As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

10/30/19  Petmed Express Inc                10-Q        9/30/19   43:2.6M                                   RDG Filings/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    367K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     22K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     22K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     18K 
21: R1          Document And Entity Information                     HTML     45K 
40: R2          Condensed Consolidated Balance Sheets (Current      HTML     94K 
                Period Unaudited)                                                
28: R3          Condensed Consolidated Balance Sheets (Current      HTML     40K 
                Period Unaudited) (Parentheticals)                               
15: R4          Condensed Consolidated Statements of Comprehensive  HTML     82K 
                Income (Unaudited)                                               
22: R5          Condensed Consolidated Statements of Cash Flows     HTML     83K 
                (Unaudited)                                                      
41: R6          Note 1 - Summary of Significant Accounting          HTML     34K 
                Policies                                                         
29: R7          Note 2 - Revenue Recognition                        HTML     81K 
16: R8          Note 3 - Net Income Per Share                       HTML     48K 
20: R9          Note 4 - Stock-based Compensation                   HTML     26K 
35: R10         Note 5 - Fair Value                                 HTML     22K 
38: R11         Note 6 - Changes in Shareholders' Equity and        HTML     58K 
                Comprehensive Income                                             
27: R12         Note 7 - Commitments and Contingencies              HTML     25K 
14: R13         Note 8 - Income Taxes                               HTML     22K 
34: R14         Note 9 - Subsequent Events                          HTML     19K 
37: R15         Significant Accounting Policies (Policies)          HTML     38K 
26: R16         Note 2 - Revenue Recognition (Tables)               HTML     74K 
13: R17         Note 3 - Net Income Per Share (Tables)              HTML     45K 
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                Comprehensive Income (Tables)                                    
39: R19         Note 1 - Summary of Significant Accounting          HTML     21K 
                Policies (Details Textual)                                       
24: R20         Note 2 - Revenue Recognition (Details Textual)      HTML     17K 
19: R21         Note 2 - Revenue Recognition - Disaggregation of    HTML     35K 
                Revenue by Type (Details)                                        
32: R22         Note 3 - Net Income Per Share (Details Textual)     HTML     16K 
43: R23         Note 3 - Net Income Per Share - Basic and Diluted   HTML     46K 
                Net Income Per Share (Details)                                   
23: R24         Note 4 - Stock-based Compensation (Details          HTML     45K 
                Textual)                                                         
18: R25         Note 5 - Fair Value (Details Textual)               HTML     17K 
31: R26         Note 6 - Changes in Shareholders' Equity and        HTML     23K 
                Comprehensive Income (Details Textual)                           
42: R27         Note 6 - Changes in Shareholders' Equity and        HTML     43K 
                Comprehensive Income: - Schedule of Changes in                   
                Shareholders' Equity (Details)                                   
25: R28         Note 7 - Commitments and Contingencies (Details     HTML     18K 
                Textual)                                                         
17: R29         Note 8 - Income Taxes (Details Textual)             HTML     23K 
11: R30         Note 9 - Subsequent Events (Details Textual)        HTML     27K 
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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 September 30, 2019

 

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: 20,174,932 Common Shares, $.001 par value per share at October 30, 2019.

 

 

 

		September 30,				March 31,
		2019				2019
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	94,897			$	100,529
Accounts receivable, less allowance for doubtful accounts of $22 and $39, respectively			1,466				2,542
Inventories - finished goods, net			19,061				21,370
Prepaid expenses and other current assets			2,841				1,408
Prepaid income taxes			-				582
Total current assets			118,265				126,431
Noncurrent assets:
Property and equipment, net			26,412				27,136
Intangible assets			860				860
Total noncurrent assets			27,272				27,996
Total assets		$	145,537			$	154,427
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	15,155			$	16,275
Accrued expenses and other current liabilities			2,871				2,351
Income taxes payable			525				-
Total current liabilities			18,551				18,626
Deferred tax liabilities			1,395				1,121
Total liabilities			19,946				19,747
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.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, $.001 par value, 40,000 shares authorized; 20,175 and 20,674 shares issued and outstanding, respectively			20				21
Additional paid-in capital			2,347				12,478
Retained earnings			123,215				122,172
Total shareholders' equity			125,591				134,680
Total liabilities and shareholders' equity		$	145,537			$	154,427

 

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2019				2018				2019				2018
Sales		$	69,936			$	71,396			$	149,924			$	158,786
Cost of sales			49,934				46,141				108,061				103,577
Gross profit			20,002				25,255				41,863				55,209
Operating expenses:
General and administrative			6,303				6,200				12,811				13,134
Advertising			4,756				5,300				13,380				12,007
Depreciation			572				552				1,140				1,108
Total operating expenses			11,631				12,052				27,331				26,249
Income from operations			8,371				13,203				14,532				28,960
Other income:
Interest income, net			459				428				1,026				807
Other, net			304				255				561				572
Total other income			763				683				1,587				1,379
Income before provision for income taxes			9,134				13,886				16,119				30,339
Provision for income taxes			2,469				3,134				4,111				7,005
Net income		$	6,665			$	10,752			$	12,008			$	23,334
Comprehensive income		$	6,665			$	10,752			$	12,008			$	23,334
Net income per common share:
Basic		$	0.33			$	0.53			$	0.60			$	1.14
Diluted		$	0.33			$	0.52			$	0.60			$	1.14
Weighted average number of common shares outstanding:
Basic			19,963				20,463				20,098				20,436
Diluted			19,973				20,520				20,109				20,485
Cash dividends declared per common share		$	0.27			$	0.27			$	0.54			$	0.52

 

