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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _____________

 

Commission file number: 000-28827

 


 

PETMED EXPRESS, INC.

(Exact name of registrant as specified in its charter)

 


 

Florida

65-0680967

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

420 South Congress Avenue, Delray Beach, Florida 33445

(Address of principal executive offices, including zip code)

 

(561) 526-4444

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.001 per share

PETS

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ☐   Accelerated filer ☒
  Non-accelerated filer ☐   Smaller reporting company 
  Emerging growth company     

            

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (defined in Rule 12b-2 of the Exchange Act).

Yes No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,978,529 Common Shares, $.001 par value per share at February 4, 2022.

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

 

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for per share amounts)

 

   

December 31, 

2021 

   

March 31, 

2021

 
    (Unaudited)        

ASSETS

               
                 

Current assets:

               

Cash and cash equivalents

  $ 108,911     $ 118,718  

Accounts receivable, less allowance for doubtful accounts of $19 and $39, respectively

    1,267       2,587  

Inventories - finished goods

    27,640       34,420  

Prepaid expenses and other current assets

    3,216       4,503  

Prepaid income taxes

    1,870       959  

Total current assets

    142,904       161,187  
                 

Noncurrent assets:

               

Property and equipment, net

    24,665       25,450  

Intangible assets

    860       860  

Total noncurrent assets

    25,525       26,310  
                 

Total assets

  $ 168,429     $ 187,497  
                 

LIABILITIES AND SHAREHOLDERS' EQUITY

               
                 

Current liabilities:

               

Accounts payable

  $ 21,935     $ 39,548  

Accrued expenses and other current liabilities

    4,330       5,387  

Total current liabilities

    26,265       44,935  
                 

Deferred tax liabilities

    1,262       1,281  
                 

Total liabilities

    27,527       46,216  
                 

Commitments and contingencies

               
                 

Shareholders' equity:

               

Preferred stock, $0.001 par value, 5,000 shares authorized; 3 convertible shares issued and outstanding with a liquidation preference of $4 per share

    9       9  

Common stock, $0.001 par value, 40,000 shares authorized; 20,957 and 20,269 shares issued and outstanding, respectively

    21       20  

Additional paid-in capital

    10,151       7,111  

Retained earnings

    130,721       134,141  
                 

Total shareholders' equity

    140,902       141,281  
                 

Total liabilities and shareholders' equity

  $ 168,429     $ 187,497  

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share amounts) (Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 31,

   

December 31,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Sales

  $ 60,717     $ 65,896     $ 207,415     $ 237,536  

Cost of sales

    42,992       46,273       148,736       168,110  
                                 

Gross profit

    17,725       19,623       58,679       69,426  
                                 

Operating expenses:

                               

General and administrative

    7,541       6,487       22,540       21,050  

Advertising

    4,327       3,221       15,435       17,385  

Depreciation

    710       622       2,051       1,791  

Total operating expenses

    12,578       10,330       40,026       40,226  
                                 

Income from operations

    5,147       9,293       18,653       29,200  
                                 

Other income:

                               

Interest income, net

    84       73       243       229  

Other, net

    287       345       741       938  

Total other income

    371       418       984       1,167  
                                 

Income before provision for income taxes

    5,518       9,711       19,637       30,367  
                                 

Provision for income taxes

    1,261       2,100       4,603       6,576  
                                 

Net income

  $ 4,257     $ 7,611     $ 15,034     $ 23,791  
                                 

Net income per common share:

                               

Basic

  $ 0.21     $ 0.38     $ 0.75     $ 1.19  

Diluted

  $ 0.21     $ 0.38     $ 0.74     $ 1.18  
                                 

Weighted average number of common shares outstanding:

                         

Basic

    20,208       20,094       20,165       20,047  

Diluted

    20,329       20,104       20,365       20,100  
                                 

Cash dividends declared per common share

  $ 0.30     $ 0.28     $ 0.90     $ 0.84  

 

See accompanying notes to condensed consolidated financial statements.

 

2

 
 

 

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

   

Nine Months Ended

 
   

December 31,

 
   

2021

   

2020

 

Cash flows from operating activities:

               

Net income

  $ 15,034     $ 23,791  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    2,051       1,791  

Share based compensation

    3,040       2,294  

Deferred income taxes

    (19 )     353  

Bad debt expense

    104       84  

(Increase) decrease in operating assets and increase (decrease) in liabilities:

               

Accounts receivable

    1,216       1,928  

Inventories - finished goods

    6,780       (10,281 )

Prepaid income taxes

    (911 )     -  

Prepaid expenses and other current assets

    1,287       (983 )

Accounts payable

    (17,613 )     2,211  

Accrued expenses and other current liabilities

    (1,188 )     286  

Income taxes payable

    -       152  

Net cash provided by operating activities

    9,781       21,626  
                 

Cash flows from investing activities:

               

Purchases of property and equipment

    (1,266 )     (1,848 )

Net cash used in investing activities

    (1,266 )     (1,848 )
                 

Cash flows from financing activities:

               

Dividends paid

    (18,322 )     (17,039 )

Net cash used in financing activities

    (18,322 )     (17,039 )
                 

Net (decrease) increase in cash and cash equivalents

    (9,807 )     2,739  

Cash and cash equivalents, at beginning of period

    118,718       103,762  
                 

Cash and cash equivalents, at end of period

  $ 108,911     $ 106,501  
                 

Supplemental disclosure of cash flow information:

               
                 

Cash paid for income taxes

  $ 5,580     $ 6,356  
                 

Dividends payable in accrued expenses

  $ 329     $ 174  

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

PETMED EXPRESS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1: Summary of Significant Accounting Policies

