EXHIBIT 99.1
PETMED EXPRESS, INC. CONFERENCE CALL
QUARTER 3 FINANCIAL RESULTS
January 24, 2005
8:30 a.m. EDT
Coordinator Welcome to the PetMed Express Inc. doing business
as 1-800-PetMeds conference call to review the
financial results for the third fiscal quarter
ended on December 31, 2004. At the request of the
company, this conference call is being recorded.
Founded in 1996, 1-800-PetMeds is America's
Largest Pet Pharmacy, delivering prescription and
non-prescription medications and other health
products for dogs and cats direct to the consumer.
1-800-PetMeds markets its products through
national television, online and direct mail
advertising campaigns which direct consumers to
order by phone or on the Internet and aim to
increase the recognition of the "1-800-PetMeds"
brand name. 1-800-PetMeds provides an attractive
alternative for obtaining pet medications in terms
of convenience, price, ease of ordering and rapid
home delivery.
At this time, I'd like to turn the conference call
over to the company's Chief Financial Officer, Mr.
Bruce Rosenbloom. Sir, you may begin.
B. Rosenbloom Thank you. I would like to welcome everyone here
today. Before I turn the call over to Mendo
Akdag, our Chief Executive Officer, I'd like to
remind everyone that the first portion of this
conference call will be listen-only until the
question and answer session, which will be later
in the call. Also, certain information that will
be included in this press conference may include
forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of
1995 or the Securities and Exchange Commission
that may involve a number of risks and
uncertainties. These statements are based on our
beliefs, as well as assumptions we have used based
upon information currently available to us.
Because these statements reflect our current views
concerning future events, these statements involve
risks, uncertainties and assumptions. Actual
future results may vary significantly based on a
number of factors that may cause the actual
results or events to be materially different from
future results performance or achievements
expressed or implied by these statements. We have
identified various risk factors associated with
our operations in our most recent annual report
and other filings with the Securities and Exchange
Commission.
Now, let me introduce today's speaker, Mendo
Akdag, the Chief Executive Officer of 1-800-
PetMeds. Mendo.
M. Akdag Welcome and thank you for joining us. Today,
we'll review the highlights of our financial
results. We'll compare our third fiscal quarter
and nine months ended on December 31, 2004 to last
year's quarter and nine months ended on December
31, 2003.
Exhibit 99.1 Page 1 - 8
For the third fiscal quarter ended on December
31, 2004, sales were $20.8 million compared to
sales of $17.2 million for the same period the
prior year, an increase of 21%. For the nine
months, sales were $84.8 million compared to
$72.5 million for the nine months the prior year,
an increase of 17%. The increase was primarily
due to increased reorders for the nine months,
offset by decreased new orders for the first six
months of the fiscal year.
For the third fiscal quarter, net income was $2.0
million or $0.08 diluted per share, compared to
$1.2 million or $0.05 diluted per share a year
ago, an increase to net income of 60%. For the
nine months, net income was $5.6 million or $0.23
diluted per share compared to $4.5 million or
$0.19 diluted per share a year ago, an increase
to net income of 25%.
Retail reorder sales increased by 27% to $14.5
million for the quarter compared to reorder sales
of $11.4 million for the same quarter the prior
year. For the nine months, the reorder sales
increased by 40% to $51.7 million compared to
$36.8 million for the same period a year ago.
Retail new order sales increased by 1% to $5.8
million for the quarter compared to $5.7 million
for the same period the prior year. For the nine
months, the new order sales decreased by 11% to
$31.6 million compared to $35.4 million for the
same period a year ago. The decline in new
orders for the nine months can be attributed to
the increase in advertising cost of acquiring new
customers during the first six months of the
fiscal year. Slowdown in our sales growth
compared to the last year may also be
attributable to increased competition, both by
veterinarians and traditional and online
retailers.
