PetMed Express : 2022 PetMed Express, Inc. Annual Report

Your Trusted Pet Health Expert

2022

ANNUAL REPORT

PetMed Express, Inc.

PERFORMANCE

SUMMARY

Sales

($ in millions)

	$309.2
$283.4	$284.1
$273.8	$273.4

2018

2019

2020

2021

2022

Net Income

($ in millions)

$37.3 $37.7

$25.9 $30.6 $21.1

2018 2019 2020 2021 2022

Earnings per share EPS (Diluted)

$1.82 $1.84

$1.52

$1.29$1.04

2018

2019

2020

2021

2022

Dear Shareholders:

Thank you for being an investor and key stakeholder of PetMed Express, Inc., or "PetMeds," as we informally refer to ourselves. I am nine months into my journey with PetMeds, and I am more excited than ever about the business, its growth opportunities, and the transformation that the team and I are leading. PetMeds has unique assets and core advantages to the business that provide key differentiators in the pet industry. These include being a well-known brand that 55% of U.S. pet parents are aware of, our strong operational expertise in the pet pharmaceutical space, and our industry-leading Net Promoter Score of 81%.

PetMeds' mission is "to be the most trusted pet health expert by providing incredible care and services that are affordable to the broadest group of pet parents." Working together with our pet parents, our vendor community, and our veterinarian partners, we are enabling pets to live longer, happier, and healthier lives. PetMeds operates in a very large and growing addressable market. The U.S. pet market is approximately $117 billion in annual sales, and it is expected to reach $120 billion by 2024. The pet medication market segment, where we participate today, is approximately $10 billion annually and it is growing rapidly. Today 7 out of 10 U.S. households have at least one pet. Now more than ever, pet parents are keenly attuned to their pets' health needs and are actively seeking health and wellness care support and resources, provided by trusted brands. We believe PetMeds is uniquely positioned to be that trusted pet healthcare brand.

PetMeds is one of the leading pet pharmacies in the United States, and we are ready for our next chapter of growth. Having first established a pioneering foothold in the online pet prescription market 26 years ago, today we see a broader opportunity where many players can participate. In being THE trusted pet health expert, we believe that PetMeds has exciting opportunities to address far more customer needs than just those on which we are focused today. Going forward, these opportunities will enable us to further expand our addressable market and, most impor- tantly, allow us to bring even greater value to our customers. PetMeds' strategy is built upon four strategic pillars: nutrition, medications, wellness, and care. Underpinning those strategic pillars is data, which is both defining and at the heart of our services. We have taken important steps towards executing on our long-term strategy, starting with the recent announcement that we entered into the telemedicine space through our investment in and partnership with Vetster. We will be moving rapidly to fill in the strategic building blocks in the next several quarters and I look forward to sharing the progress with you.

In early 2020, as a result of the pandemic, PetMeds experienced an unexpectedly large increase in sales due to the stay-at-home effect on both pet parents and veterinarian clinics. However, we also saw increased competition for new pet parents' business in 2021, and as a result, our March 31, 2022 year-over-year fiscal comparison saw a deceleration of revenue and profitability. For the fiscal year ended March 31, 2022, our sales decreased by 11.6% to $273.4 million compared to $309.2 million for the prior fiscal year. In response to this trend, we took steps to solidify our long-term strategy and made positive contributions to our business model, such as migrating a significant portion of our business to a recurring, subscription business. As of March 2022, 37% of our sales are being generated by our AutoShip & Save subscription program. To enhance the financial information we already provide you, during the current fiscal year we introduced two new non-GAAP financial guidance metrics-adjusted EBITDA and adjusted EBITDA per share. We decided to include these new metrics because they are key measures used by management and by our Board of Directors to evaluate our operating performance. Adjusted EBITDA and adjusted EBITDA per share provide a more accurate picture of our underlying profitability and also highlight the more recent increases in non-cashstock-based compensation. Adjusted EBITDA for the fiscal year ended March 31, 2022 was $34.0 million, or $1.67 on a diluted per share basis, compared to $44.6 million, or $2.22 on a diluted per share basis, for the same period last year. At March 31, 2022, the Company had $111.1 million in cash and cash equivalents, and had no debt.

During fiscal 2022, we paid $1.20 per share in dividends to our shareholders. Since fiscal 2009, PetMeds has returned almost $226 million in dividends to our shareholders and repurchased $81.3 million through share buy- backs. We are committed to delivering shareholder value and will continue to evaluate the payment of future dividends, subject to a determination by our Board of Directors each quarter, following its review of the Company's financial performance and capital allocation strategy.

