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What changed in PETMED EXPRESS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of PETMED EXPRESS INC's 2023 and 2024 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 2024 report.

+299 added−289 removedSource: 10-K (2024-06-14) vs 10-K (2023-05-23)

Top changes in PETMED EXPRESS INC's 2024 10-K

299 paragraphs added · 289 removed · 173 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDispensing 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.
Biggest changeWe have also applied for trademark protection for "VetLive TM ." GOVERNMENT REGULATION We are subject to a broad range of federal, state, and local laws and regulations that relate to our business. 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.
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.
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 Ex.
We also obtained the right to use and control the Internet addresses www.petmeds.pharmacy , www.petmed.pharmacy , and www.1800petmeds.pharmacy , through a National Association of Boards of Pharmacy® initiative to ensure high standards for online pharmacies.
We also obtained the right to use and control the Internet addresses www.petmeds.pharmacy , www.petmed.pharmacy , www.1800petmeds.pharmacy , petcare.pharmacy , and petcarerx.pharmacy , through a National Association of Boards of Pharmacy® initiative to ensure high standards for online pharmacies.
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.
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, legal services provider network, paid time off (including gender neutral parental leave) and retirement benefits, as well as emotional well-being services through our health insurance program.
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 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 SEC filings, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to the Exchange Act are available free of charge over the Internet on our website or at the SEC's web site at www.sec.gov .
Our SEC filings, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to the Exchange Act are available free of charge over the Internet on our website at www.petmeds.com or at the SEC's website at www.sec.gov .
Our planned distribution of pet insurance products under our strategic partnership with Pumpkin will also subject us to state laws and regulations relating to the sale of insurance products, including registering as an insurance distributor in states in which we offer and 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.
Our distribution of pet insurance products under our strategic partnership with Pumpkin also subjects us to state laws and regulations relating to the sale of insurance products, including registering as an insurance distributor in states in which we offer and 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.
The degree of oversight of the implementation of these regulations varies by state, but typically includes a state review and approval of each product label as a condition of sale in that state. The FDA also regulates the inclusion of specific claims in pet food labeling.
Most states also enforce their own labeling regulations. The degree of oversight of the implementation of these regulations varies by state, but typically includes a state review and approval of each product label as a condition of sale in that state. The FDA also regulates the inclusion of specific claims in pet food labeling.
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.
We consider relations with our employees to be good. The majority of our employees are connected to our Delray Beach, Florida headquarters and distribution center, and approximately 78 8 employees work at the office and distribution center and are connected to our New York location that we acquired as a part of the PetCareRx acquisition.
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.
Our SEC filings will be available through our website at www.petmeds.com as soon as reasonably practicable after we have electronically filed or furnished them to the SEC.
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 attracted approximately 302,000 and 274,000 new customers in fiscal 2024 and 2023, respectively. Our customers are located throughout the United States, with approximately 49% of customers residing in California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia.
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.
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.
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 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®,” “PetMeds®,” “Your Trusted Pet Health Expert®," "PetPlus®," "PetCareRx®," "Nose to Tail®," "Nose to Tail Health®," and "Nose to Tail Savings®," among numerous others.
In addition, most facilities that manufacture, process, pack, or hold foods, including pet foods, must register with the FDA and renew their registration every two years, and are subject to periodic FDA inspection. This includes most foreign, as well as domestic facilities.
In addition, most facilities that manufacture, process, pack, or hold foods, including pet foods, must register with the FDA and renew their registration every two years, and are subject to periodic FDA inspection. This includes most foreign, as well as domestic facilities. Registration must occur before the facility begins its pet food manufacturing, processing, packing, or holding operations.
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.
We provide ongoing training programs under the supervision of our training managers that include a variety of topics such as product knowledge, computer usage, customer service tips, and the relationship between our Company and veterinarians. Our customer support center agents respond to customers’ e-mails, calls, and live web chats that are related to products, order status, prices, and shipping.
The information on our website is not, and shall not be deemed to be, a part of or incorporated into this Annual Report on Form 10-K or any other filings we make with the Securities and Exchange Commission ("SEC"). We file annual, quarterly, and current reports, proxy statements, and other information with the SEC.
Available Information Our website addresses are www.petmeds.com and www.petcarerx.com . The information on our websites is not, and shall not be deemed to be, a part of or incorporated into this Annual Report on Form 10-K or any other filings we make with the Securities and Exchange Commission ("SEC").
We believe the “1-800-PetMeds” trade name, which is also our toll-free telephone number, and the “PetMeds” family of trademarks, have added significant value and are important factors in the marketing of our products. We have also obtained the right to use and control the Internet addresses www.1800petmeds.com , www.1888petmeds.com , www.petmedexpress.com , www.petmed.com , and www.petmeds.com .
We believe the “PetMeds” and "PetCareRx" family of trademarks, have added significant value and are important factors in the marketing of our products. We have also obtained the right to use and control the Internet addresses which include but are not limited to www.1800petmeds.com , www.1888petmeds.com , www.petmedexpress.com , www.petmed.com , www.petmeds.com , and www.petcarerx.com .
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.
OVERVIEW OF PHARMACY OPERATIONS 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.
FDA regulations require proper identification of the product, a net quantity statement, a statement of the name and place of business of the manufacturer or distributor, and proper listing of all the ingredients in order of predominance by weight. Most states also enforce their own labeling regulations.
The labeling of pet foods is regulated by both the FDA and some state regulatory authorities. FDA regulations require proper identification of the product, a net quantity statement, a statement of the name and place of business of the manufacturer or distributor, and proper listing of all the ingredients in order of predominance by weight.
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.
Through our websites, pet owners have access to comprehensive health information covering pet behavior, illnesses, and both natural and pharmaceutical remedies tailored to their pets’ needs. Our PetMeds.com website's pet education content is periodically updated with the latest research for pet owners.
As part of our multichannel strategy, we also offer mobile versions of our website ( www.petmeds.com ) and an application for mobile phones, tablets, and other devices.
As part of our multichannel strategy, we offer mobile versions of our websites (www.petmeds.com and www.petcarerx.com) and will have an optimized mobile application compatible with mobile phones, tablets, and other devices in fiscal 2025.
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.
Through robust partnerships with our vendors, our current products include: 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.
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.
To ensure adherence to these standards, we have implemented a whistleblower policy and an anonymous hotline for confidential reporting of any suspected policy violations or unethical conduct. Furthermore, all staff members are required to complete anti-harassment training.
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.
If we fail to maintain our licenses with the Florida Board of Pharmacy, or if we do not maintain the licenses/registrations/permits from other state pharmacy boards (including our home state pharmacy license in New York for PetCareRx), or if we face actions from the DEA, FDA EPA, or other enforcement regulators, our ability to dispense prescription medications to pet owners could be halted, which could have a material adverse effect on our financial condition and operations. 7 In addition to the foregoing, the FDA regulates animal feed, including pet food, under the Federal Food, Drug, and Cosmetic Act (the “FFDCA”) and its implementing regulations.
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.
Pet Health Specialists - Customer Support Center We believe that a high level of customer care and support is critical in retaining and expanding our customer base.
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.
This includes establishing and building brand recognition to increase customer traffic, better align with current customer needs and wants, add new customers, build strong lifetime customer loyalty, that ultimately will maximize reorders, and develop incremental revenue opportunities. We have built, and will deliver, an integrated marketing campaign that includes digital marketing and direct mail/print and e-mail.
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.
To ensure our employees have the opportunity to develop and excel, human capital management is a top priority for our executives and Board of Directors, as evidenced by the recent expansion of the Compensation Committee to the Compensation and Human Capital Committee. We are dedicated to identifying and nurturing the talent necessary for our long-term success.
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.
PetMed Express, Inc. and subsidiaries, d/b/a PetMeds®, and as parent company of PetCareRx®, is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, food, supplements, and supplies and has veterinary and pet insurance service partnerships for dogs, cats, and horses.
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.
