PetMed Express Inc.
12/19/2025 | Press release | Distributed by Public on 12/19/2025 15:48
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2025, and our 2025 Form 10-K.
Certain information in this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our 2025 Form 10-K under the heading "Risk Factors." 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 on Form 10-Q. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
When used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise indicates, "PetMed Express," "PetMeds," "PetMed," "the Company," "we," "our," and "us" refers to PetMed Express, Inc. and its direct and indirect wholly owned subsidiaries, taken as a whole.
Restatement
As described in the explanatory note in Note 1 to unaudited condensed consolidated financial statements, we have restated our consolidated financial statements and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Affected Periods.
Executive Summary
PetMed Express, Inc. and subsidiaries, d/b/a PetMeds®, and PetCareRx, Inc. is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, foods, supplements, supplies and vet services for dogs, cats and horses. PetMeds markets and sells directly to consumers through its websites, toll-free numbers, and mobile application. We offer consumers an attractive alternative for obtaining pet medications, foods, and supplies in terms of convenience, price, speed of delivery, and valued customer service.
Founded in 1996, our executive headquarters offices are currently located at 420 South Congress Avenue, Delray Beach, Florida 33445, and our telephone number is (561) 526-4444. We have a March 31 fiscal year end.
Presently, our product line includes approximately 6,000 of the most popular pet medications, health products, food and supplies for dogs, cats, and horses.
We market our products through national advertising campaigns which aim to increase the recognition of the "PetMeds®" brand name, and "PetCareRx" brand name, increase traffic to our websites at www.petmeds.comand www.petcarerx.com, acquire new customers, and maximize repeat purchases. Our sales consist of products sold mainly to retail consumers. The average purchase was approximately $98 and $96 for the quarters ended September 30, 2025, and September 30, 2024, 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. Our 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.
There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on October 14, 2025, except as noted below:
Long-lived Assets
Long-lived assets, which primarily includes fixed assets, definite lived intangibles, right-of-use assets, and other assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to the undiscounted cash flows expected to be generated by the asset group from its use and eventual disposition of that asset group. Assets are considered to be impaired if the carrying amount of an asset group exceeds the future undiscounted cash flows. If impairment is determined to exist, any related impairment loss is calculated based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less cost of disposal. The Company determined that all of its long-lived assets are part of a single entity-wide asset group for the purpose of long-lived asset impairment assessment.
During the three months ended June 30, 2025, the Company identified triggering events for the Company's long-lived asset group. These triggering events included a downward revision to the Company's forecast and a decrease in the Company's market capitalization which fell below the Company's carrying value for a sustained period beginning in the fourth quarter of fiscal 2025. As a result of the identified triggering events, the Company performed a recoverability test for the identified long-lived asset group. The undiscounted cash flow projections were based on estimates made by management of current and future strategic and operational plans and future financial performance projected using various assumptions regarding revenues, gross profits, operating expenses, and working capital through the remaining useful life of the primary asset in the asset group. The results of the test indicated that the carrying amounts for the long-lived asset group were expected to be recoverable.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Company is required to assess goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company performs its annual impairment assessment in the fourth fiscal quarter of each year. An impairment test of goodwill consists of comparing the carrying amount of the single reporting unit to the fair value of the unit. An impairment loss is recognized by the amount that the carrying amount exceeds the fair value, limited to the amount of goodwill. The Company has concluded that it has one reporting unit and has assigned the entire balance of goodwill to this reporting unit.
For the three months ended June 30, 2025, the Company identified potential impairment triggering events indicating that the fair value of its reporting unit was more likely than not less than its carrying value. These triggering events included a downward revision to the Company's forecast due to continued revenue declines and a decrease in the Company's stock price and market capitalization that was sustained in the first quarter of fiscal 2026. In accordance with Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other, the Company performed a quantitative goodwill impairment test as of June 30, 2025.
