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spk13: Good morning and welcome to the WAG first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'll now introduce your host, Greg Robles, with Investor Relations. Thank you. You may begin.
spk18: Good afternoon, everyone, and thank you for joining WAG's conference call to discuss our first quarter 2024 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 filings within the SEC. 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 of future performance. Also during the call, we present both GAAP and non-GAAP financial measures. Reconciliations to the most direct 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 and Form 8K furnished to the SEC. These non-GAAP measures are not intended to be a substitute for our GAAP results. Lastly, you can find our earnings presentation posted on our IR website and with the SEC. And with that, I'll now turn the call over to Garrett Smallwood.
spk07: Good afternoon, and thank you for joining us today to discuss our financial performance for the first quarter of 2024. First, I will provide a brief overview of our financial results for the first quarter. Following that, Adam, our President and Chief Product Officer, will share updates on our strategic priorities for 2024 and beyond. Then Alec, our Chief Financial Officer, will provide a more detailed analysis of our first quarter results and discuss our capital allocation priorities. We're excited to announce another successful quarter for the WAG team, in line with our expectations for revenue and ahead of our expectations for adjusted EBITDA, in addition to achieving positive cash flows from operating activities. During the quarter, revenue grew 13% year-over-year to $23.2 million, 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, wellness products, and veterinary needs. Following the quarter close and more recently, we announced the launch of Prescription, digital e-prescribing and prescription management SaaS tools for veterinary staff across the U.S., with a robust wait list of veterinary clinics. We also announced We Compare, a new consumer brand that aims to be the easiest way to compare insurance products, starting with auto. Adam will discuss these launches in greater detail. On the operations side, we have found success in AI and automation, ending Q1 24 with 78 employees, down 8% from 84 in Q4 23. This has been achieved within customer success, QA, marketing, and design. We have found that senior employees equipped with AI are an order of magnitude more productive than those without. As a result, we reached nearly $1.2 million in annualized revenue per employee in Q124, up 23% year-over-year. Finally, we are sharing that 78% of revenue in Q124 was B2B revenue, which is defined as revenue generated by business partners such as pet insurance companies, pet food companies, wholesale distribution partners, and pet treat companies, which demonstrates the growing value of our platform and creates predictability for future revenues. Our adjusted EBITDA was $0.2 million, an increase from a loss of $0.4 million in the same period last year. Our priorities continue to center around achieving a sustainable equilibrium between growth, profit, and margin. In the first quarter, platform participants increased to 671,000, an increase of 10% year-over-year, and WAG training penetration continues to hover around our 50% target. In regards to sales and marketing and overall consumer trends, and CPMs continue to be elevated through the end of the year as a result of the election, a competitive consumer environment, and elevated competition in the pet category. We've seen upwards of a 90% change in spend across key marketing partners and platforms. Accordingly, we will continue to invest in proprietary customer acquisition with initiatives such as We Compare and Prescription, which we expect to accelerate in the back half of this year. We remain focused on profitable revenue growth and reaching more U.S. households 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 this year. We believe we're in the early innings of a secular growth trend in the premium wellness, service, and product categories in which we operate. In summary, the team at WAG continues to execute against our goals and deliver strong and sustainable growth. Our first quarter results demonstrate our ability to scale our platform profitably and show the effectiveness of our strategy and business model to become the number one platform for premium U.S. households. And with that, I will turn the call over to Adam to review our strategic priorities for 2024. Thanks, Garrett.
spk04: I'm excited to outline the strategic priorities that will create profitable growth and shareholder value in 2024 and beyond. One, best-in-class technology. As a technology company, we're excited to continue building proprietary solutions that capture the hearts and minds of our customers. As an example, we're thrilled to launch Prescription, which comes after years of real-world experimentation and user research under the pharmacy umbrella. Prescription is a revolutionary SAS tool for veterinary clinics designed to streamline the prescription process, ensuring pet parents can obtain their pet's medication faster and easier than ever before. Veterinarians can electronically prescribe medications directly through the prescription, eliminating both the need for and risk with handwritten prescriptions and manual prescription management channels, such as fax and phone calls. Today, we have an LOI in place with a veterinary software distributor to provide prescription access to thousands of clinics, a significant waitlist of independent clinics who want to join our beta, and pharmacies who are ready to fulfill orders. The beta went live in early May, and we're excited to continue updating you with our progress on the newly launched veterinary channel. Two, platform expansion and M&A. As evidenced by our successful acquisitions and seamless integrations of Dogfood Advisor, Maxphone, and Pharmacy, we'll continue to pursue opportunities that expand the scope of our offerings for our customers. As Garrett mentioned, we recently announced the launch of WeCompare, a new consumer brand that aims to be the easiest way to compare insurance products. WeCompare will start by providing auto insurance comparisons with other verticals on the horizon. We are confident we can replicate our success within the pet insurance category in the broader insurance market. For some context, the auto category is a $360 billion TAM with 215 million policyholders in the U.S., representing a large opportunity to surprise and delight customers with our technology and easy-to-use software. Three, operational efficiency. We believe a hallmark pillar of a successful technology company is the ability to scale revenue without a corresponding increase in headcount. As Garrett mentioned, we ended Q1 with 78 employees, down 8% from 84 in Q4 of 23. Despite the reduction in headcount, annualized revenue per employee hit a record $1.2 million, demonstrating the power of embracing new technology and tools. To wrap up, WAG is firing on all cylinders with significant progress across the three strategic pillars we reviewed. We are extremely excited about the growth potential of these new business lines and will continue to provide updates as they scale. I'll now turn the call over to Alec to discuss our first quarter financials and 2024 forecast in more detail.