We acquired approximately 85,000 new customers in
our third fiscal quarter compared to 82,000 for
the same period the prior year. And we acquired
430,000 new customers in nine months compared to
482,000 for the same period a year ago. The
seasonality in our business is due to the
proportion of flea, tick and heartworm
medications in our product mix. Spring and
summer are considered peak seasons with fall and
winter being the off seasons.
For the third fiscal quarter, our gross profit as
a percent of sales was 40.6% compared to 41.1%
for the same period a year ago. For the nine
months ended December 31, 2004 and 2003, our
gross profit as a percent of sales was the same
at 40%.
Our general and administrative expenses as a
percent of sales decreased to 12.2% for the
quarter compared to 13.5% for the same quarter
the prior year, and for the nine months, the G&A
decreased to 10.3% compared to 11.1% a year ago.
The improvement shows a continued leverage of the
G&A. Also a positive trend is the increase to 53%
of our customers placing their orders on our Web
site compared to 50% for the prior year.
We spent $2.6 million in advertising in each of the
quarters ended on December 31, 2004 and 2003.
For the nine months, we spent $16 million for
advertising compared to $13.6 million a year ago,
an increase of 18%.
Exhibit 99.1 Page 2 - 8
Advertising cost of acquiring a customer for the
quarter was $31 compared to $32 for the same
quarter the prior year. And for the nine months,
it was $37 compared to $28 for the same period a
year ago. We attribute the increase in
advertising cost of acquiring a customer for the
first six months of our fiscal year to our change
in advertising media mix due to shortage of
television inventory as a result of strengthening
economy and the elections held in November.
Our working capital increased by $7.9 million to
$19.2 since March 31, 2004. The increase was due
to increases in net income and the exercise of
stock options and warrants. We had $7.8 million
in cash and $13.5 million in inventory with no
debt as of December 31, 2004. The increase in
inventory is due to us taking advantage of some
buying opportunities preparing for spring, our
peak season. Cash from operations for the nine
months was $3.5 million compared to cash used in
operations of $3.1 million for the same period
last year. Capital expenditures for the nine
months were approximately $147,000.
This ends the financial review. Operator, we're
ready to take questions.
Coordinator First question comes from Frank Gristina.
F. Gristina Thanks, guys. Congratulations on a good quarter.
M. Akdag Thank you, Frank.
F. Gristina Couple of questions on the gross profit side. You
mentioned there was a slight drop in the gross
profit margin, is this a function of a change in
your skus or a change in cost to fulfill or anything
to point to?
M. Akdag That means the increase in cost of products did
not totally offset the increase in our selling
prices, and we said our target was 40% gross
profit which, if you look at the nine months,
we're at 40%. It's going to fluctuate; depending
on buying opportunities, our cost will fluctuate.
F. Gristina So it's purely a function of cost of product and
not any kind of promotional pricing?
M. Akdag That is correct, yes.
F. Gristina Okay. And then on the advertising, 12.6% of sales
was much better than a year ago and really, especially,
the last two quarters. So, what's changed there, are
you still doing a lot of TV, can you give us sort
of the breakup and mix, or is there a new form of
customer acquisition that has been working really
well? And I know you're not spending a lot during
this quarter for new customers, but somethings
definitely changed.
M. Akdag We got better results for the advertising dollars
that we spent. If you noticed, we spent the same
amount as we spent last year. I believe TV
advertising was approximately 52% of the dollars
spent in the third fiscal quarter in comparison to
49% for the last year.
Exhibit 99.1 Page 3 - 8
F. Gristina So 52%, that seems a little bit below kind of your
target for TV. Are you doing more e-mail in this
quarter or print?
M. Akdag Not for the third fiscal quarter. Third fiscal
quarter, we spend less money usually dollar-wise
so the TV as a percent comes down; 52% was TV,
print was 22%, and for the last year same quarter,
it was 49% TV, 35% print, actually.
F. Gristina Okay. And then some housekeeping questions. The
12 month average retail purchase, the ASP there?