The average order value increased slightly year over year and was approximately $94 for fiscal 2024 and $93 for fiscal 2023. PRODUCTS AND SERVICES We offer a broad selection of products and services for dogs, cats, and horses. Our current product line contains more than 15,000 SKUs of popular pet medications, health products, foods, and supplies.
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.
PetMeds and PetCareRx's pharmacies are accredited by the National Association of Boards of Pharmacy and LegitScripts. This combination of quality, expertise, and efficiency sets us apart in the marketplace. INTELLECTUAL PROPERTY We conduct our business under the trade names “PetMeds” and "PetCareRx" and use a family of trade names all containing the terms “PetMeds”, “PetMed” or "PetCareRx" in some form.
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.
This acquisition added a catalog of food and supplies and approximately 286,000 new and renewal customers to our company, allowing us to rapidly expand beyond our core offering of pet prescriptions. We now provide a more extensive selection of premium food, supplements, treats, and other pet supplies as a result of this acquisition.
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.
Teller and her fellow VAB colleagues bring a wealth of knowledge and experience to our company. RECENT DEVELOPMENTS AND STRATEGIC TRANSACTIONS ACQUISITION OF PetCareRx In April 2023, we acquired PetCareRx, Inc. (“PetCareRx”), an online supplier of pet medications, foods, and supplies based in New York.
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.
Our pharmacy practices are also licensed and/or regulated by 49 other state pharmacy boards, the District of Columbia Board of Pharmacy, the U.S.
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.
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. 1 OUR INDUSTRY Our business focuses on a specific segment of the pet industry: pet wellness 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.
These supplies include beds, crates, stairs, and other popular items. We periodically assess and adjust our merchandise categories based on seasonal and industry trends. Designed for flexibility, our websites allow us to change featured products or promotions. This approach provides customers with a wide variety of selections across the most popular health categories for dogs, cats, and horses.
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.
Through this collaboration, we offer our customers access to high-quality health and wellness pet insurance benefits as part of our holistic wellness ecosystem. This partnership enables our customers to purchase co-branded insurance plans, developed in conjunction with Pumpkin and their underwriters, and offered by our subsidiary, PetMeds Insurance Services, LLC.
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.
This strategic alliance provides pet owners in the United States with seamless online access to veterinary services through Vetster’s innovative platform.
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.
This includes a majority of well-known brands of pet medications. With our April 2023 acquisition of PetCareRx, we have expanded our product catalog beyond medications to include a wider assortment of pet products. Additionally, we offer various pet supplies on our websites, some of which are drop-shipped to customers by third parties.
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.
DISTRIBUTION CHANNELS We offer our products through three main sales channels: (1) the Internet, through our websites, (2) our health specialist customer support center through our toll-free numbers and (3) through PetAssure's broker network for employer benefits. We have a roadmap for fiscal 2025 that will optimize our websites, and provide a convenient and personalized shopping experience.
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.
Customers have the option to purchase any prescriptions or OTC products that have been uploaded from the PetMeds catalog. 3 We invested approximately $5.0 million in Vetster as part of their Series B financing round in April 2022, followed by a $0.3 million investment in a Series B extension round in September 2023.
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.
Short-Term Strategy Fiscal 2025 ● Consolidate our brands : We believe that our primary brands, namely “PetMeds,” and "PetCareRx" are known as being credible experts among pet owners and are synonymous with pet health and well-being.The consolidation of our brands into a single united company is driven by our commitment to streamline operations, enhance efficiency, and provide a more cohesive customer experience.
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.
As part of our growth strategy, we prioritize maintaining direct relationships with leading pharmaceutical manufacturers, providing both popular prescription and non-prescription medications. These direct relationships not only help us secure an adequate volume of products but also enable us to offer the latest and most trusted pet health solutions.
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.
By fostering a supportive and inclusive environment, we empower our employees to thrive both professionally and personally, driving our company forward and making a meaningful impact in our communities. As of June 14, 2024 we had 287 full time employees. None of our employees are represented by a labor union or governed by any collective bargaining agreements.
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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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ITEM 1. BUSINESS GENERAL Since 1996, PetMeds has been a pioneer in digital retail, serving as a trusted source for pet medicines across North America. Similarly, since 1998, PetCareRx has been providing pet healthcare products directly to consumers.
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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.
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Together, our brands are dedicated to delivering exceptional quality wellness products from innovative suppliers, making it easier for families to address preventive and chronic health needs in order to support the longevity of their companion animals. We are deeply committed to the mission and purpose that has driven our business from the start.
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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.
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The support of millions of customers nationwide has been the cornerstone of our success. Honoring our combined legacy, we bring our core values to every role we undertake. Our primary goal is to empower pet families, ensuring they can provide the best possible care for their dogs, cats, and horses and help them lead long, healthy lives.
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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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PetMeds and PetCareRx market and sell directly to consumers through their websites, toll-free numbers, and employer benefits partnerships. Through thousands of veterinary partners and a loyal customer base who rely on our services, our in-house pharmacies and extended pet healthcare partnerships seek to offer unparalleled value and convenience to families at every stage of their pets' lives.
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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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Over the years, our organization has made significant investments in our pharmacies to ensure compliance. By employing licensed pharmacists who specialize in veterinary medicine, it allows us to provide focused and specialized care. Additionally, we have implemented a rigorous 5-point verification process from order to shipment to ensure quality control.
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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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We continuously monitor and update our regulatory licenses in every state, including the U.S. Virgin Islands.
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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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Our pharmacies are accredited by the NABP.Com and LegitScript and are focused on excelling in meeting all federal and state regulatory requirements As a premier service to our customers, our in-house pet health specialists in our call center support over 100,000 pet parents each month.
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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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Pet owners have the ability to contact our agents and pharmacists for assistance with their animals' wellness needs via telephone, chat, and email. We offer extended services, including pet insurance, telehealth, and employee benefits programs, through our core partners.
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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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Within this segment, our merchandise categories include prescription medications, over-the-counter (OTC) medications, supplements, prescription food, non-prescription food, and a comprehensive assortment of pet supplies. The total addressable market for pet medications, foods, and health products and services is vast and continuously expanding.
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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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According to the American Pet Products Association, pet spending in the United States increased by 7% to $147.0 billion in 2023, with veterinary care and prescription medications accounting for $38.3 billion or 26% of that total.
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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.
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The increasing demand for pet wellness products presents significant potential for us to expand our footprint and capture a larger share of this thriving market.
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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.
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THE PET CONSUMER According to a Mintel Services report in 2023: • Eighty-six percent of the total pet customers prefer maintaining a routine pet care regimen. ◦ To support this, we offer auto-ship options for our core products, ensuring convenient and consistent care for their pets. • Eighty-one percent of customers believe that investing more in pet products and services is worthwhile for their pet's well-being. ◦ Our core products address the most common preventive and acute pet care needs.
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Furthermore, we intend to grow our share of our existing customers’ spend by continuing to expand our product offerings.
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To cater to a diverse range of budgets, we offer a tiered pricing strategy ensuring that every customer can find products that meet their needs and preferences. • Thirty-five percent of pet owners rely on social media to guide their choices in pet products and services. ◦ Ensuring we effectively engage our pet families through social platforms, we have a wellness guide which will be further developed utilizing an integrated marketing approach through our five social media channels inclusive of Instagram, TikTok, Facebook, YouTube and X, More than 2.0 million customers have purchased from us within the last three fiscal years, including customers acquired in April 2023 as a part of our PetCareRx acquisition.
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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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Non-Prescription Medications (OTC) and supplies : Flea and tick control products, bone and joint care products, vitamins, treats, nutritional supplements, hygiene products, and household pet supplies. Pet Foods: Premium and non Premium Pet Foods, including Veterinary Prescription Rx Diets Private Label : Our exclusive range of private label products offers exceptional value and affordability.
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Such partnerships or transactions may take the form of acquisitions (similar to our recent PetCareRx acquisition), or they may take the form of partnerships (such as our Pumpkin and Vetster partnerships) that involve making complementary valuable services available to our customers.
