Q3 2022 Wag! Group Co Earnings Call

November 10, 2022

Yeah.

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Wag Third Quarter 2022 Earnings Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you need to press star one on your telephone. I would now like to turn the call over to your host, Dawn Frankfort. You may begin.

Dawn Frankfort: Good afternoon, everyone, and thank you for joining Wag’s conference call to discuss our third quarter 2022 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.

Thank you for joining <unk> conference call to discuss our third quarter 2022 financial results.

On the call today are Gary Smallwood, Chief Executive Officer and Chairman.

Out of the storm, President and Chief product Officer.

And Alex Davidian, Chief Financial Officer.

Dawn Frankfort: 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 filings.

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.

A discussion of these risks and uncertainties are included in our SEC filings.

Dawn Frankfort: Also, during the call, we may present both GAAP and non-GAAP financial measure. 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 as an exhibit in the Form 8-K 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.

The earnings release is available on the Investor Relations page of our website and is included as an exhibit in the form 8-K 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 Darren.

Garrett Smallwood: Thanks, Dawn. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2022 performance. We had another record quarter with revenue of approximately 161% to $15.4 million from the prior year and adjusted EBITDA loss improving to $461,000 from the last quarter, which was only possible with the hard work of our team at Wag. Our performance this quarter is a testament to our value proposition and the non-discretionary pet care industry and our ability to build upon our growth in the years ahead. We'll be discussing our financial results for the third quarter, as well as reiterating our compelling growth strategy that positions us to deliver predictable and sustainable financial performance for the remainder of 2022 and beyond. After another exceptional quarter, we are raising our 2022 guidance for both revenue and adjusted EBITA.

Good work of our team that works our performance. This quarter is a testament to our value proposition and the non discretionary pet care industry and our ability to build upon our growth in the years ahead, they will be discussing our financial results for the third quarter as well as reiterating our compelling growth strategy that positions us to deliver predictable and sustainable financial performance.

For the remainder of 2022 and beyond.

After another exceptional quarter, we are raising our 2022 guidance for both revenue and adjusted EBITDA.

Garrett Smallwood: I want to reiterate our mission here at Wag. We believe that being busy shouldn't stop you from owning or taking care of your furry family members. Our mission is simple. We solve the guilt and stress of owning a pet. We exist to make pet ownership possible and to bring joy to pets and those who love them. We're building a strong non-discretionary consumer branded premium pet care platform that is transforming the pet industry by simplifying caring for the pets you love. The $44 billion pet wellness and service industries are fragmented and largely offline and we are consolidating these industries online and through our mobile app, as we rapidly evolve as the number one pet wellbeing platform in the US.

Garrett Smallwood: Our business is diversified and it's proven to be a return to normal post-pandemic needs. A fundamental and imperative part of our business model is trust, as 75% of pet parents are not home while the service is being delivered, and we will continue to build on this trust to drive high-frequency utilization of our non-discretionary services.

Fundamental an imperative part of our business model is trust at 75% of Pet parents part not home, while our service is being delivered and we will continue to build on this trust to drive high.

With the utilization of our non discretionary services.

Garrett Smallwood: I will now cover a high level overview of our third quarter performance before turning it over to Adam, President and Chief Product Officer, who will give an update on our strategy and key 2022 initiatives. Then Alec, Chief Financial Officer, will discuss our third quarter results in more detail, our capital allocation, and our guidance for 2022, which again we raised today.

High level overview of our third quarter performance before turning it over to Adam President and Chief product Officer, who will give an update on our strategy in Q2 thousand 22 initiatives, then Alec Chief Financial Officer will discuss our third quarter results in more detail our capital allocation and our guidance for 2022, which again we raised today.

Garrett Smallwood: Our momentum continued this quarter with record revenue increasing over 160% to $15.4 million compared to $5.9 million in the third quarter of 2021. We achieved an impressive adjusted EBITDA loss of $461,000 from $2.6 million loss in the same period last year.

Garrett Smallwood: We're keenly aware this is not the time or place for growth at all costs, and are instead striking a balance of growth, margin and profit. Additionally, take rate improved to 61% compared to 43% in the third quarter of 2021, which was driven by the continued diversification of the platform, including instant pay, walker revenue, and wellness that apply upward pressure to take rate.

Our revenue and wellness that apply upward pressure to take rate.

Garrett Smallwood: These were notable accomplishments and underscore the resiliency and diversification of our business model. During the quarter, we saw platform participants grow to 473,000, an increase of 22% from last quarter. Wag! Premium penetration for the quarter was 53% versus 50% last quarter, achieving the long-term target penetration rate we set out at the launch of the program two and a half years ahead of schedule.

During the quarter, we saw platform participants grow to 473000, an increase of 22% from last quarter, while premium penetration for the quarter was 53% versus 50% last quarter, achieving the long term target penetration rate, we set out at the launch of the program two and a half years ahead of schedule.

Garrett Smallwood: Wag! Premium penetration is key to the platform resiliency as pet parents who subscribe to Wag! Premium are paying an additional $9.99 per month and use Wag services seven to eight times per month, versus four to five times a month for non-subscribers. On this note, we're actively testing Wag! Premium pricing, benefits, and possible other value adds to maintain the long-term target and provide value to pet parents who rely on Wag each and every week.

Their value adds to maintain the long term targets and provide value to pet parents, who rely on wags each and every week.

Garrett Smallwood: Continued Wag! Premium penetration demonstrates the compounding nature of our business, and propels the predictability and sustainability of our revenue. The deep rooted trust we have created in our business model leads to high frequency utilization.

Deep root of trust, we have created in our business model leads to high frequency utilization.

Garrett Smallwood: Our LTV to CAC for the third quarter increased to eight to one demonstrating our sustained return to normal trend coming out of COVID and a testament to our strong view that Wag is a non-discretionary post pandemic need. This quarter, we saw over 70% organic user acquisition rate and significant growth and awareness for our platform via strategic partnerships, and performance marketing initiatives.

Strategic partnerships and performance marketing initiatives.

Garrett Smallwood: During this quarter, we also recognized significant interest in the pet care giver gig and as a result, the average price that pet caregivers are paying to join the platform rose from around $29.95 in Q2 to around $41.50 in Q3. We continue to believe we have the best gig in America, which is why there are more than 400,000 preapproved pet caregivers, who are delivering value to the community each and every day at the current economics, we continue to have negative supply side cost.

Pet caregivers, who are delivering value to the community each and every day at the current economics, we continue to have negative supply side cost.

Garrett Smallwood: We will continue to manage supply and demand on a market by market basis, and as a world returns to normal, we expect the pet caregiver pricing to adjust to reflect not only the delightful nature of the gig, but also the availability of gigs and local network effects.

Garrett Smallwood: Before turning the call over to Adam to discuss our growth initiatives, I will summarize Wag’s differentiated position in the pet care industry. One, we are a trusted on-demand digital marketplace and our goal is to be the leading platform for premium pet care leveraging our strong consumer brand and efficient business model to drive long-term growth and shareholder value.

We are a trusted on demand digital marketplace and our goal is to be the leading platform for premium pet care, leveraging a strong consumer brand and efficient business model to drive long term growth and shareholder value.

Garrett Smallwood: Two, Wag is a multi-faceted platform that's consolidating the fastest growing secular growth areas within the pet industry. This include our Mobile First subscription-based pet platform, the largest pet insurance marketplace in the US, and what we believe is the best gig in America.

Garrett Smallwood: Three, with more than 75% of pet parents away while services being delivered, we found that the ability to access on demand and recurring dog walk, pet sitting, training services and much more across 5,300 cities in all 50 states is a way in the door with premium pet parents across the US. We are becoming the button on the phone for the paw, a place that pet parents trust with their pets’ health and well being.

Way in the door with premium pet parents across the U S.

We are becoming the button on the phone for the path a place for pet parents' trust with their Pets' health and wellbeing.

Garrett Smallwood: We are extremely excited about the growth in our business, including the wellness category, which is a major catalyst as pet parents are finding the ability to chat with licensed pet experts 24/7, pet wellness plans, and the ability to shop pet insurance and obvious value-add in a world full of options. With that update, Adam would provide more color on our strategy.

With that update Adam will provide more color on our strategy.

Adam Storm: Thanks, Garrett. I will now walk through the five top level elements of our 2022 strategy to drive long-term shareholder value; one, accelerate growth in existing markets; two, expand premium subscription offerings, three, platform expansion; four, opportunistic M&A, and five, operating scale.

To accelerate growth in existing markets.

Expand premium subscription offerings.

<unk> platform expansion for opportunistic M&A and five operating scale.

Adam Storm: As we've mentioned, we see significant opportunity to accelerate growth in existing markets as people resumed to more normal activities post-pandemic and utilize our expanded offerings, including the increasing return to office trend, which is the primary Wag use case.

Adam Storm: Over the quarter, we saw 47% of people back in office, per Castle data, which is the biggest jump we've seen today. We anticipate this return to office tailwind to continue through 2022 and 2023, allowing us to sustainably grow within existing markets and capture additional sheltered wallet through the compounding effects of our premium subscription and additional product lines.

We anticipate this return to office tailwind to continue through 2022, and 2023, allowing us to sustainably grow within existing markets and capture additional share of wallet through the compounding effects of our premium subscription and additional product lines.

Adam Storm: In addition to the increased return to office trend, we're also in the early days of influx of new pet parents, with one in five people adopting a pet during the pandemic. As these new pet parents return to office in normal activities, we believe Wag’s nondiscretionary services will be an integral part of how these new pet parents care for their furry family members. Finally, we see the secular trend of the humanization of pets with people developing close bonds with their pets during the pandemic increasing which in turn leads to pet parents being more inclined to spend money on their furry family members.

As these new pet parents returned to office and normal activities. We believe wags non discretionary services will be an integral part of how these new pet parents care for their furry family members.

Adam Storm: Our second growth driver is to expand premium subscription offerings now that we have achieved our long-term target of 50% Wag! Premium penetration. We are now considering premium pricing tiers, subscription tiers and product bundling to capture more wallet share, grow revenue and drive additional value to the pet parent.

Now considering premium pricing tiers subscription tiers and product bundling to capture more wallet share grow revenue and drive additional value to the <unk>.

Adam Storm: As a reminder, Wag! Premium subscribers receive a 10% discount on all services, VIP customer support, and unlimited 24/7 expert pet advice, which drives customer satisfaction, and retention, and willingness to up-sell to our expanding set of products and services.

IP customer support and unlimited $20, Kevin expert advice, which drives customer satisfaction and retention and willingness to up sell to our expanding set of products and services.

Adam Storm: As we emphasized last quarter, we're focused on maintaining Wag! Premium penetration in the coming quarters, as well as launching new and exciting product lines to drive long-term engagement. Over the quarter, we continue testing in the Wag! Premium benefits center, and found that the number one thing pet parents are looking for help with is choosing food for their specific test needs, age and activity levels. We plan to hone in on this need and continue to develop our holistic approach to the Wag! Premium ecosystem.

Over the quarter, we continued testing and the wag premium benefit center and found that the number one thing pet parents are looking for help with is choosing food for their specific test needs age and activity levels.

