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PetMed Express(PETS) - 2023 Q4 - Annual Report

Part I Business Overview PetMed Express is a leading direct-to-consumer pet pharmacy, expanding its product and service offerings through acquisitions and strategic partnerships in pet insurance and telemedicine - PetMeds is a leading nationwide direct-to-consumer pet pharmacy and online provider of pet medications, food, supplements, supplies, and vet services for dogs, cats, and horses13 Pet Spending in US (2022) | Metric | Value | | :----- | :---- | | Pet Spending in US (2022) | $136.8 billion (11% increase YoY) | | Veterinary Care & Rx Medications (2022) | $35.9 billion (26% of total pet spending) | | Estimated Pet Medication Market | ~$13 billion | | Dog & Cat Population | ~111.6 million | | Households with a Pet | ~66% | - Acquired PetCareRx in April 2023 for approximately $36.0 million in cash, adding a 10,000-item catalog and 286,000 customers21 - Formed a strategic partnership with Pumpkin Insurance Services in February 2023 to offer co-branded pet insurance products, expected to be available in fiscal year ending March 31, 202422 - Entered a multi-year exclusive partnership with Vetster Inc. in April 2022 for veterinary telehealth services, becoming the exclusive e-commerce provider on Vetster's platform in the US and investing approximately $5.0 million in Vetster23 - The company's growth strategy includes leveraging its brands, expanding product and service offerings, growing its customer base, and pursuing strategic partnerships and acquisitions24252627 Sales Channel Contribution | Sales Channel | Fiscal 2023 Contribution | | :------------ | :----------------------- | | Internet (website & mobile apps) | 86.4% of total sales | | Customer Support Center (toll-free) | 13.6% of total sales | - AutoShip subscription program generated approximately 44% of sales in Q4 FY2023, up from 30.9% in Q4 FY2022, with a goal of 50% for FY202430177 Customer Metric | Customer Metric | Fiscal 2023 | Fiscal 2022 | | :-------------- | :---------- | :---------- | | New Customers Acquired | ~274,000 | ~325,000 | | Average Purchase Value | ~$93 | ~$93 | | PetCareRx Acquired Customers | ~286,000 (as of filing date) | N/A | - PetMeds holds numerous trademarks including "America's Largest Pet Pharmacy®" and "1-800-PetMeds®", and acquired the PetCareRx® trademark and domain name4748 - The company is licensed as a community pharmacy by the Florida Board of Pharmacy and regulated by 49 other state pharmacy boards, the District of Columbia, U.S. Virgin Islands, DEA, FDA, and EPA4950 - As of May 23, 2023, PetMeds had 302 full-time employees, with 78 employees added from the PetCareRx acquisition58 Risk Factors The company faces significant risks from regulatory non-compliance, veterinarian resistance, supply chain dependencies, cybersecurity threats, internal control weaknesses, and intense market competition - Regulatory risks include potential failure to comply with state/federal regulations, leading to sanctions or loss of pharmacy licenses, especially in key states where 50% of sales are concentrated (CA, FL, TX, NY, PA, NC, GA, VA)656676 - Business risks encompass challenges in managing a 15,000 SKU inventory, potential resistance from veterinarians discouraging online purchases, and dependence on six key suppliers for 68.5% of products in fiscal 202371737479253 - Operational risks include potential disruptions to shipping arrangements, the need to maintain high customer service quality, and liability exposure from website content808182 - Technology and data security risks involve potential failures or misuse of information systems, cybersecurity incidents (including lack of cyber insurance), and disruptions during migration to new IT platforms88919495 - Compliance risks related to privacy, data protection, marketing, and advertising laws (e.g., CCPA, CPRA) are evolving, potentially increasing costs and limiting customer acquisition strategies96101 - Operating results are difficult to predict due to seasonality, economic conditions impacting consumer spending, and challenges in integrating acquisitions and strategic partnerships104105106107109 - Financial risks include payment-related issues and a material weakness in internal control over financial reporting due to inadequate segregation of duties over manual journal entries114116117 - Industry competition from