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From shampoos and flea collars to joint enhancers, vitachews, and soft toys, our proprietary line provides high-quality, cost-effective solutions for pet care. 2 Holistic Wellness Services: Pet Telemedicine: Our VetLive service, powered by Vetster, provides pet owners with the convenience of consultations, diagnoses, and in some states, prescriptions from board-certified veterinarians— all from the comfort of their homes.
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We have designed our website and mobile application to provide a convenient, cost-effective, and informative shopping experience that encourages consumers to purchase products important for a pet’s health and quality of life. We believe that these channels allow us to increase the visibility of our brand name and provide our customers with increased shopping flexibility and excellent service.
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This service saves time and ensures expert care without the need to visit a clinic. Additionally, AI-assisted remote veterinary technicians, through our partnership with AskVet, provide a wide range of telehealth services, from dietary advice to training.
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Internet We seek to combine our product selection and pet health information with the shopping ease of the Internet to deliver a convenient and personalized shopping experience. Our website offers health and nutritional product selections for dogs, cats, and horses, and relevant editorial and easily obtainable or retrievable resource information.
Added
Pet Insurance: We partner with Pumpkin Insurance, a premium provider owned by JAB Holding Company, to offer our customers discounted premium pet insurance options. Employee Pet Benefits: Our partnership with PetAssure (Synergy Pet Group) allows us to be part of their employer bundled service, offering discounted pet care solutions that provide employees with access to our PetPlus membership.
Removed
Customers can search our website for products and access resources on a variety of information on dogs, cats, and horses. Customers can shop at our website by category, product line, individual product, or symptom.
Added
This membership includes a variety of exclusive perks, discounts, and valuable services that significantly enhance the well-being of pets.
Removed
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of these potential factors include: • market adoption and ongoing usage of pet telehealth and telemedicine services and solutions; • awareness and adoption of technology in healthcare generally; • availability of products and services that compete with ours; • ability to maintain and expand a network of qualified providers; • ease of adoption and use; • features and platform experience; • performance; • brand; • security and privacy; and • pricing.
Biggest changeSome of these potential factors include: • market adoption and ongoing usage of pet telehealth and telemedicine services and solutions; • awareness and adoption of technology in healthcare generally; • availability of products and services that compete with ours; • ability to maintain and expand a network of qualified providers; • ease of adoption and use; • features and platform experience; • performance; • brand; • security and privacy; and • pricing. 17 Our success will depend to a substantial extent on the willingness of our customers to use, and to increase the frequency and extent of their utilization of, our solution being offered in conjunction with Vetster, as well as on our ability to demonstrate the value of pet telehealth and telemedicine to veterinarians and pet owners.
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.
Acquisitions, investments and other strategic alliances, including our 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.
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.
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 websites, or our ability to convert visitors to our websites 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 websites, 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.
In addition, we also collect, store, and transmit employees’ health information for certain reasons, such as administering employee benefits; accommodating disabilities and injuries; complying with public health requirements; and maintaining employee safety in the workplace. Laws and regulations relating to privacy, data protection, cybersecurity, marketing and advertising, and consumer protection are evolving and subject to potentially differing interpretations.
In addition, we also collect, store, and transmit employees’ health information for certain reasons, such as administering employee benefits; accommodating disabilities and injuries; complying with public health requirements; and maintaining employee safety in the workplace. 14 Laws and regulations relating to privacy, data protection, cybersecurity, marketing and advertising, and consumer protection are evolving and subject to potentially differing interpretations.
While we currently collect and remit applicable sales taxes to the extent required in all states in which we sell, a successful assertion by one or more states seeking to tax us on sales that occurred in prior tax years, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest.
While we believe that we currently collect and remit applicable sales taxes to the extent required in all states in which we sell, a successful assertion by one or more states seeking to tax us on sales that occurred in prior tax years, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest.
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.
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 21 fluctuations of publicly traded companies; and general political, economic, and market conditions.
In order to effectively compete in the future, we may be required to offer promotions and other incentives, which may result in lower operating margins and adversely affect the results of operations. We also face a significant challenge from our competitors forming alliances with each other, such as those between online and traditional retailers.
In order to effectively compete in the future, we may be required to offer promotions and other incentives, which may result in lower operating margins and adversely affect the results of operations. We also face a 20 significant challenge from our competitors forming alliances with each other, such as those between online and traditional retailers.
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.
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 16 manage these acquisitions, investments, or other strategic alliances, or to integrate them with our existing business, could have a material adverse effect on us.
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.
Furthermore, because our largest distribution center is 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.
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.
Our Internet addresses, including; 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.
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.
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 websites, 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.
Because we post product and pet health information and other content on our website, we face potential liability for negligence, copyright infringement, patent infringement, trademark infringement, defamation, and/or other claims based on the nature and content of the materials we post. Various claims have been brought, and sometimes successfully prosecuted, against Internet content distributors.
Because we post product and pet health information and other content on our websites, we face potential liability for negligence, copyright infringement, patent infringement, trademark infringement, defamation, and/or other claims based on the nature and content of the materials we post. Various claims have been brought, and sometimes successfully prosecuted, against Internet content distributors.
We may also in the future voluntarily recall or withdraw products that we consider do not meet our standards in order to protect our brand and reputation. While we carry product liability insurance, our insurance may not be adequate to cover all liabilities that we may incur in connection with product liability claims.
We may also in the future voluntarily recall or withdraw products that we consider do not meet our standards in order to protect our brands and reputation. While we carry product liability insurance, our insurance may not be adequate to cover all liabilities that we may incur in connection with product liability claims.
Any litigation or adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business and operating results. Third parties may also claim infringement by us with respect to past, current, or future technologies.
Any litigation or adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business and operating results. Third parties may also claim infringement by us with respect to past, current, or future technologies or intellectual property.
If our suppliers fail to manufacture or import merchandise that adheres to our quality control standards, product safety requirements, or applicable governmental regulations, our reputation and brand could be damaged, potentially leading to decreased sales or increases in customer litigation against us.
If our suppliers fail to manufacture or import merchandise that adheres to our quality control standards, product safety requirements, or applicable governmental regulations, our reputation and brands could be damaged, potentially leading to decreased sales or increases in customer litigation against us.
We use our website and our mobile application both as sales channels for our products and also as methods of providing product and other relevant information to our customers to drive online sales. Our online programs, communities and knowledge center allow us to inform, assist and interact with our customers.
We use our websites and our mobile application both as sales channels for our products and also as methods of providing product and other relevant information to our customers to drive online sales. Our online programs, communities and knowledge center allow us to inform, assist and interact with our customers.
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).
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. 10 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).
If we were unable to maintain our license as a community pharmacy in the State of Florida, or if we are not granted licensure in a state that begins to require licensure, or if one or more of the licenses granted by other state boards should be suspended or revoked, our ability to continue to sell prescription medications and to continue our business as it is presently conducted could be in jeopardy.
If we were unable to maintain our license as a community pharmacy in the States of Florida or New York, or if we are not granted licensure in a state that begins to require licensure, or if one or more of the licenses granted by other state boards should be suspended or revoked, our ability to continue to sell prescription medications and to continue our business as it is presently conducted could be in jeopardy.
We accept payments using a variety of methods, including credit and debit cards, PayPal, and checks, and we may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers.
We accept payments using a variety of methods, including credit and debit cards, PayPal, and Apple Pay, and we may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our non-prescription private label or generic equivalents, when and if developed, as well as aspects of our sales formats, or to obtain and use information that we regard as proprietary, including the technology used to operate our website and our content, and our trademarks.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our proprietary property, including our non-prescription private label or generic equivalents, when and if developed, as well as aspects of our sales formats, or to obtain and use information that we regard as proprietary, including the technology used to operate our websites and our content, and our trademarks.
In the past several years, states have adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme Court of the United States ("Supreme Court") ruled in South Dakota v.
In the past several years, states have adopted laws that attempt to impose tax collection obligations on out-of-state companies. In 2018, the Supreme Court of the United States ("Supreme Court") ruled in South Dakota v.
