Wag! Group Co. (NASDAQ:PET) This fall 2023 Earnings Call Transcript February 14, 2024
Wag! Group Co. misses on earnings expectations. Reported EPS is $-0.09 EPS, expectations have been $-0.05. PET is not one of many 30 hottest shares amongst hedge funds on the finish of the third quarter (see the details here).
Operator: Greetings. Welcome to the Wag! This fall 2023 Earnings Conference Call [Operator Instructions]. Please notice this convention is being recorded. I’ll now flip the convention over to your host, Garrett Smallwood, Chief Executive Officer and Chairman. You might begin.
Unidentified Company Representative: Good afternoon, everybody, and thanks for becoming a member of the Wag!’s convention name to debate our fourth quarter and full yr 2023 monetary outcomes. On the decision as we speak are Garrett Smallwood, Chief Executive Officer and Chairman; Adam Storm, President and Chief Product Officer; and Alec Davidian, Chief Financial Officer. Before we get began, please notice that as we speak’s feedback embrace forward-looking statements. These forward-looking statements are topic to dangers and uncertainties and contain elements that would trigger precise outcomes to vary materially from these expressed or implied by such statements. A dialogue of those dangers and uncertainties is included in our earnings launch as we speak and our filings with the SEC, together with our upcoming 10-Ok for the yr ended December 31, 2023.
We additionally remind you that we undertake no obligation to update the knowledge contained on this name. These statements ought to be thought-about estimates solely and aren’t a guarantee of future efficiency. Also, throughout the name, we current each GAAP and non-GAAP monetary measures. Reconciliations to probably the most instantly comparable GAAP monetary measures are available in as we speak’s earnings launch. These non-GAAP measures aren’t meant to be an alternative choice to our GAAP outcomes. Lastly, you could find our earnings launch and earnings presentation posted on the Investor Relations web page of our web site. And with that, I’ll now flip the decision over to Garrett Smallwood.
Garrett Smallwood: Good afternoon. And thanks for becoming a member of us as we speak to debate our monetary efficiency for the fourth quarter and full yr 2023 and supply steering for fiscal yr 2024. First, I’ll present a short overview of our monetary outcomes for the fourth quarter and talk about our 2024 plans. Following that, Adam, our President and Chief Product Officer, will share updates on our strategic plans and key initiatives for 2024 and past. Then Alec, our Chief Financial Officer, will present a extra detailed evaluation of our fourth quarter and full yr 2023 outcomes, talk about our capital allocation priorities and share our 2024 steering. We are excited to announce one other profitable quarter for the Wag! crew, according to our expectations for income and adjusted EBITDA, which resulted within the excessive finish of our vary for fiscal yr 2023 for income and midpoint of our vary for adjusted EBITDA.
During the quarter, income grew 27% year-over-year to $21.7 million, which was a brand new quarterly report. This development was pushed by the success of our wellness business, fueled by pet mother or father demand for pet insurance coverage and wellness merchandise. In addition, we’re seeing early indicators of success with Maxbone inside providers, which validates our long term development initiatives by increasing our attain inside retailers to the premium product class. Our adjusted EBITDA was breakeven, a rise from a lack of $0.4 million in the identical interval final yr. As we navigated the dynamic macroeconomic panorama, our main targets focus on reaching a sustainable equilibrium between development, revenue and margin. In the fourth quarter, platform contributors elevated to $600,000, a rise of 38% year-over-year, and Wag! Premium penetration remained above our 50% goal.
To summarize 2023, this was a yr of operational effectivity as we demonstrated adjusted EBITDA profitability for 3 consecutive quarters, reaching fiscal yr adjusted EBITDA profitability considerably forward of schedule. We did this whereas rising revenues 53% year-over-year and reinvesting within the platform. A couple of highlights for the yr embrace getting into the pet meals and treats class with our acquisition of Dog Food Advisor and the launch of Cat Food Advisor, deepening our choices within the wellness class with our unique providing at Paw Protect, the one pet insurance coverage product providing Instant Pay within the US and getting into the premium pet important class with the acquisition of Maxbone. We could not be extra excited concerning the proprietary know-how, breadth of our platform and deep relationships we’ve got with premium households as we enter into 2024.