We plan to hone in on this need and continue to develop our holistic approach the wag premium ecosystem.

Adam Storm: Third, we're focused on platform expansion and diversifying the products and services within the platform, including the recent launch of a full suite of dropping products, including 20, 30 and 60 minute options across all markets in the US and multi-day bookings, which enables pet parents to book multiple services for the same day and just drop into visits when a pet parent is away from home for an extended period of time.

And visits when a pet parent is away from home for an extended period of time.

Adam Storm: This simplicity of choice drives both retention and frequency and feeds into Wag! Premium. The upward pressure we have seen in take rate is driven by these high margin products and services and we continue to focus on the growing surface area of the platform to deliver long-term margin expansion and predictable revenue streams.

The upward pressure we've seen in take rate is driven by these high margin products and services and we continue to focus on our growing surface area of the platform to deliver long term margin expansion and predictable revenue streams.

Adam Storm: We're thrilled about the opportunity to dig deeper into the wellness category with the expansion into veterinary clinics, including software to simplify prescription medicine and food through our acquisition of Furmacy, as well as our partnership with Babylist, the leading vertical marketplace for new parents. We remain thrilled with our partnerships with Tractor Supply and Petsense we announced last quarter and continue to grow our relationships in the fourth quarter.

We remain thrilled with our partnerships with tractor supply and <unk>, we announced last quarter and continue to grow our relationships in the fourth quarter.

Adam Storm: Fourth, prioritizing growth in our business through opportunistic M&A. Last quarter, we announced Wag entry into an agreement to acquire Furmacy, Inc., which was completed in October after receiving regulatory approval. We're extremely excited about the opportunity this provides to expand our reach in the pet wellness category and feel that this is the first step in demonstrating our commitment to diversification, which is a compelling part of our long-term growth objectives.

<unk> growth in our business through opportunistic M&A.

Last quarter, we announced last entry into an agreement to acquire Pharmacy, Inc, which was completed in October after receiving regulatory approval.

We are extremely excited about the opportunity. This provides to expand our reach in the pet wellness category and feel that this is the first step in demonstrating our commitment to diversification, which is a compelling part of our long term growth objectives.

Adam Storm: As a reminder, Furmacy’s mission is to deliver pet health directly through your front door. Furmacy does this by empowering veterinary clinics with easy-to-use pharmacy software, giving them the ability to prescribe medication instantly and have it delivered to the pet parent store the same day, and usually in less than a few hours from a local warehouse. With the closing of this transaction and eye towards the future, we're well-positioned to sustain strong performance and effectively compete in the marketplace.

Pharmacy does this by empowering veterinary clinics with easy to use pharmacy software, giving them the ability to prescribe medication instantly have it delivered to the pet parents store the same day and usually in less than a few hours from our local warehouse.

With the closing of this transaction and I towards the future, we are well positioned to sustain strong performance and effectively compete in the marketplace.

Adam Storm: The final element of our strategy is operating scale. This quarter we saw improvement in margins across the board, proving the scalability of our online platform that connects pet parents with the highest quality pet caregivers. Our customer acquisition unit economics seen in our 8-to-1 LTV CAC ratio continued to be well ahead of our targets for the period. Adjusted EBITDA margin improved from 7% to 3% loss from Q2 to Q3 2022 demonstrating our improving efficiency as we scale.

This quarter, we saw improvement in margins across the board proving the scalability of our online platform that connects pet parents with the highest quality pet caregivers.

Our customer acquisition unit economics seen in our eight to one LTV CAC ratio continued to be well ahead of our targets for the period.

Adjusted EBIT margin improved from 7% to 3% loss from Q2 to Q3 2022, demonstrating our improving efficiency as we scale.

Adam Storm: We continue to be intensely focused on businesses and opportunities that have low fixed costs, low OpEx and a rapid ability to scale. We continue to be bullish on software enabled marketplaces that have structurally high EBITDA margins and the healthy fundamentals underpinning our growth and platform expansion positions as well for Q4 and beyond. We will continue to be disciplined operators and remain hyper-focused on managing gross margin and profit. With that, let me turn the call over to Alec.

We continue to be bullish on software enabled marketplaces that have structurally high EBITDA margins.

The healthy fundamentals underpinning our growth and platform expansion positions us well for Q4 and beyond we.

We will continue to be disciplined operators and remain hyper focused on managing gross margin and profit.

And with that let me turn the call over to Alex.

Alec Davidian: Thank you, Adam and thank you, everyone for joining our third quarter call. Our focus on being the number one premium pet services platform to pet parents has allowed us to achieve a record quarter once again, with continued platform diversification and growth in both service and wellness revenue. I'll start by diving into our third quarter results, followed by updates on our '22 guidance.

And taking the nimble and premium services platform to pet prices allowed us to achieve a record quarter. Once again with continued platform diversification and growth in both service and wellness revenue.

Start by diving into our third quarter results, followed by updates on our <unk>.

Two guidance.

Alec Davidian: In the third quarter, we achieved the highest quarterly revenue in our company's history at $15.4 million, totaling $37.8 million revenue year-to-date. In three quarters, we have nearly achieved our initial 2022 full year revenue estimate of $41.8 million as stated in our initial investor deck in April 2018.

Totaling $37 $8 million revenue year to date.

And three quarters, we have nearly achieved our initial 22 full year revenue estimate of 41 eight.

$8 million as stated in our initial investor deck in April 22.

Alec Davidian: This increase translates to approximately 3X revenue growth for both quarter-over-prior quarter, as well as Q3 2022 year-to-date versus Q3 2021 year-to-date. The growth in revenue was primarily driven by success in our diversification of revenue streams, including items such as well as Wellness, Wag! Premium, Instant Pay, Pet Caregivers services, as well as increased pet parent engagement, and return to office trends.

Quarter over prior year quarter, as well as Q3 dollars 22 year to date basis.

<unk> hundred 21 year to date.

Alec Davidian: The growth in revenue was primarily driven by success in our diversification of revenue streams, including items such as well as Wellness, Wag! Premium, Instant Pay, Pet Caregivers services, as well as increased pet parent engagement, and return to office trends.

As well as increased pet parent engagement and return to office trades.

Alec Davidian: Pet parents continue to demand access to various pet services via our platform and have a strong interest in wellness services, showing particular interest in doing the best by their furry family friends. This is evident with wellness contributing to 62% of revenue in Q3 22.

Our platform and have a strong interest in wellness services, showing particular interest in doing the best buy that furry family Friday.

This is evident with wireless contributing to 62% of revenue in Q3 dollars 22.

Alec Davidian: As Garrett indicated, we have become so much more to our pet parents than just their go-to walking, sitting, boarding, and training platforms. The trust we built through our traditional on-demand services, coupled with the digital age of our platform have become evident via our growth in multiple service categories.

The trust, we built through our traditional on demand services, coupled with the digital age of our platform have become evident growth in multiple service categories.

Alec Davidian: Platform take-rate was 61%, up from 43% from the same period last year. This is primarily driven by an 85% growth in gross bookings from Q3 last year, arising from continued diversification of the platform applied upward pressure to the platform take-rate.

This is primarily driven by 85% growth in gross bookings from Q3 last year arising from continued diversification of the platform apply upward pressure to the platform take rate.

Alec Davidian: Turning to expenses during the third quarter. This quarter includes a number of one-time transaction costs in aggregate of $39.5 million, which I will exclude for the purposes of like-for-like comparison to the prior year.

This quarter include a number of one time transaction cost in <unk>.

Aggregate of $39 5 million, which I will exclude for the purposes of like for like comparison to the prior year.

Alec Davidian: Customer revenue excluding depreciation and amortization were 1 million or 7% of revenue compared to 15% of revenue in Q3 2021. The improvement in Q3 2022 is driven by the scalability of our business combined with an increase in service offerings with high margin.

The improvement in Q3 'twenty two is driven by the scalability of our business combined with an increase in service offerings with higher margins.

Okay.

Alec Davidian: Platform operations and support expenses were $5.6 million or $2.8 million excluding transaction costs. This equates to 18% of revenue compared to 43% in Q3 2021. The improvement in Q3 2022 is driven by the operational excellence and scalability of our technology infrastructure, and realization of investments made in both technology and support processes.

This equates to 18% of revenue compared to 43% in Q3 dollars 21.

The improvement in Q3 dollars 22 is driven by operational excellence and scalability of our technology infrastructure and realization of the investments made in both technology and support perspective.

Alec Davidian: Sales and marketing expenses were $11.3 million or $9.2 million excluding transaction costs. This equates to 59% of revenue compared to 54% in Q3 2021. This is primarily attributed to a $4.7 million increase in partnership activity, as we invest in launching the new partners, together with a $1.3 million increase in personnel related compensation, and agency costs for marketing team consultants and marketing agency partners.

$9 2 million excluding transaction costs.

This equates to 59% of revenue compared to 54% in Q3 21.

This is primarily attributed to a $4 7 million increase in partnership activity as we invest in launching the new partners together with a $1 $3 million increase in personnel related compensation and agency customer market.

Operating team consultants and marketing agency partners.

Alec Davidian: G&A expenses were $23.8 million or $3 million excluding transaction costs. This equates to 19% of revenue compared to 34% in Q3 2021. While G&A costs have increased in dollar terms, as a result of investment in public market infrastructure, and investing in talent, a decrease as a percentage of revenue year-over-year demonstrates our ability to scale revenue versus G&A costs. Our approach has been and continues to be grounded in prudently managing our G&A expenses, while continuing to strategically invest in the business.

This equates to 19% of revenue compared to 34% in Q3 dollars 21.

While G&A cost of increase in dollar terms as a result of investment in public market infrastructure and investing in talent a decrease as a percentage of revenue year over year demonstrates our ability to scale revenue that's as G&A costs.

Our approach has been and continues to be grounded and prudently managing our G&A expenses, while continuing to strategically invest in the business.

Alec Davidian: Adjusted EBITDA, which is an important profitability measure that we use internally to manage the business, improved $2.1 million to an adjusted EBITDA loss of $461,000. This compares to an adjusted EBITDA loss of $2.6 million in Q3 2021.

Adjusted EBITDA loss of 461000.

This compares to an adjusted EBITDA loss of $2 6 million in Q3.

Alec Davidian: Turning to our balance sheet, we ended the third quarter with over $28 million in cash and cash equivalents. Our balance sheet remains strong in the context of our operating budget, and puts us in a strong position to comfortably fund our growth objectives, while also maintaining flexibility to pursue strategic M&A when we believe the opportunity aligns with our goals.

Our balance sheet remained strong in the context of our operating burn and puts us in a strong position to comfortably fund our growth objectives.

We're also maintaining flexibility to pursue strategic M&A, when we believe the opportunity aligns with our goals.

Alec Davidian: As you saw in our Q2 earnings release, we have entered into an agreement to acquire Furmacy, subject to regulatory approvals. We obtained all necessary approvals and closed this acquisition in October. We're incredibly excited with this acquisition and have already welcomed Furmacy team members to Wag! and have built a strong alignment of value since the beginning. Furmacy’s proven track record in providing high-quality prescription services to pet parents, coupled with a deep industry expertise makes them the right partner for Wag!’s next chapter of diversification and broadening reach into the pet food and medicine market segments.