The fair value of the single reporting unit was estimated using an income approach, employing a discounted cash flow model. As part of the discounted cash flow model, the Company developed estimates, assumptions and judgments about future results. The discounted cash flow projections were based on estimates made by management of current and future strategic and operational plans and future financial performance. Valuation assumptions used in the Company's discounted cash flow valuation also include projected capital expenditures, earnings before interest expense, income taxes, depreciation and amortization expense (EBITDA), working capital, discount rates, tax rates and terminal growth rates. The Company applied a terminal growth rate of 3%, income tax rate of 25.3% and discount rate of 14.0% based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the single reporting unit. As a result of this impairment test, the Company determined the carrying value of the reporting unit exceeded its fair value, resulting in a goodwill impairment charge of $26.7 million during the three months ended June 30, 2025, which represented the entirety of the goodwill balance previously recorded. There was no tax impact to the impairment as goodwill is not tax deductible.
In accordance with ASC 820, Fair Value Measurement, the fair value measurement for the goodwill impairment is categorized as a Level 3 fair value measurement. This is due to the significant unobservable inputs used in the valuation, including the forecasted revenues, discount rate, and terminal growth rate, which require significant management judgment and estimation.
Economic Conditions, Challenges, and Risk
Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and political, global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns. We also expect the current macroeconomic environment and enterprise customer cost optimization efforts to impact our revenue growth rates. We expect some or all of these factors to continue to impact our operations for the remainder of fiscal 2026.
Results of Operations
The following should be read in conjunction with our unaudited 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 our unaudited Condensed Consolidated Statements of (Loss) Income:
|
Three Months Ended September 30, |
Six Months Ended September 30, |
||||||||||||||||||||||
| 2025 |
2024 As Restated |
2025 |
2024 As Restated |
||||||||||||||||||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of sales | 72.0 | 67.7 | 71.9 | 69.6 | |||||||||||||||||||
| Gross profit | 28.0 | 32.3 | 28.1 | 30.4 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| General and administrative | 32.0 | 18.0 | 28.4 | 12.4 | |||||||||||||||||||
| Advertising | 9.8 | 10.5 | 10.9 | 11.4 | |||||||||||||||||||
| Depreciation and amortization | 5.1 | 2.9 | 4.8 | 2.7 | |||||||||||||||||||
|
Impairment of goodwill and intangible assets
|
- | - | 28.5 | - | |||||||||||||||||||
| Total operating expenses | 46.9 | 31.4 | 72.6 | 26.5 | |||||||||||||||||||
| (Loss) income from operations | (18.9) | 1.1 | (44.5) | 3.9 | |||||||||||||||||||
| Total other (loss) income | (0.3) | 0.6 | (0.1) | 0.6 | |||||||||||||||||||
| (Loss) income before provision (benefit) for income taxes | (19.2) | 1.7 | (44.6) | 4.5 | |||||||||||||||||||
| Provision (benefit) for income taxes | - | (2.4) | - | (0.4) | |||||||||||||||||||
| Net (loss) income | (19.2) | % | 4.1 | % | (44.6) | % | 4.9 | % | |||||||||||||||
Non-GAAP Financial Measures
Adjusted EBITDA
To provide investors and the market with additional information regarding our financial results, we have disclosed (see below) adjusted EBITDA, a non-GAAP financial measure that we calculate as net income excluding share-based compensation expense (benefit), depreciation and amortization, income tax provision, interest income (expense), and other non-operational expenses. We have provided reconciliations below of net income to adjusted EBITDA, the most directly comparable GAAP financial measures.
We have included adjusted EBITDA herein because it is a key measure 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 and other expenses. Accordingly, we believe that adjusted EBITDA provides 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 net stock-based compensation expense (benefit), depreciation and amortization from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision and interest income (expense), as neither are components of our core business operations. We also believe that it is useful to exclude other non-operational expenses, including acquisition costs related to PetCareRx, employee severance and estimated state sales tax accruals and settlements as these items are not indicative of our ongoing operations. Adjusted EBITDA has limitations as a financial measure, and these non-GAAP measures should not be considered 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 does not reflect capital expenditure requirements for such replacements or for new capital expenditures;
•Adjusted EBITDA does not reflect net 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 does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital;
•Adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems;
•Adjusted EBITDA does not reflect certain non-operating expenses including the employee severance which reduces cash available to us;
•Adjusted EBITDA does not reflect certain non-operating expenses (income) including sales tax expense (income) relating to recording a liability for sales tax we did not collect from our customers.