veterinarians and online/traditional retailers, along with product recalls and health crises, could adversely affect business and financial performance121123124 - Securities risks include stock price fluctuations, potential litigation, and the ability of the Board to issue preferred stock or change dividend policy, which could dilute common shareholders' interests or deter takeovers127129131 Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported132 Properties PetMed Express owns its main offices and distribution center in Florida and leases additional facilities in New York for operations after the PetCareRx acquisition - Owns principal executive offices and distribution center in Delray Beach, Florida, consisting of approximately 185,000 square feet across two buildings132 - Approximately 48% of the Delray Beach property was leased to two tenants with a remaining weighted average lease term of 2 years as of March 31, 2023132 - Assumed leases for two PetCareRx facilities in Lynbrook, New York, totaling approximately 35,000 square feet, used for shipping, fulfillment, and executive offices, with leases expiring in April 2027133 Legal Proceedings The company is routinely involved in various legal claims and lawsuits, but management believes current proceedings will not materially affect operations or financial statements - Involved in routine claims and lawsuits concerning products, warranties, contracts, employment, intellectual property, consumer protection, and pharmacy/regulatory matters134 - Management believes that none of the current claims and suits are reasonably likely to have a material adverse effect on operations or consolidated financial statements134 - Legal costs related to these matters are expensed as incurred134 Mine Safety Disclosures This item is not applicable to PetMed Express, Inc - Not applicable135 Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities PetMed Express common stock trades on NASDAQ, consistently pays quarterly dividends, has a share repurchase program, and its stock performance lagged key indices over the past five years - Common stock is traded on the NASDAQ Global Select Market under the symbol "PETS"138 Shareholder Information (as of May 23, 2023) | Metric | Value | | :----- | :---- | | Holders of Record | 134 | | Beneficial Holders | ~48,300 | | Common Stock Outstanding | 21,170,977 shares | - Paid regular cash dividends every quarter since August 2009, totaling $25.3 million ($0.30 per share per quarter) in fiscal 2023 and $24.8 million ($0.30 per share per quarter) in fiscal 2022139 - The Board declared a quarterly dividend of $0.30 per share on May 22, 2023, payable June 12, 2023140 - No shares were repurchased during the quarter and fiscal year ended March 31, 2023, with approximately $28.7 million remaining under the share repurchase program as of March 31, 2023141 Five-Year Cumulative Stock Performance (March 31, 2018 = $100) | Index | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | PetMed Express, Inc. | 100.00 | 56.52 | 75.15 | 95.03 | 72.77 | 48.61 | | NASDAQ Composite | 100.00 | 109.43 | 109.01 | 187.54 | 201.33 | 173.03 | | SIC Code 5912 | 100.00 | 107.33 | 97.87 | 150.44 | 171.55 | 155.60 | | Russell 2000 | 100.00 | 100.67 | 75.39 | 145.19 | 135.35 | 117.85 | Equity Compensation Plan Information (as of March 31, 2023, in thousands) | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price | Securities remaining available for future issuance | | :--------------------------------------------------- | :---------------------------------------------------------------- | :------------------------------ | :------------------------------------------------ | | 2015 Outside Director Equity Compensation Restricted Stock Plan | 69 | — | 502 | | 2016 Employee Equity Compensation Restricted Stock Plan | 684 | — | 40 | | 2022 Employee Equity Compensation Restricted Stock Plan | — | — | 1,000 | | Total | 753 | | 1,542 | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Sales decreased by 6.1% in fiscal 2023 to $256.9 million, with net income declining 98.9% to $0.2 million due to higher costs and competitive pressures, despite maintaining strong liquidity - PetMeds is a leading nationwide direct-to-consumer pet pharmacy, marketing products through websites, toll-free numbers, and mobile applications150 - Internet sales accounted for 86.4% of total sales in fiscal 2023, up from 84.2% in