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.
We expect that we may in the future consider additional 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.
Negative publicity concerning the pet telehealth and telemedicine market could limit market acceptance of our solutions and services. 16 Table of Contents 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.
Negative publicity concerning the pet telehealth and telemedicine market could limit market acceptance of our solutions and services. 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.
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.
While we ship pet medications to customers in all 50 states, approximately 49% of our sales for the fiscal year ended March 31, 2024, were made to customers located in the states of California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia.
Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain, or our SMS texting practices are not adequate or violate applicable law, resulting in civil claims against 14 Table of Contents us.
Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain, or our SMS texting practices are not adequate or violate applicable law, resulting in civil claims against us.
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.
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 in the timeframe expected. The market for pet telemedicine is immature and uncertain.
In addition, because the Company’s 17 Table of Contents products and services are available over the Internet, states may claim that the Company is required to do business as a foreign corporation in one or more of those jurisdictions.
In addition, because the Company’s products and services are available over the Internet, states may claim that the Company is required to do business as a foreign corporation in one or more of those jurisdictions.
Because we consolidate our operations in one location, we are more susceptible to power and equipment failures, and business interruptions in the event of fires, floods, and other natural disasters than if we had additional locations.
Because we consolidate our operations for each brand in one location, we are more susceptible to power and equipment failures, and business interruptions in the event of fires, floods, and other natural disasters than if we had additional locations.
If the products ordered by our customers are not delivered in a timely fashion or are damaged or lost during the delivery process, our customers could become dissatisfied and cease buying products through our website and mobile applications, which would adversely affect our business, financial condition, and results of operations.
If the products ordered by our customers are not delivered in a timely fashion or are damaged or lost during the delivery process, our customers could become dissatisfied and cease buying products through our websites and mobile application, which would adversely affect our business, financial condition, and results of operations.
We currently rely on third-party national, regional, and local logistics providers to deliver the products we offer on our website.
We currently rely on third-party national, regional, and local logistics providers to deliver the products we offer on our websites.
If so, we may be subject to proceedings or actions against us by 13 Table of Contents governmental entities or others, and we may suffer damage to our reputation as a result of such proceedings or actions.
If so, we may be subject to proceedings or actions against us by governmental entities or others, and we may suffer damage to our reputation as a result of such proceedings or actions.
During the past 12 months, we acquired one company (PetCareRx) and entered into two strategic partnerships to enable us to offer telehealth services and pet insurance to our customers.
During the past two years, we acquired one company (PetCareRx) and entered into two strategic partnerships to enable us to offer telehealth services and pet insurance to our customers.
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.
Our failure or the failure of third-party service providers to protect our websites, networks, and systems against cybersecurity incidents, or otherwise to protect our confidential information, could damage our reputation and brands and substantially harm our business, financial condition, and results of operations.
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.
Any compromise or breach of our security measures, or those of our third-party service providers, or our failure to protect our customer's confidential information and data, 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.
The Company is a party to routine litigation and administrative complaints incidental to its business. Management does not believe that the resolution of any or all of such routine litigation and administrative complaints is likely to have a material adverse effect on the Company’s financial condition or results of operations.
Management does not believe that the resolution of any or all of such routine litigation and administrative complaints is likely to have a material adverse effect on the Company’s financial condition or results of operations.
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.
If customers perceive that our customer care and support does not compare favorably to our competitors, then we may lose customers to such competitors. 11 The content of our websites could expose us to various kinds of liability, which, if prosecuted successfully, could negatively impact our business.
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 .
Regulatory Risks Any failure to comply with various state or federal regulations covering our pet health business, including the dispensing of prescription pet medications may subject us to reprimands, sanctions, probations, fines, suspensions, or the loss of one or more of our pharmacy licenses .
Both online and traditional retailers may hold a competitive advantage over us because of longer operating histories, established brand names, greater resources, and/or an established customer base. Online retailers may have a competitive advantage over us because of established affiliate relationships to drive traffic to their website.
We also compete directly and indirectly with both online and traditional retailers. Both online and traditional retailers may hold a competitive advantage over us because of longer operating histories, established brand names, greater resources, and/or an established customer base. Online retailers may have a competitive advantage over us because of established affiliate relationships to drive traffic to their website.
We do not carry cyber insurance, which may expose us to certain potential losses for damages or result in penalization with fines in an amount exceeding our resources. Our migration of data and systems to a new information technology platform may disrupt our operations.
We do not currently carry cyber insurance, which may expose us to certain potential losses for damages or result in penalization with fines in an amount exceeding our resources.However, we are actively working to obtain coverage. Our migration of data and systems to a new information technology platform may disrupt our operations.
We may experience declines in sales or changes in the types of products sold during economic downturns. Any material decline in the amount of consumer spending or other adverse economic changes could reduce our sales, and a decrease in the sales of higher-margin products could reduce profitability and, in each case, harm our business, financial condition, and results of operations.
Any material decline in the amount of consumer spending or other adverse economic changes could reduce our sales, and a decrease in the sales of higher-margin products could reduce profitability and, in each case, harm our business, financial condition, and results of operations.
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.
The PetMeds 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. Our PetcareRx principal distribution center is located in one location in New York.
Veterinarians hold a competitive advantage over us because many pet owners may find it more convenient or preferable to purchase these products directly from their veterinarians at the time of an office visit. We also compete directly and indirectly with both online and traditional retailers.
We compete directly and indirectly with veterinarians for the sale of pet medications and other health products. Veterinarians hold a competitive advantage over us because many pet owners may find it more convenient or preferable to purchase these products directly from their veterinarians at the time of an office visit.
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.
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, or we are unable to determine materiality within a reasonable timeframe under the new Cybersecurity rules, our reputation and brands could also be damaged and we could be required to expend significant capital and other resources to alleviate problems caused by such cybersecurity incidents.
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.
The determination to pay dividends and the amounts thereof in the future 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.
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.
Breaches of our security measures or those of our third-party service providers or any cybersecurity incident could result in unauthorized access to our websites, 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 websites, networks or systems; deletion or modification of content or the display of unauthorized content on our websites; 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.
We send short message service, or SMS, text messages to customers and job candidates. The actual or perceived improper sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws.
We face the risk of litigation resulting from unauthorized text messages sent in violation of the Telephone Consumer Protection Act. 15 We send short message service, or SMS, text messages to customers and job candidates. The actual or perceived improper sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws.
Failure to qualify as a foreign corporation in a jurisdiction where the Company is required to do so could subject it to taxes and penalties, and such jurisdictions may charge the Company with violations of local laws.
Failure to qualify as a foreign corporation in a jurisdiction where the Company is required to do so could subject it to taxes and penalties, and such jurisdictions may charge the Company with violations of local laws. Changes in tax laws or regulations in the various tax jurisdictions we are subject to could increase our cost of doing business.
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 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. 12 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 centers, 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.
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.
The expansion of our business into the offer and sale of pet insurance products also subjects us to additional laws and regulations regarding those activities, including as a registered insurance distributor in states in which we offer and 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. 9 The Company is a party to routine litigation and administrative complaints incidental to its business.
Any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial condition, and results of operations. We face the risk of litigation resulting from unauthorized text messages sent in violation of the Telephone Consumer Protection Act.
Any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial condition, and results of operations.
In addition to the seasonality of our sales, our annual and quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, including weather, many of which are out of our control.
Our annual and quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, including weather, many of which are out of our control. Any change in one or more of these factors could materially adversely affect our financial condition and results of operations in future periods.
The outbreak and global spread of the COVID-19 pandemic, including the spread of recent variants, and related containment efforts created, and may continue to contribute to, significant economic disruption in the United States and 18 Table of Contents around the world.
Pandemics or other health crises, such as the possible resurgence of the COVID-19 pandemic, may adversely affect our results of operations. The outbreak and global spread of the COVID-19 pandemic, including the spread of recent variants, and related containment efforts created, and may continue to contribute to, significant economic disruption in the United States and around the world.
