EXHIBIT 99.1
PETMED EXPRESS, INC. CONFERENCE CALL
QUARTER 1 FINANCIAL RESULTS
July 26, 2004
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 first fiscal quarter ended
June 30, 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 health and
nutritional supplements for dogs and cats direct to
the consumer. 1-800-PetMeds markets its products
through national television, online and direct mail
advertising campaigns which directs the consumer to
order by phone or on the Internet and aims to
increase their recognition of the "1-800-PetMeds"
brand name. The 1-800-PetMeds brand meets the higher
consumer need to manage the cost of their pet's care.
It provides an attractive alternative for obtaining
pet medication in terms of convenience, price, ease
of order and rapid home delivery.
At this time I would like to turn the call over to
the company's Chief Financial Officer, Mr. Bruce
Rosenbloom.
B. Rosenbloom Thank you. I would like to welcome
everyone here today. Before I turn the call over to
Mendo, I would 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 or risks and uncertainties. These statements
are based on our beliefs as well as assumptions we
have used based on 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 materially differ 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,
Chief Executive Officer of 1-800-PetMeds.
M. Akdag Welcome and thank you for joining us. Today we
will review the highlights of our financial results
and discuss some of the challenges and opportunities
facing us in both the short and long term. We will
compare our first fiscal quarter ended June 30, 2004
to last year's quarter ended on June 30, 2003.
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For the first fiscal quarter ended on June 30, 2004,
sales were $35.3 million compared to sales of $30.4
million for the same period the prior year, an
increase of 16%. The increase was primarily due to
increased reorders offset by decreased new orders.
For the first fiscal quarter net income was $1.8
million, or $0.08 diluted per share compared to $1.4
million, or $0.06 diluted per share for the same
quarter last year, an increase of 27%.
Reorder sales increased by 60% to $19.9 million for
the quarter compared to reorder sales of $12.5
million for the same quarter the prior year. New
order sales decreased by 16% to $14.9 million
compared to $17.8 million for the same period the
prior year. We attribute the decline in new orders to
the associated advertising costs, which we will
discuss further in a few moments.
We acquired 191,000 new customers in our first fiscal
quarter compared to 234,000 for the same period the
prior year. We have approximately 1.3 million
customers who purchased from us in the last 24
months.
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-season.
For the first fiscal quarter our gross profit as a
percent of sales was 39.3% compared to 38.9% for the
same period a year ago. The increase was due to
increased product pricing offset by increased product
cost. Our general and administrative expenses, as a
percent of sales, decreased to 9.1% for the quarter
compared to 9.9% for the same quarter the prior year,
which shows a continued leverage of the G&A.
Also a positive trend is the increase to 52% of our
customers placing their orders on our website
compared to 49% for the prior year. We've spent $7.8
million in advertising compared to $6.5 million for
the same quarter the prior year, an increase of 19%.
TV accounted for 46%, with print at 42% this fiscal
quarter, in contrast to 74% and 17% respectively in
the quarter ended June 30, 2003.
Advertising cost of acquiring a customer for the
quarter was $41 compared to $28 for the same quarter
the prior year. We attribute this to the shortage of
television inventory due to the strengthening economy
and the upcoming elections. However, we were
successful in reducing that acquisition cost from a
high of $45 in the prior quarter ended on March 31,
2004.
Our working capital increased by $2.2 million to
$13.5 million since March 31, 2004. Our net worth
increased by $2.1 million to $16.1 million at the
same time period. Both increases were due to mainly
an increase in net income and the exercise of stock
options and warrants.
We had $5.2 million in cash and $14.2 million in
inventory as of June 30, 2004. Cash from operations
for the quarter was $1.7 million compared to cash
used in operations of $63,000 for the same period
last year. Capital expenditures for the quarter were
$67,000.
99.1 page 2 - 7
This concludes our financial review. We'll now
briefly discuss some of the challenges and
opportunities facing us.
There has been some negative publicity in the press
relating to the sale of counterfeit and foreign
products by Internet companies. Veterinarians have
also communicated this to their customers. We believe
this has negatively impacted our business.
1-800-PetMeds only dispenses the same exact U.S.
FDA/EPA-approved medications that are dispensed by
veterinarians, and we unconditionally guarantee the
medications that we dispense. We are communicating
this message to both consumers and veterinarians. As
such, we see this as a short-term obstacle.