Subject to regulatory approvals we.

We have paid all necessary approvals and close this acquisition in October .

We're incredibly excited with this acquisition and have already welcomed pharmacy team members to wag and a focus strong alignment of value since the beginning.

Pharmacy proven track record in providing high quality prescription services to pet parents coupled.

Coupled with a deep industry expertise makes them the right partner for Wags next chapter of diversification and broadening reach into the pet food and medicine market segments.

Alec Davidian: Now I will comment on our updated guidance for fiscal 2022. As you heard from Garrett, we are very pleased with the strong performance we saw during the third quarter, and our ability to provide solutions to pet parents. As a result, we are raising the guidance we previously provided in our Q2 earnings release.

As you heard from Gary we are very pleased with the strong performance. We saw during the third quarter and our ability to provide solutions to pet parents.

As a result, we are raising the guidance. We previously provided in our Q2 earnings release.

Alec Davidian: Our revised guidance assumes a continued trend in return to office, as measured by the cost of back to work measure and continued platform diversification. For the full year '22, we now expect total revenue in the range of $51 million to $52 million, an increase of 155% to 160% year-over-year and a 7% improvement versus our prior forecast at the midpoint of the range. Adjusted EBITDA loss in the range of $5 million to $6 million, a 39% improvement versus our prior forecast at the midpoint of the range.

For full year 'twenty, two we now expect.

Total revenue in the range of $51 million to $52 million, an increase of 155% to 160% year over year.

7% improvement versus our prior forecast at the midpoint of the range.

Adjusted EBIT to look in the range of $5 million to $6 million, a 39% improvement versus our prior forecast at the midpoint of the range.

Alec Davidian: We are very pleased with our record performance this quarter and remain confident in our diversified and efficient business to produce sustainable growth for the remainder of '22 and into '23. And with that, we will now take Q&A.

And with that we will now take Q&A.

Operator: Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your touchtone telephone. We will pause for a moment while we compile our Q&A roster.

Operator: Our first question comes from Jeremy Hamblin with Craig-Hallum, your line is open.

Jeremy Hamblin: Thanks so much and congratulations on the strong results. I wanted to just start by seeing if we could get a little more detail on the wellness platform, which really seemed to have some explosive growth. I think by my math 62% of revenue is about $9.5 million and I wanted to see if you could provide some color as to whether or not you're getting more of that growth that's coming from your insurance marketplace versus pet expert care.

I wanted to just start by seeing if.

If we could get a little more detail on the wellness platform, which really seem to have some explosive growth.

I think by my math, the 62% of revenue was about $9 5 million.

And I wanted to see if you could provide some color as to.

Whether or not you're getting more of that growth is coming from your insurance marketplace.

Versus pet.

Pet expert.

Sure.

Garrett Smallwood: Absolutely. Jeremy, good to connect. Thanks for the time. I think, generally, we're seeing a lot of excitement around our suite of wellness products. As a reminder, wellness, we classify as a few different things. It's Wag! standalone Wag! Wellness Plans. It is our 24/7 expert pet advice, which for Wag! Premium members is bundled in as a kind of free benefits, and is headed and compare, which are the largest pet insurance marketplaces in the US from our understanding. I would generally say last quarter, we certainly saw more and more pet parents looking for pet insurance help and that was certainly a catalyst for growth.

Our $24 seven expert pet advice, which for wags premium members is bundled into the kind of free benefit and then it is headed and compare which are the largest pet insurance marketplaces in the U S from our understanding.

I would just generally say last quarter, we certainly saw more and more pet parents looking for pet insurance help.

That was certainly a catalyst for growth.

Jeremy Hamblin: Got it. And then in terms of looking at what you're doing with your pet caregivers and kind of the platform access fee, which clicked up quite a bit. Are you thinking about keeping that as a one-time fee? What types of consideration to potentially making that a monthly or quarterly fee, $2 a month, let's say, to stay on the platform to really ensure that you're in sync with your PCGs that want to stay active versus those that might lapse after, let's say, 6 or 12 months?

In terms of.

Looking at.

What youre doing with your pet caregivers and kind of the access platform access fee, which clicked up.

Quite a bit.

Are you thinking about keeping that as a one time fee what types of consideration to potentially making that a monthly or quarterly fee $2 a month, let's say.

To stay on the platform to really ensure that you are in sync with your <unk>.

Wanted to stay active versus those that.

Might lapse after let's say six or 12 months.

Garrett Smallwood: Absolutely. So taking a step back, we are certainly seeing across the US a different -- what we'll call, Jeremy, a return to normal. New York City certainly seems has opened up pretty quickly and aggressively maybe compared to a San Francisco, and that difference has led us to see a different level of engagement by market for pet caregivers.

Taking a step back we are certainly seeing across the U S. A different what we'll call Jeremy a return to normal New York City, certainly seems has opened up pretty quickly and aggressively maybe compared to San Francisco and that difference has led us to see a different level of engagement by market for pet caregivers.

Garrett Smallwood: So believe it or not, we still believe the best thing in America and I know a lot of people who don't want to go out at 2 o'clock on a Tuesday and walk a golden doodle and so we've seen a really strong interest in becoming a member of the community and building a business on Wag! as a pet caregiver, and as a result we have been able to test dynamic pricing to participate in the platform as a function of supply and demand equilibrium. Meaning if we're seeing a significant amount of demand and not enough supply, we will rebalance the other way, and we're seeing a lot of supply and as much demand, re balance the other way.

We'll still believes the best Gagan America I don't know a lot of people, who don't want to go out at two o'clock on Tuesday, and walk Goldman Doodle and so we've seen a really a strong interest in becoming a member of the community and building our business on a lag as a pet caregiver and as a result, <unk> been able to test dynamic pricing to participate in the platform as a function of <unk>.

Supply and demand equilibrium, meaning if we're seeing a significant amount of demand and not enough supply will rebalance the other way and we're seeing a lot of supply in as much demand rebounds, the other way.

Garrett Smallwood: To your point about possibly introducing ongoing a subscription like product or a recurring revenue fee for caregivers, I would just take a step back and say we have a suite of products that caregivers use today. One would be something like Instant Pay, which allows an instant withdrawal of their funds as a really fast growing part of our business that we're excited about.

I would just take a step back and say we have a suite of products that caregivers used today, one would be something like instant pay which allows instant withdrawal of their funds as a really fast growing part of our business that we're excited about there.

Garrett Smallwood: There are other mechanisms that we capture kind of dollars from caregivers, but I wouldn't say it's out of the question to think that at some point, there could be additional ways that we provide value to people who are building their business on Wag!

Multiple speakers: [Jeremy Hamblin] Great. Last one real quick for me. So the Q4 guidance, it looks like it implies like $13.2 to $14.2 million, a little bit of a step down sequentially from what you had in Q3. Last year in Q4, you had a pretty nice step up, I think, even when backing out the timing of the acquisitions. But just wanted to get a sense, is there a seasonality in play here to consider in that or other factors in which you're guiding to those levels? [Garrett Smallwood] No, I think that's right. I would just say, we're definitely being thoughtful, and probably a little conservative on how we think about seasonality. And there's three things that are probably going to happen this quarter, just when you think about consumer behavior. One is, more people will move from daytime services to overnight services as they travel.

Bit of a step down sequentially from what you had in Q3.

Last year in Q4, you had.

Pretty nice step up I think even when backing out the timing of.

The acquisitions, but just wanted to get a sense is there a seasonality in play here.

Considering that or other factors.

In.

And which youre guiding to those levels no I think thats right I would just say, we're definitely being thoughtful and probably a little conservative on how we think about seasonality and there is three things that are probably going to happen this quarter.

Just when you think about consumer behavior, one as more people will move from daytime services to overnight services as they travel.

Garrett Smallwood: And as a reminder, we really the whole family to be traveling, someone's staying home with the pet, they don't normally revert to a sitting in boarding like products. So we're certainly interested in how travel will perform this quarter. And then finally, as people think about, in this environment, certainly their pets’ needs, it is not totally clear to us, if they'll be forced to prioritize family over pet in some circumstances. And where I'm going with that is, specifically pet insurance, pet health, pet wellness plans, and the subscription product are really important core decisions for your pet. But when it comes to maybe the holidays, and you're thinking about Christmas presents, or Hanukkah presents, whatever it might be, and you have to make a decision, we think people generally opt to support their family. So we're excited about today's trend. We're excited about kind of where we think the next couple months are going to go, but there's definitely some conservatism in thinking.

So we're certainly interested in how travel will perform this quarter and then finally as people think about this.

This environment certainly their pets' needs. It is not totally clear to us that they'll be forced to prioritize family over Pat in some circumstances, where I'm going with that is specifically pet insurance pet health pet wellness plans and the subscription product are really.

Important core decisions for your pets, but when it comes to maybe the holidays and Youre thinking about Christmas presence or hanukkah presence wherever it might be and you have to make a decision. We think that will generally up to support their families. So we're excited about today's Trent. We're excited about kind of where we think the next couple of months are going to go but theres definitely some conservatism baked in.

Jeremy Hamblin: Got it. Thanks so much for the color guys. Congrats.

Operator: One moment before our next question. Next question comes from Matt Koranda with ROTH, your line is open.

Our next question comes from Matt Koranda with Roth Your line is open.

Matt Koranda: Hey, guys, good afternoon. Thanks for the questions here. Just wanted to spend back to the services revenue for just a moment if we could, I mean north of 300% growth year-over-year, if I'm calculating it right here. Want to see is there any way you can unpack that just between sort of the insurance marketplace revenue stream versus kind of the wellness plans and all other items within the services line? And then just how sustainable is it to assume that you can like 2X or 3X, that segment, year-over-year over the next few quarters? It just seems like a really breakneck growth base, which is great, but just wanted to kind of get a sense for like, how do we level set and normalize or think about kind of normalized growth heading into '23?

Just wanted to spend back to the services revenue for just a moment, if we could have been north of 300% growth year over year, if im calculating it right here.

Wanted to see is there any way you can unpack that just between sort of the insurance marketplace revenue stream versus kind of the wellness plans and all other items within the services line and then just how sustainable is it to assume that you can like two extra three ex that segment year over year over the next few quarters. It just seems like a really great Matt.

<unk> growth base, which is great, but just wanted to kind of get a sense for like how do we level set and normalize.

Or do you think about kind of normalized growth heading into 'twenty three yeah.

Garrett Smallwood: Yeah, so appreciate the time as always. Thanks for being here. We aren't separating out wellness and again, the reason is a bunch of things. There's seasonality in that business, there are new product lines we're experimenting with in that business. I think we mentioned on the call, we're going to begin experimenting pretty aggressively with premium bundling, premium pricing, premium benefit, benefits center, that is a very dynamic part of the business that we're excited about and there are many kind of important pieces to it.

We arent separating out wellness and again the reason is a bunch of things.

Seasonality in that business there are new product lines, we are experimenting with in that business.

We mentioned on the call we're going to be can experiment pretty aggressively with premium bundling premium pricing premium benefit benefit center that is a very dynamic part of the business that we're excited about and there are many kind of important pieces to it.