Our results of operations are sensitive to changes in certain macro-economic conditions that impact consumer spending on pet products and services. Some of the factors that may affect consumer spending on pet products and services include consumer confidence, levels of unemployment, inflation, interest rates, tax rates and general uncertainty regarding the overall future economic environment.
Some of the factors that may affect consumer spending on pet products and services include consumer confidence, levels of unemployment, inflation, interest rates, tax rates and general uncertainty regarding the overall future economic environment. We may experience declines in sales or changes in the types of products sold during economic downturns.
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
For these reasons, shareholders should not rely on dividends to receive a return on investment. Accordingly, and for the foreseeable future, realization of any gain on shares of our common stock will depend solely on the appreciation of the price of our common stock, which may not occur. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
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.
Any resulting increase in our tax obligation or cash taxes paid could adversely affect our cash flows and financial results. 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.
As a result, our business and operating results could be adversely affected. Our business could be adversely affected if we fail to implement and maintain effective disclosure controls and procedures and internal control over financial reporting.
Our business and share price may be adversely affected if we fail to implement and maintain effective disclosure controls and procedures and internal control over financial reporting. For the periods ending March 31, 2023 and 2024, our management identified material weaknesses in our internal control over financial reporting.
Any change in one or more of these factors could materially adversely affect our financial condition and results of operations in future periods. Uncertainties in economic conditions and their impact on consumer spending patterns could adversely impact our business, financial condition, and results of operations.
Uncertainties in economic conditions and their impact on consumer spending patterns could adversely impact our business, financial condition, and results of operations. Our results of operations are sensitive to changes in certain macro-economic conditions that impact consumer spending on pet products and services.
For example, the Board may determine to reserve and/or utilize cash resources that would otherwise be available for distributions in order to fund additional strategic transactions or investments in our business. For these reasons, shareholders should not rely on dividends to receive a return on investment.
We paid regular dividends to our shareholders from 2009 to August 2023, and on February 1, 2024, our Board of Directors elected to suspend the quarterly dividend indefinitely. The Board of Directors determined to reserve and/or utilize cash resources that would otherwise be available for distributions in order to fund additional strategic transactions or investments in our business.
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.
Additionally, intense weather conditions may cause property insurance premiums to significantly increase in the future.
If we are unable to implement and maintain effective disclosure controls and procedures and remediate the material weaknesses in a timely manner, or if we identify other material weaknesses in the future, our ability to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our business and financial condition.
If we are unable to remediate the material weaknesses or identify additional material weakness in the future, we may be unable to accurately report our financial results, which could cause our financial results to be materially misstated and require restatement.
Removed
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.
Added
In 13 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.
Removed
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.
Added
As a result, our business and operating results could be adversely affected. We have identified material weaknesses in our internal controls over financial reporting, and management has determined that our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report on Form 10-K.
Removed
Our success will depend to a substantial extent on the willingness of our customers to use, and to increase the frequency and extent of their utilization of, our solution being offered in conjunction with Vetster, as well as on our ability to demonstrate the value of pet telehealth and telemedicine to veterinarians and pet owners.
Added
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Removed
In connection with the audit of our financial statements for the fiscal year ending March 31, 2023, we concluded that as of March 31, 2023, our disclosure controls and procedures and our internal control over financial reporting were not effective due to a material weakness relating to [inappropriate] segregation of duties over the preparation, approval and posting of manual journal entries.
Added
The material weaknesses identified in our internal control over financial reporting as of March 31, 2024, as well as our remediation plans, are described in Part II, Item 9A, “Controls and Procedures.” While we believe these efforts will be sufficient to remediate the material weaknesses, we cannot provide assurance that we will be able to complete our evaluation, testing or any required remediation in a timely fashion, or at all.
Removed
In addition, investors may lose confidence in our reported information and the market price of our common stock may decline.
Added
The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud.
Removed
Pandemics or other health crises, such as the possible resurgence of the COVID-19 pandemic, may adversely affect our results of operations.
Added
Because of the inherent limitations in a cost-effective control system, misstatements in our financial statements due to error or fraud may occur and require restatement, such as those errors that resulted in the restatement of our previously issued audited consolidated financial statements described in Amendment No.1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended March 31, 2023 (the “2023 Form 10-K/A”), and the restatement of our previously issued unaudited condensed consolidated financial statements described in Amendment No.1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “2024 Q1 Form 10-Q/A”) and Amendment No.1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “2024 Q2 Form 10-Q/A”, and together with the 2024 Q1 Form 10-Q/A and 2023 Form 10-K/A, the “Amended Reports”) as well as fiscal 2023 amounts restated in our Quarterly Report on Form 10-Q for the three and nine months ended December 31, 2023.
Removed
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.
Added
The material weaknesses in our internal control over financial reporting will not be considered remediated until the controls operate for a sufficient period and management has concluded through testing that these controls operate effectively.
Added
In such case, we may be unable to maintain compliance with securities law 18 requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements.
Added
Ineffective disclosure controls and procedures and internal control over financial reporting could also result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, harm to our reputation and financial condition, diversion of financial and management resources from the operation of our business, and the market price of our common stock may decline as a result.
Added
We cannot assure you that the remediation measures we have taken to date, or any measures that we may take in the future, will be sufficient to avoid future material weaknesses. We may face litigation and other risks as a result of the restatements described in the Amended Reports and material weaknesses in our internal control over financial reporting.
Added
We have identified material weaknesses in our internal control over financial reporting, including in connection with the restatements described in the Amended Reports.
Added
As a result of such material weaknesses and the restatement, we could face regulatory action by the SEC or other regulatory authorities, potential litigation, or other disputes, including claims invoking federal and state securities laws, contractual claims or other claims arising from the restatement and the material weaknesses in our internal control over financial reporting and the preparation of our financial statements.
Added
Any such litigation or dispute, whether successful or not, could adversely affect our business, financial condition, and results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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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.
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.
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”).
ITEM 2. PROPERTIES We own our principal executive offices and distribution center, which are located at 420 South Congress Avenue, Delray Beach, Florida 33445 (the “Delray Beach Property”). The 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.
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.
The leases expire in April 2027 and include the option to renew for an additional five years. We also assumed a PetCareRx lease for office space in Brooklyn, NY that PetCareRx did not occupy and was subleased. This lease expired in April 2024.
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.
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. These facilities, which aggregate approximately 32,000 square feet, are used by PetCareRx as a shipping and fulfillment center and as an executive office.
Removed
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
As of March 31, 2024, 48% of the Delray Beach Property was leased to two tenants with a remaining weighted average lease term of 1 year, and we are currently in the process of renegotiating both leases. We believe that our facilities are sufficient for our current needs and are in good condition in all material respects.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn 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.
Biggest changeIn the opinion of management, none of the claims and suits, either individually or in the 23 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.
Added
On April 18, 2024, Plaintiff Timothy Fitchett (“Plaintiff”) filed an action in the Court of Common Pleas of Allegheny County, Pennsylvania, on behalf of himself and purportedly on behalf of a class of others similarly situated.
Added
Plaintiff alleges that the Company violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law by representing “reg.” prices for products which the Company allegedly never charged for those products. On May 13, 2024, the Company removed the matter to the U.S.
Added
District Court for the Western District of Pennsylvania in Pittsburgh, and Plaintiff moved to remand the case back to state court on June 11, 2024. The Company's deadline to respond to the motion to remand is June 25, 2024.
Added
On the face of the Complaint, Plaintiff is seeking damages for himself in the amount of the allegedly illusory discounts he allegedly believed he was receiving when purchasing products from the Company or, in the alternative, a complete refund of amounts he paid to the Company, and he is also seeking a liability determination for members of the proposed class.
Added
The Company denies liability in this matter and intends to defend the action accordingly, and the Company cannot determine materiality or estimate a range of potential liability, if any, at this time if the Company were determined to be liable.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

7 edited+3 added−8 removed1 unchanged
Biggest changeDividend 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.