fiscal 2022152156 - The company changed its definition of a new customer on April 1, 2022, to include anyone who has not ordered over the past thirty-six months156 - Critical accounting policies include revenue recognition (control transfers at shipment), inventory valuation (lower of cost or net realizable value), and expensing advertising costs as incurred154160162 - Adjusted EBITDA is a non-GAAP measure used by management to evaluate operating performance, excluding share-based compensation, depreciation, income tax, interest, and other non-operational expenses167168169 Key Financial Performance Metrics (as % of Sales) | Metric | FY2023 | FY2022 | FY2021 | | :------------------------ | :----- | :----- | :----- | | Sales | 100.0% | 100.0% | 100.0% | | Cost of Sales | 72.4% | 71.4% | 70.9% | | Gross Profit | 27.6% | 28.6% | 29.1% | | General and Administrative | 19.3% | 11.3% | 9.1% | | Advertising | 7.6% | 6.9% | 7.0% | | Depreciation | 1.4% | 1.0% | 0.8% | | (Loss) Income from Operations | (0.7)% | 9.4% | 12.2% | | Net Income | 0.0% | 7.7% | 9.9% | Adjusted EBITDA Reconciliation (in thousands) | Metric | FY2023 | FY2022 | Change ($) | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | :--------- | | Net Income | $233 | $21,100 | $(20,867) | -99% | | Share-based Compensation | $6,617 | $4,549 | $2,068 | 45% | | Income Taxes | $1,351 | $5,971 | $(4,620) | -77% | | Depreciation | $3,546 | $2,738 | $808 | 30% | | Interest Income | $(2,070) | $(335) | $(1,735) | 518% | | Acquisition/Partnership Transactions | $1,904 | — | $1,904 | n/m | | Employee Severance | $364 | — | $364 | n/m | | State Sales Tax Accrual | $7,825 | — | $7,825 | n/m | | Adjusted EBITDA | $19,770 | $34,023 | $(14,253) | -42% | Sales Performance (in thousands) | Category | FY2023 Sales | FY2023 % | FY2022 Sales | FY2022 % | $ Variance | % Variance | | :--------- | :----------- | :------- | :----------- | :------- | :--------- | :--------- | | Reorder Sales | $232,633 | 90.6% | $244,505 | 89.4% | $(11,872) | -4.9% | | New Order Sales | $24,225 | 9.4% | $28,912 | 10.6% | $(4,687) | -16.2% | | Total Net Sales | $256,858 | 100.0% | $273,417 | 100.0% | $(16,559) | -6.1% | | Internet Sales | $221,894 | 86.4% | $230,263 | 84.2% | $(8,369) | -3.6% | | Call Center Sales | $34,964 | 13.6% | $43,154 | 15.8% | $(8,190) | -19.0% | | Total Net Sales | $256,858 | 100.0% | $273,417 | 100.0% | $(16,559) | -6.1% | - New customer acquisition decreased from approximately 325,000 in FY2022 to 274,000 in FY2023, with advertising cost per new customer increasing from $58 to $71174183 - AutoShip program sales increased to 44.4% of net sales in Q4 FY2023, up from 30.9% in Q4 FY2022, with a goal of 50% for FY2024177 - Gross profit decreased by $7.1 million (9.0%) to $71.0 million in FY2023, with gross profit margin declining to 27.6% from 28.6% due to lower sales and increased per order freight expense181 - General and administrative expenses increased by $18.6 million (60.5%) to $49.5 million in FY2023, driven by higher payroll ($5.8 million, including $2.1 million stock compensation and $0.4 million severance), professional fees ($1.9 million), software/systems ($1.0 million), a $7.8 million sales tax accrual, and $1.9 million in acquisition-related expenses182 - Net income decreased by $20.9 million (98.9%) to $0.2 million in FY2023, primarily due to decreased sales, lower gross profit, and increased operating expenses187 Liquidity and Capital Resources (in thousands) | Metric | March 31, 2023 | March 31, 2022 | Change ($) | | :-------------------------------- | :------------- | :------------- | :--------- | | Working Capital | $95,000 | $117,800 | $(22,800) | | Cash and Cash Equivalents | $104,086 | $111,080 | $(6,994) | | Net Cash from Operating Activities | $27,803 | $18,498 | $9,305 | | Net Cash Used in Investing Activities | $(10,260) | $(1,752) | $(8,508) | | Net Cash Used in Financing Activities | $(24,537) | $(24,384) | $(153) | - Working capital decreased by $22.8 million, primarily due to lower income and cash used for the $5 million Vetster investment and $5.3 million in property and equipment additions202 - Acquisition of PetCareRx for approximately $36.0 million in cash closed on April 3, 2023205 Executive Summary PetMed Express is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, food, supplements, supplies, and vet services - PetMed Express