Garrett Smallwood: To your point about kind of ongoing and future growth rates, look, I think we generally said that our long-term growth target was in a 40% plus. We're certainly far ahead of that in 2022. And we continue to be very bullish on the category in general. And the two reasons for that are, we believe, fundamentally, that we're targeting a premium. These people are not really concerned about booking two, three, four, seven services a month, and also bundling that with a premium and with the pet insurance purchase and with the wellness plan and whatever else. And finally, it's really not discretionary. When you're forced to go back to the office or you're traveling, you don't really have a choice. Like if your family is out of town or your family is not there, your kids are at school, you really need a Wag! and so we can see me very bullish on just the long-term prospects we originally laid out in our investor deck, I think about a year ago.

40 plus percent. We're certainly if are ahead of that in 2022.

And we continue to be very bullish on the category in general I think the two reasons for that are we believe fundamentally that we are targeting a premium.

These people are.

Not really concerned about booking 2347 services the months and also bundling that with our premium and with the pet insurance purchased and with a wellness plan or whatever else and finally, it's really not discretionary when you're forced to go back to the office or you're traveling you can only have a choice like if your if your families out of town or your families not their kids were at school, you really need a wag.

So excuse me very bullish on the long term prospects. We originally laid out in our investor deck, I think about a year ago.

Matt Koranda: Got it. And then just any preliminary thoughts on sort of how you begin to tear the premium service with those, it was an interesting comment that we could start to see that. Is that essentially -- are you tearing it to help with some of the on-boarding for more active pet parents into the premium service? What's the purpose behind that? And then just any thoughts on sort of how you might kind of split out different services and wellness plans into different premium offerings?

Got it.

And then just any preliminary thoughts on sort of how you begin to chair the premium service and thought it was an interesting comment that we could start to see that.

Is that essentially are you hearing it to help with some of the Onboarding for more active pet parents into the premium service what was the purpose behind that and then just any thoughts on sort of how you might kind.

Kind of split out different services and wireless plans into different premium offerings.

Garrett Smallwood: Yeah, I mean, it's a great question. So, look, just again, think about the platform, we're building the platform for the premium pet parent. We've told everyone it's the button on the phone for the pod, amazes us that there's no button on the phone for the pod today in today's kind of dynamic digital era of iPhones and Androids. And so we think about Premium, Premium is really the glue that holds all these products together. Whether it's a dog walk or a sitting or a boarding or training or a pet insurance purchase or a wellness plan, Premium is how we think about this kind of bundling of products and services for unique pet parents. And what we're finding as the platform is scaling so rapidly and you can see, I think platform participants that grew something like 22%, quarter-over-quarter.

So look just again think about the platform. We're building the platform for the premium pet parent we've told everyone. It's the button on the phone for the PA Amazes us, but there's no button on the phone for the pop today in today's kind of dynamic.

Digital era of iphones and androids and so.

When you think about premium premium is really the glue that holds all of these products together, whether it's a dog walk or are sitting or reporting or training or a pet insurance purchase were a wellness plan premium is how we think about that as kind of bundling of products and services for unique pet parents and what we're finding is the platform of scaling so rapidly and you can see I think I think platform participant backed groups.

Like 22% quarter over quarter.

Garrett Smallwood: People are have different needs. So if you're a pet parent and you exclusively use Wag! for walking, you might have different needs than the pet parent who uses us for sitting and boarding and walking and wellness. And so we think as the platform scales, we will need to better identify and serve each of those unique cohorts. I think that's what you can expect from Premium. I don't give you too much more, because generally, anything we do in the next year will be copied two or three years later.

Two or three years later.

Garrett Smallwood: But we're excited about the opportunity to really deliver pet parents unique value to identify the cohorts that are using us and to provide additional value as we bundle in these additional platforms. And I would also say they’re tided in the Furmacy right, Furmacy is the prescription engine for the business at some point.

Multiple speakers: [Matt Koranda] Great, appreciate that detail, Garrett. I'll leave it there. [Garrett Smallwood] Thank you.

Operator: One moment for our next question. One moment for our next question. Our next question comes from Rohit Kulkarni with MKM Partners.

Operator: One moment for our next question. Our next question comes from Rohit Kulkarni with MKM Partners.

Rohit Kulkarni: Hey, thanks. Congrats on the quarter, and nice to hear from you. Maybe a big picture on just a competitive environment. How do you think that has evolved? And now that you're -- you've had the IPO and perhaps you're more under the spotlight in a way. So maybe just talk through how do you think competitive environment has evolved or where do you see the biggest kind of focus areas from your standpoint?

Maybe a big picture on just the competitive environment. How do you think that has evolved now that you.

Sure.

The IPO.

Perhaps more.

More under the spotlight in <unk>. So maybe just talk through how how do you think.

The competitive environment has evolved where do you see the.

The biggest focus.

Lucas videos from your standpoint.

Garrett Smallwood: Well first off, Rohit always a treat. Thank you for being here. We are just operating like we operate, regardless of the environment or regardless of kind of where we as a business. We're passionate people about the products we're building. We're operationally efficient. We believe we're operationally excellent, frankly and we're going to do what we say we're going to do. And I think all those things you'll see in this quarter results, you'll see it based on last quarter's results. And we think that we're not really going to change the pace of evolution of the business. We're innovating quickly. We're launching products and services that people love, unlike our peers who have had to exit categories that are not a fit. And we're continuing to drive outsized returns on the small bets we make, and the things that we're pushing forward. So in general, I think our goal is to be ahead of everyone. And I think we've demonstrated that in the last year, with the products and services, we pushed out in the ecosystem.

Garrett Smallwood: We are just operating like we operate, regardless of the environment or regardless of kind of where we as a business. We're passionate people about the products we're building. We're operationally efficient. We believe we're operationally excellent, frankly and we're going to do what we say we're going to do. And I think all those things you'll see in this quarter results, you'll see it based on last quarter's results. And we think that we're not really going to change the pace of evolution of the business. We're innovating quickly. We're launching products and services that people love, unlike our peers who have had to exit categories that are not a fit. And we're continuing to drive outsized returns on the small bets we make, and the things that we're pushing forward. So in general, I think our goal is to be ahead of everyone. And I think we've demonstrated that in the last year, with the products and services, we pushed out in the ecosystem.

We're operationally efficient we believe were operationally excellent frankly.

And we're going to do what we say, we're going to do and I think all of those things Youll see in this quarter's results.

You are seeing what you saw last quarter's results and we think that we're just not really going to change the pace of evolution of the business. We are innovating quickly, we're launching products and services that people love. Unlike our peers, who have had the exit categories that are not a fit and we're continuing to drive outsized returns on the small bets we make.

And the things that we're pushing forward. So in general I think our goal is to be ahead of everyone and I think we've demonstrated that in the last year.

The products and services, we pushed out to the ecosystem.

Rohit Kulkarni: Okay, cool. And then on marketing, maybe talk about how has LTV to CAC kind of trended for you over the last few months and where do you see that going in terms of -- it clearly feels that the internal marketing is leading to more people in the marketplace on both sides, so perhaps talk about how you're thinking about that.

And then on marketing, maybe maybe talk about how has.

LTV to CAC.

Kind of just trended for you over the last few months.

Where do you see that going in terms of.

Got.

It clearly seems that the internal marketing is leading to more people in the marketplace on both sides. So perhaps talk about Tobey I think youre about done with.

Garrett Smallwood: It's an interesting environment for performance marketing, one of the partnerships, frankly. Two things we're seeing separately. One is, in this market, we're seeing a lot of interest in Wag! as an add-on as people return to normal. And so you saw that with Tractor Supply and Petsense, you saw that with Babylist. I think we're overall very excited about the possible partnerships in 2022 and 2023 and, obviously, beyond. Performance marketing is just a really dynamic and changing environment right now. Our belief, structurally, is that the market will continue to evolve. There' most likely be a significant pullback in ad spend across different ecosystem players and that'll give us a chance to lean in. You saw 8-to-1 LTV to CAC this quarter, I think it was similar last quarter and we're just kind of testing waters across a number of different mediums with different efficacy. We could definitely say that the market is changing pretty rapidly.

Two things we are seeing separately one is in this market, we're seeing a lot of interest in wag as an add on as people return to normal and so you saw that with tractor supply in person you start out with baby list and I think we're overall very excited about the possible partnerships in 2022, and 2023 and obviously beyond.

Performance marketing is just a really dynamic and changing environment right now our belief structurally is that the market will continue to evolve there are most likely be a significant pullback in AD spend across different ecosystem players and that will give us a chance to lean in.

801, LTV to CAC this quarter I think it was similar to last quarter.

And we're just kind of testing waters across a number of different mediums with different efficacy, but we can definitely say that the market is changing pretty rapidly.

Rohit Kulkarni: Okay. Sounds good. Thanks guys and congrats.

Thanks, guys and congrats.

Operator: One moment for our next question. Our next question comes from Brian Dobson with Chardan, your line is open.

Operator: Our next question comes from Brian Dobson with Chardan, your line is open.

Brian Dobson: Hi, good evening. Thanks for taking the question. So, as you're thinking about Premium subscription penetration, the growth there is very impressive. Do you see a natural top to that penetration level or how do you expect that to, call it, evolve over the longer term?

So. As you were. Thinking about premium premium subscription penetration the growth. There is very impressive do you see a natural top to that penetration level or how do you expect that to. Call it evolves over the longer term.

As you were.

Thinking about premium premium subscription penetration the growth. There is very impressive do you see a natural top to that penetration level or how do you expect that to.

Call it evolves over the longer term.

Garrett Smallwood: Yeah, absolutely. Adam, we want to talk about Premium.

Adam Storm: Yeah, I'd be happy to. Yeah, so when we launched the Premium product in the first place, early 2020, our total penetration rate was [Technical Difficulty] launch a bunch of new value add benefits into the ecosystem to achieve that 50% target just based on kind of all the cohort metrics we look at [Technical Difficulty] we've hit that 50% mark. Our perspective on premium is changing a little bit from penetration being the primary metrics that we drive towards, moving towards pricing and bundling, like Garrett alluded to. Pricing, making sure the monthly versus annual plans are priced correctly for all of the different products and services that are serving as your entry point into the ecosystem and then bundling as wellness and health-related services get larger and become a more meaningful part of the ecosystem. Thinking about health specific bundles that lean towards a set of value adds that are better for that health conscious customer. So that's kind of our perspective there is to maintain penetration at 50% or so and then monetize the network incrementally better.

Sure.

Yes, so when we launched the premium product in the first place is early 2020.

Please proceed.

Understood.

Sure.

Launch a bunch of new.

Value add benefits into the ecosystem to achieve that 50% target just based on kind of all the cohort metrics when you look at it.

Right.

We hit that 50% Mark our perspective on premium is changing a little bit from penetration being the primary metric that we drive towards movie.

Moving towards pricing and bundling like Eric alluded to pricing, making sure the monthly versus annual plans are priced correctly for all of the different products and services that are serving as your entry point to the ecosystem and then bundling as wellness and health related services get larger.

And become a more meaningful part of the ecosystem.