 

Organization

 

PetMed Express, Inc. and subsidiaries, d/b/a PetMeds (the “Company”), is a leading nationwide pet pharmacy. The Company markets prescription and non-prescription pet medications, health products, and supplies for dogs, cats, and horses direct to the consumer. The Company offers consumers an attractive alternative for obtaining pet medications in terms of convenience, price, speed of delivery, and valued customer service. The Company markets its products through national advertising campaigns, which aim to increase the recognition of the “PetMeds” brand name, increase traffic on its website at www.petmeds.com, acquire new customers, and maximize repeat purchases. Virtually all of the Company’s sales are to residents in the United States. The Company’s corporate headquarters and distribution facility is located in Delray Beach, Florida. The Company’s fiscal year end is March 31, and references herein to Fiscal 2022 or Fiscal 2021 refer to the Company's fiscal years ending March 31, 2022 and 2021, respectively.

 

Basis of Presentation and Consolidation

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company at December 31, 2021, the Statements of Income for the three and nine months ended December 31, 2021 and 2020, and Cash Flows for the nine months ended December 31, 2021 and 2020. The results of operations for the three and nine months ended December 31, 2021 are not necessarily indicative of the operating results expected for the fiscal year ending March 31, 2022. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2021. The Condensed Consolidated Financial Statements include the accounts of PetMed Express, Inc. and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

 

Use of Estimates

 

The preparation of Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments.

 

Recent Accounting Pronouncements

 

In March 2020, the Financial Accounting Standards Board issued ASU 2020-03, “Codification Improvements to Financial Instruments” (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The Company will adopt ASU 2020-03 on April 1, 2022. The Company does not expect the adoption of this new standard to have a material impact on our Condensed Consolidated Financial Statements.

 

The Company does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

 

4

 

 

Note 2: Revenue Recognition

 

The Company generates revenue by selling pet medication products and pet supplies mainly to retail customers. Certain pet supplies offered on the Company’s website are drop shipped to customers. The Company considers itself the principal in the arrangement because the Company controls the specified good before it is transferred to the customer. Revenue contracts contain one performance obligation, which is delivery of the product; customer care and support is deemed not to be a material right in the contract. The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are estimated based on historical patterns, however, this is not considered a key judgment. There are no amounts excluded from variable consideration. Revenue is recognized when control transfers to the customer at the point in time in which shipment of the product occurs.

 

Outbound shipping and handling fees are an accounting policy election and are included in sales as the Company considers itself the principal in the arrangement given responsibility for supplier selection and discretion over pricing. Shipping costs associated with outbound freight after control over a product has transferred to a customer are an accounting policy election and are accounted for as fulfillment costs and are included in cost of sales.

 

The Company disaggregates revenue in the following two categories: (1) Reorder revenue vs. new order revenue, and (2) Internet revenue vs. contact center revenue. The following table illustrates revenue by various classifications:

 

Three Months Ended December 31,

 

Revenue (In thousands)

 

2021

   

%

   

2020

   

%

   

$ Variance

   

% Variance

 
                                                 

Reorder Sales

  $ 56,307       92.7 %   $ 60,233       91.4 %   $ (3,926 )     -6.5 %

New Order Sales

    4,410       7.3 %     5,663       8.6 %     (1,253 )     -22.1 %
                                                 

Total Net Sales

  $ 60,717       100.0 %   $ 65,896       100.0 %   $ (5,179 )     -7.9 %
                                                 

Internet Sales

  $ 51,305       84.5 %   $ 54,984       83.4 %   $ (3,679 )     -6.7 %

Contact Center Sales

    9,412       15.5 %     10,912       16.6 %     (1,500 )     -13.7 %
                                                 

Total Net Sales

  $ 60,717       100.0 %   $ 65,896       100.0 %   $ (5,179 )     -7.9 %

 

Nine Months Ended December 31,

 

Sales (In thousands)

 

2021

   

%

   

2020

   

%

   

$ Variance

   

% Variance

 
                                                 

Reorder Sales

  $ 189,260       91.2 %   $ 208,419       87.7 %   $ (19,159 )     -9.2 %

New Order Sales

    18,155       8.8 %     29,117       12.3 %     (10,962 )     -37.6 %
                                                 

Total Net Sales

  $ 207,415       100.0 %   $ 237,536       100.0 %   $ (30,121 )     -12.7 %
                                                 

Internet Sales

  $ 173,713       83.8 %   $ 199,192       83.9 %   $ (25,479 )     -12.8 %

Contact Center Sales

    33,702       16.2 %     38,344       16.1 %     (4,642 )     -12.1 %
                                                 

Total Net Sales

  $ 207,415       100.0 %   $ 237,536       100.0 %   $ (30,121 )     -12.7 %

 

Virtually all of the Company’s sales are paid by credit cards and the Company usually receives the cash settlement in 2 to 3 banking days. Credit card sales minimize the accounts receivable balances relative to sales. The Company had no material contract asset or contract liability balances as of December 31, 2021 or March 31, 2021.

 

5

 

 

Note 3: Net Income Per Share

 

In accordance with the provisions of Accounting Standards Codification (ASC) Topic 260 (“Earnings Per Share”) basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share includes the dilutive effect of potential restricted stock and the effects of the potential conversion of preferred shares, calculated using the treasury stock method. Unvested restricted stock and convertible preferred shares issued by the Company represent the only dilutive effect reflected in the diluted weighted average shares outstanding. The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods presented (in thousands, except for per share amounts):

 

   

Three Months Ended

December 31,

   

Nine Months Ended

December 31,

 
   

2021

   

2020

   

2021

   

2020

 

Net income (numerator):

                               

Net income

  $ 4,257     $ 7,611     $ 15,034     $ 23,791  

Shares (denominator):

                               

Weighted average number of common shares outstanding used in basic computation

    20,208       20,094       20,165       20,047  

Common shares issuable upon vesting of restricted stock

    111       -       190       43  

Common shares issuable upon conversion of preferred shares

    10       10       10       10  

Shares used in diluted computation

    20,329       20,104       20,365       20,100  

Net income per common share:

                               

Basic

  $ 0.21     $ 0.38     $ 0.75     $ 1.19  

Diluted

  $ 0.21     $ 0.38     $ 0.74     $ 1.18  

 

For the three and nine months ended December 31, 2021, 205,219 shares of common restricted stock were excluded from the computations of diluted net income per common share, as their inclusion would have had an anti-dilutive effect on diluted net income per common share. For the three and nine months ended December 31, 2020, 130,326 shares of common restricted stock were excluded from the computations of diluted net income per common share, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.

 

 

Note 4: Accounting for Stock-Based Compensation

 

The Company records compensation expense associated with restricted stock in accordance with ASC Topic 718 (“Share Based Payment”) (ASU 2016-09). The compensation expense related to all of the Company’s stock-based compensation arrangements is recorded as a component of general and administrative expenses. The Company had 875,825 restricted common shares issued under the 2016 Employee Equity Compensation Restricted Stock Plan (“2016 Employee Plan”) and 203,880 restricted common shares issued under the 2015 Outside Director Equity Compensation Restricted Stock Plan (“2015 Director Plan”) at December 31, 2021, all shares of which were issued subject to a restriction or forfeiture period that lapses ratably on the first, second, and third anniversaries of the date of grant, and the fair value of which is being amortized over the 1 to 3-year restriction period.

 

In December 2021, the Company issued 15,000 restricted shares to certain employees of the Company under the 2016 Employee Plan, with a fair value of $27.10 per share.

 

For the quarters ended December 31, 2021 and 2020, the Company recognized $1.4 million and $781,000, respectively, of compensation expense related to the 2016 Employee Plan and 2015 Director Plan. For the nine months ended December 31, 2021 and 2020, the Company recognized $3.0 million and $2.3 million, respectively, of compensation expense related to the 2016 Employee Plan and 2015 Director Plan. At December 31, 2021 and 2020, there was $14.4 million and $3.6 million of unrecognized compensation cost related to the non-vested restricted stock awards, respectively, which is expected to be recognized over the next 3 years. All stock-based compensation expense is recognized as a payroll-related expense and it is included within the general and administrative expenses line item within the Company’s income statement, and the offset is included in the additional paid-in capital line item of the Company’s balance sheet. At December 31, 2021 and 2020, there were approximately 749,000 and 177,000 non-vested restricted shares, respectively.

 

6

 

 

Note 5: Fair Value

 

The Company carries various assets and liabilities at fair value in the Condensed Consolidated Balance Sheets. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. ASC Topic 820 (“Fair Value Measurements”) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

 

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. At December 31, 2021, the Company had invested virtually all of its $108.9 million cash and cash equivalents balance in money market funds which are classified within level 1.

 

 

Note 6: Commitments and Contingencies

 

The Company has settled complaints that had been filed with various states’ regulatory boards in the past. There can be no assurances made that other states will not attempt to take similar actions against the Company in the future. The Company initiates litigation to protect its trade or service marks. There can be no assurance that the Company will be successful in protecting its trade or service marks. Legal costs related to the above matters are expensed as incurred.

 

 

Note 7: Changes in Shareholders Equity

 

Changes in shareholders’ equity for the nine months ended December 31, 2021 and 2020 are summarized below (in thousands):

 

   

Additional

         
   

Paid-In

   

Retained

 
   

Capital

   

Earnings

 

Beginning balance at March 31, 2021:

  $ 7,111     $ 134,141  

Share based compensation

    718       -  

Dividends declared

    -       (6,080 )

Net income

    -       4,428  

Ending balance at June 30, 2021:

  $ 7,829     $ 132,489  

Share based compensation

    882       -  

Dividends declared

    -       (6,092 )

Net income

    -       6,349  

Ending balance at September 30, 2021:

  $ 8,711     $ 132,746  

Share based compensation

    1,440       -  

Dividends declared

    -       (6,282 )

Net income

    -       4,257  

Ending balance at December 31, 2021:

  $ 10,151     $ 130,721  

 

7

 

Note 7: Changes in Shareholders Equity (Continued)

 

 

   

Additional

         
   

Paid-In

   

Retained

 
   

Capital

   

Earnings

 

Beginning balance at March 31, 2020:

  $ 3,804     $ 126,177  

Share based compensation

    740       -  

Dividends declared

    -       (5,647 )

Net income

    -       7,768  

Ending balance at June 30, 2020:

  $ 4,544     $ 128,298  

Share based compensation

    773       -  

Dividends declared

    -       (5,647 )

Net income

    -       8,412  

Ending balance at September 30, 2020:

  $ 5,317     $ 131,063  

Share based compensation

    781       -  

Dividends declared

    -       (5,674 )

Net income

    -       7,611  

Ending balance at December 31, 2020:

  $ 6,098     $ 133,000  

 

There were no shares of common stock that were purchased or retired in the nine months ended December 31, 2021 and 2020. On December 31, 2021, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan.