is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, food, supplements, supplies, and vet services150 - The company markets through its websites, toll-free numbers, and mobile applications, with approximately 86.4% of sales generated via the Internet in fiscal 2023150152 - The average purchase remained approximately $93 per order for fiscal years ended March 31, 2023, and March 31, 2022152 Critical Accounting Policies Critical accounting policies include revenue recognition at the shipping point, inventory valuation at the lower of cost or net realizable value, and expensing advertising costs as incurred - Revenue is recognized when control transfers to the customer at the shipping point, with outbound shipping and handling fees included in sales154155 Sales Disaggregation (in thousands) | Category | FY2023 Sales | FY2023 % | FY2022 Sales | FY2022 % | | :--------- | :----------- | :------- | :----------- | :------- | | Reorder sales | $232,633 | 90.6% | $244,505 | 89.4% | | New order sales | $24,225 | 9.4% | $28,912 | 10.6% | | Internet sales | $221,894 | 86.4% | $230,263 | 84.2% | | Call center sales | $34,964 | 13.6% | $43,154 | 15.8% | - The definition of a new customer was changed on April 1, 2022, to include anyone who has not ordered over the past thirty-six months156 - Inventory is valued at the lower of cost or net realizable value using a weighted average cost method, with an inventory reserve of $48 thousand at March 31, 2023 (down from $81 thousand in 2022)160161 - Advertising costs (Internet, direct mail/print, television) are expensed as incurred or when distributed/televised162 - Income taxes are accounted for under ASC Topic 740, recognizing deferred tax assets and liabilities based on temporary differences163 COVID-19 and Other Macroeconomic Factors The COVID-19 pandemic and macroeconomic factors like inflation and potential recession indicators continue to create volatility and uncertainty, impacting the global economy - The COVID-19 pandemic and macroeconomic factors like inflation and potential recession indicators continue to create volatility and uncertainty, impacting the global economy164 - The company monitors these effects and takes steps to mitigate impact, but the future nature and extent of the impact remain difficult to predict164 Results of Operations The company's fiscal 2023 results show a 6.1% sales decrease and a 98.9% net income decline, driven by higher operating expenses and reduced gross profit margins Operating Data as a Percentage of Sales | Metric | 2023 | 2022 | 2021 | | :------------------------ | :----- | :----- | :----- | | Sales | 100.0% | 100.0% | 100.0% | | Cost of sales | 72.4% | 71.4% | 70.9% | | Gross profit | 27.6% | 28.6% | 29.1% | | General and administrative | 19.3% | 11.3% | 9.1% | | Advertising | 7.6% | 6.9% | 7.0% | | Depreciation | 1.4% | 1.0% | 0.8% | | (Loss) income from operations | (0.7)% | 9.4% | 12.2% | | Total other income | 1.2% | 0.5% | 0.5% | | Income before provision for income taxes | 0.5% | 9.9% | 12.7% | | Provision for income taxes | 0.5% | 2.2% | 2.8% | | Net income | 0.0% | 7.7% | 9.9% | Adjusted EBITDA Reconciliation (in thousands) | Metric | FY2023 | FY2022 | Change ($) | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | :--------- | | Net Income | $233 | $21,100 | $(20,867) | -99% | | Share-based Compensation | $6,617 | $4,549 | $2,068 | 45% | | Income Taxes | $1,351 | $5,971 | $(4,620) | -77% | | Depreciation | $3,546 | $2,738 | $808 | 30% | | Interest Income | $(2,070) | $(335) | $(1,735) | 518% | | Acquisition/Partnership Transactions | $1,904 | — | $1,904 | n/m | | Employee Severance | $364 | — | $364 | n/m | | State Sales Tax Accrual | $7,825 | — | $7,825 | n/m | | Adjusted EBITDA | $19,770 | $34,023 | $(14,253) | -42% | - Sales decreased by 6.1% to $256.9 million in FY2023 from $273.4 million in FY2022, driven by increased new customer acquisition costs and competitive pressures173 - New customer acquisitions decreased from 325,000 in FY2022 to 274,000 in FY2023174 - AutoShip program sales reached 44.4% of net sales in Q4 FY2023, up from 30.9% in Q4 FY2022, with a target of 50% for FY2024177 - Cost of sales decreased by 4.9% to $185.8 million in FY2023, but increased as a percentage of sales to 72.4% (from 71.4%) due to higher per order freight expense180 - Gross profit decreased by 9.0% to $71.0 million in FY2023, with gross profit margin at 27.6% (down from 28.6%)181 - General and administrative expenses increased by 60.5% to $49.5 million in FY2023, primarily due to a $5.8 million increase in payroll (including stock compensation and severance), $1.9 million in professional fees, $1.0 million in software/systems, a $7.8 million sales tax accrual, and $1.9 million in acquisition-related expenses182 - Advertising expenses increased by $0.6 million to $19.4 million in FY2023, with customer acquisition cost rising to $71 (from $58 in FY2022) due to higher advertising prices and less efficient marketing spend183 - Depreciation expense increased to $3.5 million in FY2023 from $2.7 million in FY2022 due to new property and equipment additions184 - Other income increased by $1.7 million to $3.0 million in FY2023, mainly from higher interest income due to increased interest rates185 - Income tax provision decreased to $1.4 million in FY2023 from $6.0 million in FY2022, but the effective tax rate increased to 85.3% (from 22.1%) due to one-time non-deductible acquisition costs and restricted stock compensation186 - Net income decreased by 98.9% to $0.2 million in FY2023 from $21.1 million in FY2022187 - Sales decreased by 11.6% to $273.4 million in FY2022 from $309.2 million in FY2021, impacted by a more competitive environment, higher advertising costs, and increased veterinary visits post-pandemic188 - New customer acquisitions decreased from 546,000 in FY2021 to 325,000 in FY2022189 - Cost of sales increased as a percentage of sales to 71.4% in FY2022 (from 70.9%) due to manufacturers shifting rebate funding from product discounts to cooperative marketing193 - Gross profit decreased by 13.2% to $78.1 million in FY2022, with gross profit margin at 28.6% (down from 29.1%)194 - General and administrative expenses increased by 9.0% to $30.8 million in FY2022, mainly due to higher payroll (including stock compensation) and professional fees195 - Advertising expenses decreased by $2.8 million to $18.8 million in FY2022 due to increased cooperative marketing funds, despite flat overall spending, with customer acquisition cost rising to $58 (from $40 in FY2021)197 - Net income decreased by 31% to $21.1 million in FY2022 from $30.6 million in FY2021201 Liquidity and Capital Resources The company maintains strong liquidity with $104.1 million in cash, despite a $22.8 million decrease in working capital due to lower income and strategic investments Liquidity and Capital Resources (in thousands) | Metric | March 31, 2023 | March 31, 2022 | Change ($) | | :-------------------------------- | :------------- | :------------- | :--------- | | Working Capital | $95,000 | $117,800 | $(22,800) | | Cash and Cash Equivalents | $104,086 | $111,080 | $(6,994) | | Net Cash Provided by Operating Activities | $27,803 | $18,498 | $9,305 | | Net Cash Used in Investing Activities | $(10,260) | $(1,752) | $(8,508) | | Net Cash Used in Financing Activities | $(24,537) | $(24,384) | $(153) | - The $22.8 million decrease in working capital was primarily due to lower income from operations and cash used for the $5 million Vetster investment and $5.3 million in property and equipment additions202 - Net cash provided by operating activities increased to $27.8 million in FY2023 from $18.5 million in FY2022, driven by increased accounts payable/accrued expenses and decreased inventory, partially offset by lower net income203 - Net cash used in investing activities increased to $10.3 million in FY2023 from $1.8 million in FY2022, mainly due to the Vetster investment and higher property/equipment additions203 - Net cash used in financing activities remained stable at approximately $24.5 million in both FY2023 and FY2022, primarily for dividend payments203 - As of March 31, 2023, $28.7 million remained under the share repurchase program204 - The acquisition of PetCareRx for approximately $36.0 million in cash closed on April 3, 2023205 Recent Accounting Pronouncements No recently issued, but not yet effective, accounting standards are expected to have a material effect on the company's consolidated financial position, results of operations, or cash flows - No recently issued, but not yet effective, accounting standards are expected to have a material effect on the company's consolidated financial position, results of operations, or cash flows207 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $104.1 million cash and cash equivalents, with no exposure to derivatives or debt