Good afternoon, everyone, and thank you for joining the PetMed Express First Quarter Earnings Conference Call. My name is Camilla and I will be the Operator for today's call. I would now like to pass the conference over to our host, Mr. Brian Prenoveau, with Investor Relations. Sir, the floor is now yours.

Thank you, Operator. I'd like to welcome everybody here today to the PetMed Express Fiscal First Quarter Earnings Call. I would also like to remind everyone that the first portion of this conference call will be listen only until the question-and-answer session, which will be later in the call. 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. 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 and other filings with the Securities and Exchange Commission. Also, during the course of today's call, the company will be discussing one 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 are looking forward to sharing our operational advancements and financial achievements with the investment and analyst community. First, we will provide an overview of our business progress since our last update on May 18, 2023. This will offer insights into the significant developments and milestones achieved during this period. Second, we will provide a summary of our quarterly financial results, including a detailed analysis of our financial performance. PetMeds is a company that delivers prescription and nonprescription medications, food, supplements, supplies and vet services direct to the consumer. Our expert online pharmacy is an established and trusted brand, as evidenced by the fact that we have served more than 11 million pet parents over our company's 27-year operating history. While we have a loyal customer base of pet parents who value our brand service and quality, we believe our company and this industry can provide even more to the millions of pet parents across the country. As such, our goal is to be the market leader in pet wellness and health care or as we like to say, the trusted pet health experts because we believe every pet deserves to live a long, happy, healthy life. Next slide, please. Since April, we have been fully engaged in integrating our latest acquisition, PetCareRx, into the PetMeds family, a significant milestone for our organization. This acquisition presents a compelling opportunity for us to expand our product catalog and capitalize on the many synergies between PetCareRx and PetMed. By leveraging the PetCareRx catalog, we can offer a broader range of products to our PetMed's customer base. This strategic move aligns with our core investment thesis and positions us for further growth and success. Since its inception,…

Thanks, Matt. I'm delighted to report our Q1 fiscal year 2024 results for the quarter ending June 30, 2023. This will be the first quarter of combined results, including the acquisition of PetCareRx compared to PetMeds only in Q1 fiscal year 2023 and the prior quarter. The PetCareRx acquisition closed on April 3, 2023, and the consolidated results reflect almost the full quarter of PetCareRx performance. First quarter sales were $78.2 million compared to sales of $70.2 million in the same period last year, growth of 11.5%. The growth year-over-year was due to incremental sales from the combination of PetCareRx as well as growth in PetMed's new customer sales with a slight offset in PetMed's reorder sales, which is continuing to stabilize. As Matt previously mentioned, we continued our trend of net new customer growth year-over-year. We welcomed approximately 86,000 new pet parents this quarter compared to 69,000 in the prior year. This represents new customer growth of 25% year-over-year. In addition, reorder sales of $68 million for the quarter, increased 7% compared to the reorder sales of $63.3 million in the same period last year. With the acquisition of PetCare, we also added $2.4 million of revenue associated with our PetCareRx membership programs, which provide bulk wholesale offerings, a diverse product range and an emphasis on value and savings for its customers. We have continued to grow our recurring revenue, including AutoShip & Save sales and PetCareRx membership sales as a percentage of total sales. This drives greater engagement and strengthens our recurring sales base. As Matt mentioned, recurring sales as a percentage of total sales was 49% in the quarter, up 5% sequentially and up from 34% compared to the same period last year. Gross profit for the quarter as a percentage of sales was 28.8% compared to…

Thank you, Christine. The upcoming fiscal year holds significance for PetMeds as we transition into a growth-focused business. Our goal is to deliver healthy top line revenue growth while maintaining relative stability in fixed costs. We anticipate achieving operating leverage as we scale our revenue. As I have previously emphasized, investors should expect our management team to remain intensely focused on integrating our recent investments and executing on our strategic vision. We are confident that we've assembled the necessary components to deliver sustainable long-term growth and profitability. At PetMed, we are highly optimistic about our growth strategy and future performance. We are enthusiastic about the strategic direction we are pursuing as a premium specialty retailer brand. We firmly believe that the expansive pet market offers ample opportunities for us to navigate and thrive by providing distinctive solutions for pet parents. As we have consistently emphasized, our aim is to become the trusted pet health expert for pet parents. Over the past year, we have shared our growth strategy with you, and we have made substantial progress in building a resilient, profitable and continually growing pet health company. With that, we conclude our prepared remarks. Operator, we are now ready to address any questions you may have.

[Operator Instructions]. Our first question comes from the line of Ryan Meyers with Lake Street Capital Markets.

First one for me. I'm just curious, if we strip out the PetCareRx business, what did the legacy business or revenue for the legacy business looked like during the quarter? And how have you seen kind of further stabilization there?

Ryan, this is Matt. I'll take that -- that answer, and then Christine, feel free to jump on if I don't cover it in the detail that's required. Ryan, just to step back from the question, we've really made, as you know, an effort to consolidate the PetCareRx and PetMed's financials, primarily for 2 reasons. One is we're running the PetCareRx business as an integrated part of the business from an operating perspective, but also PetCareRx is really a mini version of PetMed, has the same unit economics. We've talked about similar gross margin. So that's how we kind of think about it. And then two, we think about PetCareRx from an acquisition thesis perspective is really delivering on an unlock for catalog expansion. As you know, PetMeds has a very high concentration in medication sales and very little in everything else, including food and other largely popular consumables. And so we think about PetCareRx as a natural extension of the business. That said, we have talked about PetCareRx as being the majority step-up of improvement year-over-year in the business. And then we called out net new customer growth for PetMeds and PetCareRx, but we can say that PetMeds did experience on a stand-alone basis year-over-year growth. And kind of the heart of your question is the stabilization of the returning base, Ryan. We're feeling that the returning base is much more stabilized than it has been, especially since when I started a couple of years ago. And that's kind of how we think about the business from a consolidated perspective. And really, our eye is towards selling more products to the same customer utilizing that PetCareRx catalog and Christine, I don't know if there's anything else you'd like to add to that?

