PETMED EXPRESS INC

Previous wording

PetMed Express, Inc. and subsidiaries, d/b/a PetMeds® (the "Company") is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, foods, supplements, supplies and vet services for dogs, cats, and horses. PetMeds markets and sells directly to consumers through its websites, toll-free numbers, and mobile application. The Company offers consumers an attractive alternative for obtaining pet medications, foods, and supplies in terms of convenience, price, speed of delivery, and valued customer service.

Current wording

PetMed Express, Inc. and subsidiaries, d/b/a PetMeds® (the "Company", "we", "us", or "our") is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, foods, supplements, supplies and vet services for dogs, cats, and horses. PetMeds markets and sells directly to consumers through its websites, toll-free numbers, and mobile application. We offer consumers an attractive alternative for obtaining pet medications, foods, and supplies in terms of convenience, price, speed of delivery, and valued customer service.

Previous wording

Founded in 1996, the Company's executive headquarters offices are currently located at 420 South Congress Avenue, Delray Beach, Florida 33445, and our telephone number is (561) 526-4444. The Company has a March 31 fiscal year.

Current wording

Founded in 1996, our executive headquarters offices are currently located at 420 South Congress Avenue, Delray Beach, Florida 33445, and our telephone number is (561) 526-4444. We have a March 31 fiscal year end.

Previous wording

Presently, our product line includes approximately 15,000 of the most popular pet medications, health products, and supplies for dogs, cats, and horses.

Current wording

Presently, our product line includes approximately 10,000 of the most popular pet medications, health products, and supplies for dogs, cats, and horses.

Previous wording

We market our products through national advertising campaigns which aim to increase the recognition of the “PetMeds” brand name and "PetCareRx" brand name, increase traffic on our websites atwww.petmeds.comandwww.petcarerx.com, acquire new customers, and maximize repeat purchases. Our sales consist of products sold mainly to retail consumers. The twelve-month average purchase remained at approximately $94 and $93 per order for the fiscal years ended March 31, 2024, and March 31, 2023, respectively.

Current wording

We market our products through national advertising campaigns which aim to increase the recognition of the “PetMeds” brand name and "PetCareRx" brand name, increase traffic on our websites atwww.petmeds.comandwww.petcarerx.com, acquire new customers, and maximize repeat purchases. Our sales consist of products sold mainly to retail consumers. The twelve-month average purchase increased slightly at approximately $97 and $94 per order for the fiscal years ended March 31, 2025, and March 31, 2024, respectively.

Previous wording

As described in the Note 1 of “Notes to Condensed Consolidated Financial Statements,” we have restated our consolidated financial statements and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended March 31, 2023 and March 31, 2022.

Current wording

As described in the Note 1 of “Notes to Consolidated Financial Statements,” we have restated our consolidated financial statements and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended March 31, 2024 and 2023 and the interim periods in those years and for the quarters ended June 30, 2024, September 30, 2024, and December 31, 2024.

Previous wording

We maintain an allowance for credit losses that we estimate will arise from customers’ inability to make required payments, arising from either credit card chargebacks or insufficient funds checks. We determine our estimates of the uncollectability of accounts receivable by analyzing historical bad debts and current economic trends. The allowance for credit losses was approximately $273 thousand and $35 thousand at March 31, 2024 and 2023, respectively.

Current wording

We maintain an allowance for credit losses that we estimate will arise from customers’ inability to make required payments, arising from either credit card chargebacks or insufficient funds checks. We determine our estimates of the uncollectability of accounts receivable by analyzing historical bad debts and current economic trends. The allowance for credit losses was approximately $91 thousand and $273 thousand at March 31, 2025 and 2024, respectively.

Previous wording

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but instead is tested for impairment annually on January 1, or more frequently if events or changes in circumstances indicate goodwill might be impaired. When testing goodwill for impairment, we have the option to choose whether we will apply a qualitative assessment first and then a quantitative assessment, if necessary, or to apply the quantitative assessment directly. We have concluded that we have one reporting unit and have assigned the entire balance of goodwill to this reporting unit.

Current wording

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but instead is tested for impairment annually on January 1, or more frequently if events or changes in circumstances indicate goodwill might be impaired. When testing goodwill for impairment by determining whether the carrying value of each reporting unit exceeds its estimated fair value. we have the option to choose whether it will apply a qualitative assessment first and then a quantitative assessment, if necessary, or to apply the quantitative assessment directly. We have concluded that we have one reporting unit and has assigned the entire balance of goodwill to this reporting unit.