<unk> about how specific bundles.

Sure.

Leading towards.

A set of value adds that are better for that health health.

Health conscious customer.

So that's kind of that's kind of our perspective, there is to maintain penetration at 50% or so and then monetize the network incrementally better.

Brian Dobson: Yeah, excellent. Thanks. That's helpful. And then would you mind expanding on some of your key strategic partnerships with brands like Tractor Supply or Kimpton? How do you see those relationships impacting customer acquisition cost over time?

And then would you mind expanding on some of your key strategic partnerships with brands like tracker supplier Kimpton.

How do you see those relationships impacting customer acquisition cost over time.

Garrett Smallwood: I mean, it's just a -- first off, it is a fantastic suite of brands. I think Kimpton is one of those pet friendly hotel brands in the country, Tractor Supply is America's largest rural retailer, and performing exceptionally for their customers, pay customer first. Hal, I think, comes from Home Depot and Macy's, just a phenomenal retail executive. So we generally want to align ourselves with brands that we think take care of pet parents, and help get us into the house, frankly. And so we'll continue to build out those relationships, think about additional ways to be present in store, online, through loyalty programs, etc, etc. I think really it is just the start.

Kimpton is one of the most pet friendly hotel brands in the country tracker supplies America's largest retailer.

And performing exceptionally for their customers very customer first Hal I think comes from home depot, Macy's just a phenomenal retail executive.

So we generally want to align ourselves with brands that we think take care take care of pet parents and helped get us into the house frankly.

And so we will continue to build out those relationships think about additional ways to present, it in store or online through loyalty programs et cetera et cetera.

I think related to just to start.

Brian Dobson: Excellent. Thanks very much.

Operator: One moment for our next question.

Brian Dobson: Our next question comes from Jason Helfstein with Oppenheimer, your line is open.

Jason Helfstein: Thanks. Two questions. I do apologize if they’re already asked; just jumping around on to the calls. Can you help us understand what percent of customers use more than one service in the quarter and maybe how that compares with last year just the evolution of customers, taking more than one service, starting with one and kind of growing? And then I guess the same idea with frequency, is there a way to think about kind of number of purchases per week that you've seen today versus nine months ago or a year ago? Just understand those two variables. Thank you.

I do apologize if they're already at just jumping around on recall. Can you help us understand what percent of customers use more than one service in the corner. And maybe how that compares with last year, just the evolution of customers, taking more than one service starting with one and kind of growing and then I guess the same idea with frequency is there a way to think about. Kind of. Number of purchases per. Weak. Seeing today versus nine months ago, or a year ago, just to understand those two variables. Thank you.

Can you help us understand what percent of customers use more than one service in the corner.

And maybe how that compares with last year, just the evolution of customers, taking more than one service starting with one and kind of growing and then I guess the same idea with frequency is there a way to think about.

Kind of.

Number of purchases per.

Weak.

Seeing today versus nine months ago, or a year ago, just to understand those two variables. Thank you.

Garrett Smallwood: Hi, Jason. Good to talk to you. So look, I think we shared early on, our long-term rebooking rates, kind of people that book a first service then go and book another service continues to be about 90% plus, so once you kind of try it, and keep on buying it, so to speak. We haven't disclosed multi service booking rate, just because that's pretty -- changed pretty aggressively quarterly based on sitting or boarding, drop-in in weather, believe it or not, incremental weather changes customer behavior; meaning if you're in Miami last quarter, you probably went from using a lot of walking into a lot of drop-ins. So it's difficult to give you an exact answer there but I can just generally say we're excited about the trend we're seeing. And then in terms of frequency and customer behavior, look, the average pet parents using us four to five times a month, that really hasn't changed. Premium pet parents continue to be that seven plus number, that really hasn't changed. What we're just seeing is kind of more customers falling into that Premium cohort if that makes sense.

Our I think we shared early on our long term rebooking rates kind of people that book. Our first service then go on to book. Another service continues to be about 90 plus percent.

So once you kind of try it and keep on buying it so to speak.

We haven't disclosed multi service booking rate, just because thats pretty changes pretty aggressively quarterly based on sitting on boarding drop it and whether believe it or not incremental weather changes customer behavior, meaning if you're in Miami last quarter, you probably went from using a lot of walking into a lot of dropping.

And so it's difficult to give you an exact answer there if I could just generally say we're excited about the trend we're seeing and then in terms of frequency and customer behavior.

Look the average pet parents using us four to five times, a month that really hasnt changed premium pet parents continue to beat that seven plus number that really hasnt changed what we're just seeing is kind of more customers falling into that premium cohort if that makes sense.

Jason Helfstein: Thank you.

Thank you.

Operator: I'm not showing any further questions at this time. I’d like to turn the call back over to management for any closing remarks.

Multiple speakers: [Garrett Smallwood] Thank you all for the time. We're excited to continue to build this business and become the button on the phone for the millions of pet parents. Well have a great day. [Operator] Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

[music].

Ladies and gentlemen, thank you for standing by and walk to the WAC third quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone I would now like to turn the call over to your host John Frank worked you may begin.

Good afternoon, everyone and thank you for joining last conference call to discuss our third quarter 2020 to financial results on.

On the call today are Gary.

Or a small one chief executive officer and chairman.

Out of the storm.

Evident and chief product officer.

And al 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 filings.

Also during the call we may present, both GAAP and non-GAAP financial measure reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued today.

And with that let me turn the call over to Darren.

Thanks, Don and good afternoon, everyone and thank you for joining us to discuss our third quarter 2022 performance. We had another record quarter with revenue up approximately 161% to $15 4 million from the prior year and adjusted EBITDA loss improving to 461000 from the last quarter, which is only possible with the hard work.

Our team at WAC, our performance this quarter is a testament to our value proposition and the non discretionary petcare industry and our ability to build upon our growth in the years ahead, they will be discussing our financial results for the third quarter as well as reiterating our compelling growth strategy that positions us to deliver predictable and sustainable financial performance.

And there are 2022 and beyond.

After another exceptional quarter, we are raising our 2022 guidance for both revenue and adjusted EBITDA.

I want to reiterate our mission here at whack, we believe that being busy shouldnt stop you from owning or taking care of your furry family members. Our mission is simple we solve the guilt and stress of owning a pet we exist to make pet ownership possible and to bring joy to pets, and those who love them. We're building a strong non discretionary consumer branded premium.

Pet care platform that is transforming the pet industry by simplifying caring for the patch you love the 44 billion pet wellness and service industries are fragmented and largely offline and we are consolidated these industries online and through our mobile app as we rapidly evolve as the number one pet wellbeing platform in the U S. Our business is diversified and has proven to be a return to normal post pandemic need a fundamental and imperative part of our business model is trust at 75% of Pet parents are not home, while our service is being delivered and we will continue to build on this track to drive high frequency utilization of our non discretionary services. I will now cover.

Our business is diversified and has proven to be a return to normal post pandemic need a fundamental and imperative part of our business model is trust at 75% of Pet parents are not home, while our service is being delivered and we will continue to build on this track to drive high frequency utilization of our non discretionary services.

I will now cover.

A high level overview of our third quarter performance before turning it over to Adam President and Chief product Officer, who will give an update on our strategy and key 2022 initiatives, then Alec Chief Financial Officer will discuss our third quarter results in more detail our capital allocation and our guidance for 2022, which again we raised today.

Our momentum continued this quarter with record revenue, increasing over 160% to $15 4 million compared to $5 9 million in the third quarter of 2021, we achieved an impressive adjusted EBITDA loss of 461000 from $2 6 million loss in the same period last year.

We're keenly aware this is not the time or place for growth at all costs and are instead striking a balance of growth margin and profit. Additionally, take rate improved to 61% compared to 43% in the third quarter of 2021, which was driven by the continued diversification of the platform, including instant pay wall.

Our revenue and wellness that apply upward pressure to take rate. These were notable accomplishments and underscore the resiliency and diversification of our business model. During the quarter, we saw popcorn participants grow to 473000, an increase of 22% from last quarter. Premium penetration for the quarter was 53% versus 50% last quarter, achieving the long term target penetration rate, we set out at the launch of the program two and a half years ahead of schedule. <unk> premium penetration is key to the platform resiliency as pet parents, who subscribe to <unk> premium are paying an additional $9 99 per month and use wag services seven to eight times per month versus 4% to five times a month for non subscribers. On this note were actively testing wag premium pricing benefits and possible. Other value adds to maintain the long term target and provide value to pet parents, who rely on wag each and every week. <unk> premium penetration demonstrates the compounding nature of our business and propels the predictability and sustainability of our revenue.

These were notable accomplishments and underscore the resiliency and diversification of our business model.

During the quarter, we saw popcorn participants grow to 473000, an increase of 22% from last quarter.

Premium penetration for the quarter was 53% versus 50% last quarter, achieving the long term target penetration rate, we set out at the launch of the program two and a half years ahead of schedule.

<unk> premium penetration is key to the platform resiliency as pet parents, who subscribe to <unk> premium are paying an additional $9 99 per month and use wag services seven to eight times per month versus 4% to five times a month for non subscribers. On this note were actively testing wag premium pricing benefits and possible.

Other value adds to maintain the long term target and provide value to pet parents, who rely on wag each and every week.

<unk> premium penetration demonstrates the compounding nature of our business and propels the predictability and sustainability of our revenue.

The deep rooted trust, we have created in our business model leads to high frequency utilization. Our LTV to CAC for the third quarter increased to eight to one demonstrating our sustained return to normal trend coming out of Covid and a testament to our strong view that wag as a non discretionary post pandemic need this quarter, we saw over 70% organic user acquisition rate and significant growth and awareness for our platform. Via strategic partnerships and performance marketing initiatives. During this quarter. We also recognized significant interest in the pet care giver gig and as a result, the average price that pet caregivers are paying to join the platform rose from around 29, 95% in Q2 to around $41 50. In Q3, we continue to believe we have the best gig in <unk>. Erica which is why they are more than 400000, preapproved pet caregivers, who are delivering value to the community each and every day at the current economics, we continue to have negative supply side can we. We will continue to demand supply and demand on a market by market basis, and as the world returns to normal we expect the pet care giver pricing to adjust to reflect not only the delightful nature of the gig, but also the availability of gigs and local network effects.

Our LTV to CAC for the third quarter increased to eight to one demonstrating our sustained return to normal trend coming out of Covid and a testament to our strong view that wag as a non discretionary post pandemic need this quarter, we saw over 70% organic user acquisition rate and significant growth and awareness for our platform.

Via strategic partnerships and performance marketing initiatives. During this quarter. We also recognized significant interest in the pet care giver gig and as a result, the average price that pet caregivers are paying to join the platform rose from around 29, 95% in Q2 to around $41 50. In Q3, we continue to believe we have the best gig in <unk>.

Erica which is why they are more than 400000, preapproved pet caregivers, who are delivering value to the community each and every day at the current economics, we continue to have negative supply side can we.

We will continue to demand supply and demand on a market by market basis, and as the world returns to normal we expect the pet care giver pricing to adjust to reflect not only the delightful nature of the gig, but also the availability of gigs and local network effects.

