PetMed Express, Inc. Q2 FY2025 earnings call

• Added new CFO Robyn D'Elia, who brings over 24 years of financial leadership experience. - Consolidated PetMed's and PetCareRx across functions, nearly complete with $5 million annualized cost savings on track. - Achieved year-over-year improvement in gross margin and a $3.6 million sequential increase in adjusted EBITDA. - G&A operating expenses declined, with cost reduction initiatives on track to deliver $5 million in annualized savings. - Operational excellence: year-over-year gains in average order value and gross margin, customer call center rating improved to 4.5 stars on Trustpilot from 1.5 stars, phone abandonment rate reduced by 41%. - Strengthened tech stack with improved data architecture, business intelligence reporting, central fill pharmacy routing, and cybersecurity. - Relaunched modernized website with personalized experience, planning AI enhanced product recommendation engine, Buy Now Pay Later, etc., in Q3. - Refined product assortment, increased marketing investment for new customer acquisition, launched pethealthmd.com for educational content. - Stellar pharmacy business with RX licenses in all 50 states, focusing on autoship for recurring revenue.

Sales for the second quarter were $60 million, a 16% decline from the same period last year. Gross profit margin was 29.1%, an 80 basis point improvement year-over-year and 270 basis points sequentially. General and administrative expenses were $10.5 million, a 12.3% decrease year-over-year. Adjusted EBITDA was $2.1 million, improving sequentially from the first quarter. Net income was $2.3 million, or $0.11 per diluted share, up from $0.7 million or $0.03 per diluted share in the prior year period.

• Intentionally reduced marketing spend earlier, now increasing investment in Q3 and Q4 to drive new customer acquisition. - Gross margin in Q3 expected to be lower due to heavier marketing spend, following historical quarterly trending.

• Consumer pressure leading to reduced product ordering and increased search for promotional codes. - Heavily promotional environment affecting conversion rates. - Customers less compliant with medication, resulting in reduced visits to veterinary clinics.

Q: Thoughts on growth rate in the second half of the year?

A: Focus on new customer growth starting in Q3, with a substantial increase from Q3 to Q4 as marketing efforts shift to full customer acquisition.

Q: Sustainability of gross margin?

A: Gross margin in Q3 is expected to be lower due to heavier marketing investment, following historical quarterly trends.

Q: Macro dynamics impacting the business?

A: Consumer pressure, increased search for promotional codes, and reduced compliance with medication leading to less product ordering are impacting the business.