In human pharmaceuticals, 18% of the market is
serviced by the mail order channel. In pet
medications, that number is at about 6%. There is
room for growth and we are the leader in the channel.
We'll continue leveraging our brand to increase our
market share.
To continue to grow the business, we are focusing our
efforts in three areas: one, optimizing our TV and
print media buys as well as developing new creatives;
two, improving our management of patient compliance
to drive reorders; three, examining the feasibility
of leveraging our database by bundling product
offerings and adding new products within the
companion animal category, such as compounded
medications, medications for horses and pet health
insurance.
One other thing I would like to mention. In about two
weeks we will be unveiling our redesigned website. I
invite all of you to log on and visit it. Operator,
we are ready to take questions.
Coordinator Our first question comes from Frank Gristina of
Avondale.
F. Gristina Thanks, guys. I have a couple of questions
for you. With your new customer adds in the quarter,
while very high, were pretty different from a year
ago. Was there something going on a year ago that may
have driven the new orders to 234,000 versus what you
did this past June quarter?
M. Akdag That's a good question. Last year, in March, as
everybody knows, I'm sure, the Iraq war started and
we advertised heavily on news stations such as Fox
News and CNN nationally, and we did not pay any extra
while their viewership was up fivefold.
F. Gristina So, if you guys advertised, you got a lot of
bang for your buck, depending on how much you're
advertising. Did you hold off on advertising this
June quarter because of the price?
M. Akdag We did not really hold off. If you noticed, we
spent 20%, almost 20% more this year than last year
but the media mix was different. We spent, as I
mentioned, only 46% of our advertising dollars on
television. Historically, the majority of our money
has been spent on television. That's what got us
here. This year, due to inventory shortages, we
shifted the dollars from television to print.
F. Gristina Your average ticket price during the quarter or your
number of orders during the quarter?
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M. Akdag The average ticket price was about $79 for the
quarter compared to $74 the same period last quarter.
F. Gristina Thanks a lot, guys.
M. Akdag You're welcome.
Coordinator Our next question comes from Walter Ramsley of Walrus
Partners.
W. Ramsley Good morning. Congratulations on a good
quarter.
M. Akdag Thank you.
W.Ramsley I have a couple of questions. You mentioned
that you're considering getting into the pet health
insurance area. Is this going to be some other
company that you're going to work with or are you
developing your own operation?
M. Akdag We don't know yet. I'm not prepared to answer that
at this time. We are evaluating all of our options.
W. Ramsley How long do you think that'll be before you get that
one off the ground?
M. Akdag We are in a research stage right now. I would say we
will make a decision within the next 30 days.
W. Ramsley I think you mentioned, earlier in your presentation,
that the product prices and the cost both went up
during the period. Is that correct?
M. Akdag Product prices went up since last year's June 30,
2003 quarter. In July 2003 we increased our product
prices and the product cost increased in January
2004.
W. Ramsley Can you give us an idea of what the inflationary
factors are? Is it a big number or is it just a
couple of percentage points? How significant is
that?
M. Akdag On average, the manufacturers increased their prices,
about, on average I would say, 5%. It probably
ranges from 3% to 7%.
W. Ramsley Just one last thing: You indicated that the
veterinarians are spreading the word that there are
counterfeit drugs on the Internet. Could you go into
that a little further and explain what the real story
is?
M. Akdag There has been some press and there has been,
actually, a warning by the EPA that there are some
counterfeit foreign products in the market. We
noticed that veterinarians have systematically
communicated that to their customer base and we
believe that negatively impacted our business.
We only dispense the same U.S. FDA/EPA-approved
medications that are dispensed by veterinarians and
we unconditionally guarantee the medications that we
dispense.
99.1 page 4 - 7
W. Ramsley I understand that. I'm just wondering how
widespread the problem is.
M. Akdag Our recent surveys, the last 30 days, showed
that about 10% of the surveyees were concerned with
that. I don't know what percent acted upon it, but
that's what we found out from our surveys.
W. Ramsley Is there any way that the government can crack down
and get rid of the problem?
M. Akdag They've been working on it. Actually, we've been
feeding them information. I believe, in the long
term, it will be resolved.
W. Ramsley How long do you think that might take? Is there any
way to figure that out or do you just have to wait
and see?