		Six Months Ended
		September 30,
		2019				2018
Cash flows from operating activities:
Net income		$	12,008			$	23,334
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			1,140				1,108
Share based compensation			1,365				1,500
Deferred income taxes			274				189
Bad debt expense			64				49
(Increase) decrease in operating assets and increase (decrease) in liabilities:
Accounts receivable			1,012				457
Inventories - finished goods			2,309				(5,279	)
Prepaid income taxes			582				170
Prepaid expenses and other current assets			(1,433	)			(94	)
Accounts payable			(1,120	)			(996	)
Accrued expenses and other current liabilities			568				(36	)
Income taxes payable			525				-
Net cash provided by operating activities			17,294				20,402
Cash flows from investing activities:
Purchases of property and equipment			(416	)			(450	)
Net cash used in investing activities			(416	)			(450	)
Cash flows from financing activities:
Repurchase and retirement of common stock			(11,496	)			-
Dividends paid			(11,014	)			(10,756	)
Net cash used in financing activities			(22,510	)			(10,756	)
Net (decrease) increase in cash and cash equivalents			(5,632	)			9,196
Cash and cash equivalents, at beginning of period			100,529				77,936
Cash and cash equivalents, at end of period		$	94,897			$	87,132
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	2,730			$	6,645
Dividends payable in accrued expenses		$	155			$	207

 

Note 1: Summary of Significant Accounting Policies

 

Organization

 

PetMed Express, Inc. and subsidiaries, d/b/a 1-800-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, and speed of delivery. The Company markets its products through national advertising campaigns, which aim to increase the recognition of the “1-800-PetMeds” brand name, and “PetMeds” family of trademarks, increase traffic on its website at www.1800petmeds.com, acquire new customers, and maximize repeat purchases. The majority 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 2020 or fiscal 2019 refer to the Company's fiscal years ending March 31, 2020 and 2019, 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 September 30, 2019, the Statements of Comprehensive Income for the three and six months ended September 30, 2019 and 2018, and Cash Flows for the six months ended September 30, 2019 and 2018. The results of operations for the three and six months ended September 30, 2019 are not necessarily indicative of the operating results expected for the fiscal year ending March 31, 2020. 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, 2019. 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases in the statement of financial position. Accounting applied by lessors will remain largely consistent with previous guidance. Additional changes are set to align lessor accounting with the revised lessee model and the FASB’s revenue recognition guidance. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard on April 1, 2019, using this effective date as the date of initial application.

 

 

Consequently, on adoption, the Company recognized an additional current operating liability, with a corresponding right of use asset of approximately the same amount based on the present value of the remaining rental payments under current leasing standards for existing operating leases. As of September 30, 2019, the current operating liability and corresponding right of use asset was approximately $220,000. The lease liability and right of use asset is reflected in the condensed consolidated balance sheet as part of accrued expenses and other current liabilities and as part of prepaid expenses and other current assets. The amended guidance did not have a material impact on the Company’s 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.

 

 

Note 2: Revenue Recognition

 

The Company generates revenue by selling pet medication products and pet supplies. 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 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. This key judgment is determined as the shipping point represents the point in time in which the Company has a present right to payment, title has transferred to the customer, and the customer has assumed the risks and rewards of ownership. 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:

 

 

 

 

 

 

The majority 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 the accounts receivable balances relative to sales. The Company had no material contract asset or contract liability balances as of September 30, 2019 or March 31, 2019.

 

 

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):

 

 

For the three and six months ended September 30, 2019, 76,620 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 six months ended September 30, 2018, 46,868 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: 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 972,175 restricted common shares issued under the 2006 Employee Equity Compensation Restricted Stock Plan (“2006 Employee Plan”), 162,158 restricted common shares issued under the 2016 Employee Equity Compensation Restricted Stock Plan (“2016 Employee Plan” and collectively referred to with the 2006 Employee Plan as the “Employee Plans”), 272,000 restricted common shares issued under the 2006 Outside Director Equity Compensation Restricted Stock Plan (“2006 Director Plan”), and 135,000 restricted common shares issued under the 2015 Outside Director Equity Compensation Restricted Stock Plan (“2015 Director Plan”, and collectively referred to with the 2006 Director Plan as the “Director Plans”) at September 30, 2019, 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 three-year restriction period.

 

 

In July 2019, the Board of Directors approved the issuance of 77,125 restricted shares to certain employees of the Company, which included the Company’s CEO restricted stock grant of 40,000 shares in accordance with his Amended Employee Agreement, under the 2016 Employee Plan, with a fair value of $15.98 per share. In July 2019, the Board of Directors approved the issuance of 37,500 restricted shares to directors of the Company under the 2015 Director Plan, with a fair value of $15.98 per share. For the quarters ended September 30, 2019 and 2018, the Company recognized $730,000 and $781,000, respectively, of compensation expense related to the Employee and Director Plans. For the six months ended September 30, 2019 and 2018, the Company recognized $1.4 million and $1.5 million, respectively, of compensation expense related to the Employee and Director Plans. At September 30, 2019 and 2018, there was $4.3 million and $5.5 million of unrecognized compensation cost related to the non-vested restricted stock awards, respectively, which is expected to be recognized over the next three years. At both September 30, 2019 and 2018 there were approximately 191,000 non-vested restricted shares.

 

 

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 September 30, 2019, the Company had invested the majority of its $94.9 million cash and cash equivalents balance in money market funds which are classified within level 1.

 

 

Note 6: Changes in Shareholders’ Equity and Comprehensive Income:

 

Changes in shareholders’ equity for the six months ended September 30, 2019 and 2018 are summarized below (in thousands):

 

 

 

 

 

 

During the six months ended September 30, 2019, the Company purchased and retired approximately 613,000 shares of its common stock for approximately $11.5 million. There were no shares of common stock that were purchased or retired in the six months ended September 30, 2018. At September 30, 2019, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan.