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. 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.
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 non-prescription 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 healthcare, 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 PetMeds. By leveraging the PetCareRx catalog, we can offer a broader range of products to our PetMeds customer base.
This strategic move aligns with our core investment thesis and positions us for further growth and success. Since its inception, PetMeds has focused primarily on pet medication refills, and PetCareRx accelerates our plan to improve the legacy PetMeds business. Our aim is to enhance our merchandising capabilities and expand our product offerings with a particular emphasis on consumables, while continuing to leverage our core expertise in pet medication. This evolution will meet the broader needs of our customers and will strengthen our market position as a comprehensive pet care provider. So far, our efforts are yielding encouraging results. Since completing the acquisition, we have undertaken a thorough data optimization process, ensuring that our AI-based site recommendation engine is fully optimized to suggest relevant non-prescription products to our customers.
Furthermore, we've enhanced the site experience for our valued returning customers, encouraging them to purchase additional products personalized to their individual pet's needs. In addition, our newly designed checkout process provides a seamless and convenient experience, further bolstering customer satisfaction and loyalty. In line with our commitment to providing services from nose to tail, we have begun integrating the PetCareRx catalog into our operations, including our distribution facilities. As part of the PetCareRx product integration, we now offer the complete food line of Purina products, including its prescription food line. Purina is one of the largest pet food product companies in the world. The Purina product line ranks in the top ten best-selling brands for PetCareRx, and by integrating the PetCareRx product offering, we have extended this world-class brand to our PetMeds offering for pet parents...
Purina's focus on pet health and providing options that help with pet allergies, weight management, joint health, and immune support, among other targeted health benefits, aligns so well with our goal to be the market leader in pet wellness and healthcare. We will start to see other benefits from the unification of PetMeds and PetCareRx. As an example, we have started to leverage our combined buying power and believe we will be able to deliver lower costs to our customers on a per-unit basis. Operationally, we have spent considerable time and focus on upgrading internal systems and controls. We completed the migration of our legacy email system to a modern, cutting-edge platform. This transformation unlocks new marketing capabilities, enabling us to engage with our customer base more effectively. Through targeted and personalized communication, we will be able to provide better product and service recommendations.
We believe that with the combined purchasing power, coupled with our meticulous identification and execution of cost synergies, we are well on track to deliver on our objective of PetCareRx becoming Adjusted EBITDA accretive before the end of our fiscal year. This achievement underscores our commitment to creating value for our shareholders and maximizing the potential of this strategic acquisition. Next slide, please. As we mentioned on previous earnings calls over the last year, PetMeds has been in a rebuilding mode. The strategic transformation that we charted, encompassing both organic and inorganic investments, is aimed at positioning PetMeds for long-term success, enhancing our operational capabilities, expanding our product portfolio, and ultimately creating sustainable value for our shareholders. Today's call marks a slightly different tone from previous calls.
PetMeds has undergone rapid changes over the past two years. We firmly believe in the path we have chosen as a premium specialty retailer brand. We have been deliberate in the execution of our strategy, as well as in the consistency and transparency of our external communication, to ensure that our stakeholders are well-informed about the essential criteria that serve as performance indicators for our transformation into a growth-oriented business. These indicators are year-over-year increases in new customers, continued gains in recurring revenue, more product and service diversification beyond our core medication expertise, meeting and exceeding market growth rates for the entire PetMeds business. These performance indicators serve to guide us as we navigate our journey towards becoming a thriving, growth-focused company.
I am thrilled to share the exciting news that this quarter signifies a re-acceleration in our company's trajectory, including early signs of promise in our ongoing business transformation. It is important to note that a business transformation is an ever-evolving process, particularly in the early stages. Today I am delighted to announce that we have successfully positioned ourselves as a growth business, meeting the 4 key performance indicators as previously outlined. I would now like to summarize some of the key business and financial highlights for the quarter. As a reminder, this includes the full quarter of results for PetCareRx. Number 1, we had record-setting year-over-year revenue growth. Number 2, both new and returning customers increased year-over-year. New customers grew consecutively for three quarters in a row, which is a turnaround from a 2.5-year decline.