Biggest changeFor the fiscal years ended March 31, 2024 and 2023, we declared and paid cash dividends totaling $12.7 million (an aggregate of $0.60 per share for the year ended March 31, 2024) and $25.3 million (an aggregate of $1.20 per share for the year ended March 31, 2023), respectively.
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.
The performance graph and related information below shall not be deemed “filed” with the SEC, nor shall such 25 information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
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.
The graph assumes that $100 was invested on March 31, 2019, in each of our Common Stock, the NASDAQ Composite, the Russell 2000, and the S&P 500. 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, 2018, to March 31, 2023.
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 S&P 500 from March 31, 2019 to March 31, 2024.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 20 Table of Contents PART II ITEM 5.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 24 PART II ITEM 5.
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.
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 109 holders of record of our common stock on June 12, 2024.
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.
The Board of Directors reviews and discusses the capital allocation needs of the Company, at a minimum, on a quarterly basis. The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors.
Removed
Issuer Purchases of Equity Securities The Company has $110.0 million of shares authorized under previously approved share repurchase programs.
Added
Dividend Policy We have paid cash dividends on a quarterly basis from August 2009 to August 2023.
Removed
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
On October 26, 2023, our Board of Directors elected to suspend the quarterly dividend for the second quarter of fiscal year 2024, and on February 1, 2024, our Board of Directors elected to suspend the quarterly dividend indefinitely. This move is intended to focus use of the Company’s existing cash flow on growth initiatives and other higher return initiatives.
Removed
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.
Added
Performance graph data: Fiscal Year Ended March 31, 2019 2020 2021 2022 2023 2024 PetMed Express, Inc. 100.00 133.16 168.44 128.99 86.10 26.52 NASDAQ Composite 100.00 99.62 171.38 183.98 158.12 211.91 S&P 500 100.00 91.19 140.17 159.84 144.98 185.38 Russell 2000 100.00 74.89 144.21 134.45 117.06 137.98 ITEM 6. [RESERVED] 26
Removed
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.
Removed
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.
Removed
Performance 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.
Removed
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.
Removed
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

55 edited+28 added−44 removed14 unchanged
Biggest changeThree Months Ended ($ in thousands, except percentages) March 31, 2023 March 31, 2022 $ Change % Change Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA: Net (loss) income $ (5,102) $ 6,066 $ (11,168) -184 % Add (subtract): Share-based Compensation 1,630 1,509 121 8 % Income Taxes (927) 1,368 (2,295) -168 % Depreciation 994 687 307 45 % Interest Income (857) (92) (765) 832 % Acquisition/Partnership Transactions and Other Items 1,010 — 1,010 n/m State Sales Tax Accrual 6,900 — 6,900 n/m Adjusted EBITDA $ 3,648 $ 9,538 $ (5,890) -62 % Year Ended ($ in thousands, except percentages) March 31, 2023 March 31, 2022 $ Change % Change Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA: Net income $ 233 $ 21,100 $ (20,867) -99 % Add (subtract): Share-based Compensation 6,617 4,549 2,068 45 % Income Taxes 1,351 5,971 (4,620) -77 % Depreciation 3,546 2,738 808 30 % Interest Income (2,070) (335) (1,735) 518 % Acquisition/Partnership Transactions and Other Items 1,904 — 1,904 n/m Employee Severance 364 — 364 n/m State Sales Tax Accrual 7,825 — 7,825 n/m Adjusted EBITDA $ 19,770 $ 34,023 $ (14,253) -42 % 29 Table of Contents Fiscal 2023 Compared to Fiscal 2022 Sales Sales decreased by approximately $16.6 million, or 6.1%, to $256.9 million for the fiscal year ended March 31, 2023, from approximately $273.4 million for the fiscal year ended March 31, 2022.
Biggest changeThree Months Ended ($ in thousands, except percentages) March 31, 2024 March 31, 2023 $ Change % Change Consolidated Reconciliation of GAAP Net Loss to Adjusted EBITDA: Net loss $ (5,016) $ (216) $ (4,800) 2222 % Add (subtract): Share-based Compensation 1,674 1,630 44 3 % Income Taxes 1,536 669 867 130 % Depreciation and amortization 1,895 994 901 91 % Interest Income (30) (439) 409 (93) % Acquisition/Partnership Transactions and Other Items 385 1,010 (625) (62) % Employee Severance 104 — 104 n/m Adjusted EBITDA $ 548 $ 3,648 $ (3,100) (85) % Year Ended ($ in thousands, except percentages) March 31, 2024 March 31, 2023 $ Change % Change Consolidated Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA: Net (loss) income $ (7,464) $ 5,140 $ (12,604) n/m Add (subtract): Share-based Compensation 6,870 6,617 253 4 % Income Taxes 1,191 2,305 (1,114) (48) % Depreciation and amortization 7,056 3,546 3,510 99 % Interest Income (511) (450) (61) 14 % Acquisition/Partnership Transactions and Other Items 1,679 1,904 (225) (12) % Employee Severance 512 364 148 41 % Sales Tax Expense (Income) (1,088) 344 (1,432) -416 % Adjusted EBITDA $ 8,245 $ 19,770 $ (11,525) (58) % 32 Fiscal 2024 Compared to Fiscal 2023 Sales Sales increased by approximately $24.5 million, or 9.5%, to $281.1 million for the fiscal year ended March 31, 2024, from approximately $256.6 million for the fiscal year ended March 31, 2023.
While economies of various countries have rebounded from the global Covid-19 economic shutdown that began in the late first quarter and early second quarter 2020, the impact of the Covid-19 pandemic continued, to varying degrees, in 2022 and continues, to varying degrees, in 2023 due to mounting inflationary cost pressures and potential recession indicators that have now negatively impacted the global economy.
While economies of various countries have rebounded from the global COVID-19 economic shutdown that began in the late first quarter and early second quarter 2020, the impact of the COVID-19 pandemic continued, to varying degrees, in 2022 and 2023, and continues, to varying degrees, in 2024 due to mounting inflationary cost pressures and potential recession indicators that have now negatively impacted the global economy.
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.
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 27 consideration.
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.
We believe it is useful to exclude non-cash charges, such as share-based compensation expense and 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.
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.
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, foods, supplements, supplies and vet services for dogs, cats, and horses.
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.
We have provided reconciliations below of adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measures. 30 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.
On April 3, 2023, we closed on our acquisition of PetCareRx for aggregate cash consideration of approximately $36.0 million. At March 31, 2023 we had no other material outstanding purchase or lease commitments. We are not currently bound by any long- or short-term agreements for the purchase or lease of property and equipment.
On April 3, 2023, we closed on our acquisition of PetCareRx for aggregate cash consideration of approximately $36.0 million. At March 31, 2024 we had no material outstanding purchase or lease commitments. We are not currently bound by any long- or short-term agreements for the purchase or lease of property and equipment.
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.
PetMeds markets and sells directly to consumers through its websites, toll-free numbers, and mobile application. 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.
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.
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, 2024 2023 2022 Sales 100.0 % 100.0 % 100.0 % Cost of sales 72.0 72.4 71.7 Gross profit 28.0 27.6 28.3 Operating expenses: General and administrative 19.7 16.3 11.4 Advertising 8.7 7.6 6.9 Depreciation 2.5 1.4 1.0 Total operating expenses 30.9 25.2 19.3 (Loss) income from operations (2.9) 2.4 8.9 Total other income 0.7 0.5 — Income (loss) before provision for income taxes (2.2) 2.9 8.9 Provision for income taxes 0.4 0.9 2.0 Net (loss) income (2.6) % 2.0 % 6.9 % 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.
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.
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. 31 The following table presents a reconciliation of net (loss) income, the most directly comparable GAAP measure to Adjusted EBITDA for each of the periods indicated: Reconciliation of Non-GAAP Measures PetMed Express, Inc.
We believe that this change reflects a more accurate representation of our subscription business for stakeholders to gauge our performance. We are encouraged by the adoption of our AutoShip program and have seen an increasingly positive trend over the last several quarters since we launched this program.
