PETMED EXPRESS INC Q2 FY2023 earnings call

• Operational advancements: Sales growth due to PetCareRx acquisition, net new customers increased by 25% year-over-year, with recurring revenue at 51% of total sales.
• Product strategy: Focus on four key pillars - medication, care, nutrition, wellness. Upgrading core infrastructure with a new modern order management system, enhancing AutoShip & Save with features like controlling subscription duration and pausing, and introducing VetLive and pet insurance.
• Product catalog expansion: Added Purina, Royal Canin, and launched pet insurance in partnership with Pumpkin Insurance.

For the quarter ending September 30, 2023, PetMed Express delivered sales of $71 million, an increase of 9% year-over-year compared to $65.4 million in the prior year. The AutoShip & Save and PetPlus programs grew to 51% of revenue during the quarter, up from 39% in the same period last year. Reorder sales were $62.4 million, reflecting a 4.5% year-over-year growth, but this was solely attributable to the addition of the PetCareRx business. Gross profit for the quarter as a percentage of sales was 28.3%, compared to 28.2% in the same quarter last year. Net loss for the second quarter was $70,000 or $0.00 per diluted share, and adjusted EBITDA was $3.2 million.

• Suspended dividend effective the quarter ending September 30, 2023, to strategically invest in the core business, including infrastructure, marketing, and growth opportunities.
• Focus on expanding the product catalog to drive future organic growth.

• Softness in the core returning customer base in terms of reduced spending.
• Impact of macroeconomic conditions on the pet industry affecting certain product categories.
• Challenge in stabilizing the core returning PetMeds customer base despite some improvement from prior year.

Q: Could you provide commentary on what new customer spend looks like relative to legacy customers, and if cross-selling is taking place?

A: New customer food introduction started this quarter with awareness campaigns. New customers show traction with AutoShip offers, and for returning customers, it will take time to build awareness of broader products beyond prescription medication.

Q: With the dividend suspended, what's the #1 priority for capital allocation?

A: Reallocating capital to aggressively pursue opportunities in the pet e-commerce sector, investing in technological advancements, product diversification, and ensuring cash for working capital and CapEx to fuel growth.