Wag! Group Co. (NASDAQ:PET) Q3 2023 Earnings Call Transcript November 10, 2023
Operator: Greetings, and welcome to the Wag! Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this convention is being recorded. It is now my pleasure to introduce your host, Greg Robles with Investor Relations. Thank you, sir. You might begin.
Greg Robles: Good afternoon, everybody, and thanks for becoming a member of Wag!’s convention name to debate our Third quarter 2023 monetary outcomes. On the decision right now 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 right now’s feedback embody forward-looking statements. These forward-looking statements are topic to dangers and uncertainties and contain components that might trigger precise outcomes to vary materially from these expressed or implied by such statements. A dialogue of those dangers and uncertainties are included in our filings throughout the SEC. We additionally remind you that we undertake no obligation to update the data contained on this name.
A pet carer walking a canine in a park on a sunny day with a smile on their face.
These statements needs 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 immediately comparable GAAP monetary measures are available in our earnings launch, which we issued right now. The earnings launch is available on the Investor Relations web page of our web site and is included in exhibit and Form 8-Ok furnished to the SEC. These non-GAAP measures aren’t meant to be an alternative to our GAAP outcomes. Lastly, you could find our earnings presentation posted on our IR web site and with the SEC. 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 right now to debate our monetary efficiency for the third quarter of 2023. We are excited to announce one other profitable quarter for the Wag! staff, exceeding our personal expectations for each income and adjusted EBITDA. This quarter additional demonstrates that we’re remodeling the pet business by changing into an all-inclusive, trusted associate for the premium pet guardian and capitalizing on the secular development of pet possession. We proceed to build lasting, excessive frequency relationships with households throughout the U.S. by changing into their go-to vacation spot for premium providers, well being, and wellness. While we stay laser centered on profitability for the rest of 2023, we proceed to put money into our platform and know-how, building proprietary options to a very powerful wants.
In 2024 and past, we’ll proceed to make use of our proprietary know-how, scalable platform, and deep and trusted relationships with premium households to strike the suitable steadiness of development and profitability. With that I’ll present a short overview of our monetary outcomes for the third quarter. Following that, Adam, our President and Chief Product Officer, will share updates on our strategic plans and key initiatives for the rest of 2023 and past. And Alec, our Chief Financial Officer, will present a extra detailed evaluation of our Third quarter outcomes, focus on our capital allocation priorities, and reiterate our 2023 steerage. During the quarter, income grew by 42% year-over-year to $21.8 million. This development was pushed by the success of our wellness business fueled by demand for pet insurance coverage and wellness merchandise.
In addition to the success of Paw Protect, the one pet insurance coverage product within the US with instantaneous pay. We’re seeing early indicators of success with Cat Food Advisor, which validates our longer-term development initiatives by increasing our attain within the pet meals and treats class. Our adjusted EBITDA was $1 million, a rise from a lack of $0.5 million in the identical interval final 12 months. As we navigate the dynamic, macroeconomic panorama, our main goal stays centered round reaching a sustainable equilibrium between development, revenue, and margin. In the third quarter, platform contributors elevated to 632,000, a rise of 34% year-over-year. And Wag! Premium maintained robust penetration at 52%. Our third quarter natural acquisition price was greater than 70%, which is a results of our deal with dynamic partnerships, a best-in-class expertise, and our referral applications.
We proceed to be considerate and deliberate round capital allocation and brand-building. And in consequence, our LTV:CAC ratio was a deliberate 9:1. On the provision facet of the business, we maintained the provision and demand equilibrium by means of a variable platform price, which averaged $50.26 in Q3 2023. In abstract, the staff at Wag! continues to execute towards our objectives and ship robust and sustainable outcomes. Our Third quarter outcomes show our capability to scale the platform sooner and extra profitably than anticipated. It confirmed the effectiveness of our technique and business mannequin to turn into the primary platform for premium pet mother and father. Simply so as to add, we have now out-executed on the technique we set forth almost two years in the past for the seventh consecutive quarter.
And with that, I’ll flip the decision over to Adam Storm to assessment our technique for the rest of 2023.