M. Akdag I believe it is $75 for twelve months.
F. Gristina And then, I know you don't like to look at it, but
do you have a three-month number as well?
M. Akdag $73 was for the three months.
F. Gristina Okay. And one more, unique for the past two
years, can you start giving us that metric or for
unique purchasers for the last two years of the
company?
M. Akdag Yes. It is 1.4 million customers.
F. Gristina Okay. Well, thanks a lot. Again,
congratulations.
M. Akdag Thank you.
Coordinator Next question comes from Bernard Liu with Noble
Financial Group
B. Liu Good morning, gentlemen, and good quarter.
M. Akdag Thank you.
B. Liu Can you comment on-give us an update on the
competitive environment and give us some color as
to how your new marketing director will help the
company address any emerging competitive issues?
M. Akdag The market is getting more competitive and
although, this was our off-season, we will have a
better idea in our peak season, which is spring,
it starts in spring, but we're expecting the
market to get more and more competitive. As far
as what we are doing and the new marketing
director, we're going to focus on database
marketing, relationship marketing, one-on-one
marketing to our database to improve reorders,
that's going to be the primary focus. Also, we
are attempting to identify the long-term
customers, what they look like, and we are going
to attempt to acquire a long-term customer and
attempt to eliminate the one-time buyers.
B. Liu Okay. And can you also comment on the general
relationships with the vets? Has the backlash
gotten worse or has it stabilized and what kind of
metrics do you use to measure this?
Exhibit 99.1 Page 4 - 8
M. Akdag There is slight improvement, I can tell you, on
veterinarians' responses to us compared to last
year.
B. Liu And how are you seeing this?
M. Akdag I beg your pardon?
B. Liu How are you seeing this? Are you getting better
authorization rates?
M. Akdag Yes. And we are educating the consumer. At the
end of the day, the consumers call the shots. And
we are witnessing increase in consumer backlash.
B. Liu Okay, great, thank you. I'll get back in queue.
Coordinator Our next question comes from Therese Fabian with
Sidoti and Company.
T. Fabian Hello. Good morning.
M. Akdag Good morning.
T. Fabian I have a question about your advertising as a
percentage of revenue. It came down in the third
quarter. Are you expecting to increase that to
what has been a more constant drive from before?
M. Akdag Yes, we do. The reason it went down a bit, it was
our off-season. And during spring and summer,
that percentage will come back up, and publicly we
said, it will be 18% to 22% of revenue, it will
range.
T. Fabian Okay. Thank you. And then I have another
question on some of your new product initiatives
that you introduced in the second quarter. Have
you seen positive results on those, and do you
have plans for other new initiatives going
forward?
M. Akdag They did not have any material impact yet, and
we'll see how it goes this quarter. At this time,
we do not have any other initiatives.
T. Fabian Okay. And do you do checks to see how your prices
compare with other on-line or other retail prices
for some of your medicines? How does that come
out?
M. Akdag We typically check against veterinarians,
that's the surveys that we do. We think that
market share is going to come from veterinarians,
not from other on-line retailers. So our
comparisons are typically the way we price
ourselves. Typically, we get an average pricing
from veterinarians.
T. Fabian Okay. And if I may just ask one last question, or
let me get back in queue, I'm sorry. Thank you.
M. Akdag Thank you.
Exhibit 99.1 Page 5 - 8
Coordinator Our next question comes from Tushar Shah with
Geocapital Partners.
T. Shah Hi, Mendo. Good quarter.
M. Akdag Thank you.
T. Shah I have a quick question just to clarify. I heard
early in the call you had said, I think, I'm not
sure if I got this right, that the new order sales
went up one percent to $5.8 million from $5.7
million. Is that correct?
M. Akdag Yes. That is correct.
T. Shah And so, what makes up the-you know, if I add the
$5.8 million to the $14.5 million of reorder
sales, there's $5 million less or something, I
think, from other stuff, am I doing the math
wrong?
