Greetings and welcome to PetMed Express Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Reed Anderson with ICR. You may begin.

Thank you, operator, and I'd like to welcome everybody here today to the PetMed Express fiscal second quarter 2025 earnings conference call. 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 matters, including any matter in respect of the operations or business or financial condition of PetMed's. PetMed's undertakes no obligation to update publicly these forward-looking statements based on subsequent events, except as may be required by applicable law, regulation or competent legal authority. We've identified various risk factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission. Now, let me turn the call over to our CEO and President, Sandra Campos. Sandra?

Thank you, Reed, and welcome to everyone joining our call this afternoon. Following my remarks, Robyn will provide a more detailed overview of our financial results, after which we'll open the floor to questions. I've been in the CEO role for six months and in that time we've sharpened our focus on core priorities and targeted operational initiatives, strategically expanding our vision to become a leader in consumer pet healthcare. Through our products and services, we aim to be essential partners for pet parents, supporting them and enhancing their pet's wellness and longevity. I want to reemphasize that our focus remains steadfast on the strategic, operational and financial initiatives that are pivotal to repositioning PetMed and PetCareRx for long term success. I am pleased to report several positive developments this quarter. We improved gross margin year-over-year and sequentially and achieved a $3.6 million sequential increase in adjusted EBITDA. Additionally, G&A operating expenses declined underscoring the impact of our cost reduction initiatives which are on track to deliver the $5 million in annualized savings as we communicated last quarter. These improvements contributed to an increase in net income and earnings per share and reflect our commitment to building a strong financial and operational foundation for long term growth. Beyond our financial progress, we've made significant strides on key priorities in our strategic plans with a strong focus on cost efficiency and operational excellence. First, our management team. With the addition of our new CFO, Robyn D'Elia, who joined in mid-September, our refreshed executive team is now complete. Robyn brings over 24 years of financial leadership experience from Bed Bath & Beyond, where she played a key role during sustained periods of exponential growth, helping the company expand from a regional retailer into a multibillion dollar national enterprise. Her expertise in financial…

Thank you, Sandra. I will now provide an update on second quarter fiscal year 2025 results for the period ending September 30, 2024. We welcomed approximately 77,000 new customers this quarter. Sales were $60 million compared to $71 million in the same period last year, a 16% decline reflecting continued consumer pressure as well as an intentional reduction in our marketing investment as we rebalanced for profitability. Gross Profit margin was 29.1%, an 80 basis point improvement compared to the prior year quarter and up 270 basis points sequentially. The year-over-year increase in the gross profit margin was primarily due to a favorable sales mix and lower discount activity. General and administrative expenses for the second quarter were $10.5 million versus $12 million last year, a 12.3% decrease. This year-over-year improvement was driven by a decrease in stock based compensation expense which was primarily related to an executive departure. Also contributing to the benefit were lower payroll and payroll related expenses and lower transaction processing fees partially offset by higher professional fees. Included as a benefit to G&A for the second quarter were sales tax settlements of $1.2 million and $1.3 million for this year and last year respectively. Our advertising expenses for the second quarter were $4.6 million compared to $5.5 million last year. On a gross spend basis, this 20% reduction reflects an intentional decrease in our marketing investment as we rebalanced for profitability and solidified our go-forward brand strategy. Net income for the second quarter was $2.3 million or $0.11 per diluted share compared to net income of $0.7 million or $0.03 per diluted share for the same period last year. The improvement in net income was mostly driven by a $1.4 million tax benefit in the latest quarter. Adjusted EBITDA of $2.1 million compared to $3.4 million in the prior year period and improved sequentially versus the $1.5 million adjusted EBITDA loss we reported in the first quarter, reflecting continued progress on cost reduction initiatives. Our balance sheet remains strong and as of September 30, 2024 we had $52 million of cash and cash equivalents and no debt. We would like to now open the call for questions and then after that Sandra will provide some concluding remarks. Operator?

[Operator Instructions] Our first question comes from Ryan Meyers with Lake Street Capital. Please proceed with your question.

Thanks for taking my questions. First one for me. I know you guys don't give guidance and aren't giving guidance, but if we think about the two consecutive quarters of double digit revenue decline, maybe how should we think about the growth rate for the second half of the year? Have you guys seen any sort of stabilization in the top line of the business? I know you're making a decent amount of marketing investments, but just directionally, how should we think about the growth rate in the second half of the year?

Yes, thanks Ryan for asking the question. So first of all, as we mentioned, we intentionally reduced the marketing spend, but we are pushing now going after full customer acquisition and that will happen in the third quarter, as well as the fourth quarter. That goes along from top of the funnel to the bottom of the funnel activities which will be brand awareness focused and transactional focused around all the products that we have, our key product differentiators and our key campaign for Q3, which will take us straight through the holidays. So as we look to the stabilization of where we are now, we focused on our lapsed customers, we focused on retaining customers, and now it's really about the new customer growth. So that's where we're pushing all of our marketing efforts starting in the Q3 time period and really accelerating that more so as we go into Q4, there'll be a substantial increase from Q3 going into Q4.

Okay, got it. And then thinking about gross margin for the quarter, obviously that came in pretty healthy. Should we kind of look at that as a sustainable rate going forward? Is there going to be any changes from Q3 and Q4? Maybe how should we think about where the gross margin came at for the quarter and how we should look at that for the rest of the year?

Yes. So gross margin for the quarter, as we indicated was up 80 basis points. But we're heading into a heavier promotional period, as Sandra indicated. And I think historically, if you look at our trending, it is - Q3 is a lower quarter from a gross margin perspective. So I think I would just kind of follow our trending in the past just knowing that we're going to more heavily invest in our marketing.

Got it. And then last question for me. Thinking about kind of some of the macro dynamics impacting the business. Walk us through that, is it just you're not seeing as many customers maybe ordering as many products as they have before. Customers are ordering products from a different competitor. Just kind of walk us through those.

Sure. The customers feel very pressured. That is something that we're seeing consistently, whether it's through the visits that we have and the time they're spending on the site or the comments and questions and ask for promotional codes as they're coming onto our customer call center site. Additionally, when we do have promotions and it has been a very heavily promotional environment, if you look at just across our competitive set, that's when we actually have a lot more conversion during those time periods. So we know the customer is showing us and telling us that they are looking for more promotional codes and more heavily discounted products. So that we're definitely seeing, we do believe, and we continue to speak with not only our veterinary advisory board, but also within our own pharmacy and the calls that we're getting from both veterinary clinics as well as the customers that there are not as - they're not as compliant as they've been in the past as it relates to the medication and they are reducing frequency to the veterinary clinics overall. So that is definitely impacting us a bit more. But that's why we're focusing now on the new customer growth and the new customer acquisition.

Great. Thank you for taking my questions.

Thank you.

This concludes the question-and-answer portion of our call. I will now turn it back to Sandra for closing remarks.

Thank you. And thank you for your time and interest in PetMed's and PetCareRx. We really appreciate your support. Although we're still in the early stages of our transformation, as I mentioned, we have made steady and measurable progress on many of the key initiatives discussed today that will improve customer experience, drive new customer growth and improve profitability. I want to thank all of our employees for their commitment and the dedication to our core mission, their ongoing passion for pet health and wellness, and their understanding and rapid execution of our new priorities. We do look forward to updating you on our progress during our next conference call, and we thank you very much.

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