•Other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces the measure's usefulness as comparative measures.
Because of these and other limitations, adjusted EBITDA should only be considered 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.
The following tables present a reconciliation of net (loss) income , the most directly comparable GAAP measure, to adjusted EBITDA for each of the periods indicated:
| Three Months Ended |
Increase (Decrease)
|
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| ($ in thousands, except percentages) |
September 30, 2025 |
September 30, 2024 |
$
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%
|
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|
Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA:
|
|||||||||||||||||||||||
| Net loss (income) | $ | (8,520) | $ | 2,326 | $ | (10,846) | (466) | % | |||||||||||||||
| Add (subtract): | |||||||||||||||||||||||
| Stock-based Compensation | 248 | 573 | (326) | (57) | % | ||||||||||||||||||
| Income Taxes | 9 | (1,401) | 1,410 | (101) | % | ||||||||||||||||||
| Depreciation and Amortization | 2,278 | 1,658 | 620 | 37 | % | ||||||||||||||||||
| Interest Income, Net | 326 | (185) | 511 | (276) | % | ||||||||||||||||||
| Employee Severance | 1,223 | 305 | 918 | 301 | % | ||||||||||||||||||
| Sales Tax Expense (Income) | - | (1,178) | 1,178 | (100) | % | ||||||||||||||||||
|
Professional Fees(1)
|
2,120 | - | 2,120 | n/m | |||||||||||||||||||
| Adjusted EBITDA | $ | (2,316) | $ | 2,098 | $ | (4,415) | (210) | % | |||||||||||||||
(1) Related to the whistleblower investigation.
| Six Months Ended |
Increase (Decrease)
|
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| ($ in thousands, except percentages) |
September 30, 2025 |
September 30, 2024 |
$
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%
|
|||||||||||||||||||
| Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA: | |||||||||||||||||||||||
| Net (loss) income | $ | (42,672) | $ | 6,080 | $ | (48,752) | n/m | ||||||||||||||||
| Add (subtract): | |||||||||||||||||||||||
| Stock-based Compensation | 839 | (7,631) | 8,469 | n/m | |||||||||||||||||||
| Income Taxes | 18 | (443) | 461 | n/m | |||||||||||||||||||
| Depreciation and Amortization | 4,561 | 3,379 | 1,182 | 35 | % | ||||||||||||||||||
| Interest Income, Net | 524 | (280) | 804 | n/m | |||||||||||||||||||
| Acquisition/Partnership Transactions and Other Items | - | 180 | (180) | (100) | % | ||||||||||||||||||
| Employee Severance | 1,319 | 454 | 865 | 190 | % | ||||||||||||||||||
| Sales Tax Expense (Income) | - | (1,178) | 1,178 | n/m | |||||||||||||||||||
|
Professional Fees(1)
|
3,141 | - | 3,141 | n/m | |||||||||||||||||||
|
Impairment of goodwill and intangible assets
|
27,258 | - | 27,258 | n/m | |||||||||||||||||||
| Adjusted EBITDA | $ | (5,013) | $ | 561 | $ | (5,574) | (993) | % | |||||||||||||||
(1) Related to the whistleblower investigation.
Three Months Ended September 30, 2025 Compared With Three Months Ended September 30, 2024 and Six Months Ended September 30, 2025 Compared With September 30, 2024
Net Sales
Sales decreased by approximately $13.7 million, or 23.6%, to approximately $44.4 million for the quarter ended September 30, 2025, compared to approximately $58.0 million for the quarter ended September 30, 2024. Sales decreased by approximately $28.7 million, or 23.1%, to approximately $95.5 million for the six months ended September 30, 2025, compared to approximately $124.3 millionfor the six months endedSeptember 30, 2024. The decrease in sales for the quarter ended and six months ended September 30, 2025was primarily driven by a reduction in gross advertising, higher consumer promotional usage, and a decline in prescription medication sales.