 

 

Note 8: Income Taxes

 

For the quarters ended December 31, 2021 and 2020, the Company recorded an income tax provision of approximately $1.3 million and $2.1 million, respectively, and for the nine months ended December 31, 2021 and 2020, the Company recorded an income tax provision of approximately $4.6 million and $6.6 million, respectively. The decrease in the income tax provision for the three and nine months ended December 31, 2021 is related to a decrease in operating income during the periods. The effective tax rate for the quarter ended December 31, 2021 was approximately 22.9% compared to 21.6% for the quarter ended December 31, 2020, and the effective tax rate for the nine months ended December 31, 2021 was approximately 23.4%, compared to 21.7% for the nine months ended December 31, 2020. The increase to the effective rate for the quarter ended December 31, 2021 was due to a one-time income tax charge of $29,000 related to the reconciliation of the Company’s tax return for the fiscal year ending March 31, 2021, with the Company receiving a one-time income tax benefit of $194,000 related to the reconciliation of the Company’s tax return for the fiscal year ending March 31, 2020 the prior year. The decrease to the effective rate for the nine months ended December 31, 2020 can be attributed to the Company receiving a one-time state income tax refund of $285,000 in the June 2020 quarter and a $106,000 income tax benefit related to restricted stock compensation in the September 2020 quarter.

 

 

Note 9: Related Party Transaction

 

The Company’s Board of Directors Chairman, Gian Fulgoni serves on the board of directors of Prophet, a brand and marketing consulting company, which the Company engaged with in March 2021 for $292,000. The Company expensed $32,000 in fiscal 2021 and $260,000 in fiscal 2022. This transaction was approved by the Company’s Board of Directors with terms that are considered to be comparable to those with an unrelated third party.

 

 

Note 10: Subsequent Events

 

On January 24, 2022 our Board of Directors declared a quarterly dividend of $0.30 per share. The Company’s Board of Directors established a February 7, 2022 record date and a February 18, 2022 payment date for the quarterly dividend. Based on the outstanding share balance as of February 1, 2022 the Company estimates the dividend payable to be approximately $6.3 million.

 

In January 2022 the Company issued 17,500 restricted shares to certain employees of the Company under the 2016 Employee Plan, with a fair value of $25.87 per share. In January 2022, the Company issued 5,000 restricted shares to two directors of the Company under the 2015 Director Plan, with a fair value of $25.20 per share. These directors took on additional responsibilities as the CEO transition team of the Board.

 

 
8

 

 

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Executive Summary

 

PetMed Express was incorporated in the state of Florida in January 1996. The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “PETS.” The Company began selling pet medications and other pet health products in September 1996. In March 2010, the Company started offering for sale additional pet supplies on its website, and these items are drop shipped to customers by third party vendors. Presently, the Company’s product line includes approximately 3,000 SKUs of the most popular pet medications, health products, and supplies for dogs, cats, and horses.

 

The Company markets its products through national advertising campaigns which aim to increase the recognition of the “PetMeds” brand name, increase traffic on its website at www.petmeds.com, acquire new customers, and maximize repeat purchases. Approximately 84% of all sales were generated via the Internet for the quarter ended December 31, 2021 compared to 83% for the quarter ended December 31, 2020. The Company’s sales consist of products sold mainly to retail consumers. The three-month average purchase was approximately $89 and $88 per order for the quarters ended December 31, 2021 and 2020, respectively, and for the nine months ended December 31, 2021 and 2020, the average purchase was approximately $92 and $88 per order, respectively.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and the results of our operations contained herein are based upon our Condensed Consolidated Financial Statements and the data used to prepare them. The Company’s Condensed 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. 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.

 

Revenue recognition

 

The Company generates revenue by selling pet medication products and pet supplies mainly to retail customers. Certain pet supplies offered on the Company’s website are drop shipped to customers. The Company considers itself the principal in the arrangement because the Company controls the specified good before it is transferred to the customer. Revenue contracts contain one performance obligation, which is delivery of the product; customer care and support is deemed not to be a material right to the contract. The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are estimated based on historical patterns; however, this is not considered a key judgment. There are no amounts excluded from variable consideration. Revenue is recognized when control transfers to the customer at the point in time in which shipment of the product occurs.

 

Outbound shipping and handling fees are an accounting policy election and are included in sales as the Company considers itself the principal in the arrangement given responsibility for supplier selection and discretion over pricing. 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. Virtually all of the Company’s sales are paid by credit cards and the Company usually receives the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to sales.

 

The Company maintains an allowance for doubtful accounts for losses that the Company estimates will arise from customers’ inability to make required payments, arising from either credit card charge-backs or insufficient funds checks. The Company determines its estimates of the un-collectability of accounts receivable by analyzing historical bad debts and current economic trends. The allowance for doubtful accounts was approximately $19,000 at December 31, 2021 compared to $39,000 at March 31, 2021.

 

9

 

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. The Company writes down its inventory for estimated obsolescence. The inventory reserve was approximately $69,000 at December 31, 2021 compared to $86,000 at March 31, 2021.

 

Advertising

 

The Company's 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. Television advertising costs are expensed as the advertisements are televised.

 

Accounting for income taxes

 

The Company accounts for income taxes under the provisions of ASC Topic 740 (“Accounting for Income Taxes”), which generally requires recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the Company’s Condensed Consolidated Financial Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse.