In 2024 and past, we’re targeted on worthwhile income development and reaching extra US households because the all encompassing trusted companion for premium wellness, service and merchandise. We will do that by reinvesting free money move into development, which we count on to realize within the again half of 2024. We consider we’re within the early innings of a secular development pattern within the premium wellness, service and product classes during which we function. We are practically overwhelmed with the alternatives forward of us and the resilience and power of the premium households we service who’re displaying no indicators of slowing down. Accordingly, we’re wanting to build, innovate and purchase in an effort to develop the Wag! platform and ship for our prospects. As of as we speak, we’re setting a path to succeed in greater than $200 million in income by fiscal yr 2027, which quantifies the clear demand for our platform.
This interprets into year-over-year worthwhile development of a minimum of 25% for the following 4 years. We will do that whereas sustaining disciplined head rely development by means of using AI and course of automation. In abstract, the crew at Wag! continues to execute towards our objectives and ship robust and sustainable development. Our fourth quarter and full yr outcomes display our potential to scale our platform sooner and extra profitably than anticipated and present the effectiveness of our technique and business mannequin to change into the primary platform for premium US households. Our 2024 steering, which Alec will define shortly, demonstrates our dedication to sturdy year-over-year worthwhile income development. And with that, I’ll flip the decision over to Adam to assessment our technique for 2024.
Adam Storm: Thanks, Garrett. I’m excited to share the three high degree parts of our technique to drive long run shareholder worth and worthwhile development in 2024 and past. One, best-in-class know-how. As a know-how firm, we’re excited to proceed building proprietary options to seize the hearts and minds of our prospects. We will leverage our know-how and best-in-class consumer expertise to innovate on comparability instruments for wellness merchandise, matchmaking providers for a extremely fragmented pet providers panorama and white label options for premium companions, Tractor Supply, Forbes and Bright Horizons. These proprietary partnerships develop a singular and defensible moat together with our choices that make Wag! a frontrunner out there.
Two, platform enlargement and M&A. As evidenced by our profitable acquisitions and seamless integrations of Dog Food Advisor, Maxbone and Furmacy, we’ll proceed to pursue alternatives to develop the scope of our choices for our prospects. Our know-how first DNA permits us to maneuver swiftly each on the purchase and the mixing, growing the return profile of the deal and delivering worth for the top buyer. We are excited to announce one other unbelievable alternative in WoofWoofTV, one of many largest social media platforms for pet lovers, which we closed in This fall 2023. WoofWoofTV expands our attain with pet lovers with greater than 18 million followers throughout Facebook, Instagram, TikTook and extra. WoofWoofTV supplies a singular media asset that allows Wag! to develop proprietary content material for Wag! owned manufacturers and companion manufacturers.
Don’t hesitate to present them a comply with on Instagram or a like on Facebook. Three, operational effectivity. We consider an indicator pillar of a profitable know-how firm is the flexibility to scale income with out a corresponding improve in headcount. In 2023, we achieved a report $1 million in income per worker, which we count on to extend in 2024 and past. This was achieved by means of intense give attention to automation, proprietary market know-how that doesn’t require important customer support or gross sales head rely and the inherent scalability of our digital merchandise. As Garrett alluded to, 2023 was our yr of effectivity. 2024 will set the inspiration for constant and repeatable development for this yr and past. This development can be achieved by doubling down on our best-in-class know-how, broad and accessible platform, seamless M&A and intense give attention to operational effectivity.
I’ll now flip the decision over to Alec to debate our fourth quarter and full yr financials and 2024 forecast in additional element.
Alec Davidian: Thanks, Adam. We have beforehand described 2023 as our yr of effectivity and optimizing the business for future success, which we proceed to outline as constant worthwhile development. While executing to this we’ve got completed 2023 and This fall robust, that are as follows. For the total yr 2023, we generated report revenues of $83.9 million, which represents 53% year-over-year development and is on the high finish of our steering vary, report adjusted EBITDA of $0.7 million representing the midpoint of our steering vary and submitting report platform contributors with This fall totaling 600,000 platform contributors, representing 38% development from a yr in the past. The significant development of those three key metrics as in comparison with final yr display the power of our business mannequin, technique and execution.