M. Akdag The difference is wholesale.
T. Shah Ah, thats wholesale. Is there any material
difference in the wholesale business from this
quarter versus the last year?
M. Akdag Let me take a look. Hold on. Yes. The wholesale
was about half a million dollars this fiscal
quarter compared to roughly $100,000 last year,
the same period.
T. Shah Got you. And was that in terms of gross margin
contribution, was that a decent contribution there
or was that a lot faster revenue?
M. Akdag Wholesale contribution is about 18%.
T. Shah I got you. Thanks a lot. Thank you.
M. Akdag You're welcome.
Coordinator Our next question comes from Frank Gristina with
Avondale.
F. Gristina Thanks. My question was about the wholesale, but
you answered that. How about an update on
advertising in terms of your arrangement with, I
guess, Hartville. Are there any other advertising
opportunities you guys think that you could
execute near-term allowing some merchants to
advertise on your site somehow or sponsor one of
your sites?
M. Akdag Not at this time.
F. Gristina Okay. Thanks.
M. Akdag You're welcome.
Coordinator Next question comes from Therese Fabian, Sidoti
and Company.
T. Fabian Hello again. I have a question on the competitive
environment. And if you could shed a little color
on that, I imagine most of your online competitors
are private companies?
Exhibit 99.1 Page 6 - 8
M. Akdag Yes.
T. Fabian But do any of them do this multi-channel marketing
that you do in terms of TV, print and online?
M. Akdag They all do online, so online is highly
competitive. Some of them do TV on and off;
print, one of them is a catalogue company, so they
do a lot of print. TV, we have not seen them
consistently on the air, but they're on and off. They
go on for a month then they discontinue for a
couple of months.
T. Fabian Thank you. Do you have any other sort of
statistics on your overall market share in terms
of pet medicine sales?
M. Akdag Our estimate is we have about 3.5% of the market.
T. Fabian Okay. Thank you.
M. Akdag You're welcome.
Coordinator Next question comes for Bernard Liu with Noble
Financial Group.
B. Liu Hi, a couple of accounting questions. How do
you treat, in terms of recognizing any types of
revenues from the arrangement with Hartville and
also on stock option expensing, FAS 123, for the
third quarter, would your EPS had been if you had
expense options?
M. Akdag As far as Hartville is concerned, we recognize the
revenue as we earn it on a monthly basis. As far
as stock options, I'm going to have Bruce answer
that question. He is more qualified.
B. Rosenbloom Bernie, as far as stock options, if you look at
our last two 10-Qs, we have a disclosure that
reflects approximately about $100,000 as the impact
per quarter, approximately about one penny per share.
B. Liu Okay. And in terms of-on the Hartville
arrangement, would that be on other line or would
actually going to sales line?
B. Rosenbloom Repeat the question again, Bernie. I'm sorry.
B. Liu On the Hartville arrangement, the revenues that
come in, would that be other income or would that
be in sales?
B. Rosenbloom More than likely, it probably would be in other
income. Since it's not part of our pet pharmacy
operations.
B. Liu Okay. Thank you.
B. Rosenbloom Sure.
Coordinator I show no further questions. I'd like to turn the
conference back over for any closing remarks.
Exhibit 99.1 Page 7 - 8
M. Akdag Thank you. We are a leader in a new distribution
channel. Our key opportunity is to leverage our
brand name to continue to increase our market
share. We'll do this by focusing our efforts in
two areas. One, optimizing our advertising media
buys, as well as developing new creatives to
reduce customer acquisition cost; and two,
improving reorders with ongoing personalized
customer communication.
This wraps up today's conference call. Thank you
for joining us. Operator, this ends the
conference call.
Coordinator Thank you. And that concludes today's conference
call. You may disconnect. Have a great day.
Exhibit 99.1 Page 8 - 8