PetMed Express, Inc. Stock

Thank you. 2021-2027 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. It is now my pleasure to introduce your host, Reed Anderson, with ICR. You may begin.

Thank you, and welcome to the PetMed Express Fiscal First Quarter 2027 Earnings Conference Call. With us on the call today are Leslie Campbell, PetMed's Chairman and Interim CEO and President, and Doug Krulik, Interim Principal Financial Officer and Chief Accounting Officer. Certain information included during this call forward-looking statements within the meaning of the PRAC Litigation Reform Act of 1995 and the 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've used based upon information currently available to us. 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. And nothing contained in this presentation is or should be relied upon as a record or warranty as to any future matter, including any matter in respect of the operations or business or financial condition of PetMeds.

Vet Meds 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. We would identified various risk factors associated with our operations in our most recent annual report on Form 10-K and other filings for the Securities and Exchange Commission. Now, let me turn the call over to Leslie Campbell, PetMeds Chairman and interim CEO and President.

Thank you, Reid, and welcome to everyone joining our call this afternoon. Following my opening remarks, Doug will provide a detailed overview of our financial results. In this first quarter, we continued to build on the operational and financial foundation we began transforming last year. a significant focus on enhancing shareholder value, optimizing our capital allocation, streamlining our cost structure, developing new revenue streams, improving our customer retention while efficiently gaining access to new customers. modernizing our technology infrastructure, enhancing our customer service capabilities, and speeding up deliveries to our customers. While the direct-to-consumer pet health landscape remains intensely competitive, Our focus is single-minded, driving long-term shareholder value and establishing a direct, clear path back to sustainable profitability. To that end, our board continues to evaluate all capital allocation and strategic priorities with complete discipline. While we believe we are implementing the strategy and taking the actions necessary to enhance shareholder value, our board and management team remain open to considering any opportunities that have the potential to enhance value for all PetMens shareholders. With respect to revenue growth and customer acquisition initiatives, We are diversifying our customer acquisition funnel beyond relying on traditional advertising and media channels, which continue to become more expensive.

For example, key strategic initiatives, such as our first white label pharmacy offering, are reaching in-store shoppers and bringing them online. Leveraging the technology and infrastructure work we completed during Q4 and into the current quarter, we believe we're beginning to see the benefits of these investments show up in our day-to-day operations. Our new call center platform, launched in June, has helped us handle customer inquiries and sales more efficiently. And our new fraud prevention system, launched in Q4, continues to protect the business as order volumes evolve. During Q1, we completed a comprehensive process to upgrade our Enterprise Resource Planning System, our ERP system, And in May, we successfully rolled out SAP as our ERP system enterprise-wide, further modernizing and strengthening our financial systems and reporting processes, and representing the completion of one of the largest elements of our technology transformation initiative, as we continue to replace legacy platforms. We also recently entered into a new freight agreement that both mitigates proposed cost increases from a previous carrier and provides faster and more trackable service, especially to our West Coast customers, who may now receive their orders up to two days prior. faster. We believe that speeding up deliveries to our customers will significantly enhance their customer experience and customer satisfaction and lead to higher customer retention rates.

All these ongoing technology and operational initiatives are creating a stronger foundation for a more scalable, efficient organization going forward. Before we move on to the first quarter results, I'd like to update you on two current topics. First, in a press release that we issued on June 30th, we acknowledged receipt of an unsolicited non-binding and conditional proposal from Silver Cape Investments to acquire all the outstanding shares of the company's stock for $3 per share in cash. Based on communications to date with Silver Cape, the Board has not yet reached any determination regarding Silver Cape's proposal, and there is no assurance that any transaction will result. As stated in our June 30, 2026 press release, the company does not intend to comment further unless and until it determines that additional disclosure is appropriate or required. Secondly, regarding the search for a permanent CEO, the Board is continuing this search with the assistance of a global executive search firm. Recruiting for this role a person firmly committed to driving long-term shareholder value and establishing a direct, clear path back to sustainable profitability remains a high priority for our board.

