PetMed Express, Inc. (NASDAQ: PETS) (“PetMeds” or the “Company”),
Your Trusted Pet Health ExpertTM, today announced its selected
preliminary financial results for its third quarter ended December
31, 2023.
These preliminary financial results are
unaudited, based on currently available information and do not
present all necessary information for a complete understanding of
the Company’s financial condition as of December 31, 2023 or its
results of operations for the quarter ended December 31, 2023.
Quarterly Highlights
- Net sales for the
quarter ended December 31, 2023, are expected to be $65.3 million,
compared to $58.9 million for the third quarter in the prior year,
an increase of 11% year over year. The current quarter includes the
results from the recent acquisition of PetCareRx.
- Gross profit in the quarter ended
December 31, 2023, is expected to be $17.9 million, compared to
$15.2 million in the prior year period. Gross margin improved to
27.4% in the quarter ended December 31, 2023 from 25.9% in the
prior year period.
- Cash and
equivalents at December 31, 2023 are expected to be $49.4
million.
“Having to restate previously issued financial
statements is certainly disappointing, but the restatement is a
matter of tax accounting and will have no impact on our current
cash balance,” said Matt Hulett, CEO and President. “From an
operational perspective, we are encouraged to see the continued
growth of recurring revenue as driven by our AutoShip & Save
and PetPlus programs, which represented 52.2% of revenue during the
quarter, up from 42.3% for the same quarter last year.” Hulett
continued, “PetMeds is on a mission to deepen our engagement with
our over two million pet parents, offering them an expanded
portfolio of products and services on a regular, recurring basis.
The introduction of a premium food brand and a substantial
enhancement to our AutoShip & Save program mark pivotal steps
in our transformation.”
Restatement of Certain Historical
Financial Results
As reported in the Company's Form 8-K filed
today, at the recommendation of the Company’s management, the Audit
Committee of the Board of Directors of the Company (the “Audit
Committee”), has concluded that the Company’s previously issued
audited consolidated financial statements as of March 31, 2023 and
2022 and for the years ended March 31, 2023, 2022, and 2021
included in the Company’s Annual Report on Form 10-K for the year
ended March 31, 2023 (the “2023 Annual Report”), and the Company’s
unaudited condensed consolidated financial statements included in
the Quarterly Reports on Form 10-Q for the quarterly periods within
those years (the “Historical Quarterly Reports”), as well as the
unaudited condensed consolidated financial statements included in
the Company’s Quarterly Report on Form 10-Q for the three months
ended June 30, 2023 (the “Q1 2024 Quarterly Report”) and the three
months ended September 30, 2023 (the “Q2 2024 Quarterly Report” and
together with the Q1 2024 Quarterly Report, the 2023 Annual Report
and the Historical Quarterly Reports, the “Reports” and all
financial statements included in the Reports, collectively the
“Affected Financials”), should no longer be relied upon. As a
result of the foregoing, related press releases, shareholder
communications, investor presentations or other communications
describing relevant portions of the Affected Financials should no
longer be relied upon.
In preparing our 2023 Annual Report, we
determined that an accrual for sales tax contingencies was
required. As such, we recorded a sales tax accrual in the second
and fourth quarters of fiscal year 2023 based on a determination
that the sales tax liability was probable and estimable, and that
such treatment was in accordance with what we believed to be the
appropriate guidance from generally accepted accounting principles
(GAAP). In the third quarter of fiscal year 2024, the Company
reviewed, in conjunction with its auditors, RSM US LLP, the
accounting treatment related to its previously reported sales tax
accruals as well as the accounting treatment related to the
deferred tax asset associated with the Company’s acquisition of
PetCareRx in April 2023. As a result of this review, the Audit
Committee concluded, based on management’s determination, that the
Company incorrectly applied GAAP as it relates to the sales tax
liability included in the periods contained in the Affected
Financials, and that it improperly valued the deferred tax asset
and goodwill reported in the first and second quarter of fiscal
year 2024.