Reorder sales decreased by approximately $11.3 million, or 23.2%, to approximately $37.4 million for the quarter ended September 30, 2025, compared to approximately $48.7 million for the quarter ended September 30, 2024. Reorder sales decreased by approximately $22.8 million, or 22.5%, to approximately $78.7 million for the six months ended September 30, 2025, compared to approximately $101.5 million for the six months ended September 30, 2024. The decrease in reorder sales for the three and six months ended September 30, 2025 is primarily due to a decline in prescription medication sales.
New order sales decreased by approximately $1.9 million or 26.5%, to approximately $5.3 million for the quarter ended September 30, 2025, compared to $7.3 million for the quarter ended September 30, 2024.New order sales decreased by approximately $4.8 million or 26.0%, to approximately $13.6 million for the six months ended September 30, 2025, compared to $18.3 million for the six months endedSeptember 30, 2024.The decrease for the three and six months ended September 30, 2025in new order sales is primarily dueto decreased and less efficient variable marketing spend.
We acquired approximately 58,000 new customers for the quarter ended September 30, 2025 compared to approximately 77,000 new customers for the quarter ended September 30, 2024. We acquired approximately 143,000 new customers for the six months ended September 30, 2025 compared to approximately 197,000 new customers for six months ended the September 30, 2024. The following tables illustrates revenue by various revenue classifications:
| Three Months Ended September 30, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| Net Sales (in thousands) | 2025 | % | 2024 As Restated | % | $ | % | |||||||||||||||||||||||||||||
| Reorder sales | $ | 37,408 | 84.3 | % | $ | 48,724 | 83.9 | % | $ | (11,316) | (23.2) | % | |||||||||||||||||||||||
| New order sales | 5,332 | 12.0 | % | 7,251 | 12.5 | % | (1,919) | (26.5) | % | ||||||||||||||||||||||||||
| Membership fees | 1,624 | 3.7 | % | 2,069 | 3.6 | % | (445) | (21.5) | % | ||||||||||||||||||||||||||
| Total net sales | $ | 44,364 | 100.0 | % | $ | 58,044 | 100.0 | % | $ | (13,680) | (23.6) | % | |||||||||||||||||||||||
| Six Months Ended September 30, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
| Net Sales (in thousands) | 2025 | % | 2024 As Restated | % |
$
|
%
|
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| Reorder sales | $ | 78,713 | 82.4 | % | $ | 101,520 | 81.7 | % | $ | (22,807) | (22.5) | % | |||||||||||||||||||||||
| New order sales | 13,577 | 14.2 | % | 18,338 | 14.8 | % | (4,761) | (26.0) | % | ||||||||||||||||||||||||||
| Membership fees | 3,254 | 3.4 | % | 4,393 | 3.5 | % | (1,139) | (25.9) | % | ||||||||||||||||||||||||||
| Total net sales | $ | 95,544 | 100.0 | % | $ | 124,251 | 100.0 | % | $ | (28,707) | (23.1) | % | |||||||||||||||||||||||
The Company changed the definition of a new order sale on July 1, 2024, to include sales from customers who have not previously ordered from the Company over the past twelve months compared to the prior definition which was thirty-six months. The reorder and new order sales amounts for the three and six months ended September 30, 2025, and the reorder and new order sales amounts for the three and six months ended September 30, 2024 reflect this new definition.
Under the previous definition of a new customer, reorder and new order sales were $52.7 million and $3.3 million, respectively, for the three months ended September 30, 2024. Under the previous definition of a new customer, reorder and new order sales were $111.1 million and $8.7 million, respectively, for the six months ended September 30, 2024.
Recurring net sales, which includes AutoShip & Save subscriptions, and membership revenue, as a percentage of total gross sales was 60.8% for the most recent quarter ended September 30, 2025, up from 53.4% for the same period last year.
Going forward, sales may be adversely affected due to increased competition and consumers giving more consideration to price. The changes in consumer behavior due to macroeconomic factors makes future sales somewhat challenging to predict. No guarantees can be made that sales will grow in the future.