 

Results of Operations

 

The following should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes thereto included elsewhere herein. The following table sets forth, as a percentage of sales, certain operating data appearing in the Company’s Condensed Consolidated Statements of Income:

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 31,

   

December 31,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Sales

    100.0

%

    100.0

%

    100.0

%

    100.0

%

Cost of sales

    70.8       70.2       71.7       70.8  
                                 

Gross profit

    29.2       29.8       28.3       29.2  
                                 

Operating expenses:

                               

General and administrative

    12.4       9.8       10.9       8.9  

Advertising

    7.1       4.9       7.5       7.3  

Depreciation

    1.2       0.9       1.0       0.7  

Total operating expenses

 

20.7

      15.6       19.4       16.9  
                                 

Income from operations

    8.5       14.2       8.9       12.3  
                                 

Total other income

    0.6       0.6       0.5       0.5  
                                 

Income before provision for income taxes

    9.1       14.8       9.4       12.8  
                                 

Provision for income taxes

    2.1       3.2       2.2       2.8  
                                 

Net income

    7.0

%

    11.6

%

    7.2

%

    10.0

%

 

10

 

 

Non-GAAP Financial Measures

 

Adjusted EBITDA and Adjusted EBITDA per share

 

To provide investors and the market with additional information regarding our financial results, we have disclosed (see below) adjusted EBITDA and adjusted EBITDA per share, non-GAAP financial measures that we calculate as net income excluding; share-based compensation expense; depreciation and amortization; income tax provision; and interest income (expense). We have provided reconciliations below of adjusted EBITDA to net income and adjusted EBITDA per share to diluted earnings per share, the most directly comparable GAAP financial measures.

 

We have included adjusted EBITDA and adjusted EBITDA per share, herein, because they are key measures used by our management and Board of Directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses. Accordingly, we believe that adjusted EBITDA and adjusted EBITDA per share provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

 

We believe it is useful to exclude non-cash charges, such as, share-based compensation expense, depreciation and amortization from our adjusted EBITDA and adjusted EBITDA per share because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. In addition, we believe it is useful to exclude in our adjusted EBITDA and adjusted EBITDA per share income tax provision and interest income (expense), as neither are components of our core business operations. Adjusted EBITDA and adjusted EBITDA per share have limitations as financial measures, these non-GAAP measures should not be considererd in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

 

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA and adjusted EBITDA per share does not reflect capital expenditure requirements for such replacements or for new capital expenditures;

 

 

Adjusted EBITDA and adjusted EBITDA per share does not reflect share-based compensation. 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 and adjusted EBITDA per share does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital; and

 

 

Other companies, including companies in our industry, may calculate adjusted EBITDA and adjusted EBITDA per share differently, which reduces these measures' usefulness as comparative measures.

 

Because of these and other limitations, you should consider adjusted EBITDA and adjusted EBITDA per share only as supplemental to, and alongside with other GAAP based financial performance measures, including various cash flow metrics, net income, net margin, and our other GAAP results.

 

11

 

The following table presents a reconciliation of net income, the most directly comparable GAAP measure to adjusted EBITDA and adjusted EBITDA per share for each of the periods indicated:

 

Reconciliation of Non-GAAP Measures

PetMed Express, Inc.

(Unaudited)

 

   

Three Months Ended

                   

Nine Months Ended

                 
($ in thousands, except  

December 31,

   

December 31,

    $    

%

   

December 31,

   

December 31,

    $    

%

 

percentages)

 

2021

   

2020

   

Change

   

Change

   

2021

   

2020

   

Change

   

Change

 
                                                                 

Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA:

           
                                                                 

Net income

  $ 4,257     $ 7,611     $ (3,354 )     -44 %   $ 15,034     $ 23,791     $ (8,757 )     -37 %
                                                                 

Add (subtract):

                                                               

Share-based compensation

  $ 1,440     $ 782     $ 658       84 %   $ 3,040     $ 2,294     $ 746       33 %

Income Taxes

  $ 1,261     $ 2,100     $ (839 )     -40 %   $ 4,603     $ 6,576     $ (1,973 )     -30 %

Depreciation

  $ 710     $ 622     $ 88       14 %   $ 2,051     $ 1,791     $ 260       15 %

Interest Income/Expense

  $ (84 )   $ (73 )   $ (11 )     15 %   $ (243 )   $ (229 )   $ (14 )     6 %
                                                                 

Adjusted EBITDA

  $ 7,584     $ 11,042     $ (3,458 )     -31 %   $ 24,485     $ 34,223     $ (9,738 )     -28 %

 

($ in thousands,  

Three Months Ended

                   

Nine Months Ended

                 

except percentages

 

December 31,

   

December 31,

    $    

%

   

December 31,

   

December 31,

    $    

%

 

and per share amounts)

 

2021

   

2020

   

Change

   

Change

   

2021

   

2020

   

Change

   

Change

 
                                                                 

Consolidated Reconciliation of GAAP Net Income Per Share to Adjusted EBITDA per share:

               
                                                                 

Net income per share, diluted

  $ 0.21     $ 0.38     $ (0.17 )     -45 %   $ 0.74     $ 1.18     $ (0.45 )     -38 %
                                                                 

Add (subtract):

                                                               

Share-based compensation

  $ 0.07     $ 0.04     $ 0.03       82 %   $ 0.15     $ 0.11     $ 0.04       31 %

Income Taxes

  $ 0.06     $ 0.10     $ (0.04 )     -41 %   $ 0.22     $ 0.33     $ (0.10 )     -31 %

Depreciation

  $ 0.03     $ 0.03     $ 0.00       13 %   $ 0.10     $ 0.09     $ 0.01       13 %

Interest Income/Expense

  $ (0.00 )   $ (0.00 )   $ (0.00 )     14 %   $ (0.01 )   $ (0.01 )   $ 0.00       5 %
                                                                 