For This fall, income was $21.7 million, a This fall quarterly report, representing 27% year-over-year development. Adjusted EBITDA breakevenm I’ll notice this was barely decrease than our prior steering, which is a results of put up vacation demand along with the actual fact we noticed important alternative to lean into gross sales and advertising within the again half of This fall, primarily in December. The alternative was too nice to not deploy capital and make the most of the surge in client demand, which we count on to be acknowledged in Q1 2024. Delving deeper into the monetary outcomes, income class outcomes have been as follows. Full yr providers was $24.4 million, rising 12% year-over-year. Wellness was $52.9 million, rising 60% year-over-year and pet meals and treats was $6.6 million.
Services in 2023 embrace a nominal quantity of e-commerce income from the award profitable portfolio of merchandise on maxbone.com. Looking on the fourth quarter particularly, providers was $6.3 million, rising 7% from a yr in the past, pushed by favorable sitting and boarding combine uptick. Wellness was $13.5 million, rising 21% from a yr in the past, pushed by a robust pet insurance coverage and wellness plan demand. And lastly, pet meals and treats was $1.9 million. As a reminder, pet meals and treats is a brand new income class we entered into in the beginning of 2023, encompassing Dog Food Advisor and Cat Food Advisor, which has grown 40% from Q1 to This fall. Our bills analyzed as a proportion of income illustrate operational excellence and scaling and are as follows. For the total yr 2023 cost of income, excluding depreciation and amortization, totaled $5.5 million, representing 7% of income, in keeping with final yr.
In the fourth quarter, cost of income totaled $1.8 million, representing 8% of income, up from 6% a yr in the past. The incremental prices in 2023 have been pushed by Maxbone product and wellness associated prices. Full yr 2023 platform operations and assist expense totaled $12.5 million, representing 15% of income versus 25% final yr. In the fourth quarter, platform operations and assist expense totaled $2.8 million, representing 13% of income, down from 16% a yr in the past. The 10% absolute proportion level lower year-over-year was achieved by means of the deployment of our extremely official processes, automation and software program instruments all through 2023. For the total yr, 2023 gross sales and advertising expense totaled $50.5 million, representing 60% of income, down from 64% final yr.
In the fourth quarter, gross sales and advertising expense totaled $13.7 million, representing 63% of income in comparison with 62% a yr in the past. As talked about earlier, we skilled report client demand put up holidays and deployed capital thoughtfully to make the most of the chance. Full yr G&A expense totaled $19.2 million, representing 23% of income, down from 59% final yr, which did embrace onetime prices of going public. Fourth quarter G&A expense totaled $4.7 million, representing 22% of income, down from 23% a yr in the past. This is the result of income scale, working leverage and hiring self-discipline. From a steadiness sheet perspective, we ended the yr with $28.3 million in money, money equivalents and accounts receivable. This steadiness additionally displays full money fee of $1.25 million for WoofWoofTV that closed in December.
Becoming adjusted EBITDA constructive within the second half of 2023 has considerably decreased money burn in comparison with final yr. Now waiting for our 2024 steering and long term outlook, we count on to generate the next; revenues of $105 million to $115 million in 2024, which represents development of 25% to 37% over 2023; adjusted EBITDA within the vary of $2 million to $6 million, representing 177% to 731% over 2023. This information anticipates 2% to five% adjusted EBITDA margin along with constructive free money move within the second half of 2024. Additionally, on the heels of a robust 2023 and expectations for 2024, we’re additionally saying that our Board of Directors has licensed a debt paydown of as much as $10 million of principal in 2024. If the total $10 million paydown is executed, it could end in $1.6 million of money curiosity fee financial savings on an annual foundation, which instantly contributes to free money move.
Looking past 2024, we count on a mean of 25% compound income development for the time intervals of 2024 by means of 2027 assuming no significant change within the macroeconomic setting with the expectation of driving in the direction of over $200 million in 2027. In abstract, our robust fourth quarter and annual outcomes illustrate; firstly, the robust demand and tailwinds inside the pet class, which in keeping with Morgan Stanley is ready to develop at a CAGR of 8% over 2022 to 2030, reaching a projected whole of [$277 billion]; secondly, administration’s potential to execute and drive disciplined development, which we’ve got achieved for seven consecutive quarters; and thirdly, confidence within the subsequent stage of Wag!’s journey as a worthwhile development firm in 2024 and past, which we’ve got outlined right here as we speak.
And with that, we now open Q&A. Operator, are you able to kindly open it up for Q&A.
Operator: [Operator Instructions] Our first query comes from the road of Jeremy Hamblin with Craig-Hallum Capital Group.
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