Good afternoon, everyone, and thank you for joining the PetMed Express third quarter earnings conference call. My name is Doug, the operator for today's call. I would now like to pass the conference over to our host, Mr. Brian Prenoveau, Investor Relations. Sir, the floor is now yours.

Thank you, operator, and I'd like to welcome everybody to the PetMed Express Fiscal Fourth Quarter Earnings Call. [Operator Instructions] Also, certain information that will be included during this call may include 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 to 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 and other filings with the Securities and Exchange Commission. Also, during the course of today's call, the company will be discussing 1 or more non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release we issued this afternoon. Now let me introduce our CEO and President, Matt Hulett. Matt?

Thank you, Brian. Thank you for making the time today to participate in our earnings call. We will be walking you through the following components in today's earnings call: one, reflections in the last 12 months; two, an update on our strategic road map, including our recent acquisition of PetCareRx; and three, a detailed review of our quarterly financial results. For anyone new to the PetMed Express company and story, PetMeds is a company that delivers prescription and nonprescription medications, food, supplements and supply and provides access to vet services and pet insurance direct to the consumer. Our expert online pharmacy is an established and trusted brand, as evidenced by the fact that we have served over 11 million pet parents over our company's 26-year operating history. We have a loyal customer base of pet parents that value our brand, service and quality. Our goal is to be the market leader in pet wellness and health care or as we like to say, be the trusted pet health experts because we believe every pet deserves to live a long, happy, healthy life. As we mentioned on previous earnings calls, PetMed is in a rebuilding mode. We have reconstituted the company with an updated strategy, a new and experienced management team and a revised overall approach to the market. We've accomplished a great deal over the course of the past year. And most recently, completed the acquisition of PetCareRx. This acquisition represents the first in the company's history, and we believe it will be transformative. The acquisition immediately provides notable benefit including an increase to our top line, but more importantly, it brings a significant opportunity to expand the PetMeds product catalog. We now have the distribution capabilities in place, to provide enhanced products and offerings to existing and new customers…

Thanks, Matt. I'm going to discuss this most recent quarter and provide an update on the tax liability we mentioned last quarter. First, let me turn to our financial results for the quarter ending March 31, 2023, our fourth fiscal quarter. My remarks will compare this year's quarterly results to the same quarter last year. Fourth quarter sales were $62.4 million compared to the sales of $66 million in the same period last year, a decrease of 5%. As Matt mentioned, we continued our trend related to net new customer growth year-over-year. We welcomed approximately 72,000 new pet parents this quarter compared to 65,000 in the prior year, representing growth in excess of 12% year-over-year. However, repeat sales of $56 million for the quarter decreased 6% compared to the same period last year. We continue to see contraction in the over-the-counter medication market, in line with the macro trends seen across the industry that Matt discussed earlier. To put a finer point on this, our largest percentage decrease was from the flee and tick over-the-counter medication category. This last quarter experienced a large amount of price discounting in online and off-line retailers. OTC medication has become an increasingly smaller percentage of PetMeds' overall sales. We've seen continued growth of our AutoShip & Save sales as a percentage of total sales, driving greater engagement and recurring revenue. This will help strengthen our repeat sales base. As Matt mentioned, AutoShip & Save sales as a percentage of total sales was 44% in the quarter, up from 42% last quarter and from 31% in the same period last year. Gross profit for the quarter as a percentage of sales was 27.9% as compared to 29.4% for the same quarter last year and 25.9% for the prior quarter. Last quarter, we leaned into deeper…

Thanks, Christine. This next fiscal year for PetMeds will be important for the company. We expect to show growth in new customers as well as a stabilized recurring sales base, but most importantly, healthy top line revenue growth while keeping our fixed costs stable. We expect to get leverage in our P&L as we add revenue scale. Investors shouldn't expect to hear a lot about new inorganic activity because the company has been so active of late. Management will be focused on operational execution that includes integrating our recent partnerships and investments. We believe that we have assembled the components to deliver long-term growth and profitability. For this upcoming quarter, PetMeds is feeling more comfortable around our growth strategy and visibility into our future performance. We like the strategy that we are pursuing as a premium specialty retailer brand. We strongly believe that there is room to navigate and thrive in a large addressable tech market with a set of strong differentiated solutions for pet parents. As we have said in previous calls, we aim to be pet parents' trusted pet health expert. We've been sharing our growth strategy with you for a little over a year, and we have substantially filled in the pieces to build an enduring, profitable and growing pet health company. To be crystal clear on those measures, year-over-year customer growth, continued recurring revenue, expect to see continued progress on our AutoShip & Save program. In addition, we are excited about our new wholesale membership product called PetPlus, which we now operate as part of the PetCareRx acquisition. More diversification beyond medication. PetMeds now has a more diversified catalog of premium food, vet services and insurance. We believe there are great opportunities to expand wallet share, LTV and overall customer engagement and satisfaction. We have checked those boxes, and now we're adding a new one. That being meeting and exceeding market growth rates for the entire PetMeds business. Management is feeling good about our momentum going into this current quarter and beyond. We are making great progress integrating our new team at PetCareRx as well as the other investments that we have made over the last several quarters. We are confident that investors will see improved revenues with recovering leverage in the income statement in the coming quarters. Lastly, we have a strong balance sheet that provides us with the financial flexibility to take advantage of a large and growing market. This ends our prepared remarks. Operator, we are now ready to take questions.