Number 3, reorder sales are now $68 million, or 87% of our business, which represents growth of 7% year-over-year. Number 4, we are launching our new insurance product in the market in conjunction with our insurance partner, Pumpkin Insurance, next month. While our CFO, Christine Chambers, will delve into a more comprehensive analysis of our quarterly financial performance later in the presentation, I would like to provide a glimpse of some notable financial highlights. For the quarter ending June 30th, 2023, sales were $78 million, compared to sales of $70 million in the prior year, an 11% increase year-over-year, as a result of the combined sales of our recent acquisition of PetCareRx, as well as a more stabilized core PetMeds business. Furthermore, I am pleased to share positive results pertaining to our new customer base.
In the quarter, we achieved approximately 86,000 new customers, representing a 25% year-over-year increase. This marks the third consecutive quarter of net new customer growth, decisively breaking the trend of declining net new customers since Q1 of 2021 and propelling us into our next chapter of growth. This notable achievement is attributed to the continued growth of PetMeds' new customer acquisition efforts, combined with increased reach from the PetCareRx acquisition. New customer acquisition efficiency metrics remained in line with our expectations. Customer lifetime value to customer acquisition cost for the quarter stood at 2.0, affirming our commitment to optimizing our marketing investments. We are delighted to report sustained improvements in the subscription part of our business. Our AutoShip & Save program has continued to expand.
During the first fiscal quarter, 49% of our revenue was derived from recurring sources through our AutoShip subscription and PetPlus membership programs, marking a significant increase from 34% for the same period last year. Lastly, I want to share our excitement regarding the emerging opportunity in pet insurance. As one of the fastest-growing non-medical pet services, pet insurance is projected to continue its upward trajectory. According to the North American Pet Health Insurance Association, a mere 4.4 million pets were insured in 2021, which accounts for less than 5% of the total pet population. Recognizing this as a significant untapped opportunity, we envision that the introduction of our insurance product, in partnership with Pumpkin Insurance, will be viewed as a valuable offering by our expansive community of over 2 million pet parents.
We plan to launch this new insurance offering within the next quarter, further solidifying our commitment to comprehensive pet care solutions. Turning to Slide 6. Over the past several quarters, we've extensively discussed our strategy and future direction. PetMeds is undergoing a transformation from being a prominent pet medication retailer to positioning itself as the foremost authority in pet healthcare, a market leader in expertise on pet well-being. Our goal is to become every pet parent's go-to destination for holistic health and wellness from nose to tail. To recap, our pet healthcare strategy revolves around 4 key pillars: medication, care, nutrition, and wellness. PetMeds has long established itself as one of the largest and most trusted pet pharmacies in the United States. Our logistical expertise enables us to facilitate and authorize millions of prescription orders annually, bridging the gap between veterinarians and pet parents.
The acquisition of PetCareRx represents a significant growth opportunity for PetMed Express, as we are now actively working on introducing premium and prescription food to our extensive base of over 2 million pet parents. In terms of care, we recognize the potential of the nascent pet telemedicine market as a substantial opportunity as regulations continue to evolve. We have closely observed the shifting regulatory landscape, with more and more states embracing pet telemedicine. Today, we offer our full telemedicine product in over 25 states. Starting in September, we will offer telemedicine in Arizona, with Florida, Colorado, and California expected in Q4. These new geographical areas present untapped markets encompassing a combined population of nearly 150 million people, with 75% of them being pet owners in need of care for their pets.