Previous wording

The Company performed its annual goodwill impairment testing as of January 1, 2024 usinga quantitative assessment and at that time concluded there was no impairment. Since then, the Company’s stock price decreased from $7.56 at December 31, 2023 to $4.79 at March 31, 2024. The Company considered the decrease in its stock price to be indicative of a risk that the carrying amount of goodwill may not be recoverable. Therefore, the Company performed a quantitative impairment assessment as of March 31, 2024.

Current wording

We have performed our annual goodwill impairment testing as of January 1, 2025 using a quantitative assessment and at that time concluded there was no impairment. Since January 1, 2025, our stock price decreased from $4.82 at December 31, 2024 to $4.19 at March 31, 2025. We considered the decrease in its stock price in FY 2025 to be indicative of potential risks that the carrying amount of goodwill may not be recoverable. We performed a quantitative assessment as of March 31, 2025, and concluded that goodwill was not impaired because the market capitalization, i.e. fair value determined based on our stock price (without including a control premium), of the single reporting unit exceeded its carrying value as of March 31, 2025.

Previous wording

We account for income taxes under the provisions of ASC Topic 740 (“Accounting for Income Taxes”), which generally requires recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in our consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. As required by “Accounting for Uncertainty in Income Taxes” guidance, which clarifies ASC Topic 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Consolidated Financial Statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Current wording

We account for income taxes under the provisions of ASC Topic 740 (“Accounting for Income Taxes”), which generally requires recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in our consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. As required by “Accounting for Uncertainty in Income Taxes” guidance, which clarifies ASC Topic 740, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Consolidated Financial Statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Previous wording

The Company applies “Accounting for Uncertainty in Income Taxes” guidance to all tax positions for which the statute of limitations remains open. The Company had no liabilities for uncertain tax positions for either fiscal 2024 or fiscal 2023. The Company files tax returns in the U.S. federal jurisdiction and Florida, Arizona, California, Connecticut, Idaho, Maryland, Michigan, Oklahoma, South Carolina, Virginia, Wisconsin, New Jersey, Georgia, Indiana, New York and the District of Columbia. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years ending March 31, 2020, or earlier. Any interest and penalties related to income taxes will be recorded to other income (expenses).

Current wording

We apply “Accounting for Uncertainty in Income Taxes” guidance to all tax positions for which the statute of limitations remains open. We had no liabilities for uncertain tax positions for either fiscal 2025 or fiscal 2024. We file tax returns in the U.S. federal jurisdiction and Florida, Arizona, California, Connecticut, Idaho, Maryland, Michigan, Oklahoma, South Carolina, Virginia, Wisconsin, New Jersey, Georgia, Indiana, New York and the District of Columbia. With few exceptions, we are no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years ending March 31, 2020, or earlier. Any interest and penalties related to income taxes will be recorded to other income (expenses).

Previous wording

The COVID-19 pandemic had a significant impact around the world and has created significant volatility, uncertainty, and economic disruption. It prompted governments and businesses to take unprecedented measures in response. While economies of various countries have rebounded from the global COVID-19 economic shutdown that began in the late first quarter and early second quarter 2020, the impact of the COVID-19 pandemic continued, to varying degrees, in 2022 and 2023, and continues, to varying degrees, in 2024 due to mounting inflationary cost pressures and potential recession indicators that have now negatively impacted the global economy. We continue to monitor the effects of the pandemic and macroeconomic environment and take appropriate steps to mitigate the impact on our business, employees and financial condition; however, the nature and extent of this impact in future periods remains difficult to predict due to numerous uncertainties outside our control.

Current wording

We monitor the effects of the macroeconomic environment and take appropriate steps to mitigate the impact on our business, employees and financial condition; however, the nature and extent of this impact in future periods remains difficult to predict due to numerous uncertainties outside our control.