Turning now to first quarter results. In Q1, we're pleased to see that sales have stabilized sequentially over the past several quarters. although the year-over-year decline of 19.9% in first quarter net sales reflects continued softness in prescription medication sales. Our net loss for the first quarter narrowed significantly to 6.1 million compared to a net loss of 34.2 million in the same period last year, reflecting our disciplined focus on managing operating costs as well as the absence of a non-cash goodwill impairment charge. General and administrative expenses declined nearly 14% year-over-year, reflecting lower professional fees. advertising expenses declined 30%, reflecting lower gross media spend and the selective elimination of several unproductive high-cost programs. At the same time, our recurring net sales, which include auto ship and membership-related revenue, grew to 61.5% of total gross sales, up from 57.6% a year ago, underscoring the strength of our subscription driven sales. customer base. I also want to call out our continued improvement around customer acquisition. During the first quarter, we acquired approximately 70,000 new customers, and this metric has been trending upward over the past several quarters.

In addition, we reduced our cost of acquiring a new customer by 15% in the first quarter to $60, compared to $71 in the same period last year. This meaningful improvement was driven by our ongoing advertising and media spend optimization, including the selective elimination of unproductive media spend and other strategic reductions in marketing costs. We see this improvement as an encouraging sign that our marketing investments are becoming more efficient, even as the broader advertising environment remains competitive. As we continue to focus on improving our customer acquisition and lowering our customer acquisition costs, I'm also pleased to share that in July, we officially launched our new co-branded online pharmacy offering with Rural King, giving Rural King's customers across more than 150 stores in 17 states, convenient access to pet medications, prescription food, preventatives, and auto-ship services through a platform powered by PetMeds. This partnership, which we announced in April, represents our first large-scale white-label pharmacy program, and we believe it is an important proof point for our strategy to efficiently grow our customer acquisition reach, including by converting in-store shoppers into online customers. customers and developing new revenue streams by putting our pharmacy infrastructure, licensed pharmacists, e-commerce capabilities, and 30 years of expertise to work for our partners. In Rural King's case, particularly in the rural communities that they serve, where access to veterinary care and pet medications can be limited. We're proud of what this partnership represents in terms of future opportunities to efficiently gain access to new customers and develop new revenue streams, and we look forward to announcing the extension of our white-label offering to additional partners in the near future.

Turning to capital allocation, on July 23rd, we announced that we had entered into a definitive agreement for a sale-leaseback of our headquarters and distribution center buildings here in Delray Beach, Florida, for an aggregate purchase price of $37 million. Under Under the agreement, we will lease back the portion of the property housing our offices in Florida Distribution Center under a 10-year lease with subsequent renewal options, allowing us to continue operating out of the headquarters that has been home to PEPMEDS for the past decade. We expect this transaction to close within approximately 120 days from the date of the definitive agreement, subject to a due diligence period, negotiation of the definitive lease agreement, and other customary closing conditions. We see this transaction as a strategic next step in our ongoing commitment to sharpen our focus on our core pharmacy business, strengthen our balance sheet, and optimize our asset base by unlocking the value of our real estate, in turn providing us with additional financial flexibility and to continue investing in the initiatives with the greatest potential to drive shareholder returns. Looking ahead, the financial, operational, commercial, and cultural improvements we have implemented over the past 12 months are Our strategic initiatives and partnerships and our more disciplined approach to expense management and capital allocation have dramatically improved our foundation, and they position us well for the future as we seek to drive long-term shareholder value and establish a direct, clear path back to sustainable profitability. We will continue to focus on operational excellence as a competitive pillar and core driver for sustainable long-term results and delivering value for shareholders. By leveraging our modernized technology and other operational initiatives, we can build on our exceptional service levels and improve customer retention.

In addition, we continue leaning into our pet pharmacy expertise and infrastructure to expand B2B relationships through membership programs and our white label fulfillment services to extend our reach to more customers. We remain deeply committed to our mission of ensuring pets live longer, healthier, and happier lives, and we are focused on delivering value for our shareholders through this disciplined execution of our strategic priorities. With that, I'll turn the call over to Doug Krulik for a more detailed review of our financial results for the first quarter.