spk05: Thanks, Adam. Our strong Q1 results, which include all-time record high platform participants, and record high revenues while achieving positive cash flows from operating activities are a result of our continued execution on our vision of success, which we define as consistent profitable growth and disciplined capital deployment. Specifically, revenue of 23.2 million, a new record represents 13% year-over-year growth. Adjusted EBITDA of 0.2 million represents 142% year-over-year improvement and adjusted EBITDA margin improvement from negative 2% to positive 1%. Platform participants of 671,000, a new record, represent 10% year-over-year growth and positive cash flows from operating activities of 0.2 million. Delving deeper into the financial results, revenue category results were as follows. Wellness, driven by a proprietary comparison engine technology for insurance and wellness plans, was 15.8 million, growing 14% from a year ago. Services was 5.3 million, consistent with a year ago. And finally, pet food and treats was 2.1 million, growing 55% from a year ago. As mentioned on our year-end earnings score, we experienced record demand coming into the start of 2024, and opportunistically deployed capital to take advantage of this demand while not losing sight on profitability. Our expenses, which illustrate operational excellence and scaling when analyzed as a percentage of revenue, were as follows. Cost of revenue, excluding depreciation and amortization, totaled $1.6 million, representing 7% of revenue, up from 5% a year ago, and is in line with 2023 average of 7% in recent trends. The increase compared to Q123 is driven by incremental costs from various new product launches during 2023 as we continue to innovate in building up a robust platform for pets and households. Platform operations and support expense totaled $3 million, representing 13% of revenue versus 15% a year ago. The decrease year-over-year was achieved through the deployment of a highly efficient process automation ai and software tooling that has allowed us to do more with less sales and marketing expense total 15.7 million representing 67 of revenue up from 64 a year ago as mentioned earlier we thoughtfully deployed capital to take advantage of demand while still aiming to be profitable for the quarter G&A expense totaled $4.2 million, representing 18% of revenue, down from 24% a year ago. This is an outcome of the revenue scale, operating leverage, and now as we enter our third fiscal year as a public company, seeing public company costs begin to plateau as we establish efficient processes and muscle memory. Public costs are a significant part of G&A at approximately $1.3 million in Q1, which equates to a 6% drag on our adjusted EBITDA margin. Additionally, this quarter, the P&L includes a $0.7 million charge related to the $5 million debt paydown that we executed in March 24. The charge relates to the accounting acceleration of debt discount related to the prepayment and fees for the early principal payment. The $0.7 million charge had a $0.02 impact on EPS, moving EPS from minus $0.09 to minus $0.11. From a balance sheet perspective, we ended the quarter with $24 million in cash, cash equivalents, and accounts receivable. This balance also reflects the completion of an initial $5 million debt paydown. The $5 million debt paydown has the immediate impact of saving approximately $800,000 of interest expense over an annual period and contributing to our path to achieving free cash flow. Moving to our guidance for 2024, taking into consideration our results year-to-date, we reiterate our 2024 full-year forecast of revenues of $105 to $115 million in 2024, which represents growth of 25% to 37% over 2023. Adjusted EBITDA in the range of 2 to 6 million, representing growth of 177 to 731% over 2023. This guide anticipates a 2 to 5% adjusted EBITDA margin, together with positive free cash flows in the second half of 2024. We are approaching Q2 cautiously as we are seeing increased competition in the pet category alongside a competitive consumer environment for the premium household we serve. Accordingly, we anticipate revenues to be weighted to the back half of 2024 alongside the growth of weakened pair, prescription, and easing CPCs and CPMs post-election. In summary, our strong first quarter illustrates, first, the strong demand and tailwinds within the pet category as reflected in our Q1 results. We are tracking ahead of Morgan Stanley's estimated CAGR growth of 8%. Second, management's ability to execute and drive consistent discipline growth, which we have now executed for eight consecutive quarters. As we progress into the back half of 2024, we are focused on generating free cash flow while maintaining our growth trajectory. And third, confidence in the next stage of WAG's journey as a profitable growth company beyond 2024. We've shared our plans to simplify e-prescribing with prescription, expand our proprietary comparison technology, WeCompare, and integrate leading technologies like AR into our workflows. Across our platform, we continue to believe we're just getting started at WAG and wake up every day excited to delight customers and create shareholder value. And with that, we now welcome Q&A. Operator, can you kindly open up for Q&A?
spk13: If you would like to ask a question, please press star 1 on your telephone computer now. You will be placed into the queue when the order is received. please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press star one on your phone now. And our first question comes from Matt Granda from Roth. Please go ahead, Matt.
spk02: Hey, guys. Good morning. Thanks for taking the question. I just wanted to start off with We Compare. I guess, how is that built into the guidance for the full year? And does this sort of change the pet platform approach that you guys have historically stated as your strategy? I guess, are there other comparison verticals that may now be in play beyond auto?
spk07: Hey, Matt. Happy Thursday. Thanks for being here. You said two good questions. One, the first is how does we compare fit into guidance? I think it's too early to, you know, update kind of how we're thinking about 2024. I think it's certainly more important probably for 2025. But we think it's a big opportunity. Second question is how does it change the pet proper approach? I don't think it does. I think, you know, we made it pretty clear since the beginning that we want to serve the premium household needs. And we certainly started with pet. But broadly speaking, the premium household is kind of the target audience for us. We call them a chief household officer. They're 27 to 44. Usually have two kids and one or two dogs, like 1.25 dogs on average for what it's worth.