We believe that this change reflects a more accurate representation of our subscription business for stakeholders to gauge our performance. We are encouraged by the adoption of our AutoShip program and have seen an increasingly positive trend since we launched this program.
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.
The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $81 for the fiscal year ended March 31, 2024, compared to $71 for the fiscal year ended March 31, 2023, per the new definition of new customers.
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 increase in general and administrative expenses for the fiscal year ended March 31, 2024 was due to a $8.4 million increase in payroll expenses, of which $0.3 million is from increased stock compensation and $0.1 million from accrued severance, as well as a $0.7 million increase of professional fees, a $1.0 million increase of software and systems expense, and a $4.9 million increase of variable and other overhead expenses.
Share-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.
Share-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 non operating expenses (income) including sales tax expense (income) relating to recording a liability for sales tax we did not collect from our customers or recognizing a gain on settlement from settling a state liability for less than recorded. • Other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces the measures usefulness as comparative measures.
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.
Provision for income taxes For the fiscal years ended March 31, 2024 and 2023, we recorded an income tax provision of approximately $1.2 million and $2.3 million, respectively. The decrease to the income tax provision for fiscal 2024 is related to a decrease in operating income compared to fiscal 2023.
Previously, we reported AutoShip sales as a percent of total sales on the last month in the quarter. This change to the calculation resulted in a decrease to the AutoShip percentage that was previously reported by only a few percentage points.
We now report AutoShip sales, as a percent of sales, net of discounts and credits for the entire quarter. Previously, we reported AutoShip sales as a percent of total sales on the last month in the quarter. This change to the calculation resulted in a decrease to the AutoShip percentage that was previously reported by only a few percentage points.
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.
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.
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.
Net cash provided by operating activities was $4.3 million and $27.8 million for the fiscal years ended March 31, 2024 and 2023, 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.
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 8.7% and 7.6% for the fiscal years ended March 31, 2024, and 2023, respectively.
For example, our quarterly AutoShip percentage was 44.4% of net sales for the most recent quarter ended March 31, 2023, up from 30.9% of net sales for the same period last year and up from 42.3% of net sales sequentially in the prior quarter.
For example, our quarterly AutoShip percentage was 53.5% of net sales for the most recent quarter ended March 31, 2024, up from 44.4% of net sales for the same period last year and up from 52.2% of net sales sequentially in the prior quarter.
The reorder and new order sales amounts for the years ended March 31, 2022, and March 31, 2021 reflect this new customer definition change. Under the previous definition of a new customer, reorder and new order sales were $250.4 million and $23.0 million, respectively, for the year ended March 31, 2022.
The reorder and new order sales amounts for the years ended March 31, 2022 reflect this revised customer definition. Under the previous definition of a new customer, reorder and new order sales were $249.4 million and $22.9 million, respectively, for 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 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.
Our actual results may differ from these estimates under different assumptions, judgments, and conditions. 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. Certain pet supplies offered on our website are drop shipped to customers.
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.
Cost of sales Cost of sales increased by approximately $16.6 million, or 8.9% to $202.4 million for the fiscal year ended March 31, 2024, from $185.8 million for the fiscal year ended March 31, 2023. The cost of sales increase can be directly related to the increase in sales during fiscal year 2024.
We continue to monitor the effects of the pandemic and macroeconomic environment and take appropriate steps to mitigate the impact on our business, employees and financial condition; however, the nature and extent of this impact in future periods remains difficult to predict due to numerous uncertainties outside our control. 26 Table of Contents Results of Operations The following should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere herein.
We continue to monitor the effects of the pandemic and macroeconomic environment and take appropriate steps to mitigate the impact on our business, employees and financial condition; however, the nature and extent of this impact in future periods remains difficult to predict due to numerous uncertainties outside our control.
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.
Net cash used in financing activities was $12.4 million and $24.5 million for the fiscal years ended March 31, 2024 and 2023, respectively, due to the payment of an aggregate $0.60 per share dividend in fiscal year 2024 and an aggregate $1.20 per share dividend in fiscal year 2023.
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.
The increase to customer acquisition costs for the fiscal year ended March 31, 2024, 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. Historically, the advertising environment fluctuates due to supply and demand.
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 decrease 34 to net income was primarily related to increases in general and administrative expenses, and increased advertising expenses, partially offset by higher gross profit margins during the fiscal year. Liquidity and Capital Resources Our working capital at March 31, 2024 and 2023 was approximately $21.5 million and approximately $72.9 million, respectively.
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.
We acquired approximately 302,000 new customers for the fiscal year ended March 31, 2024, compared to approximately 274,000 new customers for the same period in the prior year.
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.
Gross profit Gross profit increased by approximately $7.9 million, or 11.2%, to $78.6 million for the fiscal year ended March 31, 2024, from $70.7 million for the fiscal year ended March 31, 2023. The increase in gross profit can be directly related to the increase in sales and and higher profit margins during fiscal 2024.
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.
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 unremitted prior period state sales tax accrual as these items are not indicative of our ongoing operations.
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.
We market our products through national advertising campaigns which aim to increase the recognition of the “PetMeds” brand name and "PetCareRx" brand name, increase traffic on our websites at www.petmeds.com and www.petcarerx.com , acquire new customers, and maximize repeat purchases. Our sales consist of products sold mainly to retail consumers.
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.
Gross profit as a percentage of sales for fiscal 2024 was 28.0% compared to 27.6% for fiscal 2023.
The $22.8 million decrease in working capital was primarily attributable to a decrease in income generated by 34 Table of Contents operations and the use of cash to fund both the $5 million investment in the Vetster partnership and infrastructure and $5.3 million of property and equipment additions.
The $51.4 million decrease in working capital was primarily attributable to $36 million paid in fiscal year 2024 to acquire PetCareRx along with a decrease in income generated by operations and the use of cash to fund both the $5.3 million investments in the Vetster partnership and infrastructure and $4.5 million of property and equipment additions separate from the PetCareRx acquisition.
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.
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. Membership fees represent the amounts recognized periodically from two membership models.
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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended March 31, 2023 and March 31, 2022. 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.
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.
This increase to depreciation and amortization expense for the fiscal year ended March 31, 2024 can be attributed to new property and equipment additions in fiscal 2024, as well as a $2.0 million amortization expense for the intangibles acquired from PetCareRx.
In July 2021 we launched the new AutoShip & Save subscription program (“AutoShip”) on our website. 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.
AutoShip is a 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. During the quarter ended June 30, 2022 we made a change to the methodology on how we calculate the percentage of our revenue that was generated by our AutoShip program.
Under the previous definition of a new customer, reorder and new order sales were $272.6 million and $36.6 million, respectively, for year ended ended March 31, 2021. Virtually all of our sales are paid by credit cards and we usually receive the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to sales.
Virtually all of our sales are paid by credit cards and we usually receive the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to sales. We had no material contract asset or contract liability balances as of March 31, 2024, or March 31, 2023.
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.
Interest income may decrease in the future as we utilize our cash balances on future investments or partnerships, on our operating activities, enter a credit facility or if the current interest rate environment changes.
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.
Net cash used in investing activities was $40.7 million and $10.3 million for the fiscal years ended March 31, 2024 and 2023, respectively. This change in investing activities is related to the acquisition of PetCareRx, partially offset by lower investments in the Vetster partnership year-over-year.
We have set a goal of generating approximately 50.0% of our PetMeds net sales via the AutoShip program for fiscal 2024. Going forward sales may be adversely affected due to increased competition and consumers giving more consideration to price. The changes in consumer behavior post pandemic makes future sales somewhat challenging to predict.
Going forward sales may be adversely affected due to increased competition and consumers giving more consideration to price. 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.
In addition, general and administrative expenses increased for the fiscal year ended March 31, 2023 due to a $7.8 million sales tax accrual and $1.9 million of acquisition related expenses. General and administrative expenses as a percentage of sales was 19.3% for the fiscal year ended March 31, 2023, compared to 11.3% for the fiscal year ended March 31, 2022.