M. Akdag It's difficult to tell. Some of the manufacturers
are acting upon it too, and going after some of these
sites, so it should be resolved shortly.
W. Ramsley Just in general, the next quarter, is that another
seasonally strong quarter? How does that compare in
the overall scheme of things?
M. Akdag Spring is the strongest; summer is considered the
second strongest. Winter and fall are considered
off-season.
W. Ramsley As far as the advertising goes are you going
to continue to maintain the same amount of time on TV
or are you going to scale it back a little because of
the prices? What's the plan there?
M. Akdag We'll probably spend slightly less dollar-wise
than in the spring quarter. There are also the
Olympics coming up that will impact the viewership
of other stations. Presidential elections are getting
closer so TV inventory will get tighter as we go
along.
W. Ramsley Thanks a lot. I appreciate it.
M. Akdag You're welcome.
Coordinator Our next question comes from Ted Jackson of Noble
Financial.
T. Jackson Good morning, gentlemen.
M. Akdag Good morning.
T. Jackson Can you tell us, in terms of the average ticket size,
what the difference is in new orders and reorders?
M. Akdag There is no material difference. I would say it's
probably within a dollar.
T. Jackson So it's materially insignificant?
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M. Akdag That is correct.
T. Jackson Can you tell us which marketing channel,
television or print, is more efficient in terms of
acquisition costs, and give us a breakdown of what
each one costs?
M. Akdag Historically we mainly used television
advertising to acquire customers. That has been
successful for us for the last three years. Due to
inventory shortages, or I should say inventory
availability at the right price, we shifted the media
from television to print this quarter ending June
30th. It's all relative, so if we're paying higher on
TV, then you're comparing to a higher dollar with
print. I can't really break it down because we're
using 1-800-PetMeds. It's very difficult to track
exactly.
T. Jackson So you don't have those figures available?
M. Akdag Between the medias?
T. Jackson Yes.
M. Akdag We do some tests within the print media. I would say
about half of it is working as well as television and
the other half is not.
T. Jackson Could you define that in a number for us,
like in terms of what the average cost would be from
a print campaign in terms of ticket size and what the
average ticket size would be from a TV ad?
M. Akdag I'm not going to get into that kind of detail. It's
really proprietary. I would be giving information to
the competition.
T. Jackson Very well, sir. Thank you very much.
M. Akdag You're welcome.
Coordinator Our next question comes from Zach McAdoo of MCM.
Z. McAdoo Hi. I was just wondering what changes in the
competitive environment you're seeing in terms of
direct mail or retailers?
M. Akdag There is certainly increased competition by both
traditional and online retailers. That's really
expected.
Z. McAdoo Do you think that that impact - that was another
impact on the quarter?
M. Akdag What we hear is we are being compared to
veterinarians, so veterinarians are still the primary
competition. They've been more price-competitive too,
recently.
Z. McAdoo Thank you.
M. Akdag You're welcome.
99.1 page 6 - 7
Coordinator We have another question from Frank Gristina from
Avondale.
F. Gristina A follow-up question, Mendo or Bruce. I had
a question regarding internal hopes for new customer
adds in this fiscal year. There's a broad range on
the consensus numbers and I was hoping maybe you
could tighten it up by giving us an idea of what you
guys hope to add in terms of new customers.
M. Akdag Frank, we really don't give any guidance.
F. Gristina Alright. We'll wait and see, but just
looking at the difference between the June 2003 and
June 2004, it's kind of chunky, but I guess that's
more a result of the available ad inventory that you
had in 2003.
M. Akdag That is correct.
F. Gristina Thanks.
M. Akdag You're welcome.
Coordinator I'm showing no further questions at this time.
M. Akdag We are a leader in a new distribution channel
in an estimated $3 billion industry offering the
consumers savings and convenience. We have a powerful
brand name, 1-800-PetMeds. Our key opportunity is to
leverage the brand name and continue to increase our
market share.
As I mentioned earlier, we will do this by focusing
our efforts in three areas: one, optimizing our TV
and print media buys, as well as developing new
creatives; two, improving our management of patient
compliance to drive reorders; and three, examining
the feasibility of leveraging our database by adding
new products within the companion animal category,
such as compounded medications, medications for
horses and pet heath insurance.
This wraps up today's conference call. Thank you for
joining us.
Coordinator Thank you for participating in today's
teleconference. You may disconnect and have a great
day.
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