Cost of Sales
Cost of sales decreased by approximately $7.3 million, or 18.6%, to approximately $31.9 million for the quarter ended September 30, 2025, from approximately $39.3 million for the quarter ended September 30, 2024. Cost of sales decreased by approximately $17.7 million, or 20.5%, to approximately $68.7 million for the six months ended September 30, 2025, from approximately $86.4 million for the six months ended September 30, 2024. Cost of sales, as a percentage of sales, was 72.0% for the quarter ended September 30, 2025, compared to 67.7% for the quarter ended September 30, 2024. Cost of sales, as a percentage of sales, was 71.9% for the six months ended September 30, 2025, compared to 69.6% for the six months ended September 30, 2024. The year over year increasefor cost of sales, as a percentage of sales for the three and six months endedSeptember 30, 2025 compared to the three and six months endedSeptember 30, 2024was primarily due to higher discount activity and higher freight costs.
Gross Profit
Gross profit decreased by approximately $6.4 million, or 33.9%, to approximately $12.4 million for the quarter ended September 30, 2025, from approximately $18.8 million for the quarter ended September 30, 2024. Gross profit decreased by approximately $11.0 million, or 29.1%, to approximately $26.8 million for the six months ended September 30, 2025, from approximately $37.8 million for the six months ended September 30, 2024. The gross profit decreases for the quarter and six months ended September 30, 2025 compared to the quarter ended and six months ended September 30, 2024 were primarily due to lower sales and higher cost of sales. The gross margin percentage decreased by approximately 4.4%, to approximately 28.0% for the quarter ended September 30, 2025, from approximately 32.3% for the quarter ended September 30, 2024, primarily due to higher freight costs and higher consumer promotional usage. The gross margin percentage decreased by approximately 2.4%, to approximately 28.1% for the six months ended September 30, 2025, from approximately 30.4% for the six months ended September 30, 2024, primarily due to higher consumer promotional usage and higher freight cost.
General and Administrative Expenses
General and administrative expenses increased by approximately $3.7 million, or 35.1%, to approximately $14.2 million for the quarter ended September 30, 2025, from approximately $10.5 million for the quarter ended September 30, 2024. General and administrative expenses increased by approximately $11.8 million, or 76.5%, to approximately $27.1 million for the six months ended September 30, 2025, from approximately $15.4 millionfor the six months endedSeptember 30, 2024.The increase to general and administrative expenses for the quarter ended September 30, 2025 was mainly due to a $2.3 million increase in professional fees, of which $2.1 millionwere related to the whistleblower investigation, a $0.4 million decrease in payroll and payroll related expenses, offset by $0.9 millionincrease from payroll severance , $1.2 million increase in other general and administrative expenses related to Illinois sales tax settlement gain in the quarter ended September 30, 2024, offset by a $0.3 million decrease in bank service fees.
The increase to general and administrative expenses for the six months ended September 30, 2025 was primarily due to a $8.5 million increase in stock-based compensation expense, primarily related to reduced stock compensation associated with an executive departure for the six months ended September 30, 2024 , a $3.2 million increase in professional fees, of which $3.1 million were related to the whistleblower investigation, a $1.7 million decreasein payroll and payroll related expenses, offset by $0.9 million increase from payroll severance, $1.2 million increase in other general and administrative expenses related to Illinois sales tax settlement gain in the six months ended September 30, 2024, offset by a 0.3 million decrease in other general and administrative expenses.
Advertising Expenses
Advertising expenses decreased by approximately $1.7 million, or 28.5%, to approximately $4.3 million for the quarter ended September 30, 2025, from approximately $6.1 million for the quarter ended September 30, 2024. Advertising expenses decreased by approximately $3.7 million, or 26.5%, to approximately $10.4 million for the six months ended September 30, 2025, from approximately $14.1 million for the six months ended September 30, 2024 The decrease for the quarter ended and six months ended September 30, 2025 can be mainly attributed to lower gross media spend. As a percentage of sales, advertising expense was 9.8% and 10.5% for the quarters ended September 30, 2025 and 2024, respectively. As a percentage of sales, advertising expense was 10.9% and 11.4% for six months ended September 30, 2025 and 2024, respectively. The advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability.
The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $75 for the quarter ended September 30, 2025 compared to $79 for the quarter ended September 30, 2024. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $73 for the six months ended September 30, 2025 compared to $72 for the six months ended September 30, 2024. The decrease to customer acquisition costs for the quarter ended September 30, 2025, was due to a more efficient variable marketing spend and a higher proportion of spending funded by third party partners. The increase to customer acquisition costs for the six months ended September 30, 2025, was due to a less efficient variable marketing spend. The advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, 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.