Previous wording

We believe it is useful to exclude non-cash charges, such as share-based compensation expense and depreciation from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision and interest income (expense), as neither are components of our core business operations. We also believe that it is useful to exclude other expenses, including the investment banking fee related to the Vetster partnership, acquisition costs related to PetCareRx, employee severance and an estimated unremitted prior period state sales tax accrual as these items are not indicative of our ongoing operations. Adjusted EBITDA has limitations as a financial measure, and these non-GAAP measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

Current wording

We believe it is useful to exclude non-cash charges, such as share-based compensation expense and depreciation from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision and interest income (expense), as neither are components of our core business operations. We also believe that it is useful to exclude other expenses, including the investment banking fee related to the Vetster partnership, acquisition costs related to PetCareRx, employee severance and interest expense relating to an estimated unremitted prior period state sales tax accrual as these items are not indicative of our ongoing operations. Adjusted EBITDA has limitations as a financial measure, and these non-GAAP measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

Previous wording

The following table presents a reconciliation of net (loss) income, the most directly comparable GAAP measure to Adjusted EBITDA for each of the periods indicated:

Current wording

The following table presents a reconciliation of net loss, the most directly comparable GAAP measure to Adjusted EBITDA for each of the periods indicated:

Previous wording

Fiscal 2024 Compared to Fiscal 2023

Current wording

Fiscal 2025 Compared to Fiscal 2024 (refer to our 10-K for the fiscal year ended March 31, 2024 for Fiscal 2024 Compared to Fiscal 2023)

Previous wording

We acquired approximately 302,000 new customers for the fiscal year ended March 31, 2024, compared to approximately 274,000 new customers for the same period in the prior year. The following chart illustrates sales by various sales classifications:

Current wording

We acquired approximately 351,000 new customers for the fiscal year ended March 31, 2025, compared to approximately 457,000 new customers for the same period in the prior year. The following chart illustrates sales by various sales classifications:

Previous wording

On April 1, 2022, we changed the definition of a new customer to include anyone who has not ordered over the past thirty-six months. The reorder and new order sales amounts for the years ended March 31, 2022 reflect this revised customer definition.

Current wording

The Company changed the definition of a new order sale on July 1, 2024, to include sales from customers who have not previously ordered from the Company over the past twelve months compared to the prior definition which was thirty-six months. The reorder and new order sales amounts for the years ended March 31, 2025 reflect this new customer definition change. Under the previous definition of a new customer, reorder and new order sales were $241 million and $23.7 million, respectively, for the year ended March 31, 2024.

Previous wording

We are encouraged by the adoption of our AutoShip program and have seen an increasingly positive trend since we launched this program. For example, our quarterly AutoShip percentage was 53.5% of net sales for the most recent quarter ended March 31, 2024, up from 44.4% of net sales for the same period last year and up from 52.2% of net sales sequentially in the prior quarter.

Current wording

The Company offers an AutoShip & Save subscription program (“AutoShip”) on our website. AutoShip is a convenient way for our loyal customer base to have future pet medication orders delivered directly to them without the need to place an order each time. We are encouraged by the adoption of our AutoShip program and have seen an increasingly positive trend since we launched this program. Recurring sales, which includes AutoShip and membership revenue, as a percentage of total gross sales was 56.1% for the most recent quarter ended March 31, 2025, up from 53.5% for the same period last year and up from 56.2% sequentially in the prior quarter.

Previous wording

Cost of sales increased by approximately $16.6 million, or 8.9% to $202.4 million for the fiscal year ended March 31, 2024, from $185.8 million for the fiscal year ended March 31, 2023. The cost of sales increase can be directly related to the increase in sales during fiscal year 2024. As a percentage of sales, cost of sales was 72.0% in fiscal year 2024, as compared to 72.4% in fiscal 2023. The cost of sales percentage decrease was primarily due to higher profit margins driven by membership fees from the acquisition of PetCareRx.

Current wording

Cost of sales decreased by approximately $31.5 million, or 16.6% to $157.8 million for the fiscal year ended March 31, 2025, from $189.3 million for the fiscal year ended March 31, 2024. The cost of sales decrease can be directly related to the decrease in sales during fiscal year 2025. As a percentage of sales, cost of sales was 69.5% in fiscal year 2025, as compared to 69.1% in fiscal 2024. The increase in cost of sales, as a percentage of sales, for the fiscal year ended March 31, 2025 compared to the fiscal year ended March 31, 2024 was primarily due to an increase in discount activity.

Previous wording

Gross profit increased by approximately $7.9 million, or 11.2%, to $78.6 million for the fiscal year ended March 31, 2024, from $70.7 million for the fiscal year ended March 31, 2023. The increase in gross profit can be directly related to the increase in sales and and higher profit margins during fiscal 2024. Gross profit as a percentage of sales for fiscal 2024 was 28.0% compared to 27.6% for fiscal 2023. The gross profit and gross profit percentage increasedfor thefiscal year ended March 31, 2024 compared to the previous fiscal year.

