driven workforce management tool to flex and scale, our agent population and adapt to changing volumes that has helped us improve our key metrics such as increased sales per agent of 18, 8% and a $3 four per se.
Speaker Change: The increase in E O V average order value for orders driven by the call Center.
Speaker Change: During our last earnings call I highlighted our focus on retention and the operational upgrades that laid the foundation for future growth.
Speaker Change: While we intended to ramp up performance marketing efforts in this quarter, we encountered a highly competitive and promotional holiday environment, particularly between black Friday and year end.
Speaker Change: With real time insights, we've made the strategic decision to prioritize margin protection over aggressive promotions ending the quarter with $2.8 million less in gross advertising spend year over year as a result, our sales and new customer acquisition during that period fell short of initial expectations. However.
Speaker Change: This intentional pivot was necessary in order to maintain financial discipline.
Speaker Change: Recognizing the need for a marketing strategic reset we are refining our approach to ensure sustainable profitable growth.
Speaker Change: Our top of funnel initiatives, such as radio and connected T. B continue to promote our care you Trust message and established brand authority and brand awareness. This is a long term investment that we've recently begun and includes things like sports team partnerships podcast, billboards and local pet adoption events.
Speaker Change: All of which we've done in this quarter.
Speaker Change: We are refining acquisition strategies by rolling out a new email design system, and creating stronger segmentation personalization and dynamic content across our paid platform.
Speaker Change: Early indicators show promise with revenue per email increasing 9% in the month of January.
Speaker Change: Engagement rates have increased quarter over quarter that would be inclusive of open right click through rate revenue per email through stronger content and more relevant branding. We believe this is a strong indicator of future conversion improvements.
Beyond customer facing upgrades, we have strengthened our core systems with strategic technology investments to ensure a resilient and secure digital ecosystem for customer data and privacy over.
Speaker Change: Over the past seven months, we resolved O M. S issues that previously impacted performance and continue to modernize our tech stack.
Speaker Change: Mid November we successfully re platform our auto ship recurring subscription program without disruption and have seen improvements in auto ship sign ups and credit card rejection rates.
Speaker Change: Although still in early age tracking our new website performance shows PDP views increased by 30% bounce rates declined by six and a half basis points and channel visits increased seven 6% year over year. This growth in visits was offset by lower conversion and we're actively.
Speaker Change: Addressing those conversion rate challenges through search functionality improvements P D P enhancements and visible promotions.
Speaker Change: Looking ahead, while the competitive landscape remains dynamic we are executing a disciplined transformation that prioritizes the customer experience from order placement to last mile delivery, while simultaneously enhancing the infrastructure necessary to support this.
Speaker Change: We believe these efforts will drive sustained growth customer loyalty and increased shareholder value in the short term, we anticipate increased investments to enhance the customer engagement customer acquisition and the underlying infrastructure needed.
Speaker Change: We will continue to strengthen vendor partnerships and expand our portfolio with science backed veterinary recommended products across our pharmacy Rx products OTC over the counter and our food categories.
Speaker Change: We remain focused on capturing our share of the companion animal health market by refining our customer experience optimizing our product mix and strengthening the customer acquisition strategies.
Speaker Change: As we build a stronger more efficient organization, we stay true to our core purpose, ensuring pets at home and live healthier happier lives. This commitment extends beyond our business as we actively support shelters facilitate adoption of events and provide aid the pet communities impacted by the L. A wildfires.
Speaker Change: Reinforcing our dedication to pet welfare and the people who care for them.
Speaker Change: With that I'll turn the call over to Robyn for a more detailed review of our financial results.
Robyn: Thank you Sandra.
Speaker Change: I will now provide an update on third quarter fiscal year 'twenty twenty-five results for the period ending December 31, 'twenty 'twenty four.
Speaker Change: Net sales were $53 million compared to $65 $3 million in the same period last year, a 19% decline primarily driven by a 34% reduction in gross advertising as we rebalanced for profitability.
Speaker Change: We welcomed approximately 63000, new customers, who received an order from us this quarter.
Speaker Change: Gross profit was $14 $9 million versus $17 $9 million last year.
Speaker Change: As a percent of sales gross profit. This year was 28, 1%, an 80 basis point improvement compared to the prior year quarter due to a favorable sales mix and lower discount activity similar to what we saw in Q2.
Speaker Change: General and administrative expenses for the third quarter were $10 $8 million versus $13 $4 million last year.
Speaker Change: A 19, 7% decrease.