obligations - Primary market risk is interest rate risk, affecting returns on cash and cash equivalents208 - As of March 31, 2023, the company had $104.1 million in cash and cash equivalents, managed within guidelines to limit market risk by holding federally-insured bank deposits and highly-liquid investments with maturities of three months or less208209 - The company does not hold derivative financial instruments and had no debt obligations at March 31, 2023209 Financial Statements and Supplementary Data This section provides audited consolidated financial statements for fiscal years 2021-2023, with an unqualified audit opinion on financials but a noted material weakness in internal control over financial reporting - The independent registered public accounting firm issued an unqualified opinion on the consolidated financial statements for the periods ended March 31, 2023, 2022, and 2021213 - The auditor expressed an opinion that the company had not maintained effective internal control over financial reporting as of March 31, 2023, due to a material weakness related to inappropriate segregation of duties over manual journal entries214 Consolidated Balance Sheets (in thousands) | ASSETS | March 31, 2023 | March 31, 2022 | | :---------------------------------------------------------------- | :------------- | :------------- | | Cash and cash equivalents | $104,086 | $111,080 | | Accounts receivable, net | $1,740 | $1,913 | | Inventories - finished goods | $19,023 | $32,455 | | Prepaid expenses and other current assets | $4,719 | $4,866 | | Prepaid income taxes | $1,883 | $681 | | Total current assets | $131,451 | $150,995 | | Property and equipment, net | $26,178 | $24,464 | | Intangible and other assets | $5,860 | $860 | | Deferred tax assets | $628 | — | | Total noncurrent assets | $32,666 | $25,324 | | Total assets | $164,117 | $176,319 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Accounts payable | $25,208 | $27,500 | | Accrued expenses and other current liabilities | $11,289 | $5,697 | | Total current liabilities | $36,497 | $33,197 | | Deferred tax liabilities | — | $936 | | Other long-term liabilities | $3,825 | — | | Total liabilities | $40,322 | $34,133 | | Total shareholders' equity | $123,795 | $142,186 | | Total liabilities and shareholders' equity | $164,117 | $176,319 | Consolidated Statements of Income (in thousands, except per share amounts) | Metric | FY2023 | FY2022 | FY2021 | | :----------------------------------- | :----- | :----- | :----- | | Sales | $256,858 | $273,417 | $309,215 | | Cost of sales | $185,844 | $195,341 | $219,267 | | Gross profit | $71,014 | $78,076 | $89,948 | | General and administrative expenses | $49,474 | $30,829 | $28,293 | | Advertising expenses | $19,424 | $18,799 | $21,641 | | Depreciation | $3,546 | $2,738 | $2,427 | | (Loss) income from operations | $(1,430) | $25,710 | $37,587 | | Total other income | $3,014 | $1,361 | $1,629 | | Income before provision for income taxes | $1,584 | $27,071 | $39,216 | | Provision for income taxes | $1,351 | $5,971 | $8,613 | | Net income | $233 | $21,100 | $30,603 | | Basic Net income per common share | $0.01 | $1.05 | $1.53 | | Diluted Net income per common share | $0.01 | $1.04 | $1.52 | | Cash dividends declared per common share | $1.20 | $1.20 | $1.12 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | FY2023 | FY2022 | FY2021 | | :----------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $27,803 | $18,498 | $40,075 | | Net cash used in investing activities | $(10,260) | $(1,752) | $(2,432) | | Net cash used in financing activities | $(24,537) | $(24,384) | $(22,687) | | Net (decrease) increase in cash and cash equivalents | $(6,994) | $(7,638) | $14,956 | | Cash and cash equivalents, at end of year | $104,086 | $111,080 | $118,718 | - The company's allowance for doubtful accounts was $35 thousand at March 31, 2023, down from $39 thousand in 2022236 - The inventory reserve for estimated obsolescence was $48 thousand at March 31, 2023, down from $81 thousand in 2022240 - Deferred tax assets increased to $3.155 million in FY2023 from $1.053 million in FY2022, while deferred tax liabilities decreased to $2.527 million from $1.989 million261 - The effective tax rate for FY2023 was 85.3%, significantly higher than 22.1% in FY2022, primarily due to non-deductible acquisition costs and restricted stock compensation, and a one-time true-up for new state