We are incredibly proud of the long history of delivering empathetic care and service to millions of customers and their pets. We understand our position as a trusted care provider, and we are proud of our front-line team members that deliver exceptional service in the pharmacy, the customer care center, and in our distribution center. PetMeds is also committed to doing more for the broader environment, society and humanity, and this year we initiated our environmental, social and governance (ESG) commitment. Although we are in the early stages of our ESG strategy, we pledge to reduce our emissions footprint and will join the Science Based Target Initiative (SBTi) to solidify our commitment to be kinder to the environment. We are also committed to fostering, cultivating, and preserving a culture of diversity, equity, and inclusion. PetMeds firmly believes that we cannot consider ourselves successful as a business if our team members, our communities, and our planet do not thrive as well.

Dividends declared

(Per share)

$1.06 $1.08 $1.12

$0.85

$1.20

Ultimately, we believe that the investments that we are making now, combined with our existing profitable direct- to-consumere-commerce business and our strong balance sheet, position us well in the face of more challenging macroeconomic conditions. As we continue to make investments towards our future growth, we will strive to be measured and thoughtful in our capital allocation as well.

We remain committed to, and optimistic about, our long-term strategy and the timing and our ability to execute on our transformation. As always, we remain grateful to you, our shareholders, as well as our dedicated employees, our suppliers, our partners, and our customers, without whom PetMeds could not exist. Thank you for your continued confidence and support.

2018

2019

2020

2021

2022

(all above fiscal years ended on March 31st)

Mathew Hulett

President, Chief Executive Officer, Director

June 17, 2022

PetMed Express, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

• ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended March 31, 2022
  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	(IRS Employer
incorporation or organization)	Identification No.)

420 South Congress Avenue, Delray Beach, Florida 33445

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: [phone]

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock,	PETS	The NASDAQ Stock Market LLC
$.001 Par value per share		(NASDAQ Global Select Market)

Securities registered under Section 12(g) of the Act:

NONE

___________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No 6

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No 6

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 6 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes 6 No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	6
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 6

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No 6

The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant as of September 30, 2021, the last business day of the registrant's most recently completed second fiscal quarter, was $540.1 million based on the closing sales price of the registrant's Common Stock on that date, as reported on the NASDAQ Global Select Market.

The number of shares of the registrant's Common Stock outstanding as of May 24, 2022, was 20,988,237.

DOCUMENTS INCORPORATED BY REFERENCE

Information to be set forth in our Proxy Statement relating to our 2022 Annual Meeting of Stockholders to be held on July 28, 2022, is incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III of this report.

[This Page Intentionally Left Blank]

	PETMED EXPRESS, INC.
	2022 Annual Report on Form 10-K
	TABLE OF CONTENTS
		Page
PART I........................................................................................................................................................................	1
Item 1.	Business .................................................................................................................................................	1
Item 1A. Risk Factors ............................................................................................................................................	7
Item 1B. Unresolved Staff Comments .................................................................................................................	14
Item 2.	Properties .............................................................................................................................................	14
Item 3.	Legal Proceedings................................................................................................................................	14
Item 4.	Mine Safety Disclosures .......................................................................................................................	14
PART II.....................................................................................................................................................................	15
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters
	and Issuer Purchases of Equity Securities........................................................................................	15
Item 6.	[Reserved] ............................................................................................................................................	17
Item 7.	Management's Discussion and Analysis of Financial Condition and Results
	of Operations .....................................................................................................................................	18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk……………………................................... 27
Item 8. Financial Statements and Supplementary Data……………………......................................................	28
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial
	Disclosure ..........................................................................................................................................	48
Item 9A. Controls and Procedures ......................................................................................................................	48
Item 9B. Other Information ..................................................................................................................................	48
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections……………………………………48
PART III ...................................................................................................................................................................	49
Item 10.	Directors, Executive Officers, and Corporate Governance ..................................................................	49
Item 11.	Executive Compensation......................................................................................................................	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related
	Stockholder Matters...........................................................................................................................	49
Item 13.	Certain Relationships and Related Transactions, and Director Independence ...................................	49
Item 14.	Principal Accountant Fees and Services..............................................................................................	49
PART IV ...................................................................................................................................................................	50
Item 15.	Exhibit and Financial Statement Schedules .........................................................................................	50
Item 16. Form 10-K Summary ............................................................................................................................	51
SIGNATURES..........................................................................................................................................................	52