Thank you, Leslie. Net sales for the first quarter were 41 million compared to 51.2 million in the same period last year. presenting a third consecutive quarter of revenue stabilization above $40 million, although a 19.9% year-over-year decline, primarily driven by decline in prescription medication sales, partially offset by lower consumer promotional usage. Gross profit was 11.3 million compared to 14.4 million last year. As a percent of sales, gross profit this year was 27.6% compared to 28.1% in the prior year. primarily reflecting lower manufacturer rebates as percentage of sales, partially offset by lower freight costs per order. General administrative expenses were $11.2 million compared to $12.9 million last year, a 13.5% decrease. This year-over-year improvement was driven by lower professional fees, share-based compensation, and severance costs. Advertising expenses were $4.2 million compared to $6 million last year, a decrease of 30.2%, reflecting lower gross media spend and the elimination of unproductive media. Depreciation and amortization was 2.1 million compared to 2.3 million in the prior year period.

Net loss for the first quarter was $6.1 million, or $0.28 per diluted share, compared to a net loss of $34.2 million, or $1.65 per diluted share, for the same period last year. This decrease in net loss was primarily driven by the absence of last year's goodwill and trade name impairment charge, and to a lesser extent, lower general and administrative and advertising expenses, partially offset by lower gross profit resulting from decreased net sales. Adjusted EBIT loss was $3.4 million compared to a loss of $2.7 million in the prior year Turning to our balance sheet, as of June 30th, 2026, we had $13.1 million in cash and cash equivalent to no debt. With that, I'll turn the call back to Leslie for closing remarks.

Thank you all for your time today and your interest in PEP meds. We are very grateful for the support of all of our shareholders and have appreciated the opportunity to communicate with many of you at different times throughout this quarter. I also want to thank our employees, as always, for how they bring their passion for our customers to life in their work every day. And finally, we always want to thank our loyal customers and their veterinarians who trust us to be part of helping pets live longer, healthier, happier lives. Thank you again for allowing us to share these first quarter results with you, and we look forward to updating you on our progress next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings, and welcome to the PetMed Express Fiscal Fourth Quarter 2026 Financial Results Conference Call. [Operator Instructions] It's now my pleasure to introduce your host, Reed Anderson with ICR. Thank you, you may now begin.

Thank you, and welcome to the PetMed Express Fiscal Fourth Quarter 2026 Earnings Conference Call. With us on the call today are Leslie Campbell, PetMed's Chairman, Interim CEO and President; and Doug Krulik, Interim Principal Financial Officer and Chief Accounting Officer.

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 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, 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, and 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 financial condition of PetMeds.

PetMeds 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. We have identified various risk factors associated with our operations in our most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission.

Now let me turn the call over to Leslie Campbell, PetMed's Chairman of the Board and Interim CEO and President.

Thank you, Reed, and welcome to everyone joining our call this afternoon. Following my remarks, Doug will provide a detailed overview of our financial results.

Fiscal year 2026 was a pivotal year for PetMed Express, during which we made significant financial, operational and cultural improvements that are aimed to put the company back on track for sustainable long-term results. While our full year results reflect the challenges we faced, particularly in the first half of the year, I'm pleased to report that we made substantial progress in the second half of the year in stabilizing our core business and strengthening our foundation for future value creation. In the second half of the year, we also regained critical regulatory compliance with the filing of our Form 10-K for fiscal year 2025 in October and the completion of our fiscal year '26 Q1 and Q2 quarterly filings in December. In December, we also announced the change in our external auditor firm to Baker Tilly U.S. LLP, effective for our third quarter ended December 31, 2025, and we then successfully held our Annual Shareholder Meeting for fiscal year 2025 in January.

You'll see in today's 10-K filing, we also made meaningful progress in improving our internal controls, fully remediating 3 previously disclosed material weaknesses, tone at the top, complex accounting issues and income taxes. Although Doug will speak to our financial results in a moment, I'd like to provide a little bit of additional detail now.