Our partnership with Vetster is an important element of our growth strategy, as it has enabled PetMeds to become the first pet retailer to offer pet telemedicine to pet parents on a larger scale. This important and strategic bet will continue to evolve alongside regulatory changes, consumer education, and awareness. To further enable our pet parents towards accessing care and achieving wellness for their pets, we are excited to soon be able to offer pet insurance. Our partnership with leading insurance company, Pumpkin Insurance, which is now majority-owned by JAB Holdings, will bring incremental value to our customers and will bring incremental profitability to PetMeds over time. We consider these four pillars, medication, care, nutrition, and wellness, crucial in establishing a unique preferred brand and experience for pet parents everywhere, positioning ourselves as their go-to destination.
We are now better positioned to offer our over 2 million pet parents more health options than ever before. We have a wider variety of premium prescription food, health food options, and supplements. Pet parents can book a vet telemedicine appointment on our website. Starting soon, through our partnership with Pumpkin Insurance, we can soon begin offering health insurance for our furry family members. Now I'd like to hand the presentation over to Christine.
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. PetCareRx acquisition closed on April 3, 2023, and the consolidated results reflect almost a full quarter of PetCareRx's 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%. 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 PetCareRx, 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 28.4% in the same quarter last year, and 27.9% in the prior quarter. G&A increased $6.4 million year-over-year, in part due to the combination of PetCareRx and an increase in payroll expenses from new hires made in fiscal year 2023, as well as $1.1 million in acquisition costs. Since the acquisition, PetCareRx has benefited from improved supplier terms and direct manufacturing relationships, driving synergies and improvements to gross margin.
In addition, we are combining operating procedures and teams that naturally drive G&A cost synergies and more efficient processes. Net loss for the first quarter was $900,000, or $0.04 per diluted share, compared to net income of $2.8 million or $0.14 per diluted share for the same period last year. Excluding the acquisition-related costs, net income would have been $200,000 or $0.01 per diluted share. Adjusted EBITDA for the quarter was $3.3 million, compared to $6.3 million in the same quarter last year. Increased gross profit and other income of $2.9 million was offset by $5 million of higher Adjusted EBITDA expenses, excluding non-operating items and $900,000 higher advertising expenses. Turning to Slide 9, we ended the quarter with $61.5 million of cash on our balance sheet and no debt.
This takes into consideration that on April 3rd, 2023, we paid $63 million in cash for PetCareRx. Over the long run, management remains committed to driving total shareholder return. We have declared a $0.30 cash dividend in June this year at the same level as prior quarters. As always, we will continue to balance the need for capital to fuel growth opportunities with the payment of dividends. Our business continues to perform well with a more stable PetMeds core business that continues to build recurring revenue through a growing customer base, combined with our recent acquisition of PetCareRx. For the balance of the year, we will continue to focus efforts on setting up the expanded product catalog, which will drive future organic growth.
Operating synergies continue to provide us with opportunities to improve margins, and in the longer term, we believe in value creation from adding differentiated services with our Vetster and Pumpkin partnerships, with a more immediate upside to our PetMeds business through expanding our wallet share through selling food on a broader assortment of consumables. I will now turn the call back over to Matt for some concluding remarks prior to Q&A.
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 PetMeds, 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.
Thank you. To ask a question, please press Star one on your phone. Please note that you may not be able to ask a question if you are listening via the webcast. You must dial directly into the call in order to ask a question. One moment please, while we poll for questions. Thank you. Our first question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please proceed with your question.
Hey, guys. Thanks for taking my question. 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 look like during the quarter? How have you seen kind of further stabilization there?
Hey, Ryan, this is Matt. I'll, I'll take that that answer, then Christine, feel free to jump on if I don't cover it in the detail that's required. Ryan, you know, just step back from the question. You know, we've really made, as you know, an effort to consolidate the PetCareRx and PetMeds financials, primarily for two reasons. One is, we're running the PetCareRx business as an integrated part of the business from a operating perspective, also PetCareRx is really a mini version of PetMeds, has the same unit economics. We've talked about similar gross margins, so that's how we kinda think about it. Then two, we think about PetCareRx from an acquisition thesis perspective, as 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. We think about PetCareRx as a natural extension of the business. You know, that said, we have talked about PetCareRx as being the majority step up of improvement year-over-year in the business. We called out net new customer growth for PetMeds and PetCareRx. We can say that PetMeds did experience, on a standalone basis, year-over-year growth. Kind of the heart of your question is the stabilization of the returning base, Ryan. You know, 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. That's kinda how we think about the business from a consolidated perspective.
