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What changed in PETMED EXPRESS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PETMED EXPRESS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+362 added−239 removedSource: 10-K (2023-05-23) vs 10-K (2022-05-24)

Top changes in PETMED EXPRESS INC's 2023 10-K

362 paragraphs added · 239 removed · 183 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe believe that the following are the main competitive strengths that differentiate PetMeds from the competition: ● Pure Play Channel leader, in an estimated $10.0 billion industry; ● “1-800-PetMeds” brand name with 25 years of experience, consumers know us as the trusted pet medication experts; ● Licensed pharmacy to conduct business in 50 states, and a Pharmacy Verified website (a website verification program by the National Association of Boards of Pharmacy®, which identifies online pharmacies and pharmacy-related websites as safe and legitimate); and ● Exceptional customer care and support. 4 Intellectual Property We conduct our business under the trade name “PetMeds” and use a family of trade names all containing the term “PetMeds” or “PetMed” in some form.
Biggest changeIn order to effectively compete with veterinarians, we must continue to educate pet owners about the service, convenience, and savings offered by our Company. 5 Table of Contents We believe that the following are the main competitive strengths that differentiate PetMeds from our competitors: • Pure play channel leader, in an estimated $13.0 billion industry; • Expanded catalog of non prescription products from the PetCareRx acquisition • “1-800-PetMeds” brand name with 26 years of experience; consumers know us as the trusted pet medication experts; • Licensed/registered/permitted pharmacy to conduct business in 50 states (and the U.S.
For prescription medications, our goal is to ship the product immediately after the prescription has been authorized by the customer’s veterinarian. We currently offer free shipping to all customers whose order value is $49 or more. 3 Purchasing and Supply of Products We purchase our products from a variety of sources, including certain manufacturers, domestic distributors, and wholesalers.
For prescription medications, our goal is to ship the product immediately after the prescription has been authorized by the customer’s veterinarian. We currently offer free shipping to all customers whose order value is $49 or more. Purchasing and Supply of Products We purchase our products from a variety of sources, including certain manufacturers, domestic distributors, and wholesalers.
Additionally, we have leadership development resources for our future leaders as they continue to develop their skills. 5 We also foster a strong corporate culture that promotes high standards of ethics and compliance for our business, including policies that set forth principles to guide employee, officer, director, and vendor conduct, such as our Code of Business Conduct and Ethics.
Additionally, we have leadership development resources for our future leaders as they continue to develop their skills. We also foster a strong corporate culture that promotes high standards of ethics and compliance for our business, including policies that set forth principles to guide employee, officer, director, and vendor conduct, such as our Code of Business Conduct and Ethics.
A customer first places an order online or by calling our toll-free telephone number. The following information is needed to process prescription orders: pet information, prescription information, and the veterinarian’s name and phone number. This information is entered into our order process system. Then our pharmacists and pharmacy technicians verify all prescriptions.
A customer first places an order online or by calling our toll-free telephone number. The following information is needed to process prescription orders: pet information, prescription information, and the veterinarian’s name and phone number. This information is entered into our order processing system. Then our pharmacists and pharmacy technicians verify all prescriptions.
On our website pet owners have access to health information covering pets’ behavior and illnesses, and natural and pharmaceutical remedies specifically for a pet’s problem. The pet education content on our main website is periodically updated with the latest research for pet owners.
Through our website, pet owners have access to health information covering pets’ behavior and illnesses, and natural and pharmaceutical remedies specifically for a pet’s problem. The pet education content on our main website is periodically updated with the latest research for pet owners.
We are the exclusive owners of United States Trademark Registrations for “America’s Largest Pet Pharmacy®,” “America’s Most Trusted Pet Pharmacy®,” “Trusted Pet Medication Experts®,” “PetMed Express and Design®,”1-800-PetMeds and Design®,” 1-800-PetMeds®,” and “PetMeds®,” among numerous others.
We are the exclusive owners of United States Trademark Registrations for “America’s Largest Pet Pharmacy®,” “America’s Most Trusted Pet Pharmacy®,” “Trusted Pet Medication Experts®,” “PetMed Express, Inc.®,”1-800-PetMeds and Design®,” 1-800-PetMeds®,” and “PetMeds®,” among numerous others.
We compete with veterinarians, and online and traditional retailers for the sale of prescription and non-prescription pet medications and other health products. Many pet owners may prefer the convenience of purchasing their pet medications or other health products at the time of a veterinarian visit.
We compete with veterinarians, and online and traditional retailers for the sale of prescription and non-prescription pet medications, foods, and other health products. Many pet owners may prefer the convenience of purchasing their pet medications or other health products at the time of a veterinarian visit.
Government Regulation Dispensing prescription medications is governed at the state level by Boards of Pharmacy, or similar regulatory agencies, of each state where prescription medications are dispensed. We are subject to regulation by the State of Florida and are licensed as a community pharmacy by the Florida Board of Pharmacy.
Dispensing prescription medications is governed at the state level by Boards of Pharmacy, or similar regulatory agencies, of each state where prescription medications are dispensed. We are subject to regulation by the State of Florida and are licensed as a community pharmacy by the Florida Board of Pharmacy.
Our SEC filings will be available through our website as soon as reasonably practicable after we have electronically filed or furnished them to the SEC. 6
Our SEC filings will be available through our website as soon as reasonably practicable after we have electronically filed or furnished them to the SEC.
We also offer additional pet supplies on our website for sale, which are drop shipped to our customers by third parties. These pet supplies include: food, beds, crates, stairs, and other popular pet supplies. We research new products, and regularly select new products or the latest generation of existing products to become part of our product selection.
We also offer additional pet supplies on our website for sale, some of which are drop shipped to our customers by third parties. These pet supplies include: beds, crates, stairs, and other popular pet supplies. We research new products, and regularly select new products or the latest generation of existing products to become part of our product selection.
Our website and mobile application features include: AutoShip & Save subscription (“AutoShip”); “ask-the-vet”; live web chat; easy refill medication reminders; local veterinarian finder; and express checkout to provide our customers with fast, easy, and helpful service from their mobile devices. In July 2021 we launched the new AutoShip program on our website.
Our website and mobile application features include: AutoShip subscription (“AutoShip”); “ask-the-vet”; VetLive; live web chat; easy refill medication reminders; local veterinarian finder; and express checkout to provide our customers with fast, easy, and helpful service from their mobile devices. In July 2021 we launched the new AutoShip program on our website.
In addition, we also refine our current products to respond to changing consumer-purchasing habits. Our website is designed to give us the flexibility to change featured products or promotions. Our product line provides customers with a wide variety of selections across the most popular health categories for dogs, cats, and horses.
In addition, we also refine our current products to respond to changing consumer-purchasing habits. Our website is designed to give us the flexibility to change featured products or promotions. Our product line 1 Table of Contents provides customers with a wide variety of selections across the most popular health categories for dogs, cats, and horses.
Our call center generally operates from 7:00 AM to 11:00 PM, Monday through Thursday, 7:00 AM to 9:00 PM on Friday, 9:00 AM to 6:00 PM on Saturday, and 9:00 AM to 5:00 PM on Sunday, Eastern Time. The process of customers purchasing products from PetMeds consists of a few simple steps.
Our Customer Support Center generally operates from 7:00 AM to 11:00 PM, Monday through Thursday, 7:00 AM to 9:00 PM on Friday, 9:00 AM to 6:00 PM on Saturday, and 9:00 AM to 5:00 PM on Sunday, Eastern Time. The process of customers purchasing products from PetMeds consists of a few simple steps.
Our website is designed to be fast, secure, and easy to use with order and shipping confirmations, and with online order tracking capabilities. We provide our customers with toll-free telephone access to our customer care representatives.
Our websites are designed to be fast, secure, and easy to use with order and shipping confirmations, and with online order tracking capabilities. We provide our customers with toll-free telephone access to our customer care representatives.
The order process system checks for the verification for prescription medication orders and a valid payment method for all orders. Verified orders are then sent to our fulfillment center, where items are picked, and then shipped via the United States Postal Service and United Parcel Service.
The order processing system checks for the verification for prescription medication orders and a valid payment method for all orders. Verified orders are then sent to our fulfillment centers, where items are picked, and then shipped via the United States Postal Service, United Parcel Service, and Federal Express.
We attracted approximately 28 million visits to our website (including our mobile app) during fiscal 2022, approximately 8.5% of those visits resulted in an order, and our website generated approximately 84% of our total sales for the same time period.
We attracted approximately 28 million visits to our website (including our mobile app) during fiscal 2023, approximately 8% of those visits resulted in an order, and our website generated approximately 86.4% of our total sales for the same time period.
To the extent that we are unable to maintain our license as a community pharmacy with the Florida Board of Pharmacy, or if we do not maintain the licenses granted by other state pharmacy boards, or if we become subject to actions by the FDA, or other enforcement regulators, our distribution of prescription medications to pet owners could cease, which could have a material adverse effect on our financial condition and results of operations.
To the extent that we are unable to maintain our license as a community pharmacy with the Florida Board of Pharmacy, or if we do not maintain the licenses/registrations/permits granted by other state pharmacy boards (including the home state pharmacy license in New York for PetCareRx), or if we become subject to actions by the DEA, FDA EPA, or other enforcement regulators, our distribution of prescription medications to pet owners could cease, which could have a material adverse effect on our financial condition and results of operations.
We offer competitive compensation to attract and retain the best people, and we help care for our people so they can focus on our mission. Our employees' total compensation package includes market-competitive salary, bonuses or sales commissions, and equity. We generally offer annual equity grants to certain full-time employees, primarily management.
We offer competitive compensation packages to attract and retain the best people, and we help care for our people so they can focus on our mission. Our employees' total compensation package includes competitive salary, bonuses or sales commissions, and/or equity. We generally offer annual equity grants to the majority of full-time exempt employees.
There were five suppliers from whom we purchased approximately 80% of all products in fiscal 2022. We believe having strong relationships with product manufacturers and distributors will ensure the availability of an adequate volume of products ordered by our customers.
There were six suppliers from whom we purchased approximately 68.5% of all products in fiscal 2023. We believe that having strong relationships with product manufacturers and distributors will ensure the availability of an adequate volume of products ordered by our customers.
AutoShip is a new 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. Currently, approximately 37% of our sales were generated via our AutoShip program in the month of March.
AutoShip is a new 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. Approximately 44% of our sales were generated via our AutoShip program in our fourth quarter ended March 31, 2023.
We also maintain a whistleblower policy and anonymous hotline for the confidential reporting of any suspected policy violations or unethical business conduct on the part of our employees, officers, directors, or vendors.
We also maintain a whistleblower policy and anonymous hotline for the confidential reporting of any suspected policy violations or unethical business conduct on the part of our employees, officers, directors, or vendors. All staff members are also required to complete anti-harassment training.
Veterinary care and Rx medications represented $34.3 billion, or 28% of the total spending on pets in the United States. The pet medication market, which included prescription and nonprescription medication, is estimated to be approximately $10.0 billion, with veterinarians having the majority of the prescription market share.
Veterinary care and Rx medications represented $35.9 billion, or 26% of the total spending on pets in the United States. The pet medication market, which includes prescription medication, nonprescription medication and insurance, is estimated to be approximately $13 billion, with veterinarians having the majority of the prescription market share.
Having compensation tied to annual equity grants helps ensure that our employees will be committed to the Company’s long-term success. We have conducted an annual pay equity analysis and continue to be committed to pay equity. Available Information Our website address is www.petmeds.com .
Having compensation tied to annual equity grants helps ensure that our employees will be committed to the Company’s long-term growth and success. We conduct annual pay equity analysis and continue to be committed to pay equity.comp isn't really tied to equity grants, it just includes them. Available Information Our website address is www.petmeds.com .
Our pharmacy practice is also licensed and/or regulated by 49 other state pharmacy boards, the District of Columbia Board of Pharmacy, and the United States Drug Enforcement Administration, and with respect to our products, by other regulatory authorities including, but not necessarily limited to, the United States Food and Drug Administration (“FDA”) and the United States Environmental Protection Agency.
Virgin Islands Board of Pharmacy, and the United States Drug Enforcement Administration ("DEA"), and with respect to our products, by other regulatory authorities including, but not necessarily limited to, the United States Food and Drug Administration (“FDA”) and the United States Environmental Protection Agency ("EPA").
Our Customers Approximately 2.0 million customers have purchased from us within the last two years. We attracted approximately 263,000 and 443,000 new customers in fiscal 2022 and 2021, respectively. Our customers are located throughout the United States, with approximately 50% of customers residing in California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia.
We attracted approximately 274,000 and 325,000 new customers in fiscal 2023 and 2022, respectively. Our customers are located throughout the United States, with approximately 50% of customers residing in California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia.
We currently have 212 full time employees, including: 126 in customer care and marketing; 23 in fulfillment and purchasing; 46 in our pharmacy; 4 in information technology; 7 in accounting/human resources; and 6 in management. None of our employees are represented by a labor union or governed by any collective bargaining agreements.
As of May 23, 2023 we had 302 full time employees, including: 137 in customer care; 15 in marketing; 48 in fulfillment and purchasing; 62 in our pharmacy; 17 in information technology and 15 in accounting/human resources. None of our employees are represented by a labor union or governed by any collective bargaining agreements.
We provide a variety of resources to help our employees build and develop their skills, including online development resources as well as individual development opportunities and projects for key talent.
We also recognize that it is important to develop our future leaders. We provide a variety of resources to help our employees build and develop their skills, including an internal leadership development class, online development resources, mentorship, as well as individual development opportunities and projects for key talent as well as opportunities for career advancement.
Our systems are custom configured by us to optimize our computer telephone integration and mail-order processing. The systems are designed to maintain a large database of specialized information and process a large volume of orders efficiently and effectively.