Speaker Change: This year over year improvement was driven by a decrease in stock based compensation expense.
Speaker Change: A decrease in payroll and payroll related expense.
Speaker Change: And to a lesser extent a decrease in credit card processing fees driven by lower sales.
Speaker Change: Our advertising expenses for the third quarter were $3 million compared to $5.8 million last year.
Speaker Change: This decrease can be mainly attributed to lower gross media spend and a higher proportion of that spend being funded by third party partners.
Speaker Change: As Sandra mentioned, we purposely pulled back our marketing efforts to reset our marketing foundation and improve profitability for the quarter.
Speaker Change: Net loss for the third quarter was $700000 or three cents per diluted share.
Speaker Change: Meaningful improvement compared with a net loss of $2 million or 10 cents per diluted share for the same period last year.
Speaker Change: Adjusted EBITDA of $2 million compared to $900000 in the prior year period.
Our balance sheet remains strong and as of December 31st 2024.
Speaker Change: We had $50 million of cash and cash equivalents and no debt.
Speaker Change: We would now like to open the call for questions and then after that Sandra will provide some concluding remarks.
Speaker Change: Operator.
Speaker Change: Thank you.
Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question. Please press star one.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press Star two is remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing need starkey.
Speaker Change: And one moment, please while we poll for questions.
Speaker Change: And our first question comes from the line of Erin Wright with Morgan Stanley.
Speaker Change: Please proceed with your question.
Speaker Change: Great. Thanks, I wanted a quick housekeeping one before I get into it a eight on the new customer or customer account numbers. I guess do you have I just wanted to make sure we're comparing apples to apples kind of on a year over year basis, but you have growth rates around those and how you're kind of defining the different categories from a customer stand.
Speaker Change: <unk>.
Speaker Change: From a from a customer perspective on the new customer what we shared is that we had 63000 new customers in this quarter with shipped orders correct.
Speaker Change: Okay. Okay, just wanted to clarify that and then on the SKU count rationalization. So does that meaningfully impact your overall kind of revenue growth or have you quantified that.
Speaker Change: I mean, I assume it's underperforming skus, but and how do we think about that and then also the flow through from a mix perspective.
Speaker Change: Yes, it actually does not really impact the revenues a lot of those skus happens to use that word drop shipped from dropship vendors as well and so they were not impactful.
Speaker Change: Very minimal in terms of any impact over the year, but for the most part when we look at the SKU optimization. It was about talking to products that actually had consistent sales over 3456 month time period, so anything beyond that that had not been consistent with where we were we do think so it was definitely not impacting our sales.
Speaker Change: Okay, Great and then just thinking about sort of the underlying backdrop in the market like how do you how would you characterize kind of the trends you are seeing from a customer perspective, and how they're responding to price increases across kind of a pet prescriptions that we've been seeing and hearing about even year to date.
Speaker Change: And how you're thinking about kind of the outlook of the market I'm just generally speaking and then if I could sneak one last one in there just on the cost savings obviously, you've executed on that and what's left in terms of the lingering cost savings from the pet Rx our pet care Rx transaction. Thanks.
Speaker Change: Let's start with the second one first so as we look at our cost optimization and the strategies that we've employed on folding pet care Act into the organization. We still have more that we are deliberately working on now and that not only just includes the first phase that we did and executed which had to do with.
Speaker Change: People technology, some technology as well as some outsourced agencies that were duplicating, but in addition to that now as we go into phase two and the second part of it actually is more of the technology reduction consolidation that actually will continue to show an improved.
Speaker Change: Balanced in terms of what our expenditures are going.
Speaker Change: You want add anything to Robyn.
Robyn: That's right that's right and it's a strategy that that'll take us over a couple of quarters to execute.
Robyn: I'm sorry, okay.
Robyn: Question number two going back to your question number one it is without a doubt that the customer continues to be pressured and as we know we were seeing a bit more of a stabilization as it relates to adoption and pets in general, but we're still seeing that there are reduced visits to the veterinarian there's been reduced the scrip.
Robyn: And we have not seen on your P teeth, and Rx and pharmacy actually change from a year ago. So it's still they're still buying the same amount of time and frequency per year. So it's still about two seven times a year that average prescription that they're coming back to get a prescription again and that fluctuate based on seasonality, especially as we talk about a flea and tick.
Robyn: Season per se, but yes, they are absolutely.