Adam Storm: Thanks, Garrett. I’ll as soon as once more walk by means of the 5 top-level components of our technique to drive long-term shareholder worth and worthwhile development. One, speed up development in present markets. As Garrett talked about, the third quarter was one other record-revenue quarter, pushed by the demand for pet insurance coverage and wellness merchandise throughout the US, in addition to a submit summer time returned to regular daytime service hours. We will proceed to leverage our know-how and best-in-class person expertise to innovate on comparability instruments and matchmaking providers for extremely fragmented experiences with the most important whole addressable markets similar to pet meals and treats, and pet insurance coverage. Two, increasing premium subscription choices; our premium penetration price remained at a strong 52% forward of our long-term purpose of fifty%.
We are persevering with to check the worth of the Wag! Premium bundle by introducing new advantages and experimenting with present presents. We’re actively experimenting round a ten% worth low cost for brand spanking new subscribers with an emphasis on the upcoming holidays, which shoot had been in a single day sitting in boarding, which is a better common order worth service. Three, platform enlargement. Last quarter, we rolled out the Wag! Store in partnership with Maxbone, which we acquired in Q2 of ’23, bringing trendy pet necessities to our engaged neighborhood for pet mother and father and pet caregivers. Maxbone has unbelievable assortment of premium merchandise, for instance, the Christian Cowan collab Jumper, which Kim Kardashian organically posted about on her Instagram web page together with her prop Pomeranian, Sushi.
I urge you to test it out. Other bestsellers embody the Eco Sling Carrier and the Easy Fit Harness, which are available in enjoyable colours similar to peach, yellow, ivory, and nightfall blue. We’ll proceed to roll out seasonal merchandise, collaborations, and must-haves to broaden Wag!’s model whereas capturing further share of pockets. Four, opportunistic M&A. Wag! continues to be strategically positioned to leverage pet particular M&A alternatives attributable to our capability to rapidly combine new belongings into our platform, supported by our deep understanding of the patron and our know-how first. We are most enthusiastic about belongings which have excessive charges of natural acquisition, a services or products that’s beloved by clients, and or classes of family spend that we don’t at the moment seize.
Fifth, working scale. This quarter, we noticed working margin enhancements throughout all areas because of the constructive influence of our unit economics and stuck cost working leverage. Adjusted EBITDA margin improved considerably year-over-year from minus 3% to constructive 5%, an 8% level enchancment. The vital year-over-year enchancment is inherent to our excessive margin software program market mannequin, the place incremental income considerably enhances the adjusted EBITDA profile for all the platform. 2023 continues to be our 12 months of effectivity and deal with full-year adjusted EBITDA profitability, which we have now achieved as of Q3 ’23. We will proceed to put money into a unique advertising and marketing payback cycles, operational excellence, platform integrations and cross-sell, and best-in-class buyer expertise.
I’ll now flip the decision over to Alec to debate our Third quarter monetary leads to extra element.
Alec Davidian: Thanks, Adam. Q3 building on our Q1 and Q2 momentum, created from our core platform contributors of 632,000, income of $21.8 million, and adjusted EBITDA of $1 million. That is now turning back-to-back adjusted EBITDA worthwhile quarters. This additionally takes us to full-year ’23 adjusted EBITDA worthwhile 12 months so far, an enormous milestone within the firm’s historical past. Third quarter income of $21.8 million exceeded our expectations, up 42% from final 12 months, pushed by energy throughout all three income classes. This resulted in an adjusted EBITDA revenue of $1 million for Q3 versus an adjusted EBITDA loss $0.5 million final 12 months. I got here down with our three income classes. Services income was $6.6 million, rising 12% from Q3 final 12 months, making it the most important service income quarter so far.