Technology We utilize integrated technologies in our call centers, e-commerce, order entry, and inventory control/fulfillment operations. Our systems are custom configured to optimize our computer telephone integration and mail-order processing. The systems are designed to maintain a large database of specialized information and process a large volume of orders efficiently and effectively.
We consider relations with our employees to be in good standing. The majority of our employees work at our headquarters and distribution center located in Delray Beach, Florida.
We consider relations with our employees to be good. The majority of our employees work at our Delray Beach, Florida headquarters and distribution center, and approximately 78 employees work at the office and distribution center in New York that we acquired as a part of the PetCareRx acquisition.
Our telephone system is equipped with certain features including pop-up screens and call blending capabilities that give us the ability to efficiently utilize our customer care representatives’ time, providing excellent customer care, service, and support. Our customer care representatives receive a base salary and are rewarded with commissions for sales, and bonuses and other awards for achieving certain quality goals.
Customer Support Center Our customer care representatives receive and process inbound and outbound customer calls, facilitate our live web chat, and process customer e-mails. Our telephone system is equipped with certain features including pop-up screens and call blending capabilities that give us the ability to efficiently utilize our customer care representatives’ time, providing excellent customer care, service, and support.
ITEM 1. BUSINESS General PetMed Express, Inc. and subsidiaries, d/b/a PetMeds®, is a leading nationwide pet pharmacy. The Company markets prescription and non-prescription pet medications, and other health products and supplies for dogs, cats, and horses direct to the consumer.
ITEM 1. BUSINESS General PetMed Express, Inc. and subsidiaries, d/b/a PetMeds®, is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, food, 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 applications.
We conduct an annual review with human resources and the departmental leadership teams, focusing on high performing and high potential talent, diverse talent and succession for our critical roles. We also recognize that it is important to develop our future leaders.
We have a talent and succession planning process and have established programs to support the development of our talent pipeline for critical roles in our organization. We conduct an annual review with human resources and the departmental leadership teams, focusing on high performing and high potential talent, diverse talent and succession for our critical roles.
Our current products include: Non-Prescription Medications (OTC) and supplies : Flea and tick control products, bone and joint care products, vitamins, treats, nutritional supplements, hygiene products, and supplies.
Our current products include: Non-Prescription Medications (OTC) and supplies : Flea and tick control products, bone and joint care products, vitamins, treats, nutritional supplements, hygiene products, and supplies. Prescription Medications (Rx) : Heartworm and flea and tick preventatives, arthritis, dermatitis, thyroid, diabetes, pain medications, heart/blood pressure, and other specialty medications, as well as generic substitutes.
Our current product line contains approximately 3,000 SKUs of the most popular pet medications, health products, and supplies. These products include a majority of the well-known brands of pet medications. Generally, our prices are competitive with the prices for medications charged by veterinarians, online retailers and other retailers.
These products include a majority of the well-known brands of pet medications, and with our April 2023 acquisition of PetCareRx, will now include a broader product catalog assortment beyond medication. Generally, our prices for pet medications and foods are competitive with the prices for medications and foods charged by veterinarians, online retailers and other retailers.
As a licensed pharmacy in the State of Florida, we are subject to the Florida Pharmacy Act and regulations promulgated thereunder.
O ur registration with the DEA, and state registrations/permits as required, permit us to dispense Schedule IV and Schedule V controlled substances. As a licensed pharmacy in the State of Florida, we are subject to the Florida Pharmacy Act and regulations promulgated thereunder.
Our customer care representatives respond to customers’ e-mails, calls, and live web chats that are related to products, order status, prices, and shipping. We believe our customer care representatives are a valuable source of feedback regarding customer satisfaction. Warehousing and Shipping We inventory our products and fill most customer orders from our corporate headquarters in Delray Beach, Florida.
We believe our customer care representatives are a valuable source of feedback regarding customer satisfaction. 4 Table of Contents Warehousing and Shipping We inventory our products and fill most customer orders from our corporate headquarters in Delray Beach, Florida. With our acquisition of PetCareRx, we will continue to fulfill PetCareRx orders from their facility in Lynbrook, New York.
Our current license is valid until February 28, 2023, and prior to that date a renewal application will be submitted to the Board of Pharmacy.
Our current license is valid until February 28, 2025, and well in advance of that date a renewal application will be submitted to the Board of Pharmacy. Our pharmacy practice is also licensed and/or regulated by 49 other state pharmacy boards, the District of Columbia Board of Pharmacy, the U.S.
Customer care representatives participate in ongoing training programs under the supervision of our training managers. These training sessions include a variety of topics such as product knowledge, computer usage, customer service tips, and the relationship between our Company and veterinarians.
These training sessions include a variety of topics such as product knowledge, computer usage, customer service tips, and the relationship between our Company and veterinarians. Our customer care representatives respond to customers’ e-mails, calls, and live web chats that are related to products, order status, prices, and shipping.
Human capital management is a priority for our executives and Board of Directors, and we are committed to identifying and developing the talent necessary for our long-term success. We have a talent and succession planning process and have established programs to support the development of our talent pipeline for critical roles in our organization.
We strive to ensure that all employees have opportunities to develop the skills they need to grow and excel in their fields. Human capital management is a priority for our executives and Board of Directors, and we are committed to identifying and developing the talent necessary for our long-term success.
Our systems provide our customer care representatives, and our customers on our website, including on our mobile application, with real time product availability information and updated customer information to enhance our customer care.
Our systems provide our team and our customers with product availability information and updated customer and order status information to enhance our customer experience. Our information systems provide our customers and customer care representatives with information about past and pending orders.
Part of our growth strategy included developing direct relationships with all of the leading pharmaceutical manufacturers of the more popular prescription and non-prescription medications. We now have direct relationships with all these major manufacturers. Technology We utilize integrated technologies in our call centers, e-commerce, order entry, and inventory control/fulfillment operations.
Part of our growth strategy included developing direct relationships with all of the leading pharmaceutical manufacturers of the more popular prescription and non-prescription medications. We now have direct relationships with all these major manufacturers. With our acquisition of PetCareRx, we will acquire relationships with approximately thirteen new significant suppliers of pet foods and health and wellness products.
Our goal is to help employees make informed decisions about their health by providing the tools and resources necessary to achieve a healthier lifestyle. We offer our employees a wide array of benefits such as life and health (medical, dental, and vision) insurance, paid time off and retirement benefits, as well as emotional well-being services through our health insurance program.
We offer our employees a wide array and highly competitive benefits such as life and health (medical, dental, and vision) insurance, medical and dependent care flexible spending accounts, paid time off (including gender neutral parental leave) and retirement benefits, as well as emotional well-being services through our health insurance program.
Direct Mail/Print and E-mail We use direct mail/print and e-mail to acquire new customers and to remind our existing customers to reorder. Operations Order Processing Our website allows customers to easily browse and purchase all of our products online.
Direct Mail/Print and E-mail We use direct mail/print and e-mail to engage our current customers with reminders, offers and useful content to help them manage improved pet health outcomes. Operations Order Processing Our websites allow customers to easily browse and purchase all of our products online.
We utilize Internet display and video advertisements, social media, and comparison shopping, and we are also members of an affiliate program with merchant clients and affiliate websites. Television Advertising Our television advertising is designed to build brand equity, create brand awareness, and generate initial purchases of products via the telephone and the Internet.
We make our brand available to Internet consumers by purchasing targeted keywords and achieving prominent placement on the top search engines and search engine networks. We utilize Internet display and streaming video advertisements, social media, and comparison shopping, and we are also members of an affiliate program with merchant clients and affiliate websites.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees as well as the communities in which we operate. These measures include allowing most employees to work from home and implementing additional safety measures for employees continuing critical on-site work. We believe in supporting our employees’ health and well-being.
These measures include allowing most employees to work from home and implementing additional safety measures for employees continuing critical on-site 7 Table of Contents work. We believe in supporting our employees’ health and well-being. Our goal is to help employees make informed decisions about their health by providing the tools and resources necessary to achieve a healthier lifestyle.
Our customers enjoy the convenience of rapid home delivery, with the majority of all orders being shipped within 24 hours of ordering. Customer Care and Support We believe that a high level of customer care and support is critical in retaining and expanding our customer base.
Customer Care and Support We believe that a high level of customer care and support is critical in retaining and expanding our customer base. Customer care representatives participate in ongoing training programs under the supervision of our training managers.
Prescription Medications (Rx) : Heartworm and flea and tick preventatives, arthritis, dermatitis, thyroid, diabetes, pain medications, heart/blood pressure, and other specialty medications, as well as generic substitutes. 1 Sales We offer our products through two main sales channels: (1) the Internet through our website and mobile app, and (2) the telephone contact center through our toll-free number.
Our Sales Channels We offer our products through two main sales channels: (1) the Internet, through our website and mobile apps, and (2) our Customer Support Center through our toll-free number.
Our primary focus has been on retail customers and the average purchase was approximately $93 and $89 for fiscal 2022 and fiscal 2021, respectively. Marketing The goal of our marketing strategy is to build brand recognition, increase customer traffic, add new customers, build strong customer loyalty, maximize reorders, and develop incremental revenue opportunities.
Marketing The goal of our marketing strategy is to build brand recognition, increase customer traffic, add new customers, build strong customer loyalty, maximize reorders, and develop incremental revenue opportunities. We have an integrated marketing campaign that includes digital marketing, television advertising, and direct mail/print and e-mail. Digital Marketing We advertise and market our products primarily online.
Virtually all of the Company’s sales are to residents in the United States. Our fiscal year end is March 31, our executive offices are currently located at 420 South Congress Avenue, Delray Beach, Florida 33445, and our telephone number is (561) 526-4444. Our Products We offer a broad selection of products for dogs, cats, and horses.
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. 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.
Based on information currently available, we believe that our compliance in general with federal and state regulations will not have a material effect on our earnings or financial condition. However, it is difficult to predict with certainty the potential impact of future compliance efforts and thus, future costs associated with such matters may exceed current reserves.
It is difficult to predict with certainty the potential impact of future regulatory compliance efforts and future costs associated with such matters. Our failure to comply with such laws and regulations may result in adverse actions that could disrupt our operations and adversely affect our financial results. Human Capital Resources People are the most valuable asset we have.
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The Company offers consumers an attractive alternative for obtaining pet medications in terms of convenience, price, speed of delivery, and valued customer service. The Company markets its products through national advertising campaigns, which aim to increase the recognition of the “PetMeds” brand name, increase traffic on its website at www.petmeds.com , acquire new customers, and maximize repeat purchases.
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The Company has a March 31 fiscal year. Our Industry The market for pet medicines, foods, and health products and services is a large and growing market. According to the American Pet Products Association, pet spending in the United States increased 11% to $136.8 billion in 2022.
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The Company has set a goal of generating approximately 50% of its sales via the AutoShip program in FY 2023. Telephone Contact Center Our customer care representatives receive and process inbound and outbound customer calls, facilitate our live web chat, and process customer e-mails.
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The dog and cat population is approximately 111.6 million, with approximately 66% of all households having a pet. Our Products and Services We offer a broad selection of products and services for dogs, cats, and horses. Our current product line contains approximately 15,000 SKUs of the most popular pet medications, health products, foods, and supplies.
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We have an integrated marketing campaign that includes digital marketing, television advertising, and direct mail/print and e-mail. 2 Digital Marketing We advertise and market our products primarily online. We make our brand available to Internet consumers by purchasing targeted keywords and achieving prominent placement on the top search engines and search engine networks.
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Pet Foods: Premium Pet Foods, including Veterinary Prescription Diets Other Products and Services: Pet Services, including Telemedicine and Pet Insurance. Pet Telemedicine: Services provided through our VetLive (powered by Vetster) service which allows for consultation with, diagnosis from, or even in some states a prescription written by, a board-certified veterinarian.
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Our television commercials typically focus on our ability to rapidly deliver to customers the same medications offered by veterinarians. We believe that television advertising is particularly effective and instrumental in building brand awareness. Our most current television commercial, airing nationally, speaks to pet owners about the savings and convenience of purchasing the same exact pet medications from PetMeds.
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Recent Developments and Strategic Transactions Acquisition of PetCareRx In April 2023, we completed our acquisition of PetCareRx, Inc. (“PetCareRx”), a leading online supplier of pet medications, foods, and supplies, for aggregate consideration of approximately $36.0 million in an all-cash transaction.
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We also have an integrated direct connection for processing credit cards to ensure that a valid credit card number and authorization have been received at the same time our customer care representatives are on the telephone with the customer or when a customer submits an order on our website.
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The acquisition was completed pursuant to an Agreement and Plan of Merger, dated January 17, 2023, pursuant to which a wholly owned subsidiary of PETS was merged with and into PetCareRx.
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Our information systems provide our customer care representatives with records of all prior contact with a customer, including the customer’s address, telephone number, e-mail address, prescription information, order history, payment history, and notes. Competition The pet medications market is competitive and highly fragmented. Our competitors consist of veterinarians, and online and traditional retailers.
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With the acquisition of PetCareRx, we gained an approximately 10,000-item catalog and PetCare Rx brings approximately 286,000 customers, enabling PETS to more rapidly expand beyond our Company’s historical core offering of pet prescriptions and into more extensive offerings of premium food, supplements, treats, and other pet supplies.
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In order to effectively compete with veterinarians, we must continue to educate pet owners about the service, convenience, and savings offered by our Company. According to the American Pet Products Association, pet spending in the United States increased 19.3% to $123.6 billion in 2021.
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PetCareRx will continue to operate under the PetCareRx brand as a separate and additional distribution channel for our company. Pet Insurance Partnership with Pumpkin Insurance Services In February 2023, we announced a strategic partnership with Pumpkin Insurance Services, Inc.
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The dog and cat population is approximately 184 million, with approximately 70% of all households having a pet.