Robyn: Pressured in terms of where they're spending how they're spending and we are seeing a bit more as it relates to opening price point take over some of the more premium price point that said, we still have a higher household income consumer who spend who has a household income over $100000 and 900, $250000 and 150 plus.
Robyn: Dollar household income is continuing to spend and does not have and it's not exhibiting some of the same behavior that other customers are with regard to not being in compliance on the prescription and less spend on their products.
Robyn: That relates specifically to pharmacy.
Robyn: Okay. Thank you.
Robyn: Thank you.
Speaker Change: Our next question comes from the line of Ryan There's really three capital markets. Please proceed with your question.
Ryan: Hey, guys. Thanks for taking my question and center. This is kind of a follow up from the last question that you had as far as just you know what you're seeing across your core consumer and I'm kind of be at a higher household income, but that said I mean, we've now seen three consecutive quarters of over double digit revenue declines I know you guys are pulling back a little bit on the marketing spend which I'll be.
Ryan: These impacted the revenue growth, but can you kind of talk about what else you're seeing here as far as what's driving the softness.
Ryan: Well, our Sop tests as it relates to where we've been and you've heard me talk about this a bit as well one of the reasons that we actually modernized our website is because we have not captured a younger more millennials or Gen Z consumer.
Ryan: So as we think about not only what's happening from a consumer behavior standpoint people are taking longer to have children and or their pet are becoming their children and their spending more on their children are on those pets or their children essentially in the millennial and Gen Z.
Ryan: Demographic. So we're modernizing we are fine tuning our messaging our content all the different platforms in which we are competing so that we can actually capture that customer that's not where we've been as a business over many years. So for us, we're actually transitioning that and as we transition away from a.
Ryan: Core customer that may have been a little bit older that new the one 800 pet meds brand and because of all of them in many years 28 years worth of Great Heritage Company attack. We're trying to also make sure that we're capturing the millennial and Gen Z consumer who is spending who is focused on more digital experiences.
Ryan: <unk> online is accustomed to it and that's what you're seeing now as we reposition our marketing and the efforts on marketing that goes into content. It goes into the different channels in which we show up and we know and understand that this is going to take them require multiple touch points with the consumers going to see our brand.
Ryan: Before they actually start to engage and then convert.
Speaker Change: Got it and then you know as we think about the rest of this year and into next year. When you guys are well capitalized with 50 million of cash on the balance sheet. I mean, how are you evaluating potentially investing more heavily into marketing kind of running more promotions really to try to drive revenue growth back into the business or even just new.
Speaker Change: Customer girls back into the business any commentary there would be helpful.
Speaker Change: Yeah, we definitely think about capital allocation and of course, how to drive our transformation faster.
Speaker Change: It sounds I mentioned right on the marketing front, we are resetting I would say that the marketing foundation. So we want to do it in a way that the smart that's going to be the most.
Speaker Change: Beneficial in terms of the Rois that we have to kind of set the foundation to get ready to go. Additionally.
Speaker Change: We're investing in our in our customer experience. It's critically important that we have the right product assortment, we can get to the customer faster and that's where customers have ease of use on our site. So we're going to continue to make those foundational investments.
Speaker Change: And then and then we can really are I would say open the floodgate, if that makes sense right in and start spending more heavily in the in the marketing area and Ryan I would just add to what Robin said just to double click on this point in order for us to be competitive in today's environment and the consumer expectation is.
Speaker Change: You're going to get product same day next day or within two days and so she was just mentioning last mile delivery as another key target key focus area for US we are focused on that customer experience, which has so many different legs to this and we need to make sure that we are delivering on a timely basis as well, but those investments are coming where.
Speaker Change: We're actually investing in that in this quarter of Q4 as well as starting to increase more on marketing as we go forward.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: This does conclude them.
Speaker Change: Uh huh.
Sandra Campus: We have reached the end of the question and answer session I would now turn the call back over to CEO, Sandra kind of host for closing remarks.
Sandra Campus: Thank you and thanks for the questions for the time and the support of Pet Meds, we understand that this is a transformation.
Sandra Campus: Many levels it is steady and the key initiatives that we discussed today are about prioritizing profitability and the customer growth Lastly, I just want to thank all of our employees for their constant commitment and the dedication to our customers. The pets that we serve and to our shareholders. So we look forward to continuing to update you on our progress during our next conference call. Thank you.
Sandra Campus: Thank you. This does conclude today's conference.
Sandra Campus: Sure.
Sandra Campus: At this time, thank you for your participation.
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