Before turning the call over to Adam to discuss our growth initiatives I will summarize wags differentiated position in the pet care industry. One we are a trusted on demand digital marketplace and our goal is to be the leading platform for premium pet care, leveraging our strong consumer brand and efficient business model to drive long term growth and shareholder value. Wagoner multifaceted platform, that's consolidate into fast growing secular growth areas within the pet industry. This includes our mobile first subscription based platform the largest patent torrance marketplace in the U S and what we believe is the best gig in America great. With more than 75% of pet parents away well services being delivered we found that the ability to access on demand and recurring Dog-walker pet sitting training services and much more across 5300 cities in all 50 states in a way in the door with premium pet parents across the U S. We are becoming the button on the phone for the path a place for <unk>.

One we are a trusted on demand digital marketplace and our goal is to be the leading platform for premium pet care, leveraging our strong consumer brand and efficient business model to drive long term growth and shareholder value.

Wagoner multifaceted platform, that's consolidate into fast growing secular growth areas within the pet industry. This includes our mobile first subscription based platform the largest patent torrance marketplace in the U S and what we believe is the best gig in America great.

With more than 75% of pet parents away well services being delivered we found that the ability to access on demand and recurring Dog-walker pet sitting training services and much more across 5300 cities in all 50 states in a way in the door with premium pet parents across the U S. We are becoming the button on the phone for the path a place for <unk>.

Trust with their pet health and wellbeing. We're extremely excited about the growth in our business, including the wellness category, which is a major catalyst as pet parents are finding the ability to chat with licensed Pat experts 27, pet wellness plan and the ability to shop pet insurance, an obvious value add in a world full of options. With that update Adam will provide more color on our strategy. Thanks, Gary I'll now walk through the five top level elements of our 2022 strategies to drive long term shareholder value. To accelerate growth in existing markets. To expand premium subscription offerings. <unk> platform expansion for opportunistic M&A and five operating scale. As we mentioned, we see significant opportunity to accelerate growth in existing markets as people resumed to more normal activities post pandemic and utilize our expanded offerings, including increasing return to office trend, which is the primary wag use case.

We're extremely excited about the growth in our business, including the wellness category, which is a major catalyst as pet parents are finding the ability to chat with licensed Pat experts 27, pet wellness plan and the ability to shop pet insurance, an obvious value add in a world full of options.

With that update Adam will provide more color on our strategy.

Thanks, Gary I'll now walk through the five top level elements of our 2022 strategies to drive long term shareholder value.

To accelerate growth in existing markets.

To expand premium subscription offerings.

<unk> platform expansion for opportunistic M&A and five operating scale.

As we mentioned, we see significant opportunity to accelerate growth in existing markets as people resumed to more normal activities post pandemic and utilize our expanded offerings, including increasing return to office trend, which is the primary wag use case.

Over the quarter, we saw 47% of people back in office per capsule data, which is the biggest jump we've seen to date. We anticipate this return to office tailwind to continue through 2022, and 2023, allowing us to sustainably grow within existing markets and capture additional share of wallet through the compounding effect of our premium subscription and additional product lines. In addition to the increased return to office trend. We're also in the early days of influx of new pet parents with one in five people adopting a pet during the pandemic. As these new pet parents returned to office and normal activities. We believe wags non discretionary services will be an integral part of how these new pet parents care for their furry family members.

We anticipate this return to office tailwind to continue through 2022, and 2023, allowing us to sustainably grow within existing markets and capture additional share of wallet through the compounding effect of our premium subscription and additional product lines.

In addition to the increased return to office trend. We're also in the early days of influx of new pet parents with one in five people adopting a pet during the pandemic.

Finally, we see the secular trend of the Humanization of pets with people developing close bonds with their pets during the pandemic, increasing which in turn leads to pet parents being more and clients will spend money on their furry family members. Our second growth driver is to expand premium subscription offerings now that we have achieved our long term target of 50% lagged premium penetration. We are now considering premium pricing tiers subscription tiers and product bundling to capture more wallet share grow revenue and drive additional value to the firm. As a reminder, <unk> premium subscribers receive a 10% discount on all services VIP customer support and unlimited, 20% have an expert advice, which drives customer satisfaction and retention and willingness to up sell to our expanding set of products and services. As we emphasized last quarter, we're focused on maintaining wag premium penetration in the coming quarters as well as launching new and exciting product lines to drive long term engagement.

Our second growth driver is to expand premium subscription offerings now that we have achieved our long term target of 50% lagged premium penetration.

We are now considering premium pricing tiers subscription tiers and product bundling to capture more wallet share grow revenue and drive additional value to the firm.

As a reminder, <unk> premium subscribers receive a 10% discount on all services VIP customer support and unlimited, 20% have an expert advice, which drives customer satisfaction and retention and willingness to up sell to our expanding set of products and services.

As we emphasized last quarter, we're focused on maintaining wag premium penetration in the coming quarters as well as launching new and exciting product lines to drive long term engagement.

Over the quarter, we continued testing and the wag premium benefits center and found that the number one thing pet parents are looking for help with is choosing food for their specific test needs age and activity levels. We plan to hone in on this need and continue to develop our holistic approach the wag premium ecosystem. Third we are focused on platform expansion and diversifying our products and services within the platform, including the recent launch of a whole suite of dropping products, including 2030, and 60 minute options across all markets in the U S and multi day bookings, which enables pet parents to book multiple services for the same day. Drop in visits when a pet parent is away from home for an extended period of time. This simplicity of choice drives both retention and frequency and feeds into like Greenhill.

We plan to hone in on this need and continue to develop our holistic approach the wag premium ecosystem.

Third we are focused on platform expansion and diversifying our products and services within the platform, including the recent launch of a whole suite of dropping products, including 2030, and 60 minute options across all markets in the U S and multi day bookings, which enables pet parents to book multiple services for the same day.

Drop in visits when a pet parent is away from home for an extended period of time.

This simplicity of choice drives both retention and frequency and feeds into like Greenhill.

The upward pressure we've seen in take rate is driven by these high margin products and services and we continue to focus on the growing surface area of the platform to deliver long term margin expansion and predictable revenue streams. Thrilled about the opportunity to dig deeper into the wellness category with the expansion into veterinary clinics, including software to simplify prescription medicine and food through our acquisition of pharmacy as well as our partnership with Baby list, the leading vertical marketplace for new parents. We remain thrilled with our partnerships with tractor supply and <unk>, we announced last quarter and continue to grow our relationships in the fourth quarter.

Thrilled about the opportunity to dig deeper into the wellness category with the expansion into veterinary clinics, including software to simplify prescription medicine and food through our acquisition of pharmacy as well as our partnership with Baby list, the leading vertical marketplace for new parents.

We remain thrilled with our partnerships with tractor supply and <unk>, we announced last quarter and continue to grow our relationships in the fourth quarter.

Okay. Fourth prioritizing growth in our business through opportunistic M&A. Last quarter, we announced last entry into an agreement to acquire Pharmacy, Inc, which was completed in October after receiving regulatory approval. Extremely excited about the opportunity this provides to expand our reach in the pet wellness category and feel that this is the first step in demonstrating our commitment to diversification, which is a compelling part of our long term growth objectives. As a reminder, pharmacies mission is to deliver pet health directly to your front door. Pharmacy doses by empowering veterinary clinics with easy to use pharmacy software, giving them the ability to prescribe medication instantly have it delivered to the pet parents store the same day and usually in less than a few hours from our local warehouse.

Fourth prioritizing growth in our business through opportunistic M&A.

Last quarter, we announced last entry into an agreement to acquire Pharmacy, Inc, which was completed in October after receiving regulatory approval.

Extremely excited about the opportunity this provides to expand our reach in the pet wellness category and feel that this is the first step in demonstrating our commitment to diversification, which is a compelling part of our long term growth objectives.

As a reminder, pharmacies mission is to deliver pet health directly to your front door.

Pharmacy doses by empowering veterinary clinics with easy to use pharmacy software, giving them the ability to prescribe medication instantly have it delivered to the pet parents store the same day and usually in less than a few hours from our local warehouse.

With the closing of this transaction and I towards the future, we are well positioned to sustain strong performance and effectively compete in the marketplace. The final element of our strategy is operating scale. This quarter, we saw improvement in margins across the board proving the scalability of our online platform that connects pet parents with the highest quality pet caregivers. Our customer acquisition unit economics as seen in our eight to one LTV CAC ratio continued to be well ahead of our targets for the period. Adjusted EBIT margin improved from 7% to 3% loss from Q2 to Q3 2022, demonstrating our improving efficiency as we scale. We continue to be intensely focused on businesses and opportunities that have low fixed costs, low opex and a rapid ability to scale.

The final element of our strategy is operating scale.

This quarter, we saw improvement in margins across the board proving the scalability of our online platform that connects pet parents with the highest quality pet caregivers.

Our customer acquisition unit economics as seen in our eight to one LTV CAC ratio continued to be well ahead of our targets for the period.

Adjusted EBIT margin improved from 7% to 3% loss from Q2 to Q3 2022, demonstrating our improving efficiency as we scale.

We continue to be intensely focused on businesses and opportunities that have low fixed costs, low opex and a rapid ability to scale.

We continue to be bullish on software enabled marketplaces that have structurally high EBITDA margins. The healthy fundamentals underpinning our growth and platform expansion positions us well for Q4 and beyond we.

The healthy fundamentals underpinning our growth and platform expansion positions us well for Q4 and beyond we.

We will continue to be disciplined operators and remain hyper focused on managing gross margin and profit.

And with that let me turn the call over to Alex. Thank you Adam and thank you everyone for joining our third quarter call. And being the number one premium services platform to pet prices allowed us to achieve a record quarter. Once again with continued platform diversification and growth in both service and wellness revenues. Start by diving into our third quarter results, followed by updates on our 'twenty two guidance.

Thank you Adam and thank you everyone for joining our third quarter call.

And being the number one premium services platform to pet prices allowed us to achieve a record quarter. Once again with continued platform diversification and growth in both service and wellness revenues.

Start by diving into our third quarter results, followed by updates on our 'twenty two guidance.

In the third quarter, we achieved the highest quarterly revenue in our company's history at $15 4 million. Totaling $37 $8 million revenue year to date.

Totaling $37 $8 million revenue year to date.

And three quarters, we have nearly achieved our initial 22 full year revenue estimate of 41 eight. $8 million as stated in our initial investor deck in April 22. This increase translates to approximately <unk> revenue. The quarter over prior year quarter as well as Q3 dollars 22 year to date basis.

$8 million as stated in our initial investor deck in April 22.

This increase translates to approximately <unk> revenue.

The quarter over prior year quarter as well as Q3 dollars 22 year to date basis.

<unk> hundred 21 year to date. The growth in revenue was primarily driven by success in our diversification of revenue streams, including items, such as wellness lagged premium instant pay <unk> 70. As well as increased pet parent engagement and return to office trades.

The growth in revenue was primarily driven by success in our diversification of revenue streams, including items, such as wellness lagged premium instant pay <unk> 70.

As well as increased pet parent engagement and return to office trades.

Pet parents continue to demand access to various pet services via our platform and have a strong interest in wellness services, showing particular interest in doing the best by the FRE family friends. This is evident with wireless contributing to 62% of revenue in Q3 dollars 22. As Gary indicated we have become so much more to our pet parents than just that go to walking sitting voting and trading platform.

This is evident with wireless contributing to 62% of revenue in Q3 dollars 22.

As Gary indicated we have become so much more to our pet parents than just that go to walking sitting voting and trading platform.

The trust, we built through our traditional on demand services, coupled with the digital age of our platform have become evident. And multiple service categories. Platform take rate was 61% up from 43% from the same period last year. This is primarily driven by 85% growth in gross bookings from Q3 last year arising from continued diversification of the platform apply upward pressure to the platform take rate. Turning to expenses during the third quarter.

And multiple service categories.

Platform take rate was 61% up from 43% from the same period last year.

This is primarily driven by 85% growth in gross bookings from Q3 last year arising from continued diversification of the platform apply upward pressure to the platform take rate.

Turning to expenses during the third quarter.

This quarter include a number of one time transaction cost in aggregate. $5 million, which I will exclude for the purposes of like for like comparison to the prior year. Cost of revenue, excluding depreciation and amortization were $1 million or 7% of revenue compared to 15% of revenue in Q3 dollars 21. The improvement in Q3 dollars 22 is driven by the scalability of our business combined with an increase in service offerings with higher margins. Okay. Operations and support expenses were $5 6 million or.

$5 million, which I will exclude for the purposes of like for like comparison to the prior year.

Cost of revenue, excluding depreciation and amortization were $1 million or 7% of revenue compared to 15% of revenue in Q3 dollars 21.

The improvement in Q3 dollars 22 is driven by the scalability of our business combined with an increase in service offerings with higher margins.

Okay.

Operations and support expenses were $5 6 million or.

$2 8 million excluding transaction costs. This equates to 18% of revenue compared to 43% in Q3 dollars 21. The improvement in Q3, 'twenty, two is driven by operational excellence and scalability of our technology infrastructure and realization of the investments made in both technology and support processes. Sales and marketing expenses were $11 3 million or <unk>. $9 2 million excluding transaction costs.

This equates to 18% of revenue compared to 43% in Q3 dollars 21.

The improvement in Q3, 'twenty, two is driven by operational excellence and scalability of our technology infrastructure and realization of the investments made in both technology and support processes.

Sales and marketing expenses were $11 3 million or <unk>.

$9 2 million excluding transaction costs.

This equates to 59% of revenue compared to 54% in Q2 'twenty one. This is primarily attributed to a $4 7 million increase in partnership activity. Best in launching the new partners together with a $1 $3 million increase in personnel related compensation and agency customer, marking marketing team consultant and marketing agency partners. G&A expenses were $23 8 million or $3 million excluding transaction costs.

This is primarily attributed to a $4 7 million increase in partnership activity.

Best in launching the new partners together with a $1 $3 million increase in personnel related compensation and agency customer, marking marketing team consultant and marketing agency partners.

G&A expenses were $23 8 million or $3 million excluding transaction costs.

This equates to 19% of revenue compared to 34% in Q3 dollars 21. While G&A cost of increase in <unk> as a result of investment in public market infrastructure and investing in pallet, a decrease as a percentage of revenue year over year demonstrates our ability to scale revenue versus G&A costs.

While G&A cost of increase in <unk> as a result of investment in public market infrastructure and investing in pallet, a decrease as a percentage of revenue year over year demonstrates our ability to scale revenue versus G&A costs.

Our approach has been and continues to be grounded and prudently managing our G&A expenses, while continuing to strategically invest in the business. <unk> EBITDA, which is an important profitability measure that we use internally to manage the business improved $2 1 million to the adjusted EBITDA loss of 461000. This compares to an adjusted EBITDA loss of $2 6 million in Q2 'twenty one. Turning to our balance sheet, we ended the third quarter with over $28 million in cash and cash equivalents. Our balance sheet remained strong in the context of our operating burn and puts us in a strong position to comfortably fund our growth objectives.

<unk> EBITDA, which is an important profitability measure that we use internally to manage the business improved $2 1 million to the adjusted EBITDA loss of 461000.

This compares to an adjusted EBITDA loss of $2 6 million in Q2 'twenty one.

Turning to our balance sheet, we ended the third quarter with over $28 million in cash and cash equivalents.

Our balance sheet remained strong in the context of our operating burn and puts us in a strong position to comfortably fund our growth objectives.

We're also maintaining flexibility to pursue strategic M&A, but we believe the opportunity aligns with our goals. As you saw in our Q2 earnings release, we have entered into an agreement to acquire <unk>. Subject to regulatory approvals we. We have paid all necessary approvals and close its acquisition of October . We're incredibly excited with this acquisition and have already welcomed pharmacy team members to wag and have built a strong alignment of value since the beginning. Pharmacies proven track record in providing high quality prescription services to pet parents coupled. Coupled with our deep industry expertise makes them the right partner for Wags mix chapter of diversification and broadening reach into the pet food.

As you saw in our Q2 earnings release, we have entered into an agreement to acquire <unk>.

Subject to regulatory approvals we.

We have paid all necessary approvals and close its acquisition of October .

We're incredibly excited with this acquisition and have already welcomed pharmacy team members to wag and have built a strong alignment of value since the beginning.

Pharmacies proven track record in providing high quality prescription services to pet parents coupled.

Coupled with our deep industry expertise makes them the right partner for Wags mix chapter of diversification and broadening reach into the pet food.

Market segments. Now I will comment on our updated guidance for fiscal 'twenty two. As you heard from Gary we are very pleased with the strong performance. We saw during the third quarter and our ability to provide solutions to pet parents.

Now I will comment on our updated guidance for fiscal 'twenty two.

As you heard from Gary we are very pleased with the strong performance. We saw during the third quarter and our ability to provide solutions to pet parents.

As a result, we are raising the guidance. We previously provided in our Q2 earnings release. Our revised guidance assumes a continued trend and return to office. Measured by the costs were back to what measure and continued platform diversification. For full year 'twenty, two we now expect. Total revenue in the range of $51 million to $52 million, an increase of 155% to 160% year over year. 7% improvement versus our prior forecast at the midpoint of the range.

Our revised guidance assumes a continued trend and return to office.

Measured by the costs were back to what measure and continued platform diversification.

For full year 'twenty, two we now expect.

Total revenue in the range of $51 million to $52 million, an increase of 155% to 160% year over year.

7% improvement versus our prior forecast at the midpoint of the range.

Adjusted EBIT in the range of $5 million to $6 million, a 39% improvement versus our prior forecast at the midpoint of the range. We are very pleased with our record performance this quarter I remain confident that our diversified and efficient business to produce sustainable growth for the remainder of 'twenty two and into 'twenty three. And with that we will now take Q&A.

We are very pleased with our record performance this quarter I remain confident that our diversified and efficient business to produce sustainable growth for the remainder of 'twenty two and into 'twenty three.

And with that we will now take Q&A.

Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile our Q&A roster. Our first question comes from Jeremy Hamblin with Craig Hallum. Your line is open. Thanks, so much and congratulations on the strong results. Wanted to just start by saying if. If we could get a little more detail on the wellness platform, which really seem to have some explosive growth. I think by my math, a 62% of revenue was about $9 5 million.

Our first question comes from Jeremy Hamblin with Craig Hallum. Your line is open.

Thanks, so much and congratulations on the strong results.

Wanted to just start by saying if.

If we could get a little more detail on the wellness platform, which really seem to have some explosive growth.

I think by my math, a 62% of revenue was about $9 5 million.

And I wanted to see if you could provide some color as to. Whether or not you're getting more of that growth is coming from your insurance marketplace. Versus pet. Pet expert. Care. Absolutely chairman good to connect thanks for the time I think generally we're seeing a lot of excitement around our suite of wellness products. As a reminder, wellness we classify as a few different things, it's wet standalone wag wellness plans.

Whether or not you're getting more of that growth is coming from your insurance marketplace.

Versus pet.

Pet expert.

Care.

Absolutely chairman good to connect thanks for the time I think generally we're seeing a lot of excitement around our suite of wellness products. As a reminder, wellness we classify as a few different things, it's wet standalone wag wellness plans.

Is our $24 seven expert pet advice, which for wags premium members is bundled into the kind of free benefits and then it is headed and compare which are the largest pet insurance marketplaces in the U S from our understanding. I would just generally say last quarter, we certainly saw more and more pet parents looking for pet insurance help.

I would just generally say last quarter, we certainly saw more and more pet parents looking for pet insurance help.

That was certainly a catalyst for growth. Got it and then. In terms of. Looking at. What youre doing with your pet caregivers and kind of the access to the platform access fee, which clicked up. Quite a bit. Are you thinking about keeping that as a one time fee what types of consideration to potentially making that a monthly or quarterly fee of $2 a month, let's say. To stay on the platform to really. Sure that you are in sync with your <unk>.

Got it and then.

In terms of.

Looking at.

What youre doing with your pet caregivers and kind of the access to the platform access fee, which clicked up.

Quite a bit.

Are you thinking about keeping that as a one time fee what types of consideration to potentially making that a monthly or quarterly fee of $2 a month, let's say.

To stay on the platform to really.

Sure that you are in sync with your <unk>.

Wanted to stay active versus those that. Might lapse after let's say six or 12 months. Absolutely. Taking a step back we are certainly seeing across the U S. A different what we'll call Jeremy a return to normal New York City, certainly seems has opened up pretty quickly and aggressively maybe compared to San Francisco and that difference has led us to see a different level of engagement by market for pet caregivers.

Might lapse after let's say six or 12 months.

Absolutely.

So believe it or not. We still believe is the best gig in America I don't know a lot of people, who don't want to go out at two o'clock on Tuesday, and walk Goldman Doodle and so we've seen a really a strong interest in becoming a member of the community and building our business on a lag as a pet caregiver and as a result <unk>. <unk> been able to test dynamic pricing to participate in the platform as a function of supply and demand equilibrium, meaning if we're seeing a significant amount of demand. The supply will rebalance the other way and we're seeing a lot of supply in as much demand rebounds, the other way.

We still believe is the best gig in America I don't know a lot of people, who don't want to go out at two o'clock on Tuesday, and walk Goldman Doodle and so we've seen a really a strong interest in becoming a member of the community and building our business on a lag as a pet caregiver and as a result <unk>.

<unk> been able to test dynamic pricing to participate in the platform as a function of supply and demand equilibrium, meaning if we're seeing a significant amount of demand.

The supply will rebalance the other way and we're seeing a lot of supply in as much demand rebounds, the other way.

To your point about possibly introducing ongoing subscription like product or a recurring revenue fee for caregivers. I would just take a step back and say we have a suite of products that caregivers used today, one would be something like instant pay which allows that instant withdrawal of their funds as a really fast growing part of our. So we're excited about. There are other mechanisms that we capture kind of dollars from caregivers, but I wouldn't say it's out of the question to think that at some point there could be additional ways that we provide value to people who are building their business on <unk>.

I would just take a step back and say we have a suite of products that caregivers used today, one would be something like instant pay which allows that instant withdrawal of their funds as a really fast growing part of our.