Current wording

Gross profit decreased by approximately $15.6 million, or 18.4%, to $69.1 million for the fiscal year ended March 31, 2025, from $84.8 million for the fiscal year ended March 31, 2024. The decrease in gross profit can be directly related to the decrease in sales and lower profit margins during fiscal 2025. Gross profit as a percentage of sales for fiscal 2025 was 30.5% compared to 30.9% for fiscal 2024. The gross profit and gross profit percentage decreasedfor thefiscal year ended March 31, 2025 compared to the previous fiscal year.

Previous wording

General and administrative expenses increased by approximately $13.5 million, or 32.4%, to $55.2 million for the fiscal year ended March 31, 2024, from $41.7 million for the fiscal year ended March 31, 2023. The increase in general and administrative expenses for the fiscal year ended March 31, 2024 was due to a $8.4 million increase in payroll expenses, of which $0.3 million is from increased stock compensation and $0.1 million from accrued severance, as well as a $0.7 million increase of professional fees, a $1.0 million increase of software and systems expense, and a $4.9 million increase of variable and other overhead expenses. The expense increases were partially attributed to the combination of PetCareRx. These increases were offset by $1.4 million related to sales tax settlements with states.. General and administrative expenses as a percentage of sales was 19.7% for the fiscal year ended March 31, 2024, compared to 16.3% for the fiscal year ended March 31, 2023.

Current wording

General and administrative expenses (As Restated)

Previous wording

Advertising expenses, which is net of manufacturer funded advertising COOP, increased by approximately $5.1 million to $24.5 million for the fiscal year ended March 31, 2024, from $19.4 million for the fiscal year ended March 31, 2023. This increase for the fiscal year ended March 31, 2024, can be mainly attributedto media spend related to PetCareRx, partially offset by increased advertising COOP. Advertising COOP increased by $1.5 million over the same period, of which $0.9 million of the increase can be attributed to the combination of PetCareRx. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $81 for the fiscal year ended March 31, 2024, compared to $71 for the fiscal year ended March 31, 2023, per the new definition of new customers. The increase to customer acquisition costs for the fiscal year ended March 31, 2024, the advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, spending, and price competition. Historically, the advertising environment fluctuates due to supply and demand. A more favorable advertising environment may positively impact future sales, whereas a less favorable advertising environment may negatively impact future sales. As a percentage of sales, advertising expense was 8.7% and 7.6% for the fiscal years ended March 31, 2024, and 2023, respectively.

Current wording

The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, were $68 for the fiscal year ended March 31, 2025, compared to $67 for the fiscal year ended March 31, 2024, per the new definition of new customers.

Previous wording

Other income increased by approximately $0.5 million, to $1.9 million for the fiscal year ended March 31, 2024, from $1.4 million for the fiscal year ended March 31, 2023. The increase was primarily related to additional interest income as a result of higher interest rates. Interest income may decrease in the future as we utilize our cash balances on future investments or partnerships, on our operating activities, enter a credit facility or if the current interest rate environment changes.

Current wording

Other income decreased by approximately $0.9 million, to $0.9 million for the fiscal year ended March 31, 2025, from $1.9 million for the fiscal year ended March 31, 2024. The decrease was primarily due to lower invested balances. Interest income, net may decrease in the future as we utilize our cash balances on future investments or partnerships, on our operating activities, enter a credit facility or if the current interest rate environment changes.

Previous wording

For the fiscal years ended March 31, 2024 and 2023, we recorded an income tax provision of approximately $1.2 million and $2.3 million, respectively. The decrease to the income tax provision for fiscal 2024 is related to a decrease in operating income compared to fiscal 2023. The effective tax rate for the fiscal year ended March 31, 2024 was approximately (19.0)%, compared to approximately 31.0% for the fiscal year ended March 31, 2023. The pre-tax loss in fiscal 2024 caused unfavorable items to decrease the rate instead of increase it. The primary driver is related to the non-deductible executive compensation under Sec. 162(m). This limits deductions for compensation of covered executives to $1 million per individual.

Current wording

For the fiscal years ended March 31, 2025 and 2024, we recorded an income tax provision of approximately $5.7 million and $1.2 million, respectively. The increase to the income tax provision for fiscal 2025 is primarily due to the Company establishing a full valuation allowance against its net deferred tax assets. Our effective tax rate for the fiscal year ended March 31, 2025 was approximately (968.3)%, compared to approximately (19.0)% for the fiscal year ended March 31, 2024. The pre-tax loss in fiscal 2024 caused unfavorable items to decrease the rate instead of increasing it. The primary drivers of the rate are related to the increase in valuation allowance against the Company's net deferred tax assets, partially offset with the non-deductible executive compensation under Sec. 162(m) of the Internal Revenue Code. This limits deductions for compensation of covered executives to $1.0 million per individual.