Depreciation and Amortization
Depreciation and amortization expense was $2.3 million and $1.7 million for the quarters ended September 30, 2025 and September 30, 2024, respectively. Depreciation and amortization expense was $4.6 million and $3.4 million for the six months ended September 30, 2025 and September 30, 2024, respectively.
Other (Expense) Income, Net
Other income, net decreased to approximately $(0.1) million for the quarter ended September 30, 2025 compared to approximately $0.4 million for the quarter ended September 30, 2024. Other income, net decreased to approximately $(0.1) million for the six months ended September 30, 2025 compared to approximately $0.7 million for the six months ended September 30, 2024.The decrease to other income for the quarter and the six months ended September 30, 2025was due to lower invested balances, and higher interests expense accrual on sales tax liabilities. Interest income may decrease in the future based on several factors, including utilization of our cash balances on future investments or partnerships, or on our operating activities. Additionally, interest income could increase or decrease if the current interest rate environment changes.
Provision for Income Taxes
For the quarters ended September 30, 2025 and 2024, the Company recorded an income tax provision of approximately $0.0 million and a tax benefit of approximately $1.4 million, respectively. For the six months ended September 30, 2025 and 2024, the Company recorded an income tax provision of approximately -and a tax benefit of approximately $0.4 million, respectively The increase in the tax provision for the three and six months ended September 30, 2025 is related to the cancellation of the former CEO's performance stock units resulting in additional $8.7 million of income during the quarter. The effective tax rate for the quarter ended September 30, 2025 was approximately (0.1)%, compared to approximately (151.5)% for the quarter ended September 30, 2024. The effective tax rate for the three months ended September 30, 2025 differs from the statutory rate primarily as a result of the goodwill impairment and the Company maintaining a valuation allowance against the majority of our deferred tax assets.
Liquidity and Capital Resources
Overview
We believe that our cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months. Over the longer term, our liquidity will depend primarily on our ability to generate cash from operations, and we continue to monitor, evaluate, and manage our operating
plans, forecasts, and liquidity considering the most recent developments driven by macroeconomic conditions, such as supply chain challenges, inflation, rising interest rates, and geopolitical events. We proactively seek opportunities to improve the efficiency of our operations, take steps to realize internal cost savings, including aligning our staffing needs, creating a more variable cost structure to better support our current and expected future levels of operations and process streamlining.
Current Sources of Liquidity
Our working capital at September 30, 2025 and March 31, 2025 was $2.8 million and $16.1 million, respectively. The $13.3 million decrease in working capital was attributable to the $19.4 million decrease in current assets, primarily cash, which were partially offset by the $6.1 million decrease in current liabilities, primarily accounts payable and deferred revenue. Net cash used in operating activities was $14.4 million for the six months ended September 30, 2025, compared to cash used in operating activities of $1.1 million for the six months ended September 30, 2024. The $13.3 million decrease in cash provided by operating activities is due to the $48.8 million decrease in net income reduced by $10.2 million of non-cash operating adjustments and partially offset by the $2.0 million decrease in current liabilities net of current assets excluding cash. Net cash used in investing activities was $3.9 million for the six months ended September 30, 2025, compared to $1.9 million used in investing activities for the six months ended September 30, 2024. Net cash used in financing activities was $261 thousand and $0.2 million for the six months ended September 30, 2025 and the six months ended September 30, 2024, respectively.
The Board of Directors reviews and discusses the capital allocation needs of the Company on a quarterly basis, and as part of that review, on October 26, 2023, our Board of Directors elected to suspend the quarterly dividend indefinitely. This action was intended to focus use of the Company's existing cash and cash flow on growth initiatives and other, higher return initiatives. The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors.
As of September 30, 2025, we had $0.8 million in outstanding lease commitments assumed as part of the PetCareRx acquisition for the leases on two buildings. Other than the foregoing leases, we are not currently bound by any material long-term or short-term commitments 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 future 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. Our primary source of working capital is cash from operations. We presently have no alternative sources of working capital and have no commitments.
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