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spk01: Good day and thank you for standing by. Welcome to the WAG first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dawn Frankfurt from ICR.
spk00: Good afternoon, everyone, and thank you for joining WAG's conference call to discuss our first quarter 2023 financial results. On the call today are Garrett Smallwood, Chief Executive Officer and Chairman, Adam Storm, President and Chief Product Officer, and Alec 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 are included in our SEC filing. Also, during the call, we may present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued today. The earnings release is available on the investor relations page of our website and is included in exhibit in form 8K furnished to the SEC. Lastly, you can find our earnings presentation posted on our IR website and with the SEC. And with that, let me turn the call over to Garrett.
spk09: Thanks, Dawn. Good afternoon, everyone, and thanks for joining us to discuss our first quarter 2023 performance. WAG delivered another quarter of impressive top-line growth ahead of our expectations. We are broadening our reach as a go-to, non-discretionary consumer premium pet care platform, transforming the pet industry by becoming an all-inclusive, trusted partner for the premium pet parent. Our team is capitalizing on the secular growth of pet ownerships and we are just getting started in providing an ever-expanding array of products and services to our pet parents. I will begin today by giving a high-level summary of our first quarter financial results. For Adam, our President and Chief Product Officer, gives an update on our strategy and key initiatives for 2023. Alec, our Chief Financial Officer, will close out with a more detailed overview of our first quarter 2023 results. our capital allocation priorities, and our guidance for 2023 to both revenue and adjusted EBITDA, both of which we are raising today. WAG exists to make pet ownership possible and to be the trusted partner in your pet's journey, from puppy to senior, daily to annually. By growing our footprint in all corners of the pet care market, we are ensuring WAG is there for pet parents every step of the way. We accomplished this by focusing on discipline growth, as seen by our performance in the first quarter of 2023. We are thrilled by our ability to integrate new assets into the WAG platform to not only add value to our business, but also to the pet parents, as demonstrated by the acquisition of dogfoodadvisor.com and our entrance into the $62.7 billion pet food and treat category. This acquisition is just one example of how we are introducing our community to other valuable assets. We are excited about our entry into the dog food category as it is the largest growing pet care category in terms of TAM, demonstrating how we are proactively managing and recycling our capital to maximize shareholder returns. In the first quarter, we saw continued momentum across the business and achieved record revenue of 20.6 million, up 113% year over year, including pet food and treats. Our adjusted EBITDA loss was 0.4 million from a 2.6 million loss in the same period last year. We are proud to say that this quarter marks a milestone revenue run rate for WAG, and we are now projecting EBITDA profitability for fiscal year 2023. Our focus remains on striking a sustainable balance of growth, margin, and profit, especially considering the ever-developing macroeconomic backdrop. During the quarter, platform participants increased to 611,000, an increase of 88% year-over-year, and WAG premium penetration increased to 55% significantly ahead of expectations, even at the fully rolled out 1499 new member price point. Taking a step back, approximately 70% of US households own a pet in 2023. And of those, we specifically target the premium pet parents, or roughly the 15% of pet households in the current market with a proven propensity toward premiumization across pet category. In Q4 2022, we tested WAG premium pricing, resulting in a price increase for new pet parents from $9.99 to $14.99 per month, illustrating the resilience of our premium business in a tough macroeconomic backdrop. Although we saw continued growth in WAG premium in Q1, exceeding expectations, we faced headwinds in our services business due to severe storms and rain across California and the coastline. Despite the headwinds due to inclement weather, we continue to believe that pet parents are planning to utilize WAG services as they return to office and weather returns to normal in some of our largest and most penetrated markets. This belief is rooted in the fact that premium penetration grew in the face of service softness, demonstrating pet parents' intention to use our products when the need arises. Next, we recognize seasonal tailwinds in our wellness business. as a result of pet adoptions in Q4 2022, which pulled forward demand for pet insurance and wellness plans. On that note, we are thrilled to announce the addition of PawProtect.com to our suite of wellness products. WAG is now the exclusive marketing partner of PawProtect, the only pet insurance plan with instant pay. PawProtect is the only brand in America to offer each customer an interest-free, fee-free, and credit-check-free line of credit to cover veterinary bills. We have successfully integrated PawProtect into the petted pet insurance marketplace, which powers brands such as Forbes and U.S. News. In the first quarter, we saw an LTV to CAC ratio of 6 to 1, demonstrating our continued operational excellence and efficiency. Organic user acquisition rate was 70%, which is a result of focus on the pet parent, and pet caregiver experience, thoughtful virality and referral campaigns, and strategic partnerships. We remain excited about our ability to thoughtfully integrate and support pet parents throughout their pet's life through our new partnerships and initiatives. Briefly touching on the supply side, we maintain supply and demand equilibrium through a variable platform fee, which averaged $53.17 in Q1 2023. As we have stated in the past, we believe that WAG is the best gig in America, even in a tough macroeconomic environment. Despite softening macroeconomic conditions, the demand to be a caregiver in our community is as strong as ever, and we believe more and more pet lovers will turn to being a pet caregiver with WAG to relieve a little stress, get some sunshine, and hang out with some cute pups. To summarize, I want to highlight my excitement for all that WAG has accomplished this quarter and since we've been public. Our financial results demonstrate the effectiveness of our strategy and the benefits of continued investment in our current product offering. Our success underscores our capability to scale our business across multiple markets within the pet industry, driven by the inherent cross-sell opportunities generated by our platform, and we're committed to profitable growth for the remainder of 2023. Please refer to our updated management presentation for more color on the success of our business and how far we have come in just four short quarters. With real-time insight into consumer trends, we are leaning into the fastest growing secular categories within the premium pet care market, propelling our growth well ahead of the projections we put forward during our go public process at the end of 2021. As you'll see, we have been able to scale our platform faster and more profitably than anticipated and well ahead of external expectations. And with that, I will turn the call over to Adam Storm to provide additional insights into our strategy.
spk06: Thanks, Garrett. I will now walk through the five top-level elements of our 2023 strategy driving long-term shareholder value and profitable growth. One, accelerate growth in existing markets. Two, expand premium subscription offerings. Three, platform expansion. Four, opportunistic M&A. And five, operating scale. Coming off a strong year in 2022, this quarter showed an acceleration of growth in existing markets, capitalizing on the return-to-office trend and post-pandemic return to normal. The CASEL back-to-work barometer remained steady, hovering just below 50%. We believe the back-to-work trend will continue, slowly but surely, as individuals return to the office due to labor market pressures. We believe the demand for high-quality, personalized pet care far exceeds the existing market given the increased rate of pet adoption and increased spend per pet. As Garrett mentioned, we saw positive seasonality and significant growth in our wellness business in Q1 as a result of outsized pet adoptions in Q4 of 22. As a result, we now have two types of seasonality in the business, travel and pet adoptions. further the trend in the humanization of pets is gaining traction as millennials and gen z increasingly consider the needs of their pets to be just as important as those of the rest of the family moving on to our premium subscription penetration in 2022 we hit our long-term target of 50 penetration due to the success of our second growth driver expanding subscription offerings as a refresher wag premium subscribers receive a 10 discount on all services vip customer support unlimited 24 7 expert pet advice and exclusive partner offers all of which drive customer satisfaction and retention and their willingness to purchase our expanding set of products and services this quarter we've expanded our offerings to include life-saving recall alerts from our partner at dog food advisor and 50 off your first box a farmer's dog premium pet food subscription our premium penetration at 55 came in far ahead of plan even at the increased price of $14.99 per month as a result of the ever-increasing value of the bundle. We will continue to focus on increasing the value of the WAG Premium subscription for every member through additional benefits, partnerships, and offers. We remain focused on platform expansion and diversifying the products and services within the platform, including new features such as the launch of service extensions where pet caregivers who are having a great time on a walk or drop-in service can extend the service real-time for 20 or 30 minutes. This drives increased AOV, LTV, and pup happiness. In the back half of 2023, we're excited to begin testing pet caregiver samples, where pet caregivers working with top brands can provide pet parents and their pups customized treats, foods, and vitamins for purchase through the WAG app. Growing the marketplace through thoughtful product development and expanding the set of services available through our platform is integral to our growth plan in 2023. Fourth, we plan to prioritize growth through opportunistic M&A as we did in 2022. WAG is strategically positioned to capitalize on pet-specific M&A as a function of our deep understanding of the consumer and our technology-first DNA, which allows us to rapidly integrate and expand our platform. In early April, we acquired MaxPwn, a top-tier digital platform for modern pet essentials. The AquaHire expands WAG's reach into the pet supplies market and deepens our commitment to the needs and standards of the premium pet parent. In addition, this improves our ability to thoughtfully curate the WAG brand through pet caregiver apparel and collaborations. The final element of our strategy is operating scale, which I will briefly touch on and Alec will expand on. Our unit economics and fixed cost operating leverage drove operating margin improvements across the board this quarter. Adjusted EBITDA margin improved from minus 22% to minus 2% year over year, a 20 percentage point improvement. As Garrett mentioned, we're now intensely focused on positive adjusted EBITDA margin for the remainder of 2023, which we'll achieve through efficient marketing payback cycles, continued operational excellence, platform integrations and cross-sell, and best-in-class customer experience. I will now turn the call over to Alec to discuss our financials in more detail. Alec?
spk04: Thank you, Adam, and thank you, everyone, for joining our first quarter 23 earning school. It has been an excellent start to the year. with growth outpacing our expectations through our three diversified revenue streams, putting us on a path to achieve profitability this year. I'll begin with our review of the first quarter 23 financial results, followed by our 23 guidance, which we are raising today. Q123 was another new record quarter for us, with revenue of $20.6 million, up 113% from Q122, including pet food and treats revenue that was a new revenue stream for us this quarter. Adjusted EBITDA loss for the quarter improved 0.4 million compared to 2.1 million in Q1 2022 ahead of expectations. We have in effect doubled the business in the space of 12 months while reducing our adjusted EBITDA loss by 85%. Our continued acceleration is the outcome of our commitment to discipline growth, our ability to expand our platform to own the entire pet lifecycle and continued product innovation. As awareness of pet wellness offerings in the US evolves, we see a long way for pet wellness offerings. As a reminder, pet insurance penetration in the United States is less than 4% versus well over 20% in the UK. Our wellness offerings are comprised of wellness plans, a pet insurance comparison marketplace, and pet prescription software growing from 5.2 million in Q1 2022 to 13.9 million this quarter. We continue to add new insurance providers to the pet insurance comparison marketplace, which is available to pet parents through well-known brands such as Forbes, Tractor Supply, US News, and many more. In Q1, we added the PawProtect brand to our insurance comparison marketplace and are the exclusive distributors of this differentiated insurance product. Service revenue grew from 4.4 million during Q1 last year to 5.4 million this quarter. as we have seen a steady increase in workers returning to the office and increased travel versus a year ago. Finally, for Q1, our newly acquired dog food advisor contributed $1.4 million in revenue through our third revenue stream, pet food and treats. Turning to expenses during the first quarter. Cost of revenue, excluding depreciation and amortization, was $1 million in Q1 23. or 5% of revenue compared to 0.8 million or 8% of revenue in Q1 2022. The dollar amount increase was a direct result of increased demand driving incremental payment processing fees and background check costs via increase in pet parent activity and pet caregiver applications. Nevertheless, cost of revenue decreased as a percentage of revenue as our technology costs scale with revenue. We are demonstrating incredible control over our variable and fixed costs and plan to continue our focus on cost control measures for the remainder of 2023. Platform operations and support expenses $3.2 million in Q123, or 15% of revenue, compared to $2.6 million, or 27% of revenue, in Q122. While there has been an increase in expense in dollar terms year over year, this increase has been principally driven by per-sale related compensation costs and stock compensation expense. However, platform operations and support expenses approximately halved as a percentage of revenue as a result of our platform scale and operational excellence. Sales and marketing expense was 13.3 million in Q123, or 64% of revenue, compared to 63% of revenue in Q122. We continue to strategically invest dollars in partnerships, new product initiatives and launches, and general marketing spend in order to capture net new pet parents and cross-sell them complimentary platform offerings within the WAG ecosystem. However, as seen by a flat percentage of revenue year over year, we remain judicious with spend. G and expense was 5 million in Q123 or 24% of revenue compared to 2.4 million or 25% of revenue in Q122. The dollar amount increase in G and expense is driven by personal related compensation costs and stock compensation expense as we hire and retain key talent, M&A-related costs, and public company compliance, including expenses related to the compliance with the SEC and NASDAQ, including legal, audit, and consulting fees. That being said, G&A expense as a percentage of revenue is flat compared to a year ago, even with public company compliance costs illustrated by our ability to scale to date and into the future. Adjusted EBITDA, which is a key profitability measure that we use to manage the business, improved from 1.7 million to an adjusted EBITDA loss of 0.4 million. This compares to an adjusted EBITDA loss of 2.1 million in Q1-22. To put that into perspective, adjusted EBITDA margin improved approximately 20% from minus 21.8% in Q1-22 to minus 1.9% in Q1-23. Our focus for the remainder of 2023 is crossing the line to adjusted EBITDA profitability. Turning to our balance sheet, we ended the first quarter with approximately $33 million in cash, cash equivalents and accounts receivable. Our balance sheet remained strong in the context of our operating cash use and put us in a comfortable position to fund our growth objectives, while also maintaining flexibility to pursue strategic M&A when we believe opportunity aligns with our goals. Moving to our guidance for 23. As Garrett mentioned, we are thrilled with another quarter of impressive growth, and as a result, we are raising the full year 23 guidance previously provided on our fourth quarter 22 call. For the full year 23, we now expect total revenue in the range of 80 to 84 million, an increase of 46% to 53% year over year, and an 8% improvement versus our prior forecast at the midpoint of the range. Adjusted EBITDA in the range of zero million, to $1 million, a 150% improvement versus the prior forecast at the midpoint of the range. The forecast incorporates our internal target of the Rule of 50, meaning revenue growth plus adjusted EBITDA margin north of 50% for the full year. With our updated full year guidance, we're projecting revenue growth of 50 plus percent year-over-year and adjusted EBITDA margins of one plus percent This range will allow us comfortably to meet our projected revenue targets and maintain a profitable growth trajectory.
spk03: Our financial guidance includes the following considerations.
spk04: Severe weather affects service demand and holidays drive incremental overnight versus daytime service demand. Going forward, we expect a skew to overnight and daytime services depending on summer and holidays, most likely in Q2 and Q4. Pet adoption during the holidays also affects pet insurance penetration and demand for wellness plans. Going forward, we expect seasonal strength in Q4 and Q1 for wellness. We anticipate that continued growth in the pet industry, driven by factors such as rising pet ownership, pet insurance penetration, and increasing demand for premium pet products and services, will have a positive impact on our financial performance in 2023, including on our entrance to pet food and treats. general trends related to the state of the economy interest rates and consumer confidence we have factored in potential risks and opportunities related to these macroeconomic factors in order to accurately forecast our financial performance we recognize that there may be potential risks to our financial performance in 23 such as disruptions to global supply chains changes in consumer behavior due to unexpected events such as delayed or lower than expected return to office digital and performance marketing trends, the potential impact of AI, and our ability to expand through partnerships. In summary, our strong Q123 results demonstrate our ability to execute and achieve impressive growth in a tough macroeconomic backdrop as we lean into the fastest growing secular categories within the pet care market that deliver the most value to pet parents and to shareholders. We remain focused on disciplined operational excellence and delivering shareholder value in achieving profitability for the fiscal year 23 while delivering targeted 50% year-over-year growth. And with that, we now welcome Q&A.
spk01: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our first question comes from Matt Corenda with Roth MCAM. You may proceed. Hey, guys. Good afternoon.
spk11: Just wanted to see if you could touch on the pretty large acceleration in platform participants that you saw during the quarter. Do you have any more color on where you're seeing success acquiring participants? Any commentary on sort of the balance between pet parents and caregivers on the platform? It was helpful to hear that demand on the caregiver side is still really strong. but just maybe unpack the large increase for us on a quarter-over-quarter basis.
spk09: Yeah, happy to. Hey, Matt, Garrett, great to hear from you. Taking a step back, we saw 611,000 platform participants in Q1, which is about an 88% year-over-year growth. We saw that kind of across the platform. We saw some services growth. We saw some pet food and treat demand, and then we obviously saw significant wellness demand, kind of, you know, equally spread alongside the revenue beat proportionally. As a reminder, we try to, we really do spend a lot of time managing the supply and demand equilibrium services. We really don't want it to get out of balance, otherwise it becomes, you know, real problems on the demand or the supply side. So really no imbalance or nothing different than prior quarters in terms of caregivers. But I think we called this out in Q4, Q4 was going to be kind of the most seasonal in terms of services and why you saw kind of a deceleration in Q4 and then a re-acceleration in Q1. Hopefully that helps.
spk03: Yeah, great.
spk11: And then on the wellness side, just, I mean, very strong growth. Curious if you have any more commentary on just the key drivers of wellness revenue this quarter. How do you expect that to trend for the rest of the year in the context of the guidance that you provided and just would be helpful to understand kind of the different pockets of wellness revenue that you have. Obviously, you know, the insurance marketplace likely being the largest, but just how's the, if you can touch on sort of how the wellness plan growth is unfolding versus your expectations and some of the other components of revenue there, that'd be great.
spk09: Yeah, a hundred percent. So wellness as a reminder is a few buckets of products. It's things like wellness plans, It's our pet insurance comparison marketplace. It's 24-7 expert pet advice. A lot of that's going to be in terms of Q1 and what you'll see kind of throughout the rest of the year is going to be just a function of seasonality. Q1, you saw a significant amount of new pets adopted as part of the holidays in December. And so we saw that kind of demand spike early in Q1. I think we'll see some kind of taper off of that and some normalization in Q2, Q3, and then probably another kind of reacceleration in Q4, specifically within pet insurance and wellness plans. And again, I think we're really thinking about this year as 50% year-over-year revenue growth for the totality of the year, and then really focused on EBITDA margins this year, so targeting a 1% plus EBITDA margin, which gives us a guidance of 0 to 1. So I think we're going to be really thinking about how we manage the bottom just as much as we manage the top, Hopefully I answered your question. We do expect some seasonality in wellness in Q1 and Q4.
spk03: Okay, fair enough. That makes sense.
spk11: I'll just make one more, and before I jump back into your guest, just on the junk that advisor acquisition, that looks like it's running nicely. I'm curious if you maybe could talk about if you're seeing anything in the way of synergies from that acquisition and putting it onto the white platform. Just any early commentary as to how that's trending.
spk09: Yeah, absolutely. So we're thrilled to be the owners of dogfoodadvisor.com, which we believe is the number one marketplace for pet food and treat advice on the internet. A huge thanks to Dr. Mike Sagum who started that website many, many years ago and has taken care of its community. We're early in our adventure of recognizing synergies, building out the platform, and accelerating the growth in that business. But we're certainly ahead of, I think, our internal expectations if you look at Q1's performance. The really nice thing about Dog Food Advisor, which kind of validates our thesis, is it is a premium pet parent. The most popular products on Dog Food Advisor that people are really seeking out are things like human-grade dog food, which obviously is very complementary to things like WAG services, or they're seeking out advice on best treats. And they're looking at kind of, you know, more expensive treat options than maybe the standard pet parent. So not to say there isn't demand across, but certainly validates our thesis that premium pet parents are doing a lot of research on their pet's food, and they're going to Dog Food Advisor for that research. So obviously a relief for us in terms of expanding via CRM, expanding via referral offers, expanding via bundles. But we're in that journey right now, and I think we're excited to continue to lean in. Okay, super.
spk03: Great job, guys, this quarter. I'll jump back in here.
spk01: Thank you. Our next question comes from Tom White with DA Davidson. You may proceed.
spk07: Hey, this is Wyatt Swanson on for Tom. Thanks for taking our questions. I just want to talk a little bit more about category share trends so far this year. Could you give us a little bit better sense of what you see as the key investments needed to further improve your category position? And how investors should think about the growth output or the yield from those investments looking out over the medium to long term?
spk09: Yeah, so right now, I think, you know, we operate in a couple different interesting sectors of pet spend. Great to hear from you. Thanks for the time. The first being, obviously, services, kind of what we're most famous for. Things like on-demand dog walking, on-demand drop-ins, sitting and boarding, training, etc., Second would be wellness, which we talked about earlier. Things like wellness plans and pet insurance comparison and everything else. And most recently, pet food and treats. And I think what you're going to see from WAG and management specifically is we're going to lean into the fastest growing secular pet trends. So where do we see the most kind of TAM upside? Where are pet parents naturally pulling us forward? And where are we then going to find the best ROAS and the best ROI kind of on time and RD? So, so far, because of kind of this slow back to work and kind of people returning to normal slowly but surely over the last three years, and just generally pet trends. We have found those to be wellness, pet food and treats, and services, probably in some of that order. So we're investing in all thoughtfully, but we're really leaning in at any given time into what we think is the fastest growing category. And hopefully that answers your question. We think the time is kind of dynamic. There's a best time at any given time.
spk07: Got it. Okay, that's very helpful. And then just related to, you know, back to work, we noticed that the barometer is actually starting to kick up again over the past few weeks. Do you maybe talk about whether that's in line with what you've seen in terms of demand so far in the second quarter and, you know, where you foresee that going?
spk09: Yeah, I mean, look, I really have been trepidatious to give my opinion or thoughts on where people will land with back to office. I think It's been three years now almost of us saying we're going to go back to normal and not really going back to normal. So I'd hate to say what I think is going to happen. In general, our expectation is a very slow and steady return to office led by red states, frankly, like more open states. Let's say things like Texas, Florida, et cetera. And probably the lagging states would be things like a place like New York and California. So we're being really conservative about our back-to-work assumptions. And look, if that accelerates, that would be upside. And I think certainly the castle back-to-work barometer is a good indication of where people are and what's happening. But I would not want to say that it's definitely going to get to 80% anytime soon. Hope that's helpful.
spk07: Yep, yep, that's great. Thank you very much.
spk01: Thank you. Our next question comes from Jack Cole, the Craig Hallam Capital Group. You may proceed.
spk08: Thanks, guys. This is Jack on for Jeremy. Congrats on the great quarter, and thanks for taking the questions. My first one would be, so it sounds like demand to be a PCG still remains strong. Could you talk a little bit about the rationale behind the WEG business as an option for PCG, the new $199 option? The way I read it, it looks like only new applicants can currently use this option. Just any color on how popular it's been so far and when you plan on offering it as an upgrade for current PCGs.
spk09: Yeah, and thanks for the time, Jack. So, look, we are really interested in building great tools for caregivers to build their business. That's how I think about it, right? It's really what tooling can we give to caregivers to build incredible businesses on WAG? And so you've seen us over the last year or two roll out extensive new services and options, right? 20, 30, and 60-minute drop-ins, digital and in-person training. We're kind of at the forefront of, we think, services product development. So you want to see what our competitors are going to do next year? Look at what we did last year. So generally, WAG Pro fits into that bucket, right? It fits into kind of our ability to enable caregivers to have great tools to scale the business. And I think we're still early on in that journey. I think we're far from done in terms of empowering caregivers with, you know, things they can do on the platform. In terms of what's next, we're experimenting with it with new caregivers. We'll probably test it with existing caregivers, but it's really just one of our thoughtful kind of rollouts for the community.
spk08: Great. Yeah, that's helpful, Culler. And then kind of following up on the last question, I guess, how do you guys think about just a hybrid work environment overall? I mean, That seems to be where most workplaces and states are trending right now. I mean, does that hurt or benefit your platform overall?
spk09: I mean, frankly, hybrid's great. Like we just use you in the office once or twice a week. That's how often the average pet parent's using WAG, right? So we're not looking for, or we're not expecting, frankly, a four or five day work week in office anytime soon. What we're expecting is a slow and steady Monday, Wednesday, or Tuesday, Thursday return to office. Those are the days you're leaving your pup or furry friend behind for 6, 10, 12 hours a day. And those are the days you end up using a WAG service, doing research on your pet's food, updating your pet insurance plan, et cetera, et cetera. So, again, our assumptions are slow and steady, and we don't need you every day.
spk08: Got it. And then just last one for me. You guys mentioned the headwinds seen from weather in California. I guess more broadly, how is the services segment performing, you know, coastal, more urban areas versus suburban areas, maybe? Is it still highly concentrated in the urban areas or spreading a bit more to the suburbs, just kind of what you're seeing regionally?
spk09: Yeah, Adam, I'll let Adam take that. He spends most time thinking about kind of the geographies. Adam, if you want to take that one.
spk06: Sure, sure. So certainly there was, you know, an effect with all of the California storms in Q1 had an effect on, you know, service volume and basically less people or less people in office, less people traveling equates to less services. In terms of the go forward, I'd really break it down along the lines that Garrett said earlier. The back to work barometer is really going to be the driving force for the dog walking business. In terms of how services are split out between tier one, tier two, tier three markets, It's not to say that the gigantic majority of the business is in New York, LA, San Francisco. There really is a long tail to where these services are being performed. The bigger driver is really what does the return to office trend look like over the next two years? And I think it's fair to say we all thought that that was going to trend, we would be above 50% in terms of Castleback to work by now. So I think our go-forward expectations are that that's just going to, you know, pick up very moderately over the next 24 months. Great.
spk08: That's it for me. Thanks, guys, and congrats again.
spk01: Thank you. And as a reminder, to ask a question, you will need to press star 1-1 on your telephone. Our next question comes from Brian Dobson with Shard End Capital Markets. You may proceed.
spk10: Hi, thanks very much. So the pricing tower in the subscription segment is impressive considering that you saw greater penetration during the quarter. What does that tell you about where pricing could ultimately go there?
spk09: Hey, Brian, I'll take this one, even though Adam's arguably the most passionate about live premium in general. I think if you, so yes, let me take a step back. Great question. Thanks for it. We certainly believe and are surprised, frankly, about the fact that WAG premium penetration actually accelerated in Q1 to 55%. And that's with the $14.99 WAG premium monthly fee rolled out to 100%. So frankly, it took us by surprise. We are kind of sensitive to the fact that the market is kind of very dynamic right now in terms of the macro. And I think generally consumers are feeling significant pricing pressure. So I don't think our really our goal is is maxing out or taking, you know, 100% of our pricing power and putting it to work right now. What we're really focused on is the long term goal of building out this platform. So what other benefits can we give to the WAG premium subscribers? What are the ways can we tie together you know, the way you shop for pet food or the way you buy pet treats or how you buy pet insurance. And how can we make that all part of WAG premium? And I think Adam alluded to it in his marks specifically around, hey, we now enable people to get a discount on their first box of premium pet food or where they get recall alerts and kind of save their pets lives if the food's bad. So I think we're spending most of our time there. But to answer your question, like, yes, it certainly was surprising to us. We did not expect this level of acceleration in the quarter.
spk10: Great, thanks. And can you give us any color on what the contribution might be from your partnership with Paw Protect and kind of how you see that evolving over the next 12 months?
spk09: Yeah, so couldn't be more excited about the partnership with pawprotect.com, which we believe is an industry-first kind of brand and experience for pet parents. Taking a step back, the reason we're so excited about the exclusive partnership is, one, it's a product that's highly differentiated in the market. Two, it's a product that pet parents frankly need and even argue pet caregivers need it. And three, we obviously believe it's a great fit for our audiences. And so still early innings on where we expect that to be, Brian. We certainly think it'll help, you know, continue to power our wellness growth. And, you know, I think there's an upside there. We haven't really kind of split out how we're thinking about that business, but generally very excited about the opportunity to promote it and integrate it.
spk03: Great, thanks, and congratulations on the beaten race. Thank you.
spk01: Our next question comes from Jason Helsing with Oppenheimer. You may proceed.
spk05: Hey, guys, multitasking, so going to do my best. You know, so I just want to make sure I got this. So the increase in platform participants from the 434 to 611. So how much of that was seasonality versus was any of that from dog advisor versus just like organic growth?
spk09: Yeah, the majority of that is going to be from the existing lines of business. Small amount for dogfoodadvisor.com. We didn't separate it out, but it's mostly organic, majority organic. Okay.
spk05: And then when we think about then... Were there any marketplace dynamics around, I think service revenue is kind of flattish, I think like down a little bit sequentially. How do you think about seasonality versus like just other marketplace dynamics going on or whatnot?
spk09: Services specifically we think is a function of weather. Last thing people want, Jason, and you probably feel this pain, is a wet dog, especially when you're not home. especially a wet dog running around and making him or herself comfortable on your couch. So bad weather in Q1 really affects dog walking, which, as you know, is an important product in our services ecosystem. We don't expect that trend to continue. We expect, you know, going forward, some resilience and some acceleration. I would also say that in Q4, you don't see that as much in effect because of the sitting and boarding time period where the dog is with you or the cat's with you 24-7.
spk05: Right, more of a makeshift sitting and boarding time.
spk09: Yeah, people still travel. So Q2 should be better generally. We expect hopefully the income and weather to kind of calm itself, but hopefully you've been following. It's just been brutal on the coasts.
spk05: Yeah. And then when you think about pet insurance, just broadly, what do you think you guys and WAC specifically is trying to do differently than the other solutions that have been in market.
spk09: And what are you referring to, Jason? The marketplace in general?
spk05: What do you believe you're doing differently, right? I mean, Trupanion's been out there for a while. There's been other solutions. Obviously, you're showing pretty good growth in the wellness business. I mean, what do you think you're doing different that consumers are really finding appealing?
spk09: Yeah, there's a lot. So let me... Let me break out what I – kind of the value I've found and our customers certainly share with us. One is we hand down believe we have the best comparison engine for pet insurance products and wellness plans. Like if you're shopping for pet insurance, we believe that we have the best way to shop for that. We have the best matching. We have the best reviews. We have the best content. We get the best UGC. Like we can generally make sure that you're getting the right product for your pet. And hopefully, as you know, Jason, it's actually very difficult to find the right pet insurance product. Two, we can kind of think through what other things your pet's going to need, right? Like once you find pet insurance, we can be really thoughtful about the wellness plan, you know, making sure you're getting the right food and treats, just really taking care of your pets, just your general pet wellness and ability to kind of delight your pet. And then finally, in terms of PawProtect, PawProtect is, is incredible. It's the only, from our understanding, pet insurance product with instant pay. So no interest, no fees, you have a credit, the availability of credit, like you'd use it with, you know, it's just, it's an amazing product. So a strong recommend checking out popprotect.com. But there's a bunch of these factors that combine to make, you know, shopping for pet insurance delightful with WAG, frankly.
spk05: And then just like one last one. I mean, it does seem like against their will you're going to see more west coast people going back to work um you know some point in the second quarter and definitely in the third particularly at large tech companies um you know that should be a tailwind um you just you know from what i heard it sounds like you're not meaningfully baking that into your pull your guidance is that fair that's right we certainly hope so but we're not basing that on the model we're not basing the model on that assumption frankly Got it. Thank you very much.
spk09: Thanks, Jason. Thanks for multitasking.
spk01: Thank you. And this concludes the Q&A session. I'd now like to turn the call back over to Garrett Smallwood for any closing remarks.
spk09: I want to thank everyone for taking the time to attend today. And please check out the updated WAG management presentation on WAG.co and the Investor Relations section. Hope you have a great rest of your day.
spk01: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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