Adjusted EBITDA Per Share

  $ 0.37     $ 0.55     $ (0.18 )     -32 %   $ 1.20     $ 1.70     $ (0.50 )     -29 %

 

12

 

Three Months Ended December 31, 2021 Compared With Three Months Ended December 31, 2020, and Nine Months Ended December 31, 2021 Compared With Nine Months Ended December 31, 2020

 

COVID-19

 

We are dedicated to making every effort to ensure our customers’ pets receive the medications they need. We are also dedicated to making every effort to ensure the health and safety of our employees. We have continued with working from home where possible and enhanced disinfection and social distancing within our work place. The Company has been open during our normal business hours without any material disruptions to our operations. We have not seen any major disruptions in our supply chain, however we have experienced some delays in the delivery of some inventory items. See risk factor “The recent outbreak of the COVID-19 global pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, employee availability, financial performance, liquidity and cash flow for an unknown period of time in Part I, Item 1A of our Form 10-K for the year ended March 31, 2021.

 

Sales

 

Sales decreased by approximately $5.2 million, or 7.9%, to approximately $60.7 million for the quarter ended December 31, 2021, from approximately $65.9 million for the quarter ended December 31, 2020. For the nine months ended December 31, 2021, sales decreased by approximately $30.1 million, or 12.7%, to approximately $207.4 million compared to $237.5 million for the nine months ended December 31, 2020. The decrease in sales for the quarter and nine months ended December 31, 2021 was primarily due to decreased new order sales and reorder sales. Sales for the quarter and nine months ended December 30, 2021 were impacted by a competitive environment, and a crowded advertising market which had substantially higher advertising costs compared to the same periods in the prior year. Veterinary visits increased during the nine months ended December 31, 2021, compared to being down during the prior year, due to the pandemic. We believe the increase in veterinary visits during the nine months ended December 31, 2021, was primarily due to pet owners needing to visit their veterinarian for their pets’ annual exam in order to renew their prescriptions, as many veterinarians were closed during the nine months ended December 31, 2020, due to the pandemic. The Company acquired approximately 53,000 new customers for the quarter ended December 31, 2021, compared to approximately 73,000 new customers for the same period the prior year. For the nine months ended December 31, 2021 the Company acquired approximately 210,000 new customers, compared to 356,000 new customers for the nine months ended December 31, 2020. The following chart illustrates sales by various sales classifications:

 

Three Months Ended December 31,

 

Sales (In thousands)

 

2021

   

%

   

2020

   

%

   

$ Variance

   

% Variance

 
                                                 

Reorder Sales

  $ 56,307       92.7 %   $ 60,233       91.4 %   $ (3,926 )     -6.5 %

New Order Sales

    4,410       7.3 %     5,663       8.6 %     (1,253 )     -22.1 %
                                                 

Total Net Sales

  $ 60,717       100.0 %   $ 65,896       100.0 %   $ (5,179 )     -7.9 %
                                                 

Internet Sales

  $ 51,305       84.5 %   $ 54,984       83.4 %   $ (3,679 )     -6.7 %

Contact Center Sales

    9,412       15.5 %     10,912       16.6 %     (1,500 )     -13.7 %
                                                 

Total Net Sales

  $ 60,717       100.0 %   $ 65,896       100.0 %   $ (5,179 )     -7.9 %

 

Nine Months Ended December 31,

 

Sales (In thousands)

 

2021

   

%

   

2020

   

%

   

$ Variance

   

% Variance

 
                                                 

Reorder Sales

  $ 189,260       91.2 %   $ 208,419       87.7 %   $ (19,159 )     -9.2 %

New Order Sales

    18,155       8.8 %     29,117       12.3 %     (10,962 )     -37.6 %
                                                 

Total Net Sales

  $ 207,415       100.0 %   $ 237,536       100.0 %   $ (30,121 )     -12.7 %
                                                 

Internet Sales

  $ 173,713       83.8 %   $ 199,192       83.9 %   $ (25,479 )     -12.8 %

Contact Center Sales

    33,702       16.2 %     38,344       16.1 %     (4,642 )     -12.1 %
                                                 

Total Net Sales

  $ 207,415       100.0 %   $ 237,536       100.0 %   $ (30,121 )     -12.7 %

 

13

 

Going forward sales may be adversely affected due to increased competition and consumers giving more consideration to price. No guarantees can be made that sales will 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. For the quarters ended June 30, September 30, December 31, and March 31 of Fiscal 2021, the Company’s sales were approximately 31%, 25%, 21%, and 23%, respectively, of the total fiscal year sales.

 

Cost of sales

 

Cost of sales decreased by approximately $3.3 million, or 7.1%, to approximately $43.0 million for the quarter ended December 31, 2021, from approximately $46.3 million for the quarter ended December 31, 2020. For the nine months ended December 31, 2021, cost of sales decreased by approximately $19.4 million, or 11.5%, to approximately $148.7 million compared to $168.1 million for the same period in the prior year. The cost of sales decreases can be directly related to the decrease in sales during the quarter and nine months ended December 31, 2021. Cost of sales as a percent of sales was 70.8% and 70.2% for the quarters ended December 31, 2021 and 2020, respectively, and for the nine months ended December 31, 2021 and 2020 the cost of sales was 71.7% and 70.8%, respectively. The cost of sales percentage for the quarter and nine months were adversely impacted due to the major manufacturers, with whom we have a purchasing relationship, shifting their rebate funding from discounting product costs to more cooperative marketing rebates.