We proceed to see submit related retention of service habits, mixed with a continued gradual and regular return-to-office development. That has additionally elevated in nominal quantities of e-commerce income from Maxbone and Wag! Store. Wellness income was $13.5 million, growing 42% from Q3 final 12 months, pushed by demand for our pet insurance coverage and wellness applications by means of our proprietary comparability engine know-how. Our know-how’s capability so as to add worth to clients is obvious and in Q3, we skilled report visitors as some have returned to regular actions resumed. Pet meals and treats income, a brand new income class for this 12 months, was $1.7 million. Feel free to purchase the newly launched Cat Food Advisor to proceed to supply pet mother and father with high-quality info to permit them to make the suitable meals selections for his or her pets.
Turning to bills; cost of income, excluding depreciation and amortization, $1.4 million, was constant year-over-year at 7% of income. Capital prices had been down year-over-year on account of very considerate operational excellence and the scalability of our tech stack offset by product prices and the sale of merchandise by means of Maxbone and Wag! Store. Platform operations and help expense of $3 million equates to 14% of income, down from 37% a 12 months in the past. While non-revenue producing platform operations and help features stay a key issue into the business, our operations have turn into extremely environment friendly over the previous 12 months by means of redesign and use of AI instruments to get solutions sooner. Sales and advertising and marketing expense of $12.8 million equates to 59% of income, down from 73% a 12 months in the past.
And so quite a few alternatives to place {dollars} to work in gross sales and advertising and marketing prices on numerous income streams, and we’ll proceed to reap the benefits of effectivity as we establish them. G&A expense of $4.7 million equates to 21% of income, down from 165% a 12 months in the past, which included transaction prices. 21% represents the bottom ratio since we have now turn into public and illustrates the scalability of our platform and operational excellence of our management staff. From a steadiness sheet perspective, we ended the third quarter with roughly $31 million in money, money equivalents, and accounts receivable. Our adjusted EBITDA constructive outcomes places us in a robust position to proceed to deploy money for gross sales and advertising and marketing, product innovation, and worth add acquisitions.
Moving to our steerage for ’23, making an allowance for outcomes 12 months so far, we reiterate our full-year ’23 forecast. Total income within the vary of $80 million to $84 million and adjusted EBITDA steerage to a spread of zero to $2 million. $82 million and $1 million are on the midpoint of the respective ranges. For the fourth quarter, we anticipate whole income of $20 million on the midpoint of the full-year ’23 vary, which might be an 18% improve in income over This fall ’22 and adjusted EBITDA of $0.3 million on the midpoint for the full-year ’23 vary, which might be a 168% enchancment over This fall ’22 adjusted EBITDA. With our robust Q3 outcomes, which took year-to -date adjusted EBITDA to $0.7 million, we’re in a robust position to finish ’23 fiscal 12 months as an adjusted EBITDA worthwhile firm.
We proceed to be considerate and thoughtful of the macroeconomic atmosphere and potential slowdown in shopper spending. Our monetary steerage contains the next issues. The forecast incorporates our inside goal of rule of fifty, which means a complete of higher than 50% from income development plus adjusted EBITDA margin for the full-year. We anticipate holidays to drive incremental in a single day message daytime service demand, but in addition anticipate that extreme climate will influence service demand. Pet adoption throughout the holidays additionally positively impacted the pet insurance coverage penetration and demand for wellness plans. We anticipate the continued development within the pet business pushed by components similar to greater charges of pet possession, pet insurance coverage penetration, and growing demand for premium pet services and products, could have a constructive influence on our full-year ’23 outcomes, together with on our entrance to pet meals entry.
General traits associated to the state of the economic system, rates of interest, shopper confidence. We have factored in potential dangers and alternatives associated to those macroeconomic components and wished to precisely forecast our monetary efficiency. And lastly, we acknowledge that there could also be potential dangers to our monetary efficiency in ’23, similar to disruptions to world provide chains, modifications in shopper conduct attributable to surprising occasions such a delayed in balanced return-to-office, digital and efficiency advertising and marketing traits, the potential influence of AI, and our capability to broaden by means of partnerships. In abstract, a robust quarter outcomes illustrate our staff’s robust capability to execute throughout our diversified income streams, making the most of alternatives that come up to build a worthwhile business and shareholder worth.And with that, we now welcome Q&A.
Operator, are you able to kindly open it up for Q&A.
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