Previous wording

Net (loss) income decreased by approximately $12.6 million, to a loss of approximately $7.5 million for the fiscal year ended March 31, 2024, from income of approximately $5.1 million for the fiscal year ended March 31, 2023. The decrease to net income was primarily related to increases in general and administrative expenses, and increased advertising expenses, partially offset by higher gross profit margins during the fiscal year.

Current wording

Net loss decreased by approximately $1.2 million, to a loss of approximately $6.3 million for the fiscal year ended March 31, 2025, from a loss of approximately $7.5 million for the fiscal year ended March 31, 2024. The decrease to net loss was primarily related to a decrease in general and administrative expenses, including the above-mentioned $8.7 million non-cash stock compensation reversal and advertising expenses, partially offset by a decrease in sales and gross profit, and an increase in the provision for income taxes during the fiscal year.

Previous wording

Our working capital at March 31, 2024 and 2023 was approximately $21.5 million and approximately $72.9 million, respectively. The $51.4 million decrease in working capital was primarily attributable to $36 million paid in fiscal year 2024 to acquire PetCareRx along with a decrease in income generated by operations and the use of cash to fund both the $5.3 million investments in the Vetster partnership and infrastructure and $4.5 million of property and equipment additions separate from the PetCareRx acquisition. Net cash provided by operating activities was $4.3 million and $27.8 million for the fiscal years ended March 31, 2024 and 2023, respectively. This change is primarily due to the loss from operations, partially offset by higher non-cash expenses combined with a net increase in accounts payable, and an increase in inventory separate from inventory acquired in the PetCareRx acquisition in the fiscal year ended March 31, 2024. Net cash used in investing activities was $40.7 million and $10.3 million for the fiscal years ended March 31, 2024 and 2023, respectively. This change in investing activities is related to the acquisition of PetCareRx, partially offset by lower investments in the Vetster partnership year-over-year. Net cash used in financing activities was $12.4 million and $24.5 million for the fiscal years ended March 31, 2024 and 2023, respectively, due to the payment of an aggregate $0.60 per share dividend in fiscal year 2024 and an aggregate $1.20 per share dividend in fiscal year 2023.

Current wording

Net cash used in investing activities was $5.1 million and $40.7 million for the fiscal years ended March 31, 2025 and 2024, respectively. This change in investing activities reflects the PetCareRx acquisition in the prior year.

Previous wording

We have paid cash dividends quarterly from August 2009 to August 2023. On February 1, 2024, our Board of Directors elected to suspend the quarterly dividend indefinitely. This move is intended to focus use of the Company’s cash flow on growth initiatives and other higher return initiatives. The Board of Directors reviews and discusses the capital allocation needs of the Company, at a minimum, on a quarterly basis. The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors. When considering whether to declare a dividend, our Board of Directors will take into account:

Current wording

We paid cash dividends quarterly from August 2009 to August 2023. On February 1, 2024, our Board of Directors elected to suspend the quarterly dividend indefinitely. This move is intended to focus use of the Company’s cash flow on growth initiatives and other higher return initiatives. The Board of Directors reviews and discusses the capital allocation needs of the Company, at a minimum, on a quarterly basis. The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors. When considering whether to declare a dividend, our Board of Directors will take into account:

Previous wording

On April 3, 2023, we closed on our acquisition of PetCareRx for aggregate cash consideration of approximately $36.0 million. At March 31, 2024 we had no material outstanding purchase or lease commitments. We are not currently bound by any long- or short-term agreements for the purchase or lease of property and equipment. Any material amounts expended for property and equipment would be the result of an increase in the capacity needed to adequately provide for any future increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future. Our primary source of working capital is cash from operations. We presently have no need for alternative sources of working capital and have no commitments.

Current wording

On April 3, 2023, we closed on our acquisition of PetCareRx for aggregate cash consideration of approximately $36.0 million. At March 31, 2025 we had no material outstanding purchase or lease commitments. Other than the lease commitments assumed as part of the PetCareRx acquisition for the leases on two buildings, we are not currently bound by any long- or short-term agreements for the purchase or lease of property and equipment. Any material amounts expended for property and equipment would be the result of an increase in the capacity needed to adequately provide for any future increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future. Our primary source of working capital is cash from operations. We presently have no need for alternative sources of working capital and have no commitments.