Our net sales for the full fiscal year 2026 were down 21.1%, but we saw a slowing of year-over-year revenue decline in Q3 and again in Q4, with Q4 being down 15.6% compared to the prior year or 17.8% adjusted for the settlement of our New York State sales tax liability.

We also began to see green shoots in the second half of the year in important areas like prescription medication sales, prescription and nonprescription food sales and autoship sign-ups, and we were pleased to deliver a sequential quarterly increase in fourth quarter net sales, our first Q4 sequential quarterly increase since fiscal year 2024, demonstrating some positive momentum. These improvements, while modest, signal that the strategic and operational initiatives we implemented in the back half of fiscal 2026 are beginning to take hold.

Our full year fiscal 2026 results also include several significant nonrecurring accounting entries, including a $26.7 million noncash goodwill impairment reported in Q1 and a $2.1 million wholesale inventory write-down reported in Q3 related to an initiative that was an unsuccessful departure from our core business. We also incurred nonrecurring legal, professional and executive severance costs totaling $4.5 million in fiscal year 2026 related to the whistleblower investigation previously disclosed in our fiscal year 2025 Form 10-K filed in October.

However, during fiscal year 2026, we also made meaningful progress on cost reduction efforts including exiting underperforming vendor relationships over the second half of the year that will yield approximately $6.1 million in annualized savings. We also successfully settled our New York state sales tax liability in Q4, resulting in a $2.8 million decrease to net loss in fiscal year 2026.

While we were working on these financial improvements, we also made significant operational improvements, strategically reorganizing to optimize headcount productivity in our pharmacy, call center and distribution centers, improving both operational performance and customer experience. Compared to a year ago, our cost structure is now lower and more aligned with the size of the business, while important customer-facing operational metrics are much improved.

Finally, we completed several important technology and infrastructure initiatives, including the successful implementation of a new ERP system, a new fraud prevention system and a new call center technology, which serves as the backbone of our phone system. These implementations modernize our tech stack, significantly improve our operations and are critical to providing exceptional service to our customers. With these major initiatives now behind us, we will continue to prioritize website and user experience optimization while significantly reducing operational risk.

We also hit a notable company milestone in January when we celebrated PetMed's 30th year anniversary. As part of our anniversary celebration, we were really proud to recognize over 40 employees who've been with the company for more than 10 years, half of whom by the end of this year, will actually have been with the company more than 20 years. This long-tenured employee base speaks not only to a workforce deeply committed to our mission, but one with true expertise that can only be earned by individuals serving customers in the pet health industry for decades.

Leveraging this talented and long-tenured employee base, this year, we reorganized our leadership structure, creating a Chief Growth Officer role to align marketing, buying and merchandising and site merchandising. We also made several key internal promotions across distribution, customer care and pharmacy operations, a strong reflection of the depth of talent across the company. To further support the commitment and dedication of our employees, we meaningfully expanded our employee benefits coverage. And as a result of our renewed focus on culture, we saw our employee satisfaction ratings substantially increase.

Looking ahead, we plan to build on this year's financial, operational and cultural improvements as an important foundation for our future. We will continue to focus on operational excellence, driving sustainable long-term results and delivering value for shareholders. We intend to do this in part through improved customer retention by leveraging our operational and technology improvements and also by expanding our market footprint through B2B relationships, utilizing our membership programs as well as our white label pharmacy fulfillment services like our recently announced Master Services Agreement with Rural King. We believe these offerings represent a significant opportunity to leverage our deep pharmacy expertise and infrastructure to reach more customers through our partners.

Finally, before we move to Doug's presentation of the financials, I want to update you on the status of the unsolicited offers the company received several months ago. In December 2025, the company received 2 unsolicited publicly disclosed nonbinding preliminary proposals to acquire all of the outstanding common stock of the company at prices ranging from $4 to $4.25 per share. These nonbinding proposals were subject to customary conditions, including the satisfactory completion of due diligence and the negotiation and execution of a mutually acceptable definitive agreement. The Board, consistent with its fiduciary duties and in consultation with its financial and legal advisers, carefully evaluated the 2 proposals and solicited interest from other potential strategic and financial sponsors.