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(“Pumpkin”), a leading provider of best-in-class pet insurance plans (“Pumpkin”), under which we are partnering with Pumpkin to offer our customers access to high-quality health and wellness pet insurance products.
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During fiscal 2015 we obtained a federal registration, and state registrations/permits as required, to dispense Schedule IV controlled substances, and we also updated our federal registration and state registrations/permits as required to include the ability to dispense Schedule V controlled substances.
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This partnership will give our customers direct access to co-branded insurance products developed in conjunction with Pumpkin and their underwriters that will be offered by our new subsidiary, PetMeds Insurance Services, Inc. We currently expect that such products will become available for purchase during the fiscal year ending March 31, 2024. Pet Telemedicine Partnership with Vetster Inc.
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As of March 31, 2022 we have no reserves related to federal and state regulations. Human Capital Resources We strive to create a high-performance culture that embraces diversity, inclusion, diverse perspectives and experiences, to ensure that employees have opportunities to develop the skills they need to grow and excel in their fields.
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In April 2022, we announced a multi-year exclusive partnership with Vetster Inc., a veterinary telehealth company based in Canada that provides online access to veterinary services through its platform to pet owners in the United States, Canada, and the United Kingdom.
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As a result of the COVID-19 pandemic many of our personnel are currently working remotely, and in the long term, we expect some personnel to transition into working remotely on a regular basis.
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Under the partnership, we became the exclusive e-commerce provider of pet products sold on the Vetster platform in the United States, and Vetster became the exclusive provider of telehealth and telemedicine services to the Company.
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As a result of this partnership, our customers now have access through our website to VetLive , an online veterinary appointment service that is integrated with the Vetster platform. The partnership has an initial term of three years, subject to year-to-year mutual renewals thereafter.
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As a part of our partnership with Vetster, the Company also made an approximately $5.0 million investment in Vetster as a part of larger Series B financing round that Vetster completed in April 2022.
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Our Growth Strategy The key components of our growth strategy are: ● Leverage our brand : We believe that our primary brands, namely “1-800-PetMeds”, “PetMeds,” and "PetCare Rx" are widely known among pet owners and are synonymous with pet health and well-being.
Added
We intend to further invest in promoting and popularizing these brands through our marketing, promotion, and other efforts. 2 Table of Contents ● Continue to e xpand our product and service offerings : Although our sales have historically been concentrated in pet medications, we have begun taking steps to broaden our product offerings, including the acquisition of a catalog portfolio of premium pet foods that we acquired with our acquisition of PetCareRx.
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We intend to continue to grow the catalog of products that we offer to our customers, including additional premium food and pet wellness products that our customers want, and we are investigating an expansion of our own private label products.
Added
Such offerings may include ancillary and/or complementary products or services, such as the telehealth services that we offer through Vetster and the pet health insurance products that we intend to offer in conjunction with Pumpkin. ● Continue to grow our customer base and grow sales from existing customers : We intend to further invest in growing our customer base through our traditional marketing efforts, as well as through strategic transactions and partnerships and the exploration of other channels.
Added
Furthermore, we intend to grow our share of our existing customers’ spend by continuing to expand our product offerings.
Added
We intend to continue to build and enhance the content library on our websites and apps regarding pet health and wellness in order to attract customers and give customers a reason to return. ● Continue to pursue strategic partnerships and transactions : We intend to continue to pursue strategic partnerships and transactions that will grow sales from existing customers and expand our customer base, as well as grow our product catalog and offerings.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

42 edited+94 added−16 removed60 unchanged
Biggest changeThe sale and delivery of prescription pet medications is generally governed by state laws and state regulations, and with respect to controlled substances, also by federal law. Since our pharmacy is located in the State of Florida, the Company is governed by the laws and regulations of the State of Florida.
Biggest changeSince our pharmacy is located in the State of Florida, the Company is governed by the laws and regulations of the State of Florida. Each prescription pet medication sale we make is likely also to be covered by the laws of the state where the customer is located.
A significant portion of our sales is attributable to products representing approximately 100 SKUs, including the most popular flea and tick, and heartworm preventative brands. We need to properly manage our inventory to provide an adequate supply of these products and avoid excessive inventory of the products representing the balance of the SKUs.
A significant portion of PetMeds sales is attributable to products representing approximately 100 SKUs, including the most popular flea and tick, and heartworm preventative brands. We need to properly manage our inventory to provide an adequate supply of these products and avoid excessive inventory of the products representing the balance of the SKUs.
The loss of any of our key suppliers of pet medications offered by us would have a negative impact on our business, financial condition, and results of operations. 8 Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition, and results of operations.
The loss of any of our key suppliers of pet medications offered by us would have a negative impact on our business, financial condition, and results of operations. Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition, and results of operations.
Our Internet addresses, www.1800petmeds.com , www.1888petmeds.com , www.petmedexpress.com , www.petmed.com , www.petmeds.com , www.petmeds.pharmacy , www.petmed.pharmacy , and www.1800petmeds. pharmacy , are critical to our brand recognition and our overall success. If we are unable to protect these Internet addresses, our competitors could capitalize on our brand recognition. There may be similar Internet addresses used by competitors.
Our Internet addresses, www.1800petmeds.com , www.1888petmeds.com , www.petmedexpress.com , www.petmed.com , www.petmeds.com , www.petmeds.pharmacy , www.petmed.pharmacy , www.1800petmeds.pharmacy , and petcarerx.com , are critical to our brand recognition and our overall success. If we are unable to protect these Internet addresses, our competitors could capitalize on our brand recognition. There may be similar Internet addresses used by competitors.
Acquisitions, investments and other strategic alliances involve numerous risks, including: ● problems integrating the acquired business, facilities, technologies or products, including issues maintaining uniform standards, procedures, controls and policies; ● unanticipated costs associated with acquisitions, investments or strategic alliances; ● losses we may incur as a result of declines in the value of an investment or as a result of incorporating an investee’s financial performance into our financial results; ● diversion of management’s attention from our existing business; ● risks associated with entering new markets in which we may have limited or no experience; ● the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other businesses face; ● potential unknown liabilities associated with a business we acquire or in which we invest; and ● increased legal and accounting compliance costs.
Acquisitions, investments and other strategic alliances, including our recent acquisition of PetCareRx, involve numerous risks, including: • problems integrating the acquired business, facilities, technologies or products, including issues maintaining uniform standards, procedures, controls and policies; • unanticipated costs associated with acquisitions, investments or strategic alliances; • losses we may incur as a result of declines in the value of an investment or as a result of incorporating an investee’s financial performance into our financial results; • diversion of management’s attention from our existing business; • risks associated with entering new markets in which we may have limited or no experience; • the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other businesses face; • potential unknown liabilities associated with a business we acquire or in which we invest; and • increased legal and accounting compliance costs.
While we ship pet medications to customers in all 50 states, approximately 50% of our sales for the fiscal year ended March 31, 2022, were made to customers located in the states of California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia.
While we ship pet medications to customers in all 50 states, approximately 50% of our sales for the fiscal year ended March 31, 2023, were made to customers located in the states of California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia.
We cannot assure you that we are adequately insured to cover the amount of any losses relating to any of these potential events, including business interruptions resulting from damage to or destruction of our headquarters and distribution center, or power and equipment failures relating to our call center or websites, or interruptions or disruptions to major transportation infrastructure, or other events that do not occur on our premises.
We cannot assure you that we are adequately insured to cover the amount of any losses relating to any of these potential events, including business interruptions resulting from damage to or destruction of our headquarters and 11 Table of Contents distribution center, or power and equipment failures relating to our call center or websites, or interruptions or disruptions to major transportation infrastructure, or other events that do not occur on our premises.
We may seek to grow our business through acquisitions of, or investments in, new or complementary businesses, facilities, technologies, offerings, or products, or through strategic alliances, and the failure to manage these acquisitions, investments, or other strategic alliances, or to integrate them with our existing business, could have a material adverse effect on us.
We have grown, and continue to seek to grow our business through acquisitions of, or investments in, new or complementary businesses, facilities, technologies, offerings, or products, or through strategic alliances, and the failure to manage these acquisitions, investments, or other strategic alliances, or to integrate them with our existing business, could have a material adverse effect on us.
Factors that may cause our operating results to fluctuate include: ● Our ability to obtain new customers at a reasonable cost, retain existing customers, or encourage reorders; ● Our ability to increase the number of visitors to our website, or our ability to convert visitors to our website into customers; ● The mix of medications and other pet products sold by us; ● Our ability to manage inventory levels or obtain an adequate supply of products; ● Our ability to adequately maintain, upgrade, and develop our website, the systems that we use to process customers’ orders and payments, or our computer network; ● Increased competition within our market niche; 10 ● Price competition; ● New products introduced to the market, including generics; ● Increases in the cost of advertising; ● The amount and timing of operating costs and capital expenditures relating to expansion of our product line or operations; ● Disruption of our toll-free telephone service, technical difficulties, or systems and Internet outages or slowdowns; ● The impact of COVID-19 on our business operations and generally on the economy, including the measures taken by governmental authorities to address it; and ● Unfavorable general economic trends.
Factors that may cause our operating results to fluctuate include: • Our ability to obtain new customers at a reasonable cost, retain existing customers, or encourage reorders; • Our ability to increase the number of visitors to our website, or our ability to convert visitors to our website into customers; • The mix of medications and other pet products sold by us; • Our ability to manage inventory levels or obtain an adequate supply of products; • Our ability to adequately maintain, upgrade, and develop our website, the systems that we use to process customers’ orders and payments, or our computer network; • Increased competition within our market niche; • Price competition; • New products introduced to the market, including generics; • Increases in the cost of advertising; • The amount and timing of operating costs and capital expenditures relating to expansion of our product line or operations; • Potential disruption to the distribution network; • Disruption of our toll-free telephone service, technical difficulties, or systems and Internet outages or slowdowns; • The impact of further outbreaks of COVID-19, and any future similar outbreak, on our business operations and generally on the economy, including the measures taken by governmental authorities to address it; and • Unfavorable general economic trends.
Regulatory Risks We may inadvertently fail to comply with various state or federal regulations covering the dispensing of prescription pet medications which may subject us to reprimands, sanctions, probations, fines, suspensions, or the loss of one or more of our pharmacy licenses .
Regulatory Risks We may inadvertently fail to comply with various state or federal regulations covering our pet health business, including the dispensing of prescription pet medications which may subject us to reprimands, sanctions, probations, fines, suspensions, or the loss of one or more of our pharmacy licenses .
Because our operating results are difficult to predict, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. The majority of our product sales are affected by the seasons, due to the seasonality of mainly flea, tick, and heartworm medications.
Because of the seasonality of our business, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. The majority of our product sales are affected by the seasons, due to the seasonality of mainly flea, tick, and heartworm medications.
To the extent that we are unable to maintain our license as a community pharmacy with the Florida Board of Pharmacy, or if we do not maintain the licenses granted by other state boards, or if we become subject to actions by the FDA, or other enforcement regulators, our dispensing of prescription medications to pet owners could cease, which could have a material adverse effect on our operations.
To the extent that we are unable to maintain our license as a community pharmacy with the Florida Board of Pharmacy (and to the extent we are unable to maintain PetCareRx’s license in New York), or if we do not maintain the licenses granted by other state boards, or if we become subject to actions by the FDA, or other enforcement regulators, our dispensing of prescription medications to pet owners could cease, which could have a material adverse effect on our operations.
These factors include: quarterly variations in operating results; changes in accounting treatments or principles; announcements by us or our competitors of new products and services offerings; significant contracts, acquisitions, or strategic relationships; additions or departures of key personnel; any future sales of our common stock or other securities; stock market price and volume fluctuations of publicly traded companies; and general political, economic, and market conditions.
These factors include: changes in accounting treatments or principles; announcements by our competitors of new products and services offerings; significant contracts, acquisitions, or strategic relationships; additions or departures of key personnel; any future sales of our common stock or other securities; stock market price and volume fluctuations of publicly traded companies; and general political, economic, and market conditions.
Our headquarters and distribution center are currently located in one location in South Florida, and most of our shipments of products to our customers are made from this sole distribution center.
Our headquarters and principal distribution center are currently located in one location in South Florida, and most of our shipments of products to our customers are made from this primary distribution center.
Furthermore, because we are located in South Florida, which is a hurricane-sensitive area, we are particularly susceptible to the risk of damage to, or total destruction of, our headquarters and distribution center and surrounding transportation infrastructure caused by a hurricane.
Furthermore, because we are located in South Florida, which is a hurricane-sensitive area and is susceptible to sea-level rise, we are particularly susceptible to the risk of damage to, or total destruction of, our headquarters and distribution center and surrounding transportation infrastructure caused by a hurricane or rising sea levels.
In particular, we rely on our information systems to effectively manage our business model strategy, with tools to track and manage sales, inventory, marketing, customer service efforts, the preparation of our consolidated financial and operating data, credit card information, and customer information.
Our business is dependent upon the efficient operation of our information systems. In particular, we rely on our information systems to effectively manage our business model strategy, with tools to track and manage sales, inventory, marketing, customer service efforts, the preparation of our consolidated financial and operating data, credit card information, and customer information.
We have paid dividends to our shareholders since 2009 and it is currently anticipated that we will continue to pay regular quarterly dividends, any such determination to pay dividends and the amounts thereof will be at the discretion of the Board and will be dependent on then-existing conditions, including our financial condition, income, legal requirements, including limitations under Florida law, and other factors the Board deems relevant.
We have paid regular dividends to our shareholders since 2009, any such determination to pay dividends and the amounts thereof will be at the discretion of the Board and will be dependent on then-existing conditions, including our financial condition, income, legal requirements, including limitations under Florida law, and other factors the Board deems relevant.