Really, our eye is towards selling more products to the same customer, utilizing that PetCareRx catalog. 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, on the top line. You know, as you know, Ryan, we are bringing the two companies together, like Matt mentioned, in a way that, you know, we're looking to drive cost synergies over time as well. That's just something to consider as we bring those two, the two companies together, but really, operating as, as one, one entity.
Got it. That's helpful. 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 quarters?
Yeah. I think, Ryan, in terms of the, as Matt said, we're really thinking about the, the levers that we have between the two, the two 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, we'll see the growth associated with that, with that over time. Matt, do you want to add anything?
Yeah. I think the natural extension of that will be larger LTV for our customer base. In, in previous earnings calls, we get a lot of questions around average order value. We actually don't think average order value would be the, 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, could actually vary quite a bit. 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, you know, a couple of months ago.
It just recently went up on our site several weeks ago. It's early days, but we're already seeing traction on our ability to cross-sell and upsell different products. Stay tuned, but we think that the best measure will be LTV.
Great. That's helpful. Thanks for taking my question.
Thanks, Ryan.
Thank you. Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.
Good afternoon, thank you for taking the question. Just first, as a follow-up, just to clarify: on slide 5, you guys talked about reorder growth of 7% year-over-year. I think when Christine, when you got on, you said that there was a slight offset in reorder sales. 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.
Yeah. Hi, Anthony, and thanks for the question. We did talk about 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 that decline starting to stabilize. It was specific to that business. 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. Thank you for that. So far, you're one month into the second fiscal quarter, have you seen signs of continued stabilization, or, or can you give us an early read as to what you're seeing so far? I mean, obviously, the summer is, you know, peak time for flea and tick medications. Just wondering if you could comment on what you're seeing thus far into the second quarter.
Yeah, I think we see, you know, Anthony Lebiedzinski, we, we're very much looking at this on a, a, like I said, on a, 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, you know, that PetMeds base to grow over time. We're really focused on increasing that wallet share of the existing PetMeds base and of those existing PetMeds returning orders and seeing that change in the tra-trajectory over, you know, over time, based on that expanded catalog that we're really focused on at this stage.
Okay, gotcha. Then in terms of the synergies, can you expand on that? Maybe, you know, just maybe talk a little bit more in terms of the timing, and is this mostly on gross margins, or you think you can achieve some operating expense synergies?
Yeah, that's a, that'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, Anthony, 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, you know, as we're bringing some of those operations together, and also, you know, we see this expansion of LTV without, you know, a huge increase in, in CAC. So we'll, like Matt mentioned, very much focus on that LTV to CAC ratio over time, you know, as we see the expansion of the catalog. Then separately, the SG&A improve over time based on those cost synergies across, you know, vendor relationships and efficiencies that we're driving across our operations.
Gotcha. Okay. My last question. I, I know you guys declared the dividend. Do you have any updated thoughts on how investors should think about the, the dividend, or is it just, just kind of more of the same as you, as you talked about on your last call?
Yeah, the, you know, the dividend is always something that, we, we think about as well. You know, we do think there are opportunities for growth and investment, and we believe, you know, as we're turning the corner to being, or as we are now a growth company, we have shown, you know, year-over-year growth for the first quarter. 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. We're always looking at the balance for the need, the capital allocation need, for capital, capital to fuel growth. I think there'll be more to come.
Got it. Well, thank you, and best of luck.
Thank you, Anthony.
Thank you. 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. 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 roadmap, 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.