So we're excited about.

There are other mechanisms that we capture kind of dollars from caregivers, but I wouldn't say it's out of the question to think that at some point there could be additional ways that we provide value to people who are building their business on <unk>.

Great last one real quick for me so the Q4 guidance it looks like it implies like $13 2 million to $14 2 million. Little bit of a step down sequentially from what you had in Q3. Last year in Q4, you had. Pretty nice step up I think even when backing out the timing of. The acquisitions, but just wanted to get a sense is there a seasonality in play here to consider in that or other factors. And in.

Little bit of a step down sequentially from what you had in Q3.

Last year in Q4, you had.

Pretty nice step up I think even when backing out the timing of.

The acquisitions, but just wanted to get a sense is there a seasonality in play here to consider in that or other factors.

And in.

And which youre guiding to those levels. I think thats right I would just say, we're definitely being thoughtful and probably a little conservative on how we think about seasonality I mean, there's three things that are probably going to happen this quarter. Just anything about consumer behavior, one as more people will move from daytime services to overnight services as they travel. And as a reminder, we really the whole family to be traveling someone's staying home what the pet they don't normally will move up to a sitting in boarding like products.

I think thats right I would just say, we're definitely being thoughtful and probably a little conservative on how we think about seasonality I mean, there's three things that are probably going to happen this quarter.

Just anything about consumer behavior, one as more people will move from daytime services to overnight services as they travel.

And as a reminder, we really the whole family to be traveling someone's staying home what the pet they don't normally will move up to a sitting in boarding like products.

So we're certainly interested in how travel will perform this quarter and then finally as people think about this. This environment certainly their pets' needs. It is not totally clear to us at there'll be forced to prioritize family over Pat in some circumstances, where I'm going with that is specifically pet insurance pet health <unk> wellness plans and the subscription product are really.

This environment certainly their pets' needs. It is not totally clear to us at there'll be forced to prioritize family over Pat in some circumstances, where I'm going with that is specifically pet insurance pet health <unk> wellness plans and the subscription product are really.

Important core decisions for your pet, but when it comes to maybe the holidays and Youre thinking about Christmas presence or on a presence wherever it might be and you have to make a decision. We think the whole generally opt to support their families. So we're excited about today's Brent. We're excited about kind of what we think the next couple of months are going to go but theres definitely some conservatism baked in.

Got it thanks, so much for the color guys congrats. One moment for our next question. Our next question comes from Matt Koranda with Roth Your line is open. Hey, guys good afternoon, and thanks for the questions here. Just wanted to spend back of the services revenue for just a moment, if we could I mean, north of 300% growth year over year, if im calculating it right here.

One moment for our next question.

Our next question comes from Matt Koranda with Roth Your line is open.

Hey, guys good afternoon, and thanks for the questions here.

Just wanted to spend back of the services revenue for just a moment, if we could I mean, north of 300% growth year over year, if im calculating it right here.

Wanted to see is there any way you can unpack that just between sort of the insurance marketplace revenue stream versus kind of the wellness plans and all other items within the services line and then just how sustainable is it to assume that you can like two extra <unk> that segment year over year over the next few quarters. It just seems like a really.

Breakneck growth base, which is great, but just wanted to kind of get a sense for like how do we level set and normalize. Or do you think about kind of normalized growth in the 23 yeah. I appreciate the time as always thank you for being here. We arent separate out wellness and again the reason is a bunch of things.

Or do you think about kind of normalized growth in the 23 yeah.

I appreciate the time as always thank you for being here.

We arent separate out wellness and again the reason is a bunch of things.

Seasonality in that business, there are new product lines were experimenting with in that business. I think we mentioned on the call we're going to be can experiment pretty aggressively with premium bundling premium pricing premium benefit benefit center that that is a very dynamic part of the business that we're excited about and there are many kind of important pieces to it.

I think we mentioned on the call we're going to be can experiment pretty aggressively with premium bundling premium pricing premium benefit benefit center that that is a very dynamic part of the business that we're excited about and there are many kind of important pieces to it.

To your point about kind of ongoing and future growth rates look I think we generally said that our long term growth target was. <unk> 40, plus percent certainly and far ahead of that in 2022. We continue to be very bullish on the category in general I think the two reasons for that are we believe fundamentally that we are targeting a premium. And as these people are. Not really concerned about booking 2347 services a months and also bundling that with our premium and with the pet insurance purchased and what the wellness plan or whatever else and finally, it's really not discretionary when you're forced to go back to the office. We are traveling you only have a choice like if your packet your families out of town or your family is not their kids are at school, you really need a wag.

<unk> 40, plus percent certainly and far ahead of that in 2022.

We continue to be very bullish on the category in general I think the two reasons for that are we believe fundamentally that we are targeting a premium.

And as these people are.

Not really concerned about booking 2347 services a months and also bundling that with our premium and with the pet insurance purchased and what the wellness plan or whatever else and finally, it's really not discretionary when you're forced to go back to the office. We are traveling you only have a choice like if your packet your families out of town or your family is not their kids are at school, you really need a wag.

And so we could see me very bullish on the long term prospects. We originally laid out in our investor deck, I think about a year ago. Okay. Got it. And then just any preliminary thoughts on sort of how you begin to tear the premium service with those in the interesting comment that we could start to see that. Is that essentially are you carrying it to help with some of the onboarding for more active pet parents into the premium service. What's the purpose behind that and then just any thoughts on sort of how you might. Kind of. Flipped out different surfaces in wellness plans into different premium offerings.

Okay.

Got it.

And then just any preliminary thoughts on sort of how you begin to tear the premium service with those in the interesting comment that we could start to see that.

Is that essentially are you carrying it to help with some of the onboarding for more active pet parents into the premium service.

What's the purpose behind that and then just any thoughts on sort of how you might.

Kind of.

Flipped out different surfaces in wellness plans into different premium offerings.

Great question. So look just again think about the platform. We're building the platform for the premium pet parent we told everyone at the button on the phone for the PA Amazes us that Theres no button on the phone for the pop today in today's kind of dynamic. Digital era of iphones and androids and so. When you think about premium premium is really the glue that holds all of these products together, whether it's a dog walk or are sitting or reporting or training or a pet insurance purchase were a wellness plan premium is how we think about that as kind of bundling of products and services for unique pet parents and what we're finding is the platform of scaling so rapidly and you can see I think I think platform participants that groups.

So look just again think about the platform. We're building the platform for the premium pet parent we told everyone at the button on the phone for the PA Amazes us that Theres no button on the phone for the pop today in today's kind of dynamic.

Digital era of iphones and androids and so.

Like 22% quarter over quarter. People are have different needs. So if you're a parent you exclusively use wag for walking you might have different needs of the PREPA and use us for sitting on boarding and walking in wellness and so we think as the platform scales, we need to better identify and serve each of those unique cohorts I think that's what you can expect from premium I don't give you too much more because general anything we do in the next year will be copper. Two or three years later.

People are have different needs. So if you're a parent you exclusively use wag for walking you might have different needs of the PREPA and use us for sitting on boarding and walking in wellness and so we think as the platform scales, we need to better identify and serve each of those unique cohorts I think that's what you can expect from premium I don't give you too much more because general anything we do in the next year will be copper.

Two or three years later.

But we're excited about the opportunity to really deliver pet parents unique value to identify the cohorts that are using us and to provide additional value as we bundle in these additional platforms and I would also say the tide in the pharmacy right pharmacies prescription engine for the business at some point.

Great I appreciate that detail good I'll leave it there. Thank you. One moment for our next question. Our next question comes from Rohit, Kulkarni with MK and partners. Hey, Thanks, Congrats on the quarter nice to hear from you. Maybe a big picture on just the competitive environment. How do you think that has evolved now that you have. The IPO. Perhaps more. More under the spotlight in <unk>, So maybe just talk to how how do you think. Competitive environment has evolved where do you see the. The biggest kind of first Lucas videos from your standpoint.

One moment for our next question.

Our next question comes from Rohit, Kulkarni with MK and partners.

Hey, Thanks, Congrats on the quarter nice to hear from you.

Maybe a big picture on just the competitive environment. How do you think that has evolved now that you have.

The IPO.

Perhaps more.

More under the spotlight in <unk>, So maybe just talk to how how do you think.

Competitive environment has evolved where do you see the.

The biggest kind of first Lucas videos from your standpoint.

Well first off Rohit always a treat thank you for being here. We are just operating like we operate regardless of the environment and regardless of kind of where we are as a business. We're passionate people about the products. We're building. We're operationally efficient. We believe we are operationally excellent frankly, and we're going to do what we say we're going to do. And I think all of those things Youll see it in this quarter's results. What you saw last quarter's results and we think that we're just not really going to change the pace of the evolution of the business. We are innovating quickly, we're launching products and services that people love. Unlike our peers, who have had to exit categories that are not a fit and we are continuing to drive outsized returns on the small bets we make.

We are just operating like we operate regardless of the environment and regardless of kind of where we are as a business. We're passionate people about the products. We're building. We're operationally efficient. We believe we are operationally excellent frankly, and we're going to do what we say we're going to do.

And I think all of those things Youll see it in this quarter's results.

What you saw last quarter's results and we think that we're just not really going to change the pace of the evolution of the business. We are innovating quickly, we're launching products and services that people love. Unlike our peers, who have had to exit categories that are not a fit and we are continuing to drive outsized returns on the small bets we make.

And the things that we're pushing forward. So in general I think our goal is to be ahead of everyone and I think we've demonstrated that in the last year with the products and services, we pushed out to the ecosystem. Okay cool. And then on marketing, maybe maybe talk about how has. LTV to CAC. Trended for you over the last few months and. Where do you see that going in terms of. Okay. It clearly seems that the intergroup marketing is leading to more people in the marketplace on both sides. So perhaps talk about how you're thinking about that. It's interesting, it's an interesting environment for performance marketing Entre partnerships frankly. Two things we are seeing separately one is in this market, we're seeing a lot of interest in wag as an add on as people return to normal and so you saw that with tractor supply and <unk> you saw that with baby list. We are overall very excited about the possible partnerships in 2022, and 2023 and obviously beyond. Performance marketing is just a really dynamic and changing environment right now our belief structurally is that the market will continue to evolve there are most likely be a significant pullback in AD spend across different ecosystem players and that will give us a chance to lean in you saw 81 LTV to CAC. This quarter I think it was similar last quarter. And we're just kind of testing waters across a number of different mediums with different efficacy, but we can definitely say that the market is changing pretty rapidly.

Okay cool.

And then on marketing, maybe maybe talk about how has.

LTV to CAC.

Trended for you over the last few months and.

Where do you see that going in terms of.

Okay.

It clearly seems that the intergroup marketing is leading to more people in the marketplace on both sides. So perhaps talk about how you're thinking about that.

It's interesting, it's an interesting environment for performance marketing Entre partnerships frankly.

Two things we are seeing separately one is in this market, we're seeing a lot of interest in wag as an add on as people return to normal and so you saw that with tractor supply and <unk> you saw that with baby list.

We are overall very excited about the possible partnerships in 2022, and 