filings265 - Unrecognized compensation costs related to restricted stock were $9.1 million at March 31, 2023, expected to be recognized over a weighted average period of 1.6 years281 - The company recorded a $7.8 million increase for potential sales tax exposure in FY2023, with $4.0 million in current liabilities and $3.8 million in long-term liabilities291 - The company made a $5.0 million minority interest investment in Vetster Inc. in April 2022 as part of a three-year partnership agreement307 - The acquisition of PetCareRx, Inc. for approximately $36.0 million in cash closed on April 3, 2023, making it a wholly-owned subsidiary308309 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure PetMed Express reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure332 Controls and Procedures Management concluded that internal controls were ineffective as of March 31, 2023, due to a material weakness in segregation of duties over manual journal entries, though no financial misstatement occurred - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023333 - A material weakness was identified due to inadequate segregation of duties over the preparation, approval, and posting of manual journal entries335 - Management believes the material weakness did not result in a misstatement of the financial statements318335 - A remediation plan is being developed to increase resources and modify processes to address the segregation of duties issue319336 - No other material changes in internal control over financial reporting occurred during the fourth quarter ended March 31, 2023337 Other Information This item is not applicable to PetMed Express, Inc - Not applicable340 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections PetMed Express reported no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections341 Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement, and the company maintains a Code of Business Conduct and Ethics - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders344 - The company has a Corporate Code of Business Conduct and Ethics applicable to all officers, directors, and employees, available on its website345 Executive Compensation Information regarding executive compensation for PetMed Express is incorporated by reference from the company's 2023 Annual Meeting of Shareholders Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders346 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information regarding security ownership of certain beneficial owners and management, and related shareholder matters (excluding equity compensation plan details already in Item 5), is incorporated by reference from the company's 2023 Annual Meeting of Shareholders Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders347 Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence for PetMed Express is incorporated by reference from the company's 2023 Annual Meeting of Shareholders Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders348 Principal Accountant Fees and Services Information regarding principal accountant fees and services for PetMed Express is incorporated by reference from the company's 2023 Annual Meeting of Shareholders Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders349 Part IV Exhibits and Financial Statement Schedules This section details all exhibits and financial statement schedules filed with the Form 10-K, including corporate documents, material contracts, and certifications - Includes consolidated financial statements, articles of incorporation, by-laws, and instruments defining security holders' rights352353354 - Lists material contracts, including various equity compensation plans (2015 Outside Director, 2016 Employee, 2022 Employee) and executive employment agreements (Mathew N. Hulett, Christine Chambers)355356 - Also includes subsidiaries of the registrant, consents of experts, and certifications (CEO/CFO pursuant to Rule 13a-14(a)/15d-14(a) and Section 1350)356 Form 10–K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided358 Signatures Signatures The report is duly signed by the principal executive and financial officers, along with the Board of Directors, as of May 23, 2023 - The report is signed by Mathew N. Hulett (CEO, President, Director) and Christine Chambers (CFO, Treasurer), along with the Chairman of the Board and other directors362363 - The signing date for the report is May 23, 2023362