I think you captured it, Matt, on the top line. And as you know, Ryan, we are bringing the 2 companies together, like Matt mentioned, in a way that we're looking to drive cost synergies over time as well. So that's just something to consider as we bring those 2 companies together that really operating as 1 entity.

Got it. That's helpful. And then, obviously, I know it's only been a quarter with the PetCareRx acquisition. But is there any way to quantify sort of the cross-selling revenue that you guys have been able to see or how you kind of expect that to play out over the next couple of quarters?

Yes. So I think, Ryan, in terms of the -- as Matt said, we're really thinking about the levers that we have between the 2 businesses and operating them as you know, we're very focused on driving the expanded catalog onto our PetMeds customers, and I think we'll see the growth associated with that over time. Matt, do you want to add anything?

Yes. I think the natural extension of that will be larger LTV for our customer base. In previous earnings calls, we get a lot of questions around average order value. you actually don't think average order value would be the best metric to follow because when we do our job successfully with getting more repeated purchases outside of the [ irregular ] prescription refill cycle that we're on, AOV could actually vary quite a bit. And again, the measure for us long term will be LTV growth over time. The last thing I would say is we just started successfully integrating large swaths of the PetCareRx catalog, like we said on the call, including the Purina line of products, which we didn't have access to up until just a couple of months ago. and it just recently went up on our site several weeks ago. So it's early days, but we're already seeing traction on our ability to cross-sell and upsell different products. So stay tuned, but we think that the best measure will be LTV.

And our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company.

So just first, as a follow-up just to clarify. So on Slide #5, you guys talked about reorder growth of 7% year-over-year. But then I think Christine, when you got on, you said that there was a slight offset in the reorder of sales. So I'm just trying to put the two together. I don't know if you were talking about the core business or the legacy business being down? Just wanted to get more clarity on that, please?

Yes. Anthony, thanks for the question. So we did talk about on the PetMeds new customer base growing. And obviously, the majority of the growth from the quarter around the combined PCRX acquisition. What I did also mention is that the PetMeds returning base. And again, we are looking at this very much on a combined basis. But specific to the PetMeds returning base, we did see a slight decline, and that's the base that we continue to focus on, and we see as starting to -- that decline starting to stabilize. So it was specific to that business. But like I said and Matt mentioned earlier, we are looking at the results more on a consolidated basis, and that's where you're seeing that 7% reorder sales growth.

Okay. So are you -- so far, you're 1 month into the second fiscal quarter, have you seen signs of continued stabilization? Or can you give us an early readout as to what you're seeing so far? I mean, obviously, the summer is peak time for flea and tick medications and just wondering if you could comment on what you're seeing thus far into the second quarter?

Yes. I think we see -- Anthony, we're very much looking at this on -- like I said, on a combined basis, I think the PetMeds business is the returning base. We're really excited about the expanded catalog, how that expanded catalog continues to drive additional reorder sales and then enables that [ headed ] space to grow over time. We're really focused on increasing that wallet share of the existing PetMeds space and other existing PetMeds returning orders and seeing that change in the trajectory over time based on that expanded catalog that we're really focused on at this stage.

Okay. Got you. And then in terms of the synergies, can you expand on that? And maybe -- just maybe talk a little bit more in terms of the timing? And is this mostly on gross margins? Or do you think you can achieve some operating expense synergies?

Yes, it's a good question. We very much see similar unit economics, gross margin assumptions across both businesses. I think where we'll expect to see improvement in the bottom line entity over time is the cost synergies that improve SG&A as a percentage of revenue. As we've mentioned, these businesses are very similar in that as we're bringing some of those operations together. And also, we see this expansion of LTV without a huge increase in CAC. And so we'll, like Matt mentioned, very much focused on that LTV to CAC ratio over time as we see the expansion of the catalog. And then separately, the SG&A improves over time based on those cost synergies across vendor relationships and efficiencies that we're driving across our operations.

Got you. Okay. And then my last question, I know you guys declared the dividend. Just do you have any updated thoughts on how investors should think about the dividend? Or is just kind of more of the same as you talked about on your last call?

Yes. The dividend is always something that we think about as well. We do think there are opportunities for growth and investment. And we believe as we turn in the corner to being -- or as we are now a growth company, we have shown year-over-year growth for the first quarter. And I think as we drive momentum, over more than one quarter. There could be a scenario, whereby we see higher returns from using free cash flow for reinvestment versus paying the dividend. And so we're always looking at the balance for the need -- the capital allocation need for capital to fuel growth. So I think there'll be more to come.

Our question-and-answer session portion of the call has ended. I would like to now turn the call back over to Matt Hulett, the company's CEO, for his concluding remarks.

Thank you for joining our call today, and I'm confident that the future we envision for PetMed 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. PetMed's 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 and pets. Thank you for your continued support.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.