 

Gross profit

 

Gross profit decreased by approximately $1.9 million, or 9.7%, to approximately $17.7 million for the quarter ended December 31, 2021, from approximately $19.6 million for the quarter ended December 31, 2020. For the nine months ended December 31, 2021 gross profit decreased by approximately $10.7 million, or 15.5%, to approximately $58.7 million, compared to $69.4 million for the same period in the prior year. The decrease in gross profit is directly related to a decrease in sales during the quarter and nine months ended December 31, 2021. Gross profit as a percentage of sales was 29.2% and 29.8% for the three months ended December 31, 2021 and 2020, respectively, and for the nine months ended December 31, 2021 and 2020, gross profit as a percentage of sales was 28.3% and 29.2%, respectively. The gross profit percentage decreases for the quarter and nine months were adversely impacted due to the major manufacturers, with whom we have a purchasing relationship, shifting their rebate funding from discounting product costs to more cooperative marketing rebates.

 

General and administrative expenses

 

General and administrative expenses increased by approximately $1.0 million, or 16.2%, to approximately $7.5 million for the quarter ended December 31, 2021, compared to $6.5 million for the quarter ended December 31, 2020. The increase in general and administrative expenses for the quarter ended December 31, 2021 was primarily due to the following: a $660,000 increase in payroll expense which also includes stock compensation, a $287,000 increase in professional fees which includes consulting fees and our telehealth test, and a $106,000 net increase of other expenses which includes property, telephone, insurance, and travel expenses. For the nine months ended December 31, 2021, general and administrative expenses increased by approximately $1.4 million, or 7.1%, to approximately $22.5 million, compared to $21.1 million for the same period the prior year. The increase in general and administrative expenses for the nine months ended December 31, 2021 was primarily due to the following: a $741,000 increase in payroll expense which also includes stock compensation, a $706,000 increase in professional fees with $260,000 related to brand and marketing consultation, a $114,000 increase to other expenses relating to increasing a state sales tax related accrual during the period, and a $236,000 net increase of other expenses which includes property, insurance and travel expenses, offset by a $299,000 decrease in bank service fees due to a reduction to sales.

 

14

 

Advertising expenses

 

Advertising expenses increased by $1.1 million, or 34%, to approximately $4.3 million for the quarter ended December 31, 2021, compared to $3.2 million for the quarter ended December 31, 2020. The increase in advertising expenses for the quarter was related to rate increases across our marketing channels and due to an increase in the number of impressions we delivered across a variety of advertising platforms. For the nine months ended December 31, 2021, advertising expenses decreased by approximately $2.0 million, or 11.2%, to approximately $15.4 million compared to advertising expenses of approximately $17.4 million for the nine months ended December 31, 2020. The decrease in advertising expenses for the nine months ended December 31, 2020, was due to the Company receiving increased cooperative marketing funds from our product manufacturers, within the terms of our contractual relationships, which were offset with total advertising expenses. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, increased to $81 for the quarter ended December 31, 2021 compared to $44 for the quarter ended December 31, 2020. For the nine months ended December 31, 2021 and 2020 the advertising costs of acquiring a new customer were $73 and $49, respectively. The increase for the three and nine months ended December 31, 2021, was due to a substantial increase in advertising prices and a less efficient variable marketing spend within the December quarter. The advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, advertising spending, and price competition. 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 7.1% and 4.9% for the quarters ended December 31, 2021 and 2020, respectively, and for the nine months ended December 31, 2021 and 2020 advertising expense was 7.4% and 7.3%, respectively. The increase in advertising expense as a percentage of total sales for the quarter ended December 31, 2021 can be attributed to sharp increase in advertising spend with a reduction in sales. The advertising percentage will fluctuate quarter to quarter due to seasonality and advertising availability.

 

Depreciation

 

Depreciation expenses for the quarter ended December 31, 2021 increased slightly by approximately $88,000 to $710,000 compared to $622,000 for the quarter ended December 31, 2020. For the nine months ended December 31, 2021 and 2020 depreciation expenses were approximately $2.1 million and $1.8 million, respectively. The increases to depreciation expenses for the quarter and nine months ended December 31, 2021 can be attributed to increased new property and equipment additions during the same periods.

 

Other income

 

Other income decreased by approximately $47,000, to approximately $371,000 for the quarter ended December 31, 2021 from approximately $418,000 for the quarter ended December 31, 2020. For the nine months ended December 31, 2021 other income decreased by approximately $184,000, to approximately $983,000 compared to approximately $1.2 million for the same period in the prior year. The decrease to other income for the quarter and nine months ended December 31, 2021 was primarily related to decreased advertising income compared to the prior year. Interest income may decrease in the future as the Company utilizes its cash balances on its share repurchase plan, with approximately $28.7 million remaining as of December 31, 2021, on any quarterly dividend payment, on its operating activities, or with further decreases in interest rates.

 

Provision for income taxes

 

For the quarters ended December 31, 2021 and 2020, the Company recorded an income tax provision of approximately $1.3 million and $2.1 million, respectively, and for the nine months ended December 31, 2021 and 2020, the Company recorded an income tax provision of approximately $4.6 million and $6.6 million, respectively. The decrease in the income tax provision for the three and nine months ended December 31, 2021 is related to a decrease in operating income during the periods. The effective tax rate for the quarter ended December 31, 2021 was approximately 22.9% compared to 21.6% for the quarter ended December 31, 2020, and the effective tax rate for the nine months ended December 31, 2021 was approximately 23.4%, compared to 21.7% for the nine months ended December 31, 2020. The increase to the effective rate for the quarter ended December 31, 2021 was due to a one-time income tax charge of $29,000 related to the reconciliation of the Company’s tax return for the fiscal year ending March 31, 2021, with the Company receiving a one-time income tax benefit of $194,000 related to the reconciliation of the Company’s tax return for the fiscal year ending March 31, 2020 the prior year. The decrease to the effective rate for the nine months ended December 31, 2020 can be attributed to the Company receiving a one-time state income tax refund of $285,000 in the June 2020 quarter and a $106,000 income tax benefit related to restricted stock compensation in the September 2020 quarter.