[Operator Instructions] Our first question comes from the line of Corey Grady with Jefferies.

I wanted to follow up on your comments about flea and tick season. So you reported Q4, up 6% sequentially on an easier comp of last year and it's -- now that's quite a bit below your typical seasonality. So maybe you can add more color on what impacted the quarter. I mean how much of that was due to the OTC contraction? And were there any other factors that contributed to the softness?

Corey, yes, as I indicated on the call, majority of that decline was the over-the-counter flea and tick medication as a percentage of the decline. And as we noted, that was largely due to off-line and online price discounting that was quite excessive this season. Conversely, the Rx side of the business, which continues to be the highest concentration of where we focused sees less discounting and less price pressure, and that obviously has higher gross margins. So for us, we decided not to contribute and really compete in lower price discounting in OTC flea and tick. So that kind of explains some of that decline year-over-year, Corey?

All right. That's helpful. And then I wanted to just ask about the dividend. So with earnings this quarter and closing PetCareRx, can you talk about your priorities for cash and how you're thinking about your capital return strategy here?

Cory, it's Christine. And thanks for the question. As we always review the dividend on a quarterly basis, and we're really feeling strongly about our ability grow the business from some of the declines that we've seen. And I think over the long term, management wants to show those signs of the repeated -- the repeatable growth. And over time, we feel stock appreciation, the growing company will generate free cash flow that will deliver higher returns to investors. So I think we'll continue to evaluate it, but we definitely take a broader approach to it.

[Operator Instructions] Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company.

So just a follow-up on Q4 sales. Was there any noticeable impact do you think from the weather? Obviously, that does influence the timing of when people purchase flea and tick medication. So just want to get your thoughts on that.

Anthony, this is Matt, obviously. No less so on weather and more so on the over-the-counter flea and tick medication trends in terms of price discounting had a more pronounced impact to the sales side of the business. However, we are feeling better, management feels a lot better around the stabilization of PetMeds in this quarter and as well as PetCareRx integration. So we're feeling good about the stabilization of PetMeds. And like I said, more and more of the business has been more Rx focused. So we haven't seen those trends per se, reflected in the core prescription refill Rx business for PetMeds.

Got you. Okay. And then going back to the third quarter, your gross margin was hit somewhat because you reactivated some dormant customers with some promotions. So as that happened -- so now that we're ready actually now more than halfway done with the first quarter here. So in terms of those reactivated customers, have you seen anything as far as those customers going back and purchasing products from PetMeds?

Great question. First off, it was great to see that trend continue. We had 2 quarters of sequential net new customer growth, which is a trend we broke that hadn't been really a trend that we've seen for a couple of years in terms of net new customer growth year-over-year. Secondarily, as you know, PetMeds traditionally has been a low engagement platform, primarily focused on Rx prescription refill. And so it's going to be a little bit of time until we get other more highly consumable products like food, prescription food, premium food onboard to see those trends, but early indicators are that the customers that we reactivated was a good strategy. And lastly, I'd say the ability for us to be marketing efficient has made us a little bit more confident that we don't have to discount as aggressively to get these customers back onto the platform. So those 3 things combined make us feel pretty good about where we're spending our media dollars and how we're effectively bringing back lapsed customers.

Got you. Okay. And then as far as PetCareRx talked about operational synergies. So now that you've already acquired the company for a few weeks since the beginning of April, in terms of those operational synergies, can you expand on that? And then compared to your original announcement from back in January, are you seeing an opportunity for greater operational synergies that you would have expected at first? Or how should we think about that?

That's a great question. So it's like 3 things in there that I'd like to say. One is the team at Tech-Rx is phenomenal. We've had a really great time and an easier time integrating that team and getting them all kind of coordinated across the board. So in terms of activating a team, which I would call the most important aspect to an acquisition exceeded our expectations. In terms of revenue and cost integration, I'd say on the revenue side in terms of getting more size and scale benefits for things like cooperative advertising and things like that related to our overall increase in scale due to PetMeds plus PetCareRx, I think we're doing a really good job there. That was maybe happening a little bit more quickly than we anticipated. And on the cost side, we're doing a really good job of looking at ways in which we can streamline operations. So overall, I think we're really pleased with how it's going thus far and that we have managed 2 teams with 2 different brands, maybe a little bit better than expectations in terms of integration. So it's really great to see that team in New York really, really embrace the PetMeds culture. And we, in turn, at PetMeds have really embraced PetCareRx. So we're really, really optimistic about this.

There are no further questions in the queue. I'd like to hand the call back to Mr. Hulett for closing remarks.

Thanks, operator. Thank you for joining our call today. I'm confident that the future we envision for PetMeds along with the foundation that we've been laying will meet the market opportunity in unique and innovative ways. And will lead to increased operating results and shareholder value. PetMeds' brand expertise and reputation are unparalleled. We have greatly accelerated our operating road map, and we look forward to sharing our progress as we go to market with products and services that positively change the lives of our pet parents impact. Thank you for your continued support.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.