Wag! Group Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 14, 2024

There are 10 speakers on the call.

Operator

Please note this conference is being recorded. I will now turn the conference over to your host, Gary Smallwood, Chief Executive Officer and Chairman, you may begin.

Speaker 1

Good afternoon, everyone, and thank you for joining WAG's conference call to discuss our 4th Quarter and Full Year 2023 Financial Results. On the call today are Garrett Smallwood, Chief Executive Officer and Chairman Adam Storm, President and Chief Product and Alex Davidian, Chief Financial Officer. Before we get started, please note that today's comments include forward looking statements. These forward looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of these risks and uncertainties is included in our earnings release today and our filings with the SEC, including our upcoming 10 ks for the year ended December 31, 2023.

Speaker 1

We also remind you that we undertake no obligation to update the information contained on this call. These statements should be considered estimates only and are not a guarantee future performance. Also during the call, we present both GAAP and non GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in today's earnings release. These non GAAP measures are not intended to be a substitute for our GAAP results.

Speaker 1

Lastly, you can find our earnings release and earnings presentation posted on the Investor Relations page of our website. And with that, I'll now turn the call over to Garrett Smallwood.

Speaker 2

Good afternoon and thank you for joining us today to discuss our financial performance for the Q4 full year 2023 and provide guidance for fiscal year 2024. 1st, I will provide a brief overview of our financial results for the Q4 and discuss 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 beyond. Then Alec, our Chief Financial Officer, will provide a more detailed analysis of our Q4 and full year 2023 results, discuss our capital allocation priorities and share our 2024 guidance. We are excited to announce another successful quarter for the WAG team line with our expectations for revenue and adjusted EBITDA, which resulted in the high end of our range for fiscal year 2023 for revenue and midpoint of our range for adjusted EBITDA.

Speaker 2

During the quarter, revenue grew 27% year over year to $21,700,000 which was a new quarterly record. This growth was driven by the success of our wellness business fueled by pet parent demand for pet insurance and wellness products. In addition, we are seeing early signs of success with Max Bone within services, which validates our longer term growth initiatives by expanding our reach within retailers to the premium product category. Our adjusted EBITDA was breakeven, an increase from a loss of $400,000 in the same period last year. As we navigated the dynamic macroeconomic landscape, our primary objectives center around achieving a sustainable equilibrium between growth, profit and margin.

Speaker 2

In the 4th quarter, platform participants increased to 600,000, an increase of 38% year over year and WACC premium penetration remained above our 50% target. To summarize 2023, this was a year of operational efficiency as we demonstrated adjusted EBITDA profitability for 3 consecutive quarters, reaching fiscal year adjusted EBITDA profitability significantly ahead of schedule. We did this while growing revenues 53% year over year and reinvesting in the platform. A few highlights for the year include entering the Pet Food and Treat category with our acquisition of Dog Food Advisor and the launch of Cat Food Advisor, deepening our offerings in the wellness category with our exclusive offering of Pro Protect, the only pet insurance product offering instant pay in the U. S.

Speaker 2

And entering the premium pet essential category with the acquisition of Maximo. We couldn't be more excited about the proprietary technology, breadth of our platform and deep relationships we have with premium households as we enter into 2024. In 2024 and beyond, we are focused on profitable revenue growth and reaching more as the all encompassing trusted partner for premium wellness, service and products. We will do this by reinvesting free cash flow into growth, which we expect to achieve in the back half of twenty twenty four. We believe we are in the early innings of a secular growth trend in the premium wellness, service and product categories in which we operate.

Speaker 2

We are nearly overwhelmed with the opportunities ahead of us and the resilience and strength of the premium households we service who are showing no signs of slowing down. Accordingly, we are eager to build, innovate and acquire in order to expand the WAG platform and deliver for our customers. As of today, we're setting a path to reach more than $200,000,000 in revenue by fiscal year 2027, which quantifies the clear demand for our platform. This translates into year over year profitable growth of at least 25% for the next 4 years. We will do this while maintaining disciplined headcount growth for the use of AI and process automation.

Speaker 2

In summary, the team at WACC continues to execute against our goals and deliver strong and sustainable growth. Our 4th quarter and full year results demonstrate our ability to scale our platform faster and more profitably than anticipated and show the effectiveness of our strategy and business model to become the number one platform for premium U. S. Households. Our 2024 guidance, which Alec will outline shortly, demonstrates our commitment to durable year over year profitable revenue growth.

Speaker 3

And with that, I will turn the call over to Adam review our strategy for 2024. Thanks, Garrett. I'm excited to share the 3 top level elements of our strategy to drive long term shareholder value and profitable growth in 2024 and beyond. 1, best in class technology. As a technology company, we're excited to continue building proprietary solutions to capture the hearts and minds of our customers.

Speaker 3

We'll leverage our technology and best in class user experience to innovate on comparison tools for wellness products, match making services for the highly fragmented pet services landscape and white label solutions for premium partners such as Tractor Supply, Forbes and Bright Horizons. These proprietary partnerships develop a unique and defensible mode in combination with our offerings that make WAG a leader in the market. 2, platform expansion and M and A. As evidenced by our successful acquisitions and seamless integrations Of Dog Food Advisor, Max Bone and Pharmacy, we will continue to pursue opportunities that expand the scope of our offerings for our customers. Our technology first DNA allows us to move swiftly both on the buy and the integration increasing the return profile of the deal delivering value for the end customer.

Speaker 3

We are excited to announce another incredible opportunity in Woof Woof TV, one of the largest social media platforms for pet lovers, which we closed in Q4 2023. Whoop Whoop TV expands our reach with pet lovers with more than 18,000,000 followers across Facebook, Instagram, TikTok and more. WOOF WOOF TV provides a unique media asset It enables WAG to develop proprietary content for WAG owned brands and partner brands. Don't hesitate to give them a follow on Instagram or a like on Facebook. 3, operational efficiency.

Speaker 3

We believe a hallmark pillar of a successful technology company is the ability to scale revenue without a corresponding increase in headcount. In 2023, we achieved a record $1,000,000 in revenue per employee, which we expect to increase in 2024 and beyond. This was accomplished through intense focus on automation, proprietary marketplace technology that does not require customer service or sales headcount and the inherent scalability of our digital products. As Garrett alluded to, 2023 was our year of efficiency. 2024 will set the foundation for consistent and repeatable growth for this year and beyond.

Speaker 3

This growth will be achieved by doubling down on our best in class technology, broad and accessible platform, seamless M and A and intense focus on operational efficiency. I will now turn the call over to Alec to discuss our Q4 and full year financials and 2024 forecast in more detail.

Speaker 4

Thanks, Adam. We have previously described 2023 as our year of efficiency and optimizing the business for future success, which we continue to define as consistent profitable growth. While executing to this, we have finished 2023 and Q4 strong, which are as follows. For the full year 2023, we generated record revenues of $83,900,000 which represents 53% year over year growth is at the top end of our guidance range. Record adjusted EBITDA of $700,000 representing the midpoint of our guidance range.

Speaker 4

And finally, record platform participants with Q4 totaling 600,000 platform participants representing 38% growth from a year ago. The meaningful growth of these three key metrics as compared to last year demonstrate the strength of our business model, strategy and execution. For Q4, revenue was $21,700,000 a Q4 quarterly record, representing 27% year over year growth. Adjusted EBITDA breakeven. I will note this was slightly lower than our prior guidance, which is a result of post holiday demand In conjunction with the fact we saw significant opportunity to lean into sales and marketing in the back of Q4, primarily in December.

Speaker 4

The opportunity was too great to not deploy capital and take advantage of the surge in consumer demand, which we expect to be recognized in Q1 2024. Delving deeper into the financial results, revenue category results were as follows. Full year services was $24,400,000 growing 12% year over year. Wellness was $52,900,000 growing 60% year over year and pet food and treats was $6,600,000 Services in 2023 include a nominal amount of e commerce revenue the award winning portfolio of products on maxbone.com. Looking at the 4th quarter specifically, services was $6,300,000 growing 7% from a year ago, driven by favorable sitting and boarding mix uptick.

Speaker 4

Wellness was 13,500,000 growing 21% from a year ago, driven by a strong pet insurance and wellness plan demand. And finally, pet food and treats was 1,900,000 As a reminder, pet food and treats is a new revenue category we entered into at the start of 2023, encompassing dog food advisor and cat food advisor, which has grown 40% from Q1 to Q4. Our expenses analyzed as a percentage of revenue illustrate operational excellence and scaling and are as follows. For the full year 2023, cost of revenue excluding depreciation and amortization totaled $5,500,000 representing 7% of revenue consistent with last year. In the 4th quarter, Cost of revenue totaled $1,800,000 representing 8% of revenue, up from 6% a year ago.

Speaker 4

The incremental costs in 2023 were driven by Maxspect product and wireless related costs. Full year 2023 platform operations and support expense totaled $12,500,000 representing 15% of revenue versus 25% last year. In the Q4, platform operations and support expense totaled $2,800,000 representing 13% of revenue, down from 16% a year ago. The 10% absolute percentage points decrease year over year was achieved through the deployment of our highly efficient processes, automation and software tools throughout 2023. For the full year 2023 sales and marketing expense totaled $50,500,000 representing 60% of revenue, down from 64% last year.

Speaker 4

In the 4th quarter, sales and marketing expense totaled $13,700,000 representing 63% of revenue compared to 62% a year ago. As mentioned earlier, We experienced record consumer demand post holidays and deployed capital thoughtfully to take advantage of the opportunity. Full year G and A expense totaled $19,200,000 representing 23% of revenue, down from 59% last year, which did include one time costs of going public. 4th quarter G and A expense totaled 4,700,000 representing 22% of revenue, down from 23% a year ago. This is the outcome of revenue scale, operating leverage hiring discipline.

Speaker 4

From a balance sheet perspective, We ended the year with $28,300,000 in cash, cash equivalents and accounts receivable. This balance also reflects Full cash payment of $1,250,000 for Wolf of TV that closed in December. Becoming adjusted EBITDA positive in the second half of twenty twenty three has significantly reduced cash burn compared to last year. Now looking ahead to our 2024 guidance and longer term outlook, We expect to generate the following: revenues of $105,000,000 to $115,000,000 in 2024, which represents growth of 25% to 37% over 2023. Adjusted EBITDA in the range of $2,000,000 to 6,000,000 representing 177% to 731% over 2023.

Speaker 4

This guide anticipates 2% to 5% adjusted EBITDA margin together with positive free cash flow in the second half of twenty twenty four. Additionally, on the heels of a strong 2023 and expectations for 2024, We are also announcing that our Board of Directors has authorized a debt pay down of up to $10,000,000 of principal in 2024. If the full $10,000,000 pay down is executed, it would result in $1,600,000 of cash interest payment savings on an annual basis, which directly contributes to free cash flow. Looking beyond 2024, We expect an average of 25% compound revenue growth for the time periods of 2024 through 2027, assuming no meaningful change in the macroeconomic environment with the expectation of driving towards over $200,000,000 of revenue in 2027. In summary, our strong 4th quarter and annual results illustrate.

Speaker 4

Firstly, the strong demand and tailwinds within the pack category, which according to Morgan Stanley is set to grow at a CAGR of 8% over 2022 to 2,030 reaching a projected total of $277,000,000,000 Secondly, management's ability to execute and drive disciplined growth, which we have achieved for 7 consecutive quarters And thirdly, confidence in the next stage of WAG's journey as a profitable growth company in 2024 and beyond, which we have outlined here today. And with that, we now welcome Q and A. Operator, can you kindly open it up for Q and A?

Operator

Thank you. And at this time, we will be conducting a question and answer session. Our first question comes from the line of Jeremy Hamblin with Craig Hallum Capital Group. Please proceed with your question.

Speaker 5

Thanks and congratulations on the strong results and guidance. I wanted to start with just Asking a little more detail on your FY 'twenty four revenue guidance. So it implies a 25% to 37 year over year growth. Included within that, what's the organic growth rate that's embedded within there and that's part 1. And then part 2 is on the EBITDA portion of the deals that you've done, whether it's Wolf Wolf or Max Bone, what is the EBITDA contribution from acquiring those platforms that's embedded within that guidance in terms of my assumption would be that they are going to be a drag on EBITDA, But any clarification would be super helpful.

Speaker 6

Hey, Jeremy, it's Garrett. Great to hear from you. Thanks everyone for being here. So I think there are 2 questions. I'm going to make sure I get them right.

Speaker 6

So in terms of our fiscal year 2024 guidance On revenue of $105,000,000 to $115,000,000 that is entirely organic. I did not assume any M and A related growth. The second question related to EBITDA of businesses that we have acquired and integrated into the WACC platform. Just taking a step back, generally we look at businesses that are highly efficient and have the ability to cross sell or up sell into our existing customer base as part of our kind of our M and A thesis. These businesses should not be a drag coefficient on the business.

Speaker 6

They also won't be kind of at scale. That's why we acquire them. So I think about them as kind of a neutral effect on both revenue and EBIT. Hopefully, I answered both your questions, Jeremy.

Speaker 5

Yes. No, great. That's helpful. And then, just in terms of One of the things that has been a bit tricky here as we start 2024, weather has had an impact across the country, particularly in January, whether it was kind of storms, freezing temperatures 1st few weeks of January. We've also had some torrential rains on the West Coast where you guys have some exposure.

Speaker 5

I wanted to just get a sense for how that might be impacting your business as and then kind of related to that platform participation, the number of participants that you're seeing here in Q1 And kind of the typical a reminder just of the typical seasonality that we should expect?

Speaker 6

Yes. Hey, Jerry, Garrett again. I guess two questions. One, how has kind of weather impacted the business? Taking a step back again, we are very fortunate to have an incredibly diverse platform business at this point.

Speaker 6

As a reminder, pet parents and households count on us for anything from pet food advice to pet treat advice to purchasing the right insurance or wellness plan in addition to daytime overnight services. So there's certainly been some impact of weather, nothing outside of normal, and I think it's already kind of baked in. One thing I'd add there, Jeremy, is January, I think, is some of our strongest start to the year in the history of the business. So we are not seeing a slowdown in the consumer that we service, which is generally the premium household. I think your second question was around seasonality.

Speaker 6

Generally, I would expect 2024 to trend similar to 2023 in terms of quarter over quarter growth and kind of mix of revenue contribution by different parts of the business. Q1, Q3 versus Q2, Q4 as a function of adoptions and weather and summer and everything else should stay consistent.

Speaker 5

Got it. And then in terms of the comment particular to the strongest start that you've ever seen, Is that being driven like which segment are you seeing that, is it across all three of your segments, whether it's services, bookings or food and treats? Or is that being driven more by wellness and kind of pet adoption maybe being higher than expected?

Speaker 6

I certainly think that one's right. I think we've seen, just from a macro perspective, more adoptions more premium adoptions. Those premium pet parents need things like premium pet food, early pet insurance, early wellness plans and are starting to think about services. A reminder, kind of 12 to 18 weeks a little bit early to dog walks. They might be meeting a walker for the first time or considering an overnight, but it's not yet a current priority.

Speaker 6

It's probably more of Q2, Q3 thing once you've adopted your pet. But I would generally say the strength mostly in pet food, treats, insurance, wellness and health.

Speaker 5

Got it. Okay. And then last one for me, and I'll hop out of the queue. But In terms of the cost of revenues, right, and that's obviously going to change from what your prior business model look like kind of pre food and treats business. But how do we think about scaling that portion of your financial model, as you guys move forward.

Speaker 5

I mean, I think like your platform operations and Port has been pretty remarkable. And just that was basically flat year over year on revenue growth that was up high 20s on 1%. But you're obviously going to see your COGS move higher as you have that food and treat business. But just a sense for what you're expecting On that and then kind of within the component of your projected growth for this year, what is coming from the food and treats piece of your business?

Speaker 4

I'll take the cost of revenue line. It was 7% in 2023. I'd expect to be consistent in 2024. That's going to be a function the cost are a function of payment processing fees and background checks, which increase with revenue volume. There will be some scaling.

Speaker 4

It could come down to 6 as The business does scale, but it will be in that 6 to 7 region.

Speaker 6

And then Jeremy, on the second question in terms Pet Food and Treat contribution overall. We really like that category, really like the space. I think you'll see us continue to lead in there. What did it grow? What was 2023 growth for that business?

Speaker 4

Yes. From Q1 to Q4, it grew

Speaker 6

So I think we're to continue in there, Jeremy, I think generally the revenue mix in 2024 will look something like the revenue mix in 2023, just broadly.

Speaker 5

Got it. Super helpful and best wishes this year.

Speaker 6

Thanks, Jerry.

Operator

Thank you. Our next question comes from the line of Jason Helfstein with Oppenheimer. Please proceed with your question.

Speaker 6

Hey, this is Steve on for Jason. So we just have two questions. First off, how do you see the revenue mix when reached that $200,000,000 in revenue guidance for $27,000,000 And then secondly, how do you think about pricing or fee increases this year, if any? Thank you. Hey, Steve.

Speaker 6

Great to hear from you. Thanks for being here. 20 27 revenue mix, I think we have a lot of confidence in all parts of the business, Steve. I think I certainly think we'll take advantage of the tailwinds we're seeing in the Premium Pet Parent certainly seems to be leaning into healthy pet food and treats, things like CBD, joint medicine, supplements, etcetera, as well as I think insurance penetration went from 3% to 7%, and expected to grow at 8% to 9% CAGR. So I think those will be the 2 current tailwinds I would call out.

Speaker 6

Not to say services isn't a great business and isn't growing nicely, but I think that is certainly been more impacted by the return to office, which been a little bit slower. So I think we'll see how 2027 plays out as office space resumes, people's kind of mobility resumes and the premium pet parent continues to stay resilient. But we're confident in all three parts of the business for what it's worth. Your second question on pricing, taking 10 steps back, Pet caregivers on the WAG platform set their own rates. So that's pretty nice in terms of how people manage market equilibrium and supply and demand of happens organically frankly.

Speaker 6

We don't think we'll do too much experimenting with pricing within the actual services being delivered that's up related to the pet caregiver. In terms of pricing of things like subscription products, our telehealth product mix or any of our new product launches, I generally think we are Very aware that we have a premium pet parent who's looking for a massive amount of convenience and simplicity in their life and they want

Speaker 4

to pay up for that. So I

Speaker 6

think we'll continue to flex our muscle on benefiting from price resilience as long as we're delivering the right experience. Great. Thank you very much. Thanks, Steve.

Operator

Thank you. Our next comes from the line of Matt Koranda with RothM kilometers. Please proceed with your question.

Speaker 7

Hey, guys. Good afternoon. Just wanted to clarify on the 2024 guide. It sounded like you said sort of ratable compared to 23 in terms of mix Between services, wellness and food and treats, but just want to give you the opportunity to maybe expand upon relative growth rates between those three categories?

Speaker 6

Yes. I mean, I think at 23, Matt, I didn't mean to ignore you. Good to see you. Good to talk to you. I'm not actually seeing, but it's good to hear from you.

Speaker 6

In terms of 23, you saw Our wellness group of businesses, which is purchasing pet insurance, purchasing wellness plans, getting advice from a vet, etcetera, grow pretty tremendously. And I think that's a function of A, we have phenomenal product and phenomenal marketplace and 2, consumer demand, which is kind of Unbound frankly, I think we'll continually and aggressively in that business. It's hyper efficient. It's a great marketplace. It's an amazing product experience if you haven't tried it.

Speaker 6

Not to say pet food and treats and services growth is less important, but I think you will continue to see us lean very aggressively into wellness and services in Pet Food and Treats will follow.

Speaker 7

Okay. All right. That helps. And then just in terms of the, I guess, the pull through to the EBITDA outlook when you guys talk about sort of the margin improvement that's expected year over year. I guess I would have With the level of revenue growth that you're projecting, you may see a little bit more leverage.

Speaker 7

Are we reinvesting Somewhere in the P and L, maybe just talk about sort of where we're leaning in. I would imagine sales and marketing is going to be a bigger line item this year. But maybe just talk about the puts takes a while around where we're reinvesting dollars on the P and L in 2024?

Speaker 6

That's right. Yes, great question. We actually published in our management presentation available on wag.co, Slide 15, which provides kind of a illustrative platform participant growth and P and L reflective of kind of different examples of quarterly platform participants, both at $1,000,000 and $1,500,000 platform participants, along with consistent growth in sales and marketing spend along with operating expenses. And the flow through is pretty, we believe pretty compelling. To answer your question though, we do expect in 2024, just a function of what we're seeing in the marketplace that we'll continue to reinvest profits back into growth.

Speaker 6

I think we've seen it in kind of other comps, dollars 2,000,000 to $250,000,000 revenue got you real EBITDA scale and I expect similar for us, maybe a little bit earlier, dollars 150,000,000 to 200, But we're just seeing a tremendous amount of demand. We have a great product people love and we really want to take advantage of that. So the mandate from us is continue to be really efficient and thoughtful and judicious on managing growth profit and margin, but more growth I think in the foreseeable future.

Speaker 7

Okay, got you. And then just last one, projecting second half free cash flow positive, I guess, and then you mentioned some debt pay down plans for $10,000,000 paid down. Maybe, Alec, if you want to just cover sort of the thought process behind the level of pay down that we're targeting If we're kind of hitting that sustainable projected free cash flow level in the second half, why not pay more down and just save on the higher cost of debt there? We just talk about the rationale there, that would be helpful.

Speaker 4

Yes, that's a great question, Matt. So, we're thinking through paydown across the rest The year, we will most likely stagger it through the year, but it depends on the ultimately the level of performance through the different quarters. So are you quite possibly seeing us paying down a bigger chunk to begin with to your point and then as free cash flow hits later in the year topping up to the remaining amounts.

Speaker 7

Okay, makes sense. I'll jump back

Speaker 3

in queue guys. Thank you.

Operator

Thank you. Our next question comes from the line of Greg Pendy with Chardan. Please proceed with your question.

Speaker 8

Hey guys, thanks for taking my question. Just a quick one, I guess within the guidance and the EBITDA guidance, can you talk about you're thinking about the Bright Horizons deal? Is that something that you're going to be putting some dollars behind? And hopefully, that will gradually roll out? And then also is that where were you thinking in terms of your guidance on that?

Speaker 6

Yes. Hey, Greg, great to talk to you. Thanks for being here. In terms of Bright Horizons, and this is a refresher, Bright Horizons is a public company, trainer B Fam. They offer daycare and childcare for I believe ages 6 months to 7 years across the U.

Speaker 6

S. Business from all everything I can understand. And we've partnered with them to offer pet care via their distributed kind of employer sponsored channels. And it marks our entrance really into the employer sponsored channel. And so we really like this deal because it unlocks A great audience, think about it as major employers across the U.

Speaker 6

S, brands like Salesforce, etcetera, and a great brand in Bright Horizons. And we kind of are able to piggyback and provide a great experience to their customers. These things generally have a ramp time as I think you're alluding to. It takes time to roll out to an employer and then roll out to the employees and then figure out how to actually use it and then figure out how to actually benefit from it and actually put it to work. So It probably is more of a back half twenty twenty four, twenty twenty five thing than it is a first half twenty twenty four thing frankly.

Speaker 6

But it's not to say we aren't already seeing some early signs of promise. We're not really excited about the partnership. It's probably more of a back half twenty twenty five win for us as it's rolled out.

Speaker 8

Got it. And then just one final one, just on the return to office trends, I think you mentioned that it was a little bit sluggish in the Q4 and you called out boarding on top So just kind of wondering, in the Q4, did you see maybe some of the hybrid workers choosing to work remotely more often and given the holidays or just kind of anything notable to kind of call out on that and how do you think about that in light of the revenue guidance for 2024?

Speaker 6

Yes. I think what we saw throughout 2023 frankly was a really trepidatious employer and employee, meaning like no real push or incentive to go back to the office. I think we generally hovered around 48% to 50% throughout the year across the major markets. And that's a few days a week. We're not assuming some massive step change there.

Speaker 6

We certainly think the macro pressure and the layoffs we're seeing especially across larger companies may accelerate the return to office and kind of the dependency then on WAG daytime services. We're not necessarily penning it in. But just in terms of $230,000,000 we really it wasn't any sort of step change that year. I think we saw kind of a slower employer than maybe we had originally thought to push people back to office, but didn't really change the pattern or use case. I think people still depend on us while they're stuck in meetings all day, people still depend on us whether out on the weekends, people still depend on us whether traveling.

Speaker 6

And then in terms of 2024, I think We might see some level of improvement, but I don't expect to be at the 85. It probably gets to 55 or 60 by the end of the year is my guess. Got it. Thanks a lot.

Operator

Thank you. Our next question comes from the line Our next question comes from the line of Arya Cole with Cole Capital. Please proceed with your question.

Speaker 9

Thank you very much. That was fine. I hope that was an excellent pronunciation of my name. Quick question. Can you hear me?

Speaker 6

Yes. Hi, how are you?

Speaker 9

Hi. Good. Thank you for taking my two questions. I'm sure when you do financial analysis, you look at comparisons to other companies. As you well know, Rover had been public.

Speaker 9

When they reached $110,000,000 of sales a number of years ago, they were reporting EBITDA margins of 11%. And if you hit the guidance you're suggesting over 2024, you'll be at $110,000,000 in the middle range as well, reporting about 4% EBITDA margin. So the question really is, what is different about the mix of your business, the 2 businesses that your margins are going to be lower. Is there some structural reason for why your margins are lower versus theirs because of the what you offer or is it a function of you're just investing more money in sales and marketing to drive future growth?

Speaker 6

Hey, Ari, it's Garrett again. And again, thanks for being here. I'm not sure if Rover was a public company when they were doing 100 and I can certainly say that when you are a public company, you are burdened by additional costs, which probably takes EBITDA margins down. As a reminder, it is not cheap being public in terms of both headcounts, compliance regulation and just generally best practices. So I would add that in there.

Speaker 6

It's probably actually a multi percentage point impact to our fully loaded EBIT margin. 2nd part of that is I think we're probably in a different stage as we think about future growth. I think we're really investing in durable long term growth, Maybe a bit differently than maybe they were. The second the third point I would add is there is a management presentation we published. It gets a sense of kind of EBITDA margin scale along with gross sorry, free cash flow scale, which was just published.

Speaker 6

I think that gives everyone a better idea of kind of how we look as we get to higher platform participant numbers.

Speaker 9

Got it. Thank you. And then just a follow-up question. Just looking at the quarterly seasonality of your business, as you look at 2023, the year just finished, The number of platform participants actually did not rise between March 24 December 24. But then in 2022, it had more of a sequential quarterly rise during the year.

Speaker 9

What I'm trying to understand is going forward, how should we think about the seasonality of your business? Is it a business that can grow the number of participants every 3 months versus the prior 3 months? Or is there a real seasonality in the business where the business has the most early in the year and it plateaus there?

Speaker 6

Yes. I certainly think that there is some level of seasonality in the business in Q1 and Q3 primarily. Q1, Q3 are When more sitting and boardings occur in services business, a significant number of pet insurance plans, wellness plans and vet Communications happen as a function of new pet adoptions and a few other unique marketplace dynamics. But I would say 23 is going to look a little bit different than 2024 We're really going to be reinvesting in growth in 2024, whereas we may be a little more prudent in 2023 to reach adjusted EBITDA profitability. So we expect quarterly participants to grow year on year, maybe not always quarter on quarter, but certainly year on year.

Speaker 6

Last thing I had, RIA, is can you please send me an email with your rover numbers? The last numbers I have are $97,000,000 in revenue at at minus 9 of EBIT. So if you have something different, I'd love to see it.

Speaker 9

Okay. No problem. Again, thank you very much and best of luck in the year

Speaker 6

ahead. Thanks, Ariane.

Operator

Thank you. We have reached the end of the question and answer session. I'll now turn the call back over to Garret Smallwood for closing remarks.

Speaker 6

Thank you everyone for being here. We're extremely excited for 2024 and the years to follow. Again, I this for 3 or 4 times now. We have updated our management presentation available at wag.co under Investor. I think it's under Press Releases and presentations.

Speaker 6

Please give it a look. I think it answers the majority of questions you may have as you think about the business, the customers and us as management. And we look forward to keeping in touch for a great year. Thanks everyone.

Operator

And this concludes today's conference and you may disconnect your lines at this time. You for your participation.

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Earnings Conference Call
Wag! Group Q4 2023
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