 

Liquidity and Capital Resources

 

The Company’s working capital at December 31, 2021 and March 31, 2021 was $116.6 million and $116.3 million, respectively. The slight increase to working capital was primarily attributable to income generated by operations and a reduction to accounts payable, offset by dividends paid in the period. Net cash provided by operating activities was $9.8 million and $21.6 million for the nine months ended December 31, 2021 and 2020, respectively. This change was largely due to a reduction in net income and a decrease in accounts payable, offset by a decrease in inventories at December 31, 2021. Net cash used in investing activities was $1.3 million and $1.8 million for the nine months ended December 31, 2021 and 2020, respectively. Net cash used in financing activities was $18.3 million for the nine months ended December 31, 2021, compared to $17.0 million for the same period in the prior year. The change to financing activities relates to an increase in the dividend paid in the nine months ended December 31, 2021, compared to the prior period.

 

15

 

As of December 31, 2021, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan. Subsequent to December 31, 2021, on January 24, 2022 our Board of Directors declared a quarterly dividend of $0.30 per share. The Company’s Board of Directors established a February 7, 2022 record date and a February 18, 2022 payment date for the quarterly dividend. Depending on future market conditions the Company may utilize its cash and cash equivalents on the remaining balance of its current share repurchase plan, on dividends, or on its operating activities.

 

As of December 31, 2021, the Company had no material outstanding lease commitments. We are not currently bound by any long or short term agreements for the purchase or lease of capital expenditures. Any material amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately provide for any increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future. Presently, we have approximately $500,000 forecasted for capital expenditures for the remainder of fiscal 2022, the majority of which will be invested in our e-commerce platform to better service our customers, which will be funded through cash from operations. The Company’s primary source of working capital is cash from operations. The Company presently has no need for alternative sources of working capital and has no commitments to obtain additional capital.

 

Off-Balance Sheet Arrangements

 

The Company had no off-balance sheet arrangements at December 31, 2021.

 

Cautionary Statement Regarding Forward-Looking Information

 

Certain information in this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the words "believes," "intends," "expects," "may," "will," "should," "plans," "projects," "contemplates," "intends," "budgets," "predicts," "estimates," "anticipates," or similar expressions. 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 differ significantly from the results discussed in the forward-looking statements. A reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report. When used in this quarterly report on Form 10-Q, "PetMed Express," "1-800-PetMeds," "PetMeds," "PetMed," "PetMeds.com," “1800PetMeds.com,” "PetMed.com," "PetMed Express.com," "the Company," "we," "our," and "us" refers to PetMed Express, Inc. and our subsidiaries.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates, and commodity prices. Our financial instruments include cash and cash equivalents, accounts receivable, and accounts payable. The book values of cash equivalents, accounts receivable, and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. Interest rates affect our return on excess cash and cash investments. As of December 31, 2021, we had $108.9 million in cash and cash equivalents, and a 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. It would also impact the market value of our cash and cash equivalents. Our cash equivalents are subject to market risk, primarily interest rate and credit risk. Our cash equivalents are managed by a limited number of outside professional managers within investment guidelines set by our Board of Directors. Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by restricting our cash and cash equivalents to high-quality debt instruments with both short and long term maturities. We do not hold any derivative financial instruments that could expose us to significant market risk. At December 31, 2021, we had no debt obligations.

 

16

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a‑15 promulgated under the Securities Exchange Act of 1934, as amended) as of the quarter ended December 31, 2021, the end of the period covered by this report (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective such that the information relating to our Company, including our consolidated subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act: (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls Over Financial Reporting

 

There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our Annual Report on Form 10-K for Fiscal Year 2021 for additional information concerning these and other uncertainties that could negatively impact the Company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

The Company did not make any sales of unregistered securities during the third quarter of Fiscal 2022.

 

Issuer Purchases of Equity Securities

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5.          OTHER INFORMATION.

 

None.

 

17

 

ITEM 6.                            EXHIBITS

 

The following exhibits are filed as part of this report.

 

31.1

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended (filed herewith to Exhibit 31.1 of the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2021, Commission File No. 000-28827).

 

31.2

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended (filed herewith to Exhibit 31.2 of the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2021, Commission File No. 000-28827).

 

32.1

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith to Exhibit 32.1 of the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2021, Commission File No. 000-28827).

 

101.INS*

Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

18

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

PETMED EXPRESS, INC.

(The “Registrant”)

 

Date: February 4, 2022

 

By: /s/ Mathew N. Hulett  
  Mathew N. Hulett  
     
  Chief Executive Officer and President  
  (principal executive officer)  
     
By: /s/ Bruce S. Rosenbloom  
  Bruce S. Rosenbloom  
     
  Chief Financial Officer  
  (principal financial and accounting officer)  

 

19

 

 


 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C.20549

 

 


 

 

 

PETMED EXPRESS, INC

 

 


 

 

 

FORM 10-Q

 

 

FOR THE QUARTER ENDED:

 

DECEMBER 31, 2021

 

 

 


 

 

EXHIBITS