Following this process and after careful deliberation and consideration of the alternatives, the Board determined that it is in the best interest of the company and its stockholders not to proceed with either of the publicly announced proposals and consequently, PetMeds is continuing to operate as an independent publicly traded company. However, the Board remains open to considering inbound indications of interest that may be received in the future with respect to a potential transaction and will continue to act in accordance with its fiduciary duties to evaluate any such proposals should they arise.

As we enter fiscal year 2027, we are confident that the foundation we have built through operational cleanup, cost optimization, technology modernization and strategic partnerships positions us well for the long term. We remain deeply committed to our mission of ensuring pets live longer, healthier and happier lives, and we are focused on delivering value for our shareholders through disciplined execution of our strategic priorities.

With that, I'll turn the call over to Doug Krulik for a more detailed review of our financial results. Doug?

Thank you, Leslie. Net sales for the fourth quarter were $42.8 million compared to $50.8 million in the same period last year, a 15.6% decline, primarily driven by a decline in prescription medication sales. Despite this decline in Q4, we saw a modest sequential improvement from Q3, driven by improvements in prescription medication and autoship sales, indicating positive momentum as we closed out the year.

Gross profit was $13.9 million compared to $15.2 million last year. As a percent of sales, gross profit this year was 32.6% compared to 29.9% in the prior year, a 270 basis point improvement. This improvement was primarily driven by the impact of our settlement of the New York sales tax liability.

General and administrative expenses for the fourth quarter were $11.4 million versus $12.5 million last year, an 8.6% decrease. This year-over-year improvement was driven by cost optimization efforts. Advertising expenses for the fourth quarter were $5.8 million compared to $5.4 million last year. This increase was driven by the presentation of co-op funds we received from our vendors this quarter.

Depreciation and amortization was $2.4 million for the fourth quarter compared to $2.1 million in the prior year period, reflecting continued investments in technology infrastructure. Net loss for the fourth quarter was $4.1 million or $0.19 per diluted share compared to a net loss of $11.6 million or $0.56 per diluted share for the same period last year. Adjusted EBITDA loss was $2.8 million compared to a loss of $1.9 million in the prior year period.

Now I'll briefly comment on the full year 2026 results. For the full fiscal year, net sales were $179 million compared to $227 million in the prior year, a 21.1% decline, primarily driven by a decline in prescription medication sales. Net loss for the full fiscal year was $57.3 million or $2.74 per diluted share compared to a net loss of $6.3 million or $0.30 per diluted share in the prior year. The increase in net loss was driven by several items, including the $26.7 million noncash goodwill impairment charge reported in Q1, the $2.1 million wholesale inventory write-down reported in Q3 related to an initiative that was not part of our core business, lower gross profit resulting from decreased net sales and increased G&A expenses driven by the nonrecurrence of an $8.7 million onetime stock compensation reversal in fiscal year '25.

We also incurred nonrecurring legal, professional and severance costs totaling $4.5 million related to the whistleblower investigation and related matters. Adjusted EBITDA for the full fiscal year was negative $15.4 million compared to positive $0.7 million in the prior year.

Turning to our balance sheet. As of March 31, 2026, we had $21.4 million in cash and cash equivalents and no debt.

With that, I'll turn the call back to Leslie for closing remarks.

Thanks, Doug, and thank you to all the attendees for your time and interest today in PetMeds. We are really grateful for the support of all of our shareholders and have, in particular, appreciated the opportunity to communicate with a number of you throughout this past year. I also want to thank our employees for their genuine commitment to serving our customers every day. And of course, a big thank you to our loyal customers and their veterinarians who trust us to be part of helping their pets live longer, healthier, happier lives. 2026 was a pivotal year for PetMeds, during which we made significant progress in stabilizing our core business and strengthening our foundation.

Thank you again for allowing us to share these results with you today, and we look forward to updating you on our progress next quarter.

Thank you. And with that, ladies and gentlemen, this conference has now concluded. We thank you for attending the PetMed Express Fiscal Fourth Quarter 2026 Financial Results Conference Call. You may now disconnect your lines.