The expense increases were partially attributed to the combination of PetCareRx. These increases were offset by $1.4 million related to sales tax settlements with states.. General and administrative expenses as a percentage of sales was 19.7% for the fiscal year ended March 31, 2024, compared to 16.3% for the fiscal year ended March 31, 2023.
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.
We maintain an allowance for credit losses that we estimate will arise from customers’ inability to make required payments, arising from either credit card chargebacks or insufficient funds checks. We determine our estimates of the uncollectability of accounts receivable by analyzing historical bad debts and current economic trends.
This change is due to a net increase in accounts payable and accrued expenses, and a decrease in inventory due to changes in our inventory practices in the fiscal year ended March 31, 2023, partially offset by lower net income.
This change is primarily due to the loss from operations, partially offset by higher non-cash expenses combined with a net increase in accounts payable, and an increase in inventory separate from inventory acquired in the PetCareRx acquisition in the fiscal year ended March 31, 2024.
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.
The gross profit and gross profit percentage increased for the fiscal year ended March 31, 2024 compared to the previous fiscal year. 33 General and administrative expenses General and administrative expenses increased by approximately $13.5 million, or 32.4%, to $55.2 million for the fiscal year ended March 31, 2024, from $41.7 million for the fiscal year ended March 31, 2023.
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.
Depreciation and amortization Depreciation and amortization expense for the fiscal year ended March 31, 2024, increased to approximately $7.1 million from $3.5 million for the fiscal year ended March 31, 2023.
The following chart illustrates sales by various sales 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 % 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 following table illustrates sales by various classifications: Year Ended March 31, Increase (Decrease) Net Sales (In thousands) 2024 % 2023 % $ % Reorder sales $ 246,977 87.9 % $ 232,380 90.6 % $ 14,597 6.3 % New order sales 24,304 8.6 % 24,199 9.4 % 105 0.4 % Membership fees 9,783 3.5 % — — % 9,783 n/m Total net sales $ 281,064 100.0 % $ 256,579 100.0 % $ 24,485 9.5 % Year Ended March 31, Increase (Decrease) Net Sales (In thousands) 2023 % 2022 % $ % Reorder sales $ 232,380 90.6 % $ 243,490 89.4 % $ (11,110) (4.6) % New order sales 24,199 9.4 % 28,792 10.6 % (4,593) (16.0) % Total net sales $ 256,579 100.0 % $ 272,282 100.0 % $ (15,703) (5.8) % On April 1, 2022, we changed the definition of a new customer to include anyone who has not ordered over the past thirty-six months.
On an ongoing basis we re-evaluate our judgments and estimates including those related to product returns, bad debts, inventories, and income taxes. We base our estimates and judgments on our historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information.
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. On an ongoing basis we re-evaluate our judgments and estimates including those related to product returns, bad debts, inventories, and income taxes.
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.
As a percentage of sales, cost of sales was 72.0% in fiscal year 2024, as compared to 72.4% in fiscal 2023. The cost of sales percentage decrease was primarily due to higher profit margins driven by membership fees from the acquisition of PetCareRx.
The increase was primarily related to additional interest income as a result of higher interest rates.
Other income Other income increased by approximately $0.5 million, to $1.9 million for the fiscal year ended March 31, 2024, from $1.4 million for the fiscal year ended March 31, 2023. The increase was primarily related to additional interest income as a result of higher interest rates.
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.
The twelve-month average purchase remained at approximately $94 and $93 per order for the fiscal years ended March 31, 2024, and March 31, 2023, respectively. Restatement As described in the Note 1 of “Notes to Condensed Consolidated Financial Statements,” we have restated our consolidated financial statements and Item 7.
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.
Advertising expenses Advertising expenses, which is net of manufacturer funded advertising COOP, increased by approximately $5.1 million to $24.5 million for the fiscal year ended March 31, 2024, from $19.4 million for the fiscal year ended March 31, 2023.
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 Board of Directors reviews and discusses the capital allocation needs of the Company, at a minimum, on a quarterly basis. The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors.
This increase for the fiscal year ended March 31, 2023, can be attributed to lower advertising COOP dollars and increased agency fees.
This increase for the fiscal year ended March 31, 2024, can be mainly attributed to media spend related to PetCareRx, partially offset by increased advertising COOP. Advertising COOP increased by $1.5 million over the same period, of which $0.9 million of the increase can be attributed to the combination of PetCareRx.
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.
This limits deductions for compensation of covered executives to $1 million per individual. Net income Net (loss) income decreased by approximately $12.6 million, to a loss of approximately $7.5 million for the fiscal year ended March 31, 2024, from income of approximately $5.1 million for the fiscal year ended March 31, 2023.
Removed
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.
Added
We base our estimates and judgments on our historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies.
Removed
We determine our estimates of the uncollectability of accounts receivable by analyzing historical bad debts and current economic trends. The allowance for doubtful accounts was approximately $35 thousand and $39 thousand at March 31, 2023 and 2022, respectively.
Added
See Note (2) - Summary of Significant Accounting Policies, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report for a description of our significant accounting policies as well as a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this 10-K Report.
Removed
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.
Added
We believe that the estimates, assumptions and judgments involved in the accounting policies described below involve a significant level of estimation uncertainty and have the greatest potential impact on our financial condition and results of operations and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates, assumptions, and judgments on an ongoing basis.
Removed
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.
Added
The first is the PetPlus membership for PetCareRx customers, and the second is a partner membership provided through PetCareRx. These memberships provide discounted pricing, free standard shipping, veterinary telehealth services and local Caremark Pharmacy prescription pickup which represent a single stand-ready performance obligation to provide these benefits.
Removed
Television advertising costs are expensed as the advertisements are televised.
Added
The PetPlus membership fee is an upfront annual charge and automatically renews one year from the initial enrollment date. The Company recognizes the revenue ratably over the term of the PetPlus membership which is generally one year We disaggregate sales in the following two categories: reorder sales vs new order sales vs membership sales.
Removed
The decrease in sales for the fiscal year ended March 31, 2023, was primarily due to the increased cost to acquire new customers and competitive pressures. Sales for fiscal year 2023 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.
Added
The allowance for credit losses was approximately $273 thousand and $35 thousand at March 31, 2024 and 2023, respectively. 28 Business Combination We account for our business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") Topic 805 ( "Business Combinations" ).
Removed
Prior year new and reorder customers and sales have been recalculated utilizing the new 36-month definition of a new customer (described below).
Added
The purchase price is allocated to the fair value of the assets acquired and liabilities assumed. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date.
Removed
The reorder and new order sales amounts for the years ended March 31, 2022 reflect this new customer definition change. Under the previous definition of a new customer, reorder and new order sales were $250.4 million and $23.0 million, respectively, and acquired new customers were approximately 263,000, for the year ended March 31, 2022.
Added
The excess of the purchase price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired in a business combination are included in our unaudited condensed consolidated financial statements from the date of acquisition.
Removed
During the quarter ended June 30, 2022 we made a change to the methodology on how we calculate the percentage of our revenue that was generated by our AutoShip program. We now report AutoShip sales, as a percent of sales, net of discounts and credits for the entire quarter.
Added
Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies.
Removed
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.
Added
The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions, and competition.
Removed
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.
Added
In connection with the determination of fair values, we may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets acquired and certain obligations assumed.
Removed
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.
Added
Acquisition-related transaction costs incurred by us are not included as a component of consideration transferred but are accounted for as an operating expense in the period in which the costs are incurred. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+1 added−1 removed2 unchanged
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.
Biggest changeSuch 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. We do not hold any derivative financial instruments that could expose us to significant market risk.
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.
At March 31, 2024, we had $55.3 million in cash and cash equivalents, and the majority of our cash and cash equivalents generate interest income based on 35 prevailing interest rates. A significant change in interest rates would 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. Our cash and cash equivalents are subject to market risk, primarily interest rate and credit risk.
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. Our cash and cash equivalents are managed by a limited number of outside professional managers within investment guidelines set by our Board of Directors.
Removed
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
Added
At March 31, 2024, we had no debt obligations. 36

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