spk02: and i certainly think there's a ton of opportunity as we think about we compare broadly but we're going to start with otto and see how it goes okay gotcha um and then just more specifically on the 24 outlook i guess the what you guys have alluded to in the prepared remarks is that there's an acceleration in growth in the back half of the year just curious what gives you the confidence there that we're going to see a re-acceleration in the back half and then maybe just any update on sort of how we're growing quarter to date in the second quarter so we can kind of level set expectations around the front quarter here?
spk07: Yeah, absolutely. This really comes down to we have a debt that's, we think, kind of holding us back, frankly. And there's a big question we get pretty frequently from investors and shareholders as to when we'll achieve free cash flow and kind of free ourselves from the debt. And that debt, the prepayment penalty expires in August of this year. And so I think we're putting more emphasis, frankly, on EBITDA generation this quarter than maybe we would otherwise. So just to put it into context or frame it in terms of April, preliminary April numbers show us having kind of highest monthly adjusted EBITDA company history. So I think we're going to be really focused this quarter on profitability, on adjusted EBITDA, and then seeing how that enables us to refinance or consider other options for our debt. which in the long term enables a quicker path to free cash flow generation, and frankly just frees us up to make more bets. That's the reason generally for why we think it's more of a second half thing than a right now thing. We know if we wanted to, we could kind of deploy dollars to grow.
spk03: Okay, super helpful. I'll leave it there. Thanks.
spk13: And our next question comes from Jason Helstein from Oppenheimer. Please go ahead, Jason.
spk23: Hey, thanks, everybody. So just to keep going with that, so while you did highlight CPCs being kind of high in the pet category and those other factors that some of your competitors may be doing to kind of bail themselves out of decisions, et cetera, your point is that you could lean into growth if you wanted to, but the point is, again, you're kind of focused on EBITDA in the short term so that you have maximum balance and flexibility. And then once you start to see how some of these newer products resonate with customers, then you can kind of prioritize where you want to lean in because there may be certain areas that will be more efficient to lean into than others. Is that the right way to think about the outlook right now?
spk07: I couldn't have said it any better myself. That was a great summary. The only other thing I'd add in terms of the pet category generally is we certainly think there is a trend of a year-over-year decline maybe in pet adoptions. and more people are leaning in to spend to manage, you know, their business. And so you're just seeing a little bit more competition, and generally not in categories that we're super dependent on, but I generally think you're seeing that in Petland. So it's a great summary.
spk23: And then just to follow up, I mean, you know, you guys originally got started with the, you know, sitting and boarding and walking, whatever, walking, sitting, boarding. and then you've kind of more expanded on using that as a top of funnel to kind of sell a whole lot of other things. Are you thinking, has the strategy shifted as we think about what the business is going to look like, I don't know, 12 to 24 months from now? In the mix, obviously, it's going to be a higher mix of wellness, but just broadly, how that strategy has evolved since you guys came public?
spk07: Yeah, I mean, look, if you think about when we took over this business in 2019, It was primarily, almost exclusively, an on-demand dog walking business. And every year, we've kind of jumped into the fast-moving water of where we think consumer demand is, frankly, and what matters to the audience that we're serving, which is a premium household. And every year, we make a couple new vets, which we've been working on, frankly, for the year before. And so, really, it's about expanding the set of problems we're tackling. And right now, that's e-prescribing for vets. That's We Compare, which is comparing other products for insurance. I think we'll continue to do that. Our plan is really just to address the chief household officer's needs and do that in a way which we think we have a proprietary advantage, or that's distribution or technology.
spk11: Got it. Appreciate the call tonight.
spk13: And our next question comes from Tom White from DA Davidson. Please go ahead, Tom.
spk08: This is Wyatt on for Tom. Thanks for taking the question. I have one on platform participants. You know, you achieved record participants this quarter. Could you talk a little bit about what drove that and then maybe some of your expectations for the balance of the year?
spk07: Yeah, I mean, 671,000 is a good number, we think. I mean, certainly every quarter we're looking for it to grow. There's two things that are working particularly well in terms of platform participant growth. One is the breadth of products and services that we offer. It allows us to be very nimble in how we think about acquiring the customers efficiently. Two is we have a really unique, we call it a spider web of products and services at this point, right? Between Woof Woof TV and Headed and Dog Food Advisor. And they kind of cross-sell and up-sell really well to each other. And we're getting better and better, I think, at the cross-sell and up-sell. And so, you know, I think A is our ability to kind of lean into any given product or category, depending on what the tailwinds are. And the second is our ability to kind of cross on up. So we'll continue to do both those things.
spk08: Got it. Okay. That's helpful. And then just to follow up on prescription, could you just kind of give some color on like why you decided to launch it now and how you expect it to contribute over the next year, 18 months?
spk07: Yeah. Well, let me first, let me just take a step back. We have been talking about the veterinary clinic as like the Holy grail for pet parents, for what it's worth in our research and everything we understand pet parents trust the vet office and specifically their individual veterinarian above anybody else. Like if you, if you think about the advice they get from the vet, that is the advice they will take 78 plus percent of the time. And so for us, this is not like a new thing. We've been thinking about the vet office for years, frankly, We bought a really small business called Pharmacy, I think. I mean, Al can correct me. I think it's something like 18 months ago. And our whole plan with that business was to figure out the vet office with really sticky and beautiful software that simplified the pet parent's life. And so as you all know, SaaS revenue is the best. It's sticky. It's recurring. That's going to be the structure of that product. And if we can figure out how to acquire these customers through the vet office, the cross-sell should be pretty incredible. And so the reason we launched it, to answer your question, is it's ready. If you go to a pharmacy, our prescription software is ready to rock. It's going to be in the hands of vet clinics, you know, pretty quickly, as Adam mentioned. And it's, like, actually a really awesome product. We believe it's the first of its kind kind of e-prescribing software for the vet clinic. Thinking about, like, SureScripts almost. And... yeah, we couldn't be more excited to kind of enter this channel. So just another fast-moving water with a really sticky, durable revenue that we're excited to kind of surprise and delight.
spk03: Got it. Okay, that's really helpful. Thank you.
spk13: And our next question comes from Greg Pendy from Chardin. Please go ahead, Greg.
spk15: Hi, thanks for taking my question.
spk16: Can you share any metrics that you might be seeing in terms of monthly engagement as you're adding more services to the platform? Has that been – changing at all? I think people are engaging maybe seven times per month on average with the app.
spk01: Yeah.
spk16: I mean, look. Okay, I can take this one.
spk04: Broadly speaking, yes. The cross-sell tends to get better as we add more products to our product suite. I think that's what's kind of... How does do these incremental, you know, the incremental deal is seeing how, you know, premium membership has driven additional usage of our wellness products or additional usage of our pet food and treat products. And I think that, you know, with the announcement of We Compare and the announcement of Prescription, this spider web of products where you might not need any given product at any given time, but you need something we offer that has all the internal metrics we look at. It's like the more we offer, the stickier the entire platform becomes.
spk14: So yes, I think that the platform approach is working. Great.
spk16: And then just one more follow-up Have you seen any changes? It seems like, you know, things have stalled macro-wise on return to office just for the services side. Has that impacted your view or has it stayed the same from when we last heard in the fourth quarter? Yeah, Matt, let me take this one.
spk07: Okay. I'm sorry, I'm jumping first. I have such strong opinions here. I think Dara Mover even said he'd love for more people to go back to the office. He'd love for people to be taking Ubers, you know, to and from. We said, I think at the beginning of this year, even early last year, we don't really expect much change. If there's change, that's all upside. And so certainly we think kind of Castleback to work with the Castleback to work model is kind of stalled out, frankly.
spk12: That's OK.
spk07: Like, you know, we have other fast moving water we're in and out of. But if it does accelerate, that would certainly be a great tailwind for the services business. Otherwise, like services is great. We like that business. We're going to wait for the time and place to lean back into it. It just won't be until kind of more people are mobile and, frankly, more people are in the office. Adam, you can add anything you want.
spk03: No, I think that's a good summary. Thanks a lot.
spk13: As a reminder, if you would like to ask a question, please press star 1 on your phone now. And our next question comes from CJ DiPolito from Craig Hallam. Please go ahead, CJ.
spk10: Good morning, everyone. I'm on for Jeremy Hamblin this morning. Thanks for taking the question. Wanted to call out the severe weather that you highlighted in your guidance. We know severe weather kind of lingered in Q1. Curious what you're kind of calling out moving forward. Maybe it's the tornadoes in the Midwest or sort of what you're seeing there.
spk03: Yeah, I mean...
spk04: The nice thing about having significant geo-diversification is that any given weather event does not materially move the whole business. That said, the West Coast got Miami weather in Q1, and there's a number of important cities on the West Coast. It can affect the overall numbers, but, you know, I wouldn't, you know, read too much into kind of just like normal seasonal weather patterns. They're going to affect the cities that they hit, like you might expect, but it's not, you know, something that we're overly concerned about. I think about it more as like a risk factor than, you know, something that needs to be baked into guidance.
spk07: Okay, got it. The only thing I'd add there is One of the other is like if, you know, I'll make an example, but like in Q3, if a bunch of important cities are seeing, or even Q2, you know, really awkward or incremental weather, you might see a little bit of a difference in services. But to Adam's point, you're talking, you know, a few percentage points, not 20 percentage points.
spk10: Right. And so it sounds like you're not really seeing any lingering effects in Q2. No.
spk07: I mean, start of the quarter, you know, it's a small part overall. Nothing crazy yet. But, look, I don't want to jinx weather. I seem to have bad luck there. I've been in California. It's been raining a ton. So, yeah, but nothing so far. Okay, cool.
spk10: Understood. And then one more, if you don't mind. I know you said weekend pay is not really baked into 2024 guidance. Just kind of curious when that's going to start showing up on the P&L.
spk07: Yeah, it really depends on how quickly we want to, frankly, put dollars to work in terms of growing that business. There's a bunch of ways we plan on growing it, whether it's through partnerships, whether it's our own demand channels, whether it's cross-sell and up-sell. I made a comment earlier. This quarter is really going to be all about profitability, just a function of August being our – Our prepayment penalty expires for our debt repayment. And I think just getting out from the debt can be a really big enabler for the company and accelerate our path to free cash flow. So we're experimenting with it. It's important. We like it. We're having fun learning. But I think we really want to put our pedal to the metal in that business as soon as we feel really good about profitability.
spk03: So more to come, I think, in the next quarter.
spk09: Okay. All right. Thanks, guys. That's all from me. Good luck.
spk13: At this time, this concludes our question and answer session. I'll now turn it back over to Garrett Smallwood for closing remarks.
spk07: Thanks, everyone, for the time today. I know you all have very busy schedules. You'll find the most recent management presentation, which we updated to reflect the new service and products we've launched, as well as our additional portfolio products on wag.co on the management presentation. Thanks so much.
spk13: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you. Thank you. Thank you. Thank you. Thank you. Good morning and welcome to the WAG first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'll now introduce your host, Greg Robles, with Investor Relations. Thank you. You may begin.
spk18: Good afternoon, everyone, and thank you for joining WAG's conference call to discuss our first quarter 2024 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 filings within the SEC. 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 of future performance. Also during the call, we present both GAAP and non-GAAP financial measures. Reconciliations to the most direct 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 and Form 8K furnished to the SEC. These non-GAAP measures are not intended to be a substitute for our GAAP results. Lastly, you can find our earnings presentation posted on our IR website and with the SEC. And with that, I'll now turn the call over to Garrett Smallwood.
spk07: Good afternoon, and thank you for joining us today to discuss our financial performance for the first quarter of 2024. First, I will provide a brief overview of our financial results for the first quarter. Following that, Adam, our President and Chief Product Officer, will share updates on our strategic priorities for 2024 and beyond. Then Alec, our Chief Financial Officer, will provide a more detailed analysis of our first quarter results and discuss our capital allocation priorities. We're excited to announce another successful quarter for the WAG team, in line with our expectations for revenue and ahead of our expectations for adjusted EBITDA, in addition to achieving positive cash flows from operating activities. During the quarter, revenue grew 13% year-over-year to $23.2 million, 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, wellness products, and veterinary needs. Following the quarter close and more recently, we announced the launch of Prescription, digital e-prescribing and prescription management SaaS tools for veterinary staff across the U.S., with a robust wait list of veterinary clinics. We also announced We Compare, a new consumer brand that aims to be the easiest way to compare insurance products, starting with auto. Adam will discuss these launches in greater detail. On the operations side, we have found success in AI and automation, ending Q1 24 with 78 employees, down 8% from 84 in Q4 23. This has been achieved within customer success, QA, marketing, and design. We have found that senior employees equipped with AI are an order of magnitude more productive than those without. As a result, we reached nearly $1.2 million in annualized revenue per employee in Q124, up 23% year-over-year. Finally, we are sharing that 78% of revenue in Q124 was B2B revenue, which is defined as revenue generated by business partners such as pet insurance companies, pet food companies, wholesale distribution partners, and pet treat companies, which demonstrates the growing value of our platform and creates predictability for future revenues. Our adjusted EBITDA was $0.2 million, an increase from a loss of $0.4 million in the same period last year. Our priorities continue to center around achieving a sustainable equilibrium between growth, profit, and margin. In the first quarter, platform participants increased to 671,000, an increase of 10% year-over-year, and WAG training and penetration continues to hover around our 50% target. In regards to sales and marketing and overall consumer trends, we see CPCs and CPMs continue to be elevated through the end of the year as a result of the election, a competitive consumer environment, and elevated competition in the pet category. We've seen upwards of a 90% change in spend across key marketing partners and platforms. Accordingly, we will continue to invest in proprietary customer acquisition with initiatives such as We Compare and Prescription, which we expect to accelerate in the back half of this year. We remain focused on profitable revenue growth and reaching more U.S. households 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 this year. We believe we're in the early innings of a secular growth trend in the premium wellness, service, and product categories in which we operate. In summary, the team at WAG continues to execute against our goals and deliver strong and sustainable growth. Our first quarter results demonstrate our ability to scale our platform profitably and show the effectiveness of our strategy and business model to become the number one platform for premium U.S. households. And with that, I will turn the call over to Adam to review our strategic priorities for 2024.
spk04: Thanks, Garrett. I'm excited to outline the strategic priorities that will create profitable growth and shareholder value in 2024 and beyond. One, best-in-class technology. As a technology company, we're excited to continue building proprietary solutions that capture the hearts and minds of our customers. As an example, we're thrilled to launch Prescription, which comes after years of real-world experimentation and user research under the pharmacy umbrella. Prescription is a revolutionary SAS tool for veterinary clinics designed to streamline the prescription process, ensuring pet parents can obtain their pet's medication faster and easier than ever before. Veterinarians can electronically prescribe medications directly through the prescription, eliminating both the need for and risk with handwritten prescriptions and manual prescription management channels, such as fax and phone calls. Today, we have an LOI in place with a veterinary software distributor to provide prescription access to thousands of clinics, a significant waitlist of independent clinics who want to join our beta, and pharmacies who are ready to fulfill orders. The beta went live in early May, and we're excited to continue updating you with our progress on the newly launched veterinary channel. Two, platform expansion and M&A. As evidenced by our successful acquisitions and seamless integrations of Dogfood Advisor, MaxBone, and Pharmacy, we'll continue to pursue opportunities that expand the scope of our offerings for our customers. As Garrett mentioned, we recently announced the launch of WeCompare, a new consumer brand that aims to be the easiest way to compare insurance products. WeCompare will start by providing auto insurance comparisons with other verticals on the horizon. We are confident we can replicate our success within the pet insurance category in the broader insurance market. For some context, the auto category is a $360 billion TAM with 215 million policyholders in the U.S., representing a large opportunity to surprise and delight customers with our technology and easy-to-use software. Three, operational efficiency. We believe a hallmark pillar of a successful technology company is the ability to scale revenue without a corresponding increase in headcount. As Garrett mentioned, we ended Q1 with 78 employees, down 8% from 84 in Q4 of 23. Despite the reduction in headcount, annualized revenue per employee hit a record $1.2 million, demonstrating the power of embracing new technology and tools. To wrap up, WAG is firing on all cylinders with significant progress across the three strategic pillars we reviewed. We are extremely excited about the growth potential of these new business lines and will continue to provide updates as they scale. I'll now turn the call over to Alec to discuss our first quarter financials and 2024 forecast in more detail.
spk05: Thanks, Adam. Our strong Q1 results, which include all-time record high platform participants, and record high revenues while achieving positive cash flows from operating activities are a result of our continued execution on our vision of success, which we define as consistent profitable growth and disciplined capital deployment. Specifically, revenue of 23.2 million, a new record represents 13% year-over-year growth. Adjusted EBITDA of 0.2 million represents 142% year-over-year improvement and adjusted EBITDA margin improvement from negative 2% to positive 1%. Platform participants of 671,000, a new record, represent 10% year-over-year growth and positive cash flows from operating activities of 0.2 million. Delving deeper into the financial results, revenue category results were as follows. Wellness, driven by a proprietary comparison engine technology for insurance and wellness plans, was $15.8 million, growing 14% from a year ago. Services was $5.3 million, consistent with a year ago. And finally, pet food and treats was $2.1 million, growing 55% from a year ago. As mentioned on our year-end adding score, we experienced record demand coming into the start of 2024, and opportunistically deployed capital to take advantage of this demand while not losing sight on profitability. Our expenses, which illustrate operational excellence and scaling when analyzed as a percentage of revenue, were as follows. Cost of revenue, excluding depreciation and amortization, totaled $1.6 million, representing 7% of revenue up from 5% a year ago and is in line with 2023 average of 7% in recent trends. The increase compared to Q1-23 is driven by incremental costs from various new product launches during 2023 as we continue to innovate in building up a robust platform for pets and households. Platform operations and support expense totaled $3 million, representing 13% of revenue versus 15% a year ago. The decrease year-over-year was achieved through the deployment of a highly efficient process automation ai and software tooling that has allowed us to do more with less sales and marketing expense total 15.7 million representing 67 of revenue up from 64 a year ago as mentioned earlier we thoughtfully deployed capital to take advantage of demand while still aiming to be profitable for the quarter G&A expense totaled $4.2 million, representing 18% of revenue, down from 24% a year ago. This is an outcome of the revenue scale, operating leverage, and now as we enter our third fiscal year as a public company, seeing public company costs begin to plateau as we establish efficient processes and muscle memory. Public costs are a significant part of G&A at approximately $1.3 million in Q1, which equates to a 6% drag on our adjusted EBITDA margin. Additionally, this quarter, the P&L includes a $0.7 million charge related to the $5 million debt paydown that we executed in March 24. The charge relates to the accounting acceleration of debt discount related to the prepayment and fees for the early principal payment. The $0.7 million charge had a $0.02 impact on EPS, moving EPS from minus $0.09 to minus $0.11. From a balance sheet perspective, we ended the quarter with $24 million in cash, cash equivalents, and accounts receivable. This balance also reflects the completion of an initial $5 million debt paydown. The $5 million debt paydown has the immediate impact of saving approximately $800,000 of interest expense over an annual period and contributing to our path to achieving free cash flow. Moving to our guidance for 2024, taking into consideration our results year-to-date, we reiterate our 2024 full-year forecast of revenues of $105 to $115 million in 2024, which represents growth of 25% to 37% over 2023. Adjusted EBITDA in the range of 2 to 6 million, representing growth of 177 to 731% over 2023. This guide anticipates a 2 to 5% adjusted EBITDA margin, together with positive free cash flows in the second half of 2024. We are approaching Q2 cautiously as we are seeing increased competition in the pet category alongside a competitive consumer environment for the premium household we serve. Accordingly, we anticipate revenues to be weighted to the back half of 2024 alongside the growth of weakened pair, prescription, and easing CPCs and CPMs post-election. In summary, our strong first quarter illustrates, first, the strong demand and tailwinds within the pet category as reflected in our Q1 results. We are tracking ahead of Morgan Stanley's estimated CAGR growth of 8%. Second, management's ability to execute and drive consistent discipline growth, which we have now executed for eight consecutive quarters. As we progress into the back half of 2024, we are focused on generating free cash flow while maintaining our growth trajectory. And third, confidence in the next stage of WAG's journey as a profitable growth company beyond 2024. We've shared our plans to simplify e-prescribing with prescription, expand our proprietary comparison technology, WeCompare, and integrate leading technologies like AR into our workflows. Across our platform, we continue to believe we're just getting started at WAG and wake up every day excited to delight customers and create shareholder value. And with that, we now welcome Q&A. Operator, can you kindly open up for Q&A?
spk13: If you would like to ask a question, please press star 1 on your telephone computer now. You will be placed into the queue when the order is received. please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press star 1 on your phone now. And our first question comes from Matt Granda from Roth. Please go ahead, Matt.
spk02: Hey, guys. Good morning. Thanks for taking the question. I just wanted to start off with We Compare. I guess, how is that built into the guidance for the full year? And does this sort of change the pet platform approach that you guys have historically stated as your strategy? I guess, are there other comparison verticals that may now be in play beyond auto?
spk07: Hey, Matt. Happy Thursday. Thanks for being here. Yes. Two good questions. One, the first is how does we compare fit into guidance? I think it's too early to, you know, update kind of how we're thinking about 2024. I think it's certainly more important probably for 2025 and, But we think it's a big opportunity. Second question is how does it change the pet proper approach? I don't think it does. I think, you know, we made it pretty clear since the beginning that we want to serve the premium household needs. And we certainly started with pet. But broadly speaking, the premium household is kind of the target audience for us. We call them a chief household officer. They're 27 to 44. Usually have two kids and one or two dogs, like 1.25 dogs on average for what it's worth. And I certainly think there's a ton of opportunity as we think about We Compare broadly. But we're going to start with Otto and see how it goes.
spk02: Okay, gotcha. And then just more specifically on the 24 outlook, I guess what you guys have alluded to in the prepared remarks is that there's an acceleration in growth in the back half of the year. Just curious what gives you the confidence there that we're going to see a reacceleration in the back half and then maybe just any update on sort of how we're growing quarter to date in the second quarter so we can kind of level set expectations around the current quarter here?
spk07: Yeah, absolutely. This really comes down to we have a debt that's, we think, kind of holding us back, frankly. And there's a big question we get pretty frequently from investors and shareholders as to when we'll achieve free cash flow and kind of free ourselves from the debt. And that debt, the prepayment penalty expires in August of this year. And so I think we're putting more emphasis, frankly, on EBITDA generation this quarter than maybe we would otherwise. So just to put it into context or frame it in terms of April, preliminary April numbers show us having kind of highest monthly adjusted EBITDA company history. So I think we're going to be really focused this quarter on profitability, on adjusted EBITDA, and then seeing how that enables us to refinance or consider other options for our debt, which in the long term enables a quicker path to free cash flow generation and frankly just frees us up to make more bets. That's the reason generally for why we think it's more of a second half thing than a right now thing. We know if we wanted to, we could kind of deploy dollars to grow.
spk03: Okay, super helpful. I'll leave it there. Thanks.
spk13: And our next question comes from Jason Helstein from Oppenheimer. Please go ahead, Jason.
spk23: Hey, thanks, everybody. So just to keep going with that, so while you did highlight CPCs being kind of high in the pet category and those other factors that some of your competitors may be doing to kind of bail themselves out of decisions, et cetera, your point is that you could lean into growth if you wanted to, but the point is, again, you're kind of focused on EBITDA in the short term so that you have maximum balance and flexibility. And then once you start to see how some of these newer products resonate with customers, then you can kind of prioritize where you want to lean in because there may be certain areas that will be more efficient to lean into than others. Is that the right way to think about the outlook right now?
spk07: I couldn't have said any better myself. That was a great summary. The only other thing I'd add in terms of the pet category generally is we certainly think there is a trend of a year-over-year decline maybe in pet adoptions. and more people are leaning in to spend to manage, you know, their business. And so you're just seeing a little bit more competition, and generally not in categories that we're super dependent on, but I generally think you're seeing that in Petland. So it's a great summary.
spk23: And then just to follow up, I mean, you know, you guys originally got started with the, you know, sitting and boarding and walking, whatever, walking, sitting, boarding. and then you've kind of more expanded on, you know, like, using that as, like, a top of funnel to kind of sell a whole lot of other things. Like, are you thinking, has the strategy shifted as we think about, like, what the business is going to look like, you know, I don't know, 12 to 24 months from now in the mix? Obviously, you know, it's going to be a higher mix of wellness, but just broadly, like, how that strategy has evolved since you guys came public?
spk07: Yeah, I mean, look, if you think about when we took over this business in 2019, It was primarily almost exclusively an on-demand dog walking business. And every year we've kind of jumped into the fast-moving water of where we think consumer demand is, frankly, and what matters to the audience that we're serving, which is a premium household. And every year we make a couple new vets, which we've been working on, frankly, for the year before. And so really it's about expanding the set of problems we're tackling. And right now that's e-prescribing for vets. That's We Compare, which is comparing other products for insurance. I think we'll continue to do that. Our plan is really just to address the chief household officer's needs and do that in a way which we think we have a proprietary advantage or that's distribution or technology.
spk11: Got it. Appreciate the call.
spk13: And our next question comes from Tom White from DA Davidson. Please go ahead, Tom.
spk08: This is Wyatt on for Tom. Thanks for taking the question. I have one on platform participants. You know, you achieved record participants this quarter. Could you talk a little bit about what drove that and then maybe some of your expectations for the balance of the year?
spk07: Yeah, I mean, 671,000 is a good number, we think. I mean, certainly every quarter we're looking for it to grow. There's two things that are working particularly well in terms of platform participant growth. One is the breadth of products and services that we offer. It allows us to be very nimble in how we think about acquiring the customers efficiently. Two is we have a really unique, we call it a spider web of products and services at this point, right? Between Woof Woof TV and Petted and Dog Food Advisor. And they kind of cross-sell and up-sell really well to each other. And we're getting better and better, I think, at the cross-sell and up-sell. And so, you know, I think A is our ability to kind of lean into any given product or category, depending on what the tailwinds are. And the second is our ability to kind of cross on up. So we'll continue to do both those things.
spk08: Got it. Okay. That's helpful. And then just to follow up on prescription, could you just kind of give some color on like why you decided to launch it now and how you expect it to contribute over the next year, 18 months?
spk07: Yeah. Well, let me first, let me just take a step back. We have been talking about the veterinary clinic as like the Holy grail for pet parents, for what it's worth in our research and everything. We understand pet parents trust the vet office and specifically their individual veterinarian above anybody else. Like if you, if you think about the advice they get from the vet, that is the advice they will take 78 plus percent of the time. And so for us, this is not like a new thing. We've been thinking about the vet office for years, frankly, We bought a really small business called Pharmacy, I think. I mean, Al can correct me. I think it was something like 18 months ago. And our whole plan with that business was to figure out the vet office with really sticky and beautiful software that simplified the pet parent's life. And so as you all know, SaaS revenue is the best. It's sticky. It's recurring. That's going to be the structure of that product. And if we can figure out how to acquire these customers through the vet office, the cross-sell should be pretty incredible. And so the reason we launched it, to answer your question, is it's ready. If you go to a pharmacy, our prescription software is ready to rock. It's going to be in the hands of vet clinics pretty quickly, as Adam mentioned. And it's actually a really awesome product. We believe it's the first of its kind kind of e-prescribing software for the vet clinic. Thinking about like SureScripts almost. And, yeah, we couldn't be more excited to kind of enter this channel. So just another fast-moving water with a really sticky, durable revenue that we're excited to kind of surprise and delight.
spk03: Got it. Okay, that's really helpful. Thank you.
spk13: And our next question comes from Greg Pendy from Chardin. Please go ahead, Greg.
spk15: Hi, thanks for taking my question.
spk16: Can you share any metrics that you might be seeing in terms of monthly engagement as you're adding more services to the platform? Has that been changing at all? I think you had, you know, people are engaging maybe seven times per month on average with the app.
spk01: Yeah.
spk16: I mean, look. I'll go ahead, Evan.
spk04: Okay. I can take this one. Broadly speaking, yes. The cross-sell tends to get better as we add more products to our product suite. I think that's what's kind of how does do these incremental, you know, the incremental deal is seeing how, you know, premium membership has driven additional usage of our wellness products or additional usage of our pet food and treat products. And I think that with the announcement of We Compare and the announcement of Prescription, this spider web of products where you might not need any given product at any given time, but you need something we offer, that has all the internal metrics we looked at. It's like the more we offer, the stickier the entire platform becomes.
spk14: yes, I think that the platform approach is working. Great. And then just one more follow-up.
spk16: Have you seen any changes? It seems like, you know, things have stalled macro-wise on return to office just for the services side. Has that impacted your view or has it stayed the same from when we last heard in the fourth quarter? Yeah, Matt, let me take this one.
spk07: Okay. I'm sorry, I'm jumping first. I have such strong opinions here. I think Dara Mover even said he'd love for more people to go back to the office. He'd love for people to be taking Ubers to and from. We said, I think at the beginning of this year, even early last year, we don't really expect much change. If there's change, that's all upside. And so certainly we think kind of Castleback Torque Marometer has kind of stalled out, frankly. That's okay. We have other fast-moving water we're in and out of. But if it does accelerate, that would certainly be a great tailwind for the services business. Otherwise, like, services is great. We like that business. We're going to wait for the time and place to lean back into it. It just won't be until kind of more people are mobile and, frankly, more people are in the office. And you can add anything you want.
spk03: No, I think that's a good summary. Thanks a lot.
spk13: As a reminder, if you would like to ask a question, please press star 1 on your phone now. And our next question comes from CJ DiPolito from Craig Hallam. Please go ahead, CJ. Okay.
spk10: Good morning, everyone. I'm on for Jeremy Hamblin this morning. Thanks for taking the question. Wanted to call out the severe weather that you highlighted in your guidance. We know severe weather kind of lingered in Q1. Curious what you're kind of calling out moving forward. Maybe it's the tornadoes in the Midwest or sort of what you're seeing there.
spk03: Yeah, I mean,
spk04: The nice thing about having significant geo-diversification is that any given weather event does not materially move the whole business. That said, the West Coast got Miami weather in Q1, and there's a number of important cities on the West Coast. It can affect the overall numbers, but, you know, I wouldn't, you know, read too much into kind of just like normal seasonal weather patterns. They're going to affect the cities that they hit, like you might expect, but it's not, you know, something that we're overly concerned about. I think about it more as like a risk factor than, you know, something that needs to be baked into guidance.
spk21: Okay, got it.
spk07: The only thing I'd add there is I'll make an example, but in Q3, if a bunch of important cities are seeing, or even Q2, really awkward or incremental weather, you might see a little bit of a difference in services, but to Adam's point, you're talking a few percentage points, not 20 percentage points.
spk10: Right, and so it sounds like you're not really seeing any lingering effects in Q2. No.
spk07: I mean, start of the quarter, you know, it's a small part overall. Nothing crazy yet. But, look, I don't want to jinx weather. I seem to have bad luck there. I've been in California. It's been raining a ton. So, yeah, but nothing so far. Okay, cool.
spk10: Understood. And then one more, if you don't mind. I know you said weekend pay is not really baked into 2024 guidance. Just kind of curious when that's going to start showing up on the P&L.
spk07: Yeah, it really depends on how quickly we want to, frankly, put dollars to work in terms of growing that business. There's a bunch of ways we plan on growing it, whether it's through partnerships, whether it's through our own demand channels, whether it's cross-sell and up-sell. But I think we made a – I made a comment earlier. This quarter is really going to be all about profitability, just a function of August being our – Our prepayment penalty expires for our debt repayment. And I think just getting out from the debt can be a really big enabler for the company and accelerate our path to free cash flow. So we're experimenting with it. It's important. We like it. We're having fun learning. But I think we really want to put our pedal to the metal in that business as soon as we feel really good about profitability.
spk03: So more to come, I think, in the next quarter. Okay. All right.
spk09: Thanks, guys. That's all from me. Good luck.
spk13: At this time, this concludes our question and answer session. I'll now turn it back over to Garrett Smallwood for closing remarks.
spk07: Thanks, everyone, for the time today. I know you all have very busy schedules. You'll find the most recent management presentation, which we updated to reflect the new service and products we've launched, as well as our additional portfolio products on wag.co on the management presentation. Thanks so much.
spk13: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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