Expected Impact; Increase in Net Income
for FY 2023, and Increase in Recorded Tax Liability Starting in FY
2020
The Company expects the impact of the
restatement to affect multiple periods. The most significant impact
to the income statement is expected to be a decrease to general and
administrative expense for fiscal year 2023 in the range of $6
million to $8 million and a corresponding increase in net income
for the same period. This amount was originally recorded as a sales
tax liability based on a probable and estimable approach, in fiscal
year 2023, rather than the correct, legal liability approach, under
which the sales tax liability would have been recorded for periods
included in the Affected Financials.
The restatement is expected to require the
Company to revise and record a sales tax liability of approximately
$14 to $20 million as of March 31, 2020 (reflecting the maximum
potential sales tax liability as of such date). Because this
liability gets adjusted in subsequent periods, as of March 31,
2023, we expect to record a maximum potential sales tax liability
of approximately $16 to $23 million, and the liability is adjusted
as amounts are settled or released in subsequent periods. While the
Company believes that the foregoing description fairly represents
the expected impact of the restatement on the Company’s prior
financial statements as it relates to the sales-tax accrual,
further adjustments may arise, and the Affected Financials as
restated will reflect any such additional adjustments.
In addition, the Company has determined that the
accounting related to the valuation of the carried forward net
operating loss resulted in an overstated deferred tax asset
reported at June 30 and September 30, 2023 related to the PetCareRx
acquisition and will also be revised. This will increase goodwill
and decrease the deferred tax asset on the balance sheet at such
dates. This revision is a result of a technical tax matter
surrounding the limitation adjustment to the net operating losses
acquired.
No Expected Impact on Fiscal Year 2024
Revenue, Cost of Goods Sold, or Cash
The restatement is not expected to have an
impact on the Company’s fiscal year 2024 revenue or cost of goods
sold and does not impact cash.
“As soon as these technical accounting issues
were identified, the PetMeds internal team immediately took action,
in conjunction with our auditors, RSM, to identify the potential
impact on past financial statements,” said Christine Chambers,
Chief Financial Officer of PetMeds. “The restatement, while
unfortunate, is not expected to impact our day to day business
operations or strategic priorities. As we look ahead, we remain
confident in our strategy and ability to drive long-term
value.”
Next Steps
As a result of the level of administrative
effort and time associated with completing the restatement, the
Company will experience a delay in the filing of its Quarterly
Report on Form 10-Q for the quarter ended December 31, 2023 (the
“Q3 Fiscal year 2024 10-Q”) and expects to file a notification of
late filing on Form 12b-25 with the SEC on or before February 9,
2024.
Conference Call
This afternoon the Company will host a
conference call to review selected preliminary third quarter
financial results.
- Time: 4:30 P.M.
Eastern Time, February 8, 2024
- Public call dial in (877) 407-0791
(toll free) or (201) 689-8563.
- Webcast stream link:
https://investors.petmeds.com/overview/default.aspx for those who
wish to stream the call via webcast.
- Replay: Available until November
13, 2023, at 11:59 P.M Eastern Time.
- To access the
replay, call (844) 512-2921 (toll free) or (412) 317-6671 and enter
passcode 13741999.
About PetMeds
Founded in 1996, PetMeds is Your Trusted Pet
Health Expert™, providing prescription and non-prescription
medications, food, supplements, supplies and vet services for dogs,
cats, and horses at competitive prices direct to the consumer
through its 1-800-PetMeds toll free number and through its website
at www.petmeds.com.
This press release may contain “forward-looking”
statements, as defined in the Private Securities Litigation Reform
Act of 1995 or by the Securities and Exchange Commission, that
involve a number of risks and uncertainties, including the
Company’s ability to meet the objectives included in its business
plan. Important factors that could cause results to differ
materially from those indicated by such “forward-looking”
statements are set forth in the “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” section in the Company’s Annual Report on Form 10-K for
the year ended March 31, 2023. The Company’s future results may
also be impacted by other risk factors listed from time to time in
its SEC filings, including, but not limited to, the Company's Form
10-Qs and its Annual Reports on Form 10-K.
PETMEDS INVESTOR RELATIONS CONTACT Brian M.
Prenoveau, CFA MZ Group 561-489-5315 investor@petmeds.com
PETMEDS MEDIA CONTACT Mary Eva Tredway Butin PR
maryeva@butinpr.com
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