Accordingly, realization of any gain on shares of our common stock may depend on the appreciation of the price of our common stock, which may not occur. ITEM 1B. UNRESOLVED STAFF COMMENTS None
Accordingly, realization of any gain on shares of our common stock may depend solely on the appreciation of the price of our common stock, which may not occur. 19 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None
Business Risks Our failure to properly manage our inventory may result in excessive inventory carrying costs, or inadequate supply of products, which could materially adversely affect our financial condition and results of operations. Our current product line contains approximately 3,000 SKUs.
Business Risks Our failure to properly manage our inventory may result in excessive inventory carrying costs, or inadequate supply of products, which could materially adversely affect our financial condition and results of operations. Our current product line contains approximately 15,000 SKUs including the SKUs acquired in our acquisition of PetCareRx.
We recently entered into, and made an investment in, a strategic alliance, and we may in the future consider opportunities to acquire or make investments in new or complementary businesses, facilities, technologies, offerings, or products, or enter into other strategic alliances, which may enhance our capabilities, complement our current products and services or expand the breadth of our markets.
We expect that we may in the future consider additional opportunities to acquire or make investments in new or complementary businesses, facilities, technologies, 15 Table of Contents offerings, or products, or enter into other strategic alliances, which may enhance our capabilities, complement our current products and services or expand the breadth of our markets.
These relationships may enable both their online and retail stores to negotiate better pricing and better terms from suppliers by aggregating the demand for products and negotiating volume discounts, which could be a competitive disadvantage to us.
These relationships may enable both their online and retail stores to negotiate better pricing and better terms from suppliers by aggregating the demand for products and negotiating volume discounts, which could be a competitive disadvantage to us. Product recalls and concerns regarding the safety and quality of the pet products we sell could affect our business.
As a result, our business and operating results could be adversely affected. Industry Risks We face significant competition from veterinarians and online and traditional retailers and may not be able to compete profitably with them. We compete directly and indirectly with veterinarians for the sale of pet medications and other health products.
Industry Risks We face significant competition from veterinarians and online and traditional retailers, as well as challenges from strategic alliances amongst our competitors, and may not be able to compete profitably with them. We compete directly and indirectly with veterinarians for the sale of pet medications and other health products.
These relationships entitle the Company to buy directly from the manufacturer under the terms and conditions of a purchasing agreement which dictates purchase pricing of inventory and criteria to obtain additional discounts and rebates. The terms of these agreements also require the Company to comply with the manufacturers’ MAPP.
The Company maintains direct purchasing relationships with all the major pet medication manufacturers. These relationships entitle the Company to buy directly from the manufacturer under the terms and conditions of a purchasing agreement which dictates purchase pricing of inventory and criteria to obtain additional discounts and rebates.
Each prescription pet medication sale we make is likely also to be covered by the laws of the state where the customer is located. The laws and regulations relating to the sale and delivery of prescription pet medications vary from state to state, but generally require that prescription pet medications be dispensed with the authorization from a prescribing veterinarian.
The laws and regulations relating to the sale and delivery of prescription pet medications vary from state to state, but generally require that prescription pet medications be dispensed with the authorization from a prescribing veterinarian.
For the quarters ended June 30, 2021, September 30, 2021, December 31, 2021, and March 31, 2022, Company sales were 29%, 25%, 22%, and 24%, respectively.
For the quarters ended June 30, 2022, September 30, 2022, December 30, 2022, and March 31, 2023, Company sales were 27%, 26%, 23%, and 24%, respectively.
We have also been informed by customers and consumers that veterinarians have tried to discourage pet owners from purchasing from internet mail-order pharmacies.
We have also been informed by customers and consumers that veterinarians have tried to discourage pet owners from purchasing from internet mail-order pharmacies. The laws and regulations relating to the sale and delivery of prescription pet medications vary from state to state.
Each advertisement and/or promotion of a product below the MAPP price, should they occur, would be a violation of the policy.
The terms of these agreements also require the Company to comply with the manufacturers’ MAPP. Each advertisement and/or promotion of a product below the MAPP price, should they occur, would be a violation of the policy.
Therefore, we may not be able to protect our own Internet addresses or prevent third parties from acquiring Internet addresses that are confusingly similar to, infringe upon, or otherwise decrease the value of our Internet addresses. 9 Since all of our operations are housed in a single location, we are more susceptible to a business interruption in the event of damage to, or disruptions in, our facility .
Therefore, we may not be able to protect our own Internet addresses or prevent third parties from acquiring Internet addresses that are confusingly similar to, infringe upon, or otherwise decrease the value of our Internet addresses.
Any failure on our part to maintain appropriate inventory levels may have a material adverse effect on our financial condition and results of operations. 7 Resistance from veterinarians to authorize prescriptions, or attempts/efforts on their part to discourage pet owners from purchasing from us could cause our sales to decrease and could materially adversely affect our financial condition and results of operations.
Resistance from veterinarians to authorize prescriptions, or attempts or efforts by veterinarians to discourage pet owners from purchasing from us could cause our sales to decrease and could materially adversely affect our financial condition and results of operations.
The Board has previously decided, and may in the future decide, in its sole discretion, to change the amount or frequency of dividends or discontinue the payment of dividends entirely. For these reasons, shareholders will not be able to rely on dividends to receive a return on investment.
The Board has previously decided, and may in the future decide, in its sole discretion, to change the amount or frequency of dividends or discontinue the payment of dividends entirely.
We have direct purchasing relationships with all of the major pet medication manufacturers, the majority of which we purchase significant quantities of pet medication products, with the majority from these major manufacturers. We do maintain annual purchasing contracts with these major manufacturers.
We have direct purchasing relationships with all of the major pet medication manufacturers, from the majority of which we purchase significant quantities of pet medication products.. We do maintain annual purchasing contracts with these major manufacturers. While we believe that our supplier relationships are good, a supplier could discontinue selling to us at any time.
If for any reason our license to operate a pharmacy in one or more of those states should be suspended or revoked, or if it is not renewed, our ability to sell prescription medications to residents of those states would cease and our financial condition and results of operations in future periods would be materially adversely affected.
If for any reason our license to operate a pharmacy in one or more of those states should be suspended or revoked, or if it is not renewed, our ability to sell prescription medications to residents of those states would cease and our financial condition and results of operations in future periods would be materially adversely affected. 9 Table of Contents We have direct buying relationships with all the major pet medication manufacturers and each contractual relationship depends on our compliance with each respective manufacturer’s minimum advertised pricing policies (MAPP).
Provisions of our articles of incorporation, bylaws and Florida law could make it more difficult for a third party to acquire us, even if many of our shareholders believe it is in their best interest. 13 Our ability to pay regular dividends to our shareholders and the amounts of any such dividends are subject to the discretion of the Board and may be limited by our financial condition, or limitations under Florida law.
Provisions of our articles of incorporation, bylaws and Florida law could make it more difficult for a third party to acquire us, even if many of our shareholders believe it is in their best interest.
Also, while we employ several different methodologies to assess potential business opportunities, the new businesses or investments may not meet or exceed our expectations or desired objectives. 11 Financial Risks We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and potentially disrupt our business.
Also, while we employ several different methodologies to assess potential business opportunities, the new businesses or investments may not meet or exceed our expectations or desired objectives. The market for pet telemedicine is immature and uncertain.
The content of our website could expose us to various kinds of liability, which, if prosecuted successfully, could negatively impact our business.
If customers perceive that our customer care and support does not compare favorably to our competitors, then we may lose customers to such competitors. 10 Table of Contents The content of our website could expose us to various kinds of liability, which, if prosecuted successfully, could negatively impact our business.
Our current license is valid until February 28, 2023, and there is no guarantee that we will be able to renew it.
Our current home-state license with the Florida Board of Pharmacy is valid until February 28, 2025, and PetCareRx’s home-state license in the State of New York is valid until April 30, 2025, and there is no guarantee that we will be able to renew such licenses when required.
The occurrence of one or more of these events could adversely impact our ability to generate revenues in future periods.
The occurrence of one or more of these events could adversely impact our ability to generate revenues in future periods. A failure or misuse of our information systems and customer-facing technology systems, including our online payment methods, could adversely affect our results of operations, expose us to third-party claims, or increase our exposure to fraud and other risks.
Any of these outcomes could have a material adverse impact on our business, financial condition, operating results and ability to execute and capitalize on our strategies.
Any failure on our part to maintain appropriate inventory levels may have a material adverse effect on our financial condition and results of operations.
The inability to ship from our fulfillment center due to a COVID-19 outbreak, disruptions to the operations of our fulfillment center, or increased costs in fulfillment center capacity may negatively impact our financial performance or slow our future growth.
Governmental lockdowns and other restrictions at the onset of the COVID-19 pandemic negatively impacted, and in the event of a future resurgence or a different pandemic or health crisis may again negatively impact, the operations of and ability to ship from our fulfillment center.
We have implemented working from home where possible and enhanced disinfection and social distancing within our workplace. Many of our personnel are working remotely and it is possible that this could have a negative impact on the execution of our business plans and operations.
In response to the COVID-19 pandemic, we implemented working from home where possible and enhanced disinfection and social distancing within our workplace.
Our operating results are difficult to predict and may fluctuate, and a portion of our sales are seasonal.
Even an unsuccessful challenge of our SMS texting practices by our customers, regulatory authorities, or other third parties could result in negative publicity and could require a costly response from and defense by us. Our operating results are difficult to predict and may fluctuate, and a portion of our sales are seasonal.
Any security breach or event resulting in the misappropriation, loss, or other unauthorized disclosure of confidential information, whether by us directly or our third-party service providers, could damage our reputation, expose us to the risks of litigation and liability, disrupt our business, or otherwise affect our results of operations.
Our failure or the failure of third-party service providers to protect our website, networks, and systems against cybersecurity incidents, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business, financial condition, and results of operations.
Removed
We now have direct buying relationships with all the major pet medication manufacturers; the contractual relationship depends on our compliance with their minimum advertised pricing policies (MAPP). During fiscal 2020, the Company established direct purchasing relationships with all the major pet medication manufacturers.
Added
Our pet health business, which includes the sale and delivery of prescription pet medications is generally governed by state laws and state regulations, and with respect to controlled substances, also by federal law. Governmental authorities that regulate our business have broad latitude to make, interpret, and enforce the laws and regulations that govern us.
Removed
While we believe that our supplier relationships are good, a supplier could discontinue selling to us at any time.
Added
The expansion of our business into the offer and sale of pet insurance products will also subject us to additional laws and regulations regarding those activities, including registering as an insurance distributor in states in which we offer and 8 Table of Contents sell the Pumpkin co-branded pet insurance products and otherwise complying with state and federal laws relating to the sale and distribution of insurance products.
Removed
We are also subject to risks of damage or loss during delivery by our shipping vendors. Further, due to the continuing spread of COVID-19 and its variant strains and related work and travel restrictions, there may be disruptions and delays in national, regional and local shipping, which may negatively impact our customers’ experience and our operations and financial results.
Added
We are also subject to risks of damage or loss during delivery by our shipping vendors.
Removed
The spread of COVID-19, and any future similar outbreak, may disrupt our suppliers and logistics providers and other third- party delivery agents, as their workers may be prohibited or otherwise unable to report to work and transporting products within regions may be limited due to factory closures, port closures and increased border controls and closures, among other things.
Added
The quality of our customer service and support is important to our customers, and if we fail to provide adequate levels of customer service and support, we could lose customers, which would harm our business. We believe that a high level of customer care and support is critical in retaining and expanding our customer base.
Removed
A failure of our information systems and customer-facing technology systems or any security breach or unauthorized disclosure of confidential information, or other cyber-attacks on our systems, could result in litigation and regulatory risk, harm our reputation and have a material adverse effect on our business. Our business is dependent upon the efficient operation of our information systems.
Added
Although our customer care representatives participate in ongoing training programs on a variety of topics, such as product knowledge, computer usage, customer service tips, and the relationship between our Company and veterinarians, any perceived or actual decline in our customer-service response times or in the quality of our customer care representatives, even if episodic or temporary, could hurt our business.
Removed
Additionally, we collect, process, and retain sensitive and confidential customer information in the normal course of our business.
Added
Since most of our operations are housed in a single location, we are more susceptible to a business interruption in the event of damage to, or disruptions in, our facility, particularly with respect to extreme weather events .
Removed
Despite the security measures we have in place and any additional measures we may implement in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events.
Added
Additionally, recent intense weather conditions may cause property insurance premiums to significantly increase in the future. We recognize that the frequency and intensity of extreme weather events, sea-level rise, and other climatic changes may continue to increase and, as a result, our exposure to these events may increase.
Removed
Risks Related to COVID-19 The COVID-19 global pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, employee availability, financial performance, liquidity and cash flow for an unknown period of time. 12 The outbreak of COVID-19 was declared a pandemic by the World Health Organization and continues to spread in the United States, Canada, and in many other countries globally.
Added
Further, we currently accept payments using a variety of different payment methods which may subject us to additional regulations and compliance requirements, and may also increase our exposure to fraud, criminal activity, and other risks.
Removed
COVID-19 has had, and continues to have, a significant impact in the United States and around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders.
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In the future, as technology develops and we begin to offer new payment options to consumers, including by integrating emerging mobile and other payment methods, we may be subject to additional regulations, compliance requirements, or fraud.
Removed
The COVID-19 pandemic has at times significantly curtailed economic activity in the United States and globally, and caused significant volatility and disruption in global financial markets. The continued adverse public health developments, the related government and private sector responsive actions, and the economic effects of the COVID-19 pandemic may adversely affect our business operations.
Added
If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card payments from consumers or facilitate other types of online payments.
Removed
It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic, as the situation is continually evolving. The COVID-19 pandemic may disrupt the global supply chain and may cause disruptions to our operations if a significant number of employees are quarantined or if they are otherwise limited in their ability to work at our fulfillment center.
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If any of these events were to occur, our business, financial condition, and results of operations could be materially and adversely affected.
Removed
Additional federal or state mandates could also impact our ability to take or fulfill our customers’ orders and operate our business. As an essential business, we have been open during our normal business hours without any material disruptions to our operations. We are dedicated to making every effort to ensure the health and safety of our employees.
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As a result of our services being web based, we collect, process, transmit and store large amounts of data about our customers, employees, suppliers and others, including credit card information and personally identifiable information, as well as other confidential and proprietary information.
Removed
If a natural disaster, power outage, connectivity issue, or other event occurs that impacts our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.
Added
We also employ third-party service providers for a variety of reasons, including storing, processing and transmitting proprietary, personal and confidential information on our behalf.
Removed
The increase in remote working may also result in consumer privacy, IT security and fraud concerns as well as operational inefficiencies. The operations of our fulfillment center may be substantially disrupted by additional federal or state mandates ordering shutdowns or by the inability of our employees to travel to work due to COVID-19.
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While we rely on tokenization solutions licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers, advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of these solutions to protect confidential and sensitive information from being breached or compromised.
Removed
The uncertainty around the duration of business disruptions and the extent of the spread of the virus and the emergence of new variants of the virus in the United States and to other areas of the world will likely continue to adversely impact the national and global economy and negatively impact consumer spending.
Added
Similarly, our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems or those of our third-party service providers.
Removed
The full extent of COVID-19’s impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets and any new information that may emerge concerning the severity and new variants of the virus, its spread to other regions as well as the actions taken to contain it, among others.
Added
Distributed Denial-of-Service ("DDoS") attacks, viruses, malicious software, break-ins, phishing attacks, ransomware, social engineering, security breaches or other cybersecurity incidents and similar disruptions that may jeopardize the security of information stored in or transmitted by our website, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems, may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods.
Added
We and our service providers may not anticipate or prevent all types of attacks until after they have already been launched, and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers.
Added
In addition, cybersecurity incidents can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships. 12 Table of Contents Breaches of our security measures or those of our third-party service providers or any cybersecurity incident could result in unauthorized access to our website, networks and systems; unauthorized access to and misappropriation of consumer and/or employee information, including personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our website, networks or systems; deletion or modification of content or the display of unauthorized content on our website; interruption, disruption or malfunction of operations; costs relating to cybersecurity incident remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third party experts and consultants; litigation, regulatory action and other potential liabilities.
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If any of these cybersecurity incidents occur, or there is a public perception that we, or our third-party service providers, have suffered such a breach, our reputation and brand could also be damaged and we could be required to expend significant capital and other resources to alleviate problems caused by such cybersecurity incidents.
Added
As a consequence, our business could be materially and adversely affected and we could also be exposed to litigation and regulatory action and possible liability. In addition, any party who is able to illicitly obtain a customer’s password could access the customer’s transaction data or personal information.
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Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business, financial condition, and results of operations.
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The costs of mitigating cybersecurity risks are significant and are likely to increase in the future. These costs include, but are not limited to, retaining the services of cybersecurity providers; compliance costs arising out of existing and future cybersecurity, data protection and privacy laws and regulations; and costs related to maintaining redundant networks, data backups and other damage-mitigation measures.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe first building complex consists of approximately 125,000 square feet and the second building complex consists of approximately 60,000 square feet each consisting of both office and warehouse space. The Company occupies approximately 97,000 square feet of the first building for its principal offices and distribution center.
Biggest changeThe Delray Beach Property consists of approximately 634,000 square feet of land or 14.6 acres with two building complexes totaling approximately 185,000 square feet, with additional land for future use. The first building complex consists of approximately 125,000 square feet and the second building complex consists of approximately 60,000 square feet each consisting of both office and warehouse space.
ITEM 2. PROPERTIES We own our facilities, including our principal executive offices and distribution center, which are located at 420 South Congress Avenue, Delray Beach, Florida 33445 (the “Property”). The Property consists of approximately 634,000 square feet of land or 14.6 acres with two building complexes totaling approximately 185,000 square feet, with additional land for future use.
ITEM 2. PROPERTIES We own our facilities, including our principal executive offices and distribution center, which are located at 420 South Congress Avenue, Delray Beach, Florida 33445 (the “Delray Beach Property”).
As of March 31, 2022, 48% of the Property was leased to two tenants with a remaining weighted average lease term of 3.0 years. We believe that our facilities are sufficient for our current needs and are in good condition in all material respects.
The Company occupies approximately 97,000 square feet of the first building for its principal offices and distribution center. As of March 31, 2023, 48% of the Property was leased to two tenants with a remaining weighted average lease term of 2 years.
Added
We believe that our facilities are sufficient for our current needs and are in good condition in all material respects. In connection with our acquisition of PetCareRx, in April 2023 we assumed the leases of two buildings occupied by PetCareRx located in Lynbrook, New York.
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These facilities, which aggregate approximately 35,000 square feet, are used by PetCareRx as a shipping and fulfillment center and as an executive office. The leases expire in April 2027 and include the option to renew for an additional five years. PetCareRx also has a lease in Brooklyn that it does not occupy and is subleased.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS The Company has settled complaints that had been filed with various states’ pharmacy boards in the past. There can be no assurances made other states will not attempt to take similar actions against the Company in the future. The Company initiates litigation to protect its trade or service marks.
Biggest changeThere can be no assurances made that other states will not attempt to take similar actions against us in the future. We also initiate litigation to protect our trade or service marks. There can be no assurance that we will be successful in protecting our trade or service marks.
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There can be no assurance that the Company will be successful in protecting its trade or service marks. Legal costs related to the above matters are expensed as incurred.
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ITEM 3. LEGAL PROCEEDINGS We are involved from time to time in various claims and lawsuits in the ordinary course of business, including claims related to products, product warranties, contracts, employment, intellectual property, consumer protection, pharmacy and other regulatory matters. We have settled complaints that had been filed with various states’ pharmacy boards in the past.
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In the opinion of management, none of the claims and suits, either individually or in the aggregate, are reasonably likely to have a material adverse effect on our operations or consolidated financial statements. Legal costs related to the above matters are expensed as incurred.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changePerformance graph data: Fiscal Year Ended March 31, 2017 2018 2019 2020 2021 2022 PetMed Express, Inc. 100.00 211.75 119.69 159.37 201.60 155.76 Nasdaq Composite 100.00 120.76 133.60 134.52 233.26 252.05 SIC Code 5912 100.00 80.17 75.01 70.52 92.62 108.31 Russell 2000 100.00 111.79 114.09 86.72 168.96 159.19 16 Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth securities authorized for issuance under equity compensation plans, including individual compensation arrangements, by us under our 2015 Outside Director Equity Compensation Restricted Stock Plan and 2016 Employee Equity Compensation Restricted Stock Plan as of March 31, 2022: EQUITY COMPENSATION PLAN INFORMATION (In thousands) Number of securities Number of securities to be issued upon Weighted average remaining available exercise of outstanding exercise price of for future issuance options, warrants outstanding options, under equity Plan category and rights warrants and rights compensation plans 2015 Outside Director Equity Compensation Restricted Stock Plan 65 - 488 (1) 2016 Employee Equity Compensation Restricted Stock Plan 706 - 107 Total 771 595 (1) The number of shares of common stock available for issuance under the 2015 Outside Director Equity Compensation Restricted Stock Plan automatically increase on the first trading day of January each calendar year during the term of the 2015 Outside Director Equity Compensation Restricted Stock Plan, by an amount equal to ten percent (10%) of the total number of shares of common stock authorized under the 2015 Outside Director Equity Compensation Restricted Stock Plan.
Biggest changePerformance graph data: Fiscal Year Ended March 31, 2018 2019 2020 2021 2022 2023 PetMed Express, Inc. 100.00 56.52 75.15 95.03 72.77 48.61 NASDAQ Composite 100.00 109.43 109.01 187.54 201.33 173.03 SIC Code 5912 100.00 107.33 97.87 150.44 171.55 155.60 Russell 2000 100.00 100.67 75.39 145.19 135.35 117.85 Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth securities authorized for issuance under equity compensation plans, including individual compensation arrangements, by us under our 2015 Outside Director Equity Compensation Restricted Stock Plan, 2016 22 Table of Contents Employee Equity Compensation Restricted Stock Plan and 2022 Employee Equity Compensation Restricted Stock Plan as of March 31, 2023: EQUITY COMPENSATION PLAN INFORMATION (In thousands) Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans 2015 Outside Director Equity Compensation Restricted Stock Plan 69 — 502 (1) 2016 Employee Equity Compensation Restricted Stock Plan 684 — 40 2022 Employee Equity Compensation Restricted Stock Plan — — 1,000 Total 753 1,542 (1) The number of shares of common stock available for issuance under the 2015 Outside Director Equity Compensation Restricted Stock Plan automatically increase on the first trading day of January each calendar year during the term of the 2015 Outside Director Equity Compensation Restricted Stock Plan, by an amount equal to ten percent (10%) of the total number of shares of common stock authorized under the 2015 Outside Director Equity Compensation Restricted Stock Plan.
The graph assumes that $100 was invested on March 31, 2017, in each of our Common Stock, the Nasdaq Composite, the Russell 2000, and the SIC Code 5912 (pharmacy peer group). Because we have historically paid dividends on a quarterly basis, the graph assumes that dividends were reinvested.
The graph assumes that $100 was invested on March 31, 2018, in each of our Common Stock, the NASDAQ Composite, the Russell 2000, and the SIC Code 5912 (pharmacy peer group). Because we have historically paid dividends on a quarterly basis, the graph assumes that dividends were reinvested.
Performance Graph Set forth below is a line graph comparing the five-year cumulative performance of our Common Stock with the Nasdaq Composite, the Russell 2000, and our SIC Code 5912 (pharmacy peer group) from March 31, 2017, to March 31, 2022.
Performance Graph Set forth below is a line graph comparing the five-year cumulative performance of our common stock with the NASDAQ Composite, the Russell 2000, and our SIC Code 5912 (pharmacy peer group) from March 31, 2018, to March 31, 2023.
The performance graph and related information below shall not be deemed “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The performance graph and related information below shall not be deemed “filed” with the SEC, nor shall such information be incorporated by reference into any future 21 Table of Contents filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 14 PART II ITEM 5.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 20 Table of Contents PART II ITEM 5.
As of March 31, 2022, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan. Since the inception of the share repurchase plan up to March 31, 2022, approximately 6.2 million shares have been repurchased under the plan for approximately $81.3 million, averaging approximately $13.11 per share.
Since the inception of the share repurchase program up to March 31, 2023, approximately 6.2 million shares have been repurchased under the program for approximately $81.3 million, averaging approximately $13.15 per share.
The repurchase plan is intended to be implemented through purchases made from time to time in either the open market or through private transactions at the Company's discretion, subject to market conditions and other factors, in accordance with SEC requirements. 15 There can be no assurances as to the precise number of shares that will be repurchased under the share repurchase plan, and the Company may discontinue the share repurchase plan at any time subject to compliance with applicable regulatory requirements.
There can be no assurances as to the timing and number of shares that will be repurchased under the share repurchase program, and the Company may modify or discontinue the share repurchase program at any time subject to compliance with applicable regulatory requirements.
The Company intends to continue to pay regular quarterly dividends; however, the declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors each quarter following its review of the Company’s financial performance.
The Company’s Board of Directors declared a quarterly dividend of $0.30 per share on May 22, 2023. The dividend will be payable on June 12, 2023 to common shareholders of record on June 6, 2023. The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors each quarter.
Shares purchased pursuant to the share repurchase plan will either be cancelled or held in the Company's treasury. On January 25, 2019, the Company’s Board of Directors authorized an additional $30.0 million under the repurchase plan. During fiscal 2020 the Company purchased and retired approximately 613,000 shares of its common stock for approximately $11.5 million, averaging approximately $18.73 per share.
Shares purchased pursuant to the share repurchase program will either be cancelled or held in the Company's treasury. During the quarter and fiscal year ended March 31, 2023, the Company did not repurchase any shares of its common stock. As of March 31, 2023, the Company had approximately $28.7 million remaining under the Company’s share repurchase program.
MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ’ Price Range of Common Stock Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “PETS.” The prices set forth below reflect the high and low sale prices per share in each of the quarters of fiscal 2022 and 2021 as reported by the NASDAQ.
MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “PETS.” Holders There were 134 holders of record of our common stock on May 23, 2023, and approximately 48,300 of our holders are “street name” or beneficial holders, whose shares are held by banks, brokers, or other financial institutions.
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Fiscal 2022: High Low First Quarter $46.06 $27.73 Second Quarter $34.00 $26.50 Third Quarter $32.00 $25.26 Fourth Quarter $29.18 $23.62 Fiscal 2021: High Low First Quarter $40.96 $27.94 Second Quarter $41.83 $29.00 Third Quarter $33.77 $28.96 Fourth Quarter $51.80 $29.77 Holders There were 105 holders of record of our common stock on May 24, 2022, and approximately 48,300 of our holders are “street name” or beneficial holders, whose shares are held by banks, brokers, or other financial institutions.
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Dividend Policy We have paid cash dividends every quarter since August 2009. For the fiscal years ended March 31, 2023 and 2022, we declared and paid cash dividends totaling $25.3 million ($0.30 per share per quarter) and $24.8 million ($0.30 per share per quarter), respectively.
Removed
Dividends During fiscal 2021 and 2022, our Board of Directors declared the following dividends: Declaration Date Per Share Dividend Record Date Total Amount (In thousands) Payment Date May 4, 2020 $0.28 May 15, 2020 $5,647 May 22, 2020 July 20, 2020 $0.28 July 31, 2020 $5,647 August 7, 2020 October 26, 2020 $0.28 November 9, 2020 $5,676 November 20, 2020 January 19, 2021 $0.28 February 1, 2021 $5,676 February 12, 2021 May 3, 2021 $0.30 May 14, 2021 $6,081 May 21, 2021 July 26, 2021 $0.30 August 6, 2021 $6,102 August 13, 2021 October 25, 2021 $0.30 November 8, 2021 $6,283 November 19, 2021 January 24, 2022 $0.30 February 7, 2022 $6,294 February 18, 2022 On May 3, 2021, the Company’s Board of Directors declared an increased quarterly dividend from $0.28 to $0.30 per share, on its common stock.
Added
When considering whether to declare a dividend, our Board of Directors will take into account: • General economic and business conditions; • Our financial condition and operating results; • Our available cash and current and anticipated cash needs; • Our capital requirements; • Strategic uses of cash for growth initiatives; • Contractual, legal, tax and regulatory restrictions on the payment of dividends by us; and • Such other factors as our Board of Directors may deem relevant.
Removed
The Company’s Board of Directors declared a quarterly dividend of $0.30 per share on May 9, 2022. The Board established a May 20, 2022 record date and a May 27, 2022 payment date.
Added
Issuer Purchases of Equity Securities The Company has $110.0 million of shares authorized under previously approved share repurchase programs.
Removed
Issuer Purchases of Equity Securities On November 8, 2006, the Company's Board of Directors approved a share repurchase plan of up to $20.0 million. On October 31, 2008, November 1, 2010, and August 1, 2011, the Company’s Board of Directors approved an increase under the share repurchase plan, each for an additional $20.0 million.
Added
The share repurchase program does not have an expiration date and is intended to be implemented through purchases made from time to time in either the open market or through private transactions at the Company's discretion, subject to market conditions and other factors, in accordance with SEC requirements.
Added
Recent Sales of Unregistered Securities On February 3, 2023, we issued 6,000 shares of our common stock to a consultant pursuant to a consulting agreement in exchange for consulting services.
Added
The securities were issued in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(a)(2) under the Securities Act as a transaction by an issuer not involving any public offering. ITEM 6. [RESERVED] 23 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeShare-based compensation has been, and will continue to be for the foreseeable future, a material recurring expense in our business and an important part of our compensation strategy; ● Adjusted EBITDA and adjusted EBITDA per share do not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital; and ● Other companies, including companies in our industry, may calculate adjusted EBITDA and adjusted EBITDA per share differently, which reduces these measures’ usefulness as comparative measures.
Biggest changeShare-based compensation has been, and will continue to be for the foreseeable future, a material recurring expense in our business and an important part of our compensation strategy; • Adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital; • Adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems; • Adjusted EBITDA does not reflect certain non-operating expenses including the employee severance which reduces cash available to us; • Adjusted EBITDA does not reflect certain expenses including the estimated state sales tax accrual which reduces cash available to us. • Other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces the measures usefulness as comparative measures.
The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are estimated based on historical patterns; however, this is not considered a key judgment. There are no amounts excluded from variable consideration.
The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are estimated based on historical patterns, however this is not considered a key judgment. There are no amounts excluded from the variable consideration.
Critical Accounting Policies Our discussion and analysis of our financial condition and the results of our operations contained herein are based upon our Consolidated Financial Statements and the data used to prepare them. The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Critical Accounting Policies Our discussion and analysis of our financial condition and the results of our operations contained herein are based upon our consolidated financial statements and the data used to prepare them. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
The decrease in advertising expenses for fiscal 2022 was due to the Company receiving increased cooperative marketing funds from product manufacturers to offset our advertising expenses, within the terms of our contractual relationships. Overall advertising spending was flat compared to fiscal 2021, yet total net advertising expenses decreased due to increased cooperative advertising rebates.
The decrease in advertising expenses for fiscal 2022 was due to receiving increased cooperative marketing funds from product manufacturers to offset our advertising expenses, within the terms of our contractual relationships. Overall advertising spending was flat compared to fiscal 2021, yet total net advertising expenses decreased due to increased cooperative advertising rebates.
Offsetting the increase was a decrease of $397,000 primarily related to decreased bank service fees due to the decrease in sales. General and administrative expenses as a percentage of sales was 11.3% for the fiscal year ended March 31, 2022, compared to 9.1% for the fiscal year ended March 31, 2021.
Partially offsetting the increase was a decrease of $397,000 primarily related to decreased bank service fees due to the decrease in 33 Table of Contents sales. General and administrative expenses as a percentage of sales was 11.3% for the fiscal year ended March 31, 2022, compared to 9.1% for the fiscal year ended March 31, 2021.
For the quarters ended June 30, September 30, December 31, and March 31 of fiscal year 2022, the Company’s sales were approximately 29%, 25%, 22%, and 24%, respectively. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal year 2021, the Company’s sales were approximately 31%, 25%, 21%, and 23%, respectively.
For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2022, our sales were approximately 29%, 25%, 22%, and 24%, respectively. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2021, our sales were approximately 31%, 25%, 21%, and 23%, respectively.
The following table sets forth, as a percentage of sales, certain operating data appearing in the Company’s Consolidated Statements of Income: Fiscal Year Ended March 31, 2022 2021 2020 Sales 100.0 % 100.0 % 100.0 % Cost of sales 71.4 70.9 71.4 Gross profit 28.6 29.1 28.6 Operating expenses: General and administrative 11.3 9.1 8.9 Advertising 6.9 7.0 8.0 Depreciation 1.0 0.8 0.8 Total operating expenses 19.2 16.9 17.7 Income from operations 9.4 12.2 10.9 Total other income 0.5 0.5 1.0 Income before provision for income taxes 9.9 12.7 11.9 Provision for income taxes 2.2 2.8 2.8 Net income 7.7 % 9.9 % 9.1 % Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA per share To provide investors and the market with additional information regarding our financial results, we have disclosed (see below) adjusted EBITDA and adjusted EBITDA per share, non-GAAP financial measures that we calculate as net income excluding; share-based compensation expense; depreciation and amortization; income tax provision; and interest income (expense).
The following table sets forth, as a percentage of sales, certain operating data appearing in our consolidated statements of income: Fiscal Year Ended March 31, 2023 2022 2021 Sales 100.0 % 100.0 % 100.0 % Cost of sales 72.4 71.4 70.9 Gross profit 27.6 28.6 29.1 Operating expenses: General and administrative 19.3 11.3 9.1 Advertising 7.6 6.9 7.0 Depreciation 1.4 1.0 0.8 Total operating expenses 28.3 19.2 16.9 (Loss) income from operations (0.7) 9.4 12.2 Total other income 1.2 0.5 0.5 Income before provision for income taxes 0.5 9.9 12.7 Provision for income taxes 0.5 2.2 2.8 Net income — % 7.7 % 9.9 % Non-GAAP Financial Measures Adjusted EBITDA To provide investors and the market with additional information regarding our financial results, we have disclosed (see below) adjusted EBITDA, a non-GAAP financial measure that we calculate as net income excluding share-based compensation expense; depreciation; income tax provision; interest income (expense); and other non-operational expenses.
Accounting for income taxes The Company accounts for income taxes under the provisions of ASC Topic 740, (“ Accounting for Income Taxes ” ) , which generally requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the Consolidated Financial Statements or tax returns.
Accounting for income taxes 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.
Recent Accounting Pronouncements Other than disclosures included in Note 1 of the Consolidated Financial Statements, which are incorporated by reference as if fully set forth herein, the Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations, or cash flows. 26
Recent Accounting Pronouncements Other than disclosures included in Note 1 of the Consolidated Financial Statements, which are incorporated by reference as if fully set forth herein, we do not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on our consolidated financial position, results of operations, or cash flows.
However, the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability. Depreciation Depreciation expense for the fiscal year ended March 31, 2021 increased slightly to approximately $2.4 million from $2.3 million for the fiscal year ended March 31, 2020.
However, the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability. Depreciation Depreciation expense for the fiscal year ended March 31, 2022 increased slightly to approximately $2.7 million from $2.4 million for the fiscal year ended March 31, 2021.
This increase to depreciation expense for the fiscal year ended March 31, 2022, can be attributed to increased new property and equipment additions in fiscal 2022. Other income Other income decreased by approximately $268,000, to $1.4 million for the fiscal year ended March 31, 2022, from $1.6 million for the fiscal year ended March 31, 2021.
This increase to depreciation expense for the fiscal year ended March 31, 2022 can be attributed to new property and equipment additions in fiscal 2022. Other income Other income decreased by approximately $0.3 million to $1.4 million for the fiscal year ended March 31, 2022, from $1.6 million for the fiscal year ended March 31, 2021.
The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $72 for the fiscal year ended March 31, 2022, compared to $49 for the fiscal year ended March 31, 2021.
The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $58 for the fiscal year ended March 31, 2022, compared to $40 for the fiscal year ended March 31, 2021.
Cost of sales Cost of sales decreased by approximately $24.0 million, or 10.9% to $195.3 million for the fiscal year ended March 31, 2022, from $219.3 million for the fiscal year ended March 31, 2021. The cost of sales decrease can be directly related to the decrease in sales during fiscal year 2022.
Cost of sales Cost of sales decreased by approximately $23.9 million, or 10.9% to $195.3 million for the fiscal year ended March 31, 2022, from $219.3 million for the fiscal year ended March 31, 2021. The cost of sales increase can be directly related to the increase in sales during fiscal 2022.
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 7.0% and 8.0% for the fiscal years ended March 31, 2021 and 2020, respectively.
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 7.6% and 6.9% for the fiscal years ended March 31, 2023, and 2022, respectively.
Shipping costs associated with outbound freight after control over a product has transferred to a customer are an accounting policy election and are accounted for as fulfillment costs and are included in cost of sales. The Company disaggregates revenue in the following two categories: (1) reorder sales vs new order sales, and (2) internet sales vs contact center sales.
Shipping costs associated with outbound freight after control over a product has transferred to a customer are an accounting policy election and are accounted for as fulfillment costs and are included in cost of sales. 24 Table of Contents We disaggregate sales in the following two categories: (1) reorder sales vs new order sales, and (2) internet sales vs call center sales.
Some of these limitations are: ● Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA and adjusted EBITDA per share do not reflect capital expenditure requirements for such replacements or for new capital expenditures; ● Adjusted EBITDA and adjusted EBITDA per share do not reflect share-based compensation.
Some of these limitations are: • Although depreciation is a non-cash charge, the assets being depreciated may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures; • Adjusted EBITDA does not reflect share-based compensation.
Provision for income taxes For the fiscal years ended March 31, 2021 and 2020, the Company recorded an income tax provision of approximately $8.6 million and $8.0 million, respectively. The increase to the income tax provision for fiscal 2021 is related to an increase in operating income compared to fiscal 2020.
Provision for income taxes For the fiscal years ended March 31, 2022 and 2021, we recorded an income tax provision of approximately $6.0 million and $8.6 million, respectively. The decrease to the income tax provision for fiscal 2022 is related to a decrease in operating income compared to fiscal 2021.
The changes in consumer behavior post pandemic makes future sales somewhat challenging to predict. No guarantees can be made that sales will continue to grow in the future. The majority of our product sales are affected by the seasons, due to the seasonality of mainly heartworm, and flea and tick medications.
No guarantees can be made that sales will continue to grow in the future. The majority of our product sales are affected by the seasons, due to the seasonality of mainly heartworm, and flea and tick medications.
The effective tax rate for the fiscal years ended March 31, 2021 and 2020 were 22.0% and 23.7%, respectively.
The effective tax rate for the fiscal years ended March 31, 2022 and 2021 were 22.1% and 22.0%, respectively.
The Company currently anticipates advertising as a percentage of sales to be approximately 7.0% for fiscal year 2023. However, the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability. Depreciation Depreciation expense for the fiscal year ended March 31, 2022, increased to approximately $2.7 million from $2.4 million for the fiscal year ended March 31, 2021.
We anticipate advertising as a percentage of sales to be approximately 8.0% for fiscal year 2024. However, the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability. Depreciation Depreciation expense for the fiscal year ended March 31, 2023, increased to approximately $3.5 million from $2.7 million for the fiscal year ended March 31, 2022.
We believe the increase in veterinary visits was primarily due to pet owners needing to visit their veterinarian for their pets’ annual exam in order to renew their prescriptions, as many veterinarians were closed in the prior year due to the pandemic.
Veterinary visits increased during fiscal year 2022, compared to being down during the prior year. We believe the increase in veterinary visits was primarily due to pet owners needing to visit their veterinarian for their pets’annual exam in order to renew their prescriptions, as many veterinarians were closed in the prior year due to the pandemic.
The decrease in the gross profit percentage was adversely impacted due to the major manufacturers, with whom we have a purchasing relationship, shifting their rebate funding from discounting product costs to more cooperative marketing rebates.
Gross profit as a percentage of sales for fiscal 2022 was 28.6% compared to 29.1% for fiscal 2021. The decrease in the gross profit percentage was adversely impacted due to the major manufacturers, with whom we have a purchasing relationship, shifting their rebate funding from discounting product costs to more cooperative marketing rebates.
The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $49 for the fiscal year ended March 31, 2021, compared to $54 for the fiscal year ended March 31, 2020.
The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $71 for the fiscal year ended March 31, 2023, compared to $58 for the fiscal year ended March 31, 2022, per the new definition of new customers.
In addition, we believe it is useful to exclude in our adjusted EBITDA and adjusted EBITDA per share income tax provision and interest income (expense), as neither are components of our core business operations.
We believe it is useful to exclude income tax provision and interest income (expense ), a s neither are components of our core business operations.
Advertising expenses Advertising expenses decreased by approximately $1.1 million to $21.6 million for the fiscal year ended March 31, 2021, from $22.7 million for the fiscal year ended March 31, 2020.
Advertising expenses Advertising expenses decreased by approximately $2.8 million to $18.8 million for the fiscal year ended March 31, 2022, from $21.6 million for the fiscal year ended March 31, 2021.
The decrease to the effective rate for the fiscal year ended March 31, 2021 can be attributed to the Company receiving a one-time state income tax refund of $285,000 in the June 2020 quarter and a $135,000 income tax benefit related to restricted stock compensation in the September 2020 and March 2021 quarters, compared to a $322,000 income tax charge related to restricted stock compensation, which was recognized in the September 2019 quarter.
The slight increase to the effective rate for the fiscal year ended March 31, 2022, can be attributed to receiving more one-time tax benefits in fiscal 2021 than in fiscal 2022 The one-time tax benefits received in fiscal 2021 included a one-time state income tax refund of $285,000 in the June 2020 quarter and a $135,000 income tax benefit related to restricted stock compensation in the September 2020 and March 2021 quarters.
Interest income may decrease in the future as the Company utilizes its cash balances on its share repurchase plan, with approximately $28.7 million remaining at March 31, 2021, on any quarterly dividend payment, on its operating activities, or with further decreases in interest rates.
Interest income may decrease in the future as we utilize our cash balances on its share repurchase plan, with approximately $28.7 million remaining as of March 31, 2022, on any quarterly dividend payment, on future investment/partnerships, or on its operating activities.
The increase to net income was primarily related to an increase in gross profit, offset by an increase in operating expenses and a decrease to interest income during the fiscal year. Liquidity and Capital Resources The Company’s working capital at March 31, 2022 and 2021 was approximately $117.8 million and approximately $116.3 million, respectively.
The decrease to net income was primarily related to a decrease in sales and resulting gross profit, and an increase in general and administrative expenses, partially offset by a decrease in advertising expenses, during the fiscal year. Liquidity and Capital Resources Our working capital at March 31, 2023 and 2022 was approximately $95.0 million and approximately $117.8 million, respectively.
The Company expects general and administrative expense as a percentage of sales to approximate 12.5% and expects stock compensation expense to approximate $6.4 million in fiscal 2023. Advertising expenses Advertising expenses decreased by approximately $2.8 million to $18.8 million for the fiscal year ended March 31, 2022, from $21.6 million for the fiscal year ended March 31, 2021.
We currently expect general and administrative expense as a percentage of sales to approximate 17.0%, and expect stock compensation expense to approximate $6.4 million, in fiscal 2024. Advertising expenses Advertising expenses increased by approximately $0.6 million to $19.4 million for the fiscal year ended March 31, 2023, from $18.8 million for the fiscal year ended March 31, 2022.
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. 19 Results of Operations The following should be read in conjunction with the Company’s Consolidated Financial Statements and the related notes thereto included elsewhere herein.
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.
Accordingly, we believe that adjusted EBITDA and adjusted EBITDA per share provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors. 20 We believe it is useful to exclude non-cash charges, such as, share-based compensation expense, depreciation and amortization from our adjusted EBITDA and adjusted EBITDA per share 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 non-cash charges, such as share-based compensation expense, 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.
This increase to depreciation expense for the fiscal year ended March 31, 2021 can be attributed to increased new property and equipment additions in fiscal 2021. 25 Other income Other income decreased by approximately $1.3 million to $1.6 million for the fiscal year ended March 31, 2021, from $2.9 million for the fiscal year ended March 31, 2020.
This increase to depreciation expense for the fiscal year ended March 31, 2023 can be attributed to new property and equipment additions in fiscal 2023. 31 Table of Contents Other income Other income increased by approximately $1.7 million, to $3.0 million for the fiscal year ended March 31, 2023, from $1.4 million for the fiscal year ended March 31, 2022.
Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies. Revenue recognition The Company generates revenue by selling pet medication products and pet supplies mainly to retail customers. Certain pet supplies offered on the Company’s website are drop shipped to customers.
Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies. Revenue recognition We account for revenue under ASC Topic 606 (" Revenue from Contracts with Customers") and generate revenue by selling pet medication products and pet supplies mainly to retail customers.
Sales Sales decreased by approximately $35.8 million, or 11.6%, to $273.4 million for the fiscal year ended March 31, 2022, from approximately $309.2 million for the fiscal year ended March 31, 2021. The decrease in sales for the fiscal year ended March 31, 2022, was primarily due to decreases in reorder and new order sales.
Fiscal 2022 Compared to Fiscal 2021 Sales Sales decreased by approximately $35.80 million, or 11.6%, to $273.4 million for the fiscal year ended March 31, 2022, from approximately $309.2 million for the fiscal year ended March 31, 2021.
The Company considers itself the principal in the arrangement because the Company controls the specified good before it is transferred to the customer. Revenue contracts contain one performance obligation, which is delivery of the product; customer care and support is deemed not to be a material right to the contract.
Certain pet supplies offered on our website are drop shipped to customers. We consider ourself the principal in the arrangement because we control the specified good before it is transferred to the customer. Revenue contracts contain one performance obligation, which is delivery of the product; customer care and support is deemed not to be a material right to the contract.
Cost of sales Cost of sales increased by approximately $16.4 million, or 8.1% to $219.3 million for the fiscal year ended March 31, 2021, from $202.9 million for the fiscal year ended March 31, 2020. The cost of sales increase can be directly related to the increase in sales during fiscal 2021.
Cost of sales Cost of sales decreased by approximately $9.5 million, or 4.9% to $185.8 million for the fiscal year ended March 31, 2023, from $195.3 million for the fiscal year ended March 31, 2022. The cost of sales decrease can be directly related to the decrease in sales during fiscal year 2023.
We have included adjusted EBITDA and adjusted EBITDA per share, herein, because they are key measures used by our management and Board of Directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.
We have provided reconciliations below of adjusted EBITDA to net income, the most directly comparable GAAP financial measures. We have included adjusted EBITDA, herein, because it is a key measure used by our management and Board of Directors to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital.
The decrease to net income was primarily related to a decrease in sales and resulting gross profit, and an increase in general and administrative expenses, all partially offset by a decrease in advertising expenses, during the fiscal year.
The decrease to net income was primarily related to a decrease in sales and resulting gross profit, an increase in general and administrative expenses including the sales tax accrual for $7.8 million and $1.9 million related to acquisition related expenses, and an increase in advertising expenses, during the fiscal year.
Sales for fiscal year 2022 were impacted by a much more competitive environment, and a crowded advertising market which had substantially higher advertising costs compared to the same period in the prior year. Veterinary visits increased during fiscal year 2022, compared to being down during the prior year.
The decrease in sales for the fiscal year ended March 31, 2022 was primarily due to decreased reorder sales and new order sales. Sales for fiscal year 2022 were impacted by a much more competitive environment, and a crowded advertising market which had substantially higher advertising costs compared to the same period in the prior year.
The decrease to the income tax provision for fiscal 2022 is related to a decrease in operating income compared to fiscal 2021. The effective tax rate for the fiscal years ended March 31, 2022, and 2021 were 22.1% and 22.0%, respectively.
Provision for income taxes For the fiscal years ended March 31, 2023 and 2022, we recorded an income tax provision of approximately $1.4 million and $6.0 million, respectively. The decrease to the income tax provision for fiscal 2023 is related to a decrease in operating income compared to fiscal 2022.
The allowance for doubtful accounts was approximately $39,000 at both March 31, 2021, and March 31, 2022. Valuation of inventory Inventories consist of prescription and non-prescription pet medications and pet supplies that are available for sale and are priced at the lower of cost or net realizable value using a weighted average cost method.
Valuation of inventory Inventories consist of prescription and non-prescription pet medications and pet supplies that are available for sale and are priced at the lower of cost or net realizable value using a weighted average cost method. We write down our inventory 25 Table of Contents for estimated obsolescence.
The cost of sales percentage increase was adversely impacted due to the major manufacturers, with whom we have a purchasing relationship, shifting their rebate funding from discounting product costs to more cooperative marketing rebates. 22 Gross profit Gross profit decreased by approximately $11.8 million, or 13.2%, to $78.1 million for the fiscal year ended March 31, 2022, from $89.9 million for the fiscal year ended March 31, 2021.
As a percentage of sales, cost of sales was 71.4% in fiscal 2022, as compared to 70.9% in fiscal 2021. The cost of sales percentage increase was adversely impacted due to the major manufacturers, with whom we have a purchasing relationship, shifting their rebate funding from discounting product costs to more cooperative marketing rebates.
Net income Net income decreased by approximately $9.5 million, or 31%, to approximately $21.1 million for the fiscal year ended March 31, 2022, from approximately $30.6 million for the fiscal year ended March 31, 2021.
This compared to a $196,000 one-time state income tax refund and a $131,000 benefit due to a state rate reduction in the March 2022 quarter. Net income Net income decreased by approximately $9.5 million, or 31%, to approximately $21.1 million for the fiscal year ended March 31, 2022 from approximately $30.6 million for the fiscal year ended March 31, 2021.
For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2021, the Company’s sales were approximately 31%, 25%, 21%, and 23%, respectively. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2020, the Company’s sales were approximately 28%, 25%, 21%, and 26%, respectively.
For the quarters ended June 30, 30 Table of Contents September 30, December 31, and March 31 of fiscal year 2023, our sales were approximately 27%, 26%, 23%, and 24%, respectively. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal year 2022, our sales were approximately 29%, 25%, 22%, and 24%, respectively.
The decrease to customer acquisition costs for the fiscal year ended March 31, 2021 can also be attributed to receiving increased cooperative marketing funds from product manufacturers. Advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, advertising spending, and price competition.
The increase to customer acquisition costs for the fiscal year ended March 31, 2023, was due to an increase in overall advertising prices and less efficient variable marketing spend. 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.
This change in investing activities is related to decreased property and equipment additions acquired in fiscal 2022. Net cash used in financing activities was $24.4 million and $22.7 million for the fiscal years ended March 31, 2022 and 2021, respectively.
Net cash used in investing activities was $10.3 million and $1.8 million for the fiscal years ended March 31, 2023 and 2022, respectively. This change in investing activities is related to the investment in the Vetster partnership and and higher levels of property and equipment additions including web development improvements acquired in fiscal 2023.
Because of these and other limitations, you should consider adjusted EBITDA and adjusted EBITDA per share only as supplemental to, and alongside with other GAAP based financial performance measures, including various cash flow metrics, net income, net margin, and our other GAAP results.
Because of these and other limitations, Adjusted EBITDA should only be considered as supplemental to, and alongside with other GAAP based financial performance measures, including various cash flow metrics, net income, net margin, and our other GAAP results. 28 Table of Contents The following table presents a reconciliation of net income, the most directly comparable GAAP measure to Adjusted EBITDA for each of the periods indicated: Reconciliation of Non-GAAP Measures PetMed Express, Inc.
Revenue is recognized when control transfers to the customer at the point in time in which the shipment of the product occurs. Outbound shipping and handling fees are an accounting policy election and are included in sales as the Company considers itself the principal in the arrangement given responsibility for supplier selection and discretion over pricing.
Outbound shipping and handling fees are an accounting policy election and are included in sales as we consider ourself the principal in the arrangement given responsibility for supplier selection and discretion over pricing.
The Company acquired approximately 263,000 new customers for the fiscal year ended March 31, 2022, compared to approximately 443,000 new customers for the same period the prior year.
We acquired approximately 325,000 new customers for the fiscal year ended March 31, 2022, compared to approximately 546,000 new customers for the same period the prior year. Financial data in the tables below reflects the new 36-month definition of new customers.
General and administrative expenses General and administrative expenses increased by approximately $3.0 million, or 12.0%, to $28.3 million for the fiscal year ended March 31, 2021 from $25.3 million for the fiscal year ended March 31, 2020.
General and administrative expenses General and administrative expenses increased by approximately $18.6 million, or 60.5%, to $49.5 million for the fiscal year ended March 31, 2023, from $30.8 million for the fiscal year ended March 31, 2022.
As a percentage of sales, cost of sales was 71.4% in fiscal year 2022, as compared to 70.9% in fiscal 2021.
As a percentage of sales, cost of sales was 72.4% in fiscal year 2023, as compared to 71.4% in fiscal 2022. The cost of sales percentage increase was primarily due to increased per order freight expense.
Internet costs are expensed in the month incurred and direct mail/print advertising costs are expensed when the related brochures and postcards are produced, distributed, or superseded. Television advertising costs are expensed as the advertisements are televised.
The inventory reserve was approximately $48 thousand and $81 thousand at March 31, 2023 and 2022, respectively. Advertising Our advertising expense consists primarily of Internet marketing, direct mail/print, and television advertising. Internet costs are expensed in the month incurred and direct mail/print advertising costs are expensed when the related brochures and postcards are produced, distributed, or superseded.
In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses.
In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and other expenses. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.
The decrease in gross profit can be directly related to the decrease in sales during fiscal 2022. Gross profit as a percentage of sales for fiscal 2022 was 28.6% compared to 29.1% for fiscal 2021.
Gross profit as a percentage of sales for fiscal 2023 was 27.6% compared to 28.6% for fiscal 2022. The gross profit and gross profit percentage decreased for the fiscal year ended March 31, 2023 compared to the previous fiscal year.
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. Presently, we have approximately $5.0 million forecasted for capital expenditures in fiscal 2023, which will be funded through cash from operations. The Company’s primary source of working capital is cash from operations.
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.
The $1.5 million increase in working capital was primarily attributable to income generated by operations and a reduction to accounts payable, offset by dividends paid in the period. Net cash provided by operating activities was $18.5 million and $40.1 million for the fiscal years ended March 31, 2022 and 2021, respectively.
Net cash provided by operating activities was $27.8 million and $18.5 million for the fiscal years ended March 31, 2023 and 2022, respectively.
Approximately 84% of all sales were generated via the Internet in both fiscal 2022 and fiscal 2021. The twelve-month average purchase was approximately $93 per order for the fiscal year ended March 31, 2022, compared to $89 for the fiscal year ended March 31, 2021.
Our sales consist of products sold mainly to retail consumers. The twelve-month average purchase remained approximately $93 per order for the fiscal years ended March 31, 2023, and March 31, 2022.
Presently, the Company’s product line includes approximately 3,000 of the most popular pet medications, health products, and supplies for dogs, cats, and horses. The Company markets its products through national advertising campaigns which aim to increase the recognition of the “PetMeds” brand name, increase traffic on its website at www.petmeds.com , acquire new customers, and maximize repeat purchases.
We market our products through national advertising campaigns which aim to increase the recognition of the “PetMeds” brand name, increase traffic on our website at www.petmeds.com , acquire new customers, and maximize repeat purchases. Approximately 86.4% of all sales were generated via the Internet in fiscal 2023 and 84.2% in fiscal 2022.
Interest income may decrease in the future as the Company utilizes its cash balances on its share repurchase plan, with approximately $28.7 million remaining as of March 31, 2022, on any quarterly dividend payment, on future investment/partnerships, or on its operating activities. 23 Provision for income taxes For the fiscal years ended March 31, 2022 and 2021, the Company recorded an income tax provision of approximately $6.0 million and $8.6 million, respectively.
Interest income may decrease in the future as we utilize our cash balances on any quarterly dividend payment, on future investments or partnerships, on our operating activities, if the current interest rate environment changes, or on our share repurchase program, which has approximately $28.7 million remaining as of March 31, 2023.
The following chart illustrates sales by various sales classifications: Year Ended March 31, Sales (In thousands) 2022 % 2021 % $ Variance % Variance Reorder Sales $ 250,401 91.6 % $ 272,648 88.2 % $ (22,247 ) -8.2 % New Order Sales $ 23,016 8.4 % $ 36,567 11.8 % $ (13,551 ) -37.1 % Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 % Internet Sales $ 230,263 84.2 % $ 259,404 83.9 % $ (29,141 ) -11.2 % Contact Center Sales $ 43,154 15.8 % $ 49,811 16.1 % $ (6,657 ) -13.4 % Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 % Going forward sales may be adversely affected due to increased competition and consumers giving more consideration to price.
The following chart illustrates sales by various sales classifications: 32 Table of Contents Year Ended March 31, Sales (In thousands) 2022 % 2021 % $ Variance % Variance Reorder sales $ 244,505 89.4 % $ 263,152 85.1 % $ (18,647) (7.1) % New order sales $ 28,912 10.6 % $ 46,063 14.9 % $ (17,151) (37.2) % Total net sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798) (11.6) % Internet sales $ 230,263 84.2 % $ 259,404 83.9 % $ (29,141) (11.2) % Call center sales $ 43,154 15.8 % $ 49,811 16.1 % $ (6,657) (13.4) % Total net sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798) (11.6) % Please note that we changed the definition of a new customer on April 1, 2022, to include anyone who has not ordered over the past thirty-six months.
The Company maintains an allowance for doubtful accounts for losses that the Company estimates will arise from customers’ inability to make required payments, arising from either credit card chargebacks or insufficient funds checks. The Company determines its estimates of the un-collectability of accounts receivable by analyzing historical bad debts and current economic trends.
We had no material contract asset or contract liability balances as of March 31, 2023, or March 31, 2022. We maintain an allowance for doubtful accounts for losses that we estimate will arise from customers’ inability to make required payments, arising from either credit card chargebacks or insufficient funds checks.
In the latter half of fiscal 2021, veterinarian clinics and retail stores re-opened. The Company acquired approximately 443,000 new customers for the fiscal year ended March 31, 2021, compared to approximately 421,000 new customers for the same period the prior year.
We acquired approximately 274,000 new customers for the fiscal year ended March 31, 2023, compared to approximately 325,000 new customers for the same period the prior year. Financial data in the tables below reflects the new 36-month definition of new customers.
The slight increase to the effective rate for the fiscal year ended March 31, 2022, can be attributed to the Company receiving more one-time tax benefits in fiscal 2021 than in fiscal 2022.
The effective tax rate for the fiscal year ended March 31, 2023 was approximately 85.3%, compared to approximately 22.1% for the fiscal year ended March 31, 2022. The increase to the effective rate for the fiscal year ended March 31, 2023, can be attributed to one-time non-deductible acquisition costs and non-deductible restricted stock compensation.
Fiscal 2021 Compared to Fiscal 2020 Sales Sales increased by approximately $25.1 million, or 8.8%, to $309.2 million for the fiscal year ended March 31, 2021, from approximately $284.1 million for the fiscal year ended March 31, 2020.
Gross profit Gross profit decreased by approximately $11.9 million, or 13.2%, to $78.1 million for the fiscal year ended March 31, 2022, from $89.9 million for the fiscal year ended March 31, 2021. The decrease in gross profit can be directly related to the decrease in sales during fiscal 2022.
Offsetting the increase was a net decrease of $48,000 to other expenses which include insurance, professional fees, and bad debt expense. General and administrative expenses as a percentage of sales was 9.1% for the fiscal year ended March 31, 2021, compared to 8.9% for the fiscal year ended March 31, 2020.
The increase in general and administrative expenses for the fiscal year ended March 31, 2023 was due to a $5.8 million increase in payroll expenses, of which $2.1 million is from increased stock compensation and $0.4 million from accrued severance, as well as a $1.9 million increase of professional fees, a $1.0 million increase of software and systems expense, and a $0.2 million increase of other overhead expenses.
The Company presently has no need for alternative sources of working capital and has no commitments or plans to obtain additional capital.
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.
The following table illustrates sales by various classifications: Year Ended March 31, Sales (In thousands) 2022 % 2021 % $ Variance % Variance Reorder Sales $ 250,401 91.6 % $ 272,648 88.2 % $ (22,247 ) -8.2 % New Order Sales $ 23,016 8.4 % $ 36,567 11.8 % $ (13,551 ) -37.1 % Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 % Internet Sales $ 230,263 84.2 % $ 259,404 83.9 % $ (29,141 ) -11.2 % Contact Center Sales $ 43,154 15.8 % $ 49,811 16.1 % $ (6,657 ) -13.4 % Total Net Sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798 ) -11.6 % 18 Year Ended March 31, Sales (In thousands) 2021 % 2020 % $ Variance % Variance Reorder Sales $ 272,648 88.2 % $ 248,560 87.5 % $ 24,088 9.7 % New Order Sales $ 36,567 11.8 % $ 35,565 12.5 % $ 1,002 2.8 % Total Net Sales $ 309,215 100.0 % $ 284,125 100.0 % $ 25,090 8.8 % Internet Sales $ 259,404 83.9 % $ 238,054 83.8 % $ 21,350 9.0 % Contact Center Sales $ 49,811 16.1 % $ 46,071 16.2 % $ 3,740 8.1 % Total Net Sales $ 309,215 100.0 % $ 284,125 100.0 % $ 25,090 8.8 % Virtually all of the Company’s sales are paid by credit cards and the Company usually receives the cash settlement in two to three banking days.
The following table illustrates sales by various classifications: Year Ended March 31, Sales (In thousands) 2023 % 2022 % $ Variance % Variance Reorder sales $ 232,633 90.6 % $ 244,505 89.4 % $ (11,872) (4.9) % New order sales $ 24,225 9.4 % $ 28,912 10.6 % $ (4,687) (16.2) % Total net sales $ 256,858 100.0 % $ 273,417 100.0 % $ (16,559) (6.1) % Internet sales $ 221,894 86.4 % $ 230,263 84.2 % $ (8,369) (3.6) % Call center sales $ 34,964 13.6 % $ 43,154 15.8 % $ (8,190) (19.0) % Total net sales $ 256,858 100.0 % $ 273,417 100.0 % $ (16,559) (6.1) % Year Ended March 31, Sales (In thousands) 2022 % 2021 % $ Variance % Variance Reorder sales $ 244,505 89.4 % $ 263,152 85.1 % $ (18,647) (7.1) % New order sales $ 28,912 10.6 % $ 46,063 14.9 % $ (17,151) (37.2) % Total net sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798) (11.6) % Internet sales $ 230,263 84.2 % $ 259,404 83.9 % $ (29,141) (11.2) % Call center sales $ 43,154 15.8 % $ 49,811 16.1 % $ (6,657) (13.4) % Total net sales $ 273,417 100.0 % $ 309,215 100.0 % $ (35,798) (11.6) % Please note that we changed the definition of a new customer on April 1, 2022, to include anyone who has not ordered over the past thirty-six months.
Adjusted EBITDA and adjusted EBITDA per share have limitations as financial measures, these non-GAAP measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
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 state sales tax accrual as these items are not indicative of our ongoing operations. 27 Table of Contents 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.
Subsequent to March 31, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.30 per share on May 9, 2022. The Board established a May 20, 2022 record date and a May 27, 2022 payment date.
On May 22, 2023, our Board of Directors declared a $0.30 per share dividend, with a June 6, 2023 record date and a June 12, 2023 payment date. up The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors each quarter.
The Company estimates its effective tax rate will be approximately 23.5% for fiscal 2022. Net income Net income increased by approximately $4.7 million, or 18.4%, to approximately $30.6 million for the fiscal year ended March 31, 2021 from approximately $25.9 million for the fiscal year ended March 31, 2020.
The state tax rate increased due to continued expansion of operations and associated state income tax filing requirements. Net income Net income decreased by approximately $20.9 million, or 98.9%, to approximately $0.2 million for the fiscal year ended March 31, 2023, from approximately $21.1 million for the fiscal year ended March 31, 2022.
The decrease in advertising expense as a percentage of total sales for the fiscal year ended March 31, 2021 can be attributed to a decrease in advertising expenses and an increase in sales as compared to the same period in the prior year. The Company currently anticipates advertising as a percentage of sales to be approximately 7% for fiscal 2022.
Gross profit Gross profit decreased by approximately $7.1 million, or 9.0%, to $71.0 million for the fiscal year ended March 31, 2023, from $78.1 million for the fiscal year ended March 31, 2022. The decrease in gross profit can be directly related to the decrease in sales and an increase in per order freight expense during fiscal 2023.
The decrease to other income was primarily related to decreased interest income due to decreased interest rates compared to the prior year.
The increase was primarily related to additional interest income as a result of higher interest rates.
The increase to financing activities relates to an increase in the dividend paid in fiscal 2022, compared to the dividend paid in fiscal 2021. At March 31, 2022, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan.
Net cash used in financing activities was $24.5 million and $24.4 million for the fiscal years ended March 31, 2023 and 2022, respectively, due to the payment of an aggregate $1.20 per share dividend in each fiscal year. As of March 31, 2023, we had approximately $28.7 million remaining under our share repurchase program.
Removed
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Executive Summary PetMed Express (the “Company”) was incorporated in the state of Florida in January 1996, and since 2004 its common stock has traded on the NASDAQ Global Select Market under the symbol “PETS.” The Company began selling pet medications and other pet health products in September 1996, and in March 2010, the Company started offering additional pet supplies on its website for sale, and these items are drop shipped to customers by third party vendors.
Added
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Executive Summary 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, food, supplements, supplies and vet services for dogs, cats, and horses.
Removed
Credit card sales minimize accounts receivable balances relative to sales. The Company had no material contract asset or contract liability balances as of March 31, 2022, or March 31, 2021.
Added
PetMeds markets and sells directly to consumers through its websites, toll-free numbers, and mobile applications. 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.
Removed
The Company writes down its inventory for estimated obsolescence. The inventory reserve was approximately $81,000 and $86,000 at March 31, 2022 and 2021, respectively. Advertising The Company's advertising expense consists primarily of Internet marketing, direct mail/print, and television advertising.
Added
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. Presently, our product line includes approximately 15,000 of the most popular pet medications, health products, and supplies for dogs, cats, and horses.
Removed
We have provided reconciliations below of adjusted EBITDA to net income and adjusted EBITDA per share to diluted earnings per share, the most directly comparable GAAP financial measures.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−0 removed1 unchanged
Biggest changeOur cash and cash equivalents are subject to market risk, primarily interest rate and credit risk. Our investments are managed by a limited number of outside professional managers within investment guidelines set by our Board of Directors.
Biggest changeOur cash and cash equivalents are managed by a limited number of outside professional managers within investment guidelines set by our Board of Directors. 35 Table of Contents Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by maintaining cash in federally-insured bank deposit accounts and restricting cash equivalents to highly-liquid investments with a maturities of three months or less.
The book values of cash equivalents, accounts receivable, and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. Interest rates affect our return on excess cash and cash equivalents. At March 31, 2022, we had $111.1 million in cash and cash equivalents, primarily money market accounts.
The book values of cash equivalents, accounts receivable, and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. Interest rates affect our return on excess cash and cash equivalents.
A majority of our cash and cash equivalents generates interest income based on prevailing interest rates. A significant change in interest rates could impact the amount of interest income generated from our excess cash and cash equivalents. It would also impact the market value of our cash and cash equivalents.
At March 31, 2023, we had $104.1 million in cash and cash equivalents, and the majority of our cash and cash equivalents generate interest income based on prevailing interest rates. A significant change in interest rates would impact the amount of interest income generated from our excess cash and cash equivalents.
Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by restricting our investments to high-quality debt instruments with both short- and long-term maturities. We do not hold any derivative financial instruments that could expose us to significant market risk. At March 31, 2022, we had no debt obligations. 27
We do not hold any derivative financial instruments that could expose us to significant market risk. At March 31, 2023, we had no debt obligations. 36 Table of Contents
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It would also impact the market value of our cash and cash equivalents. Our cash and cash equivalents are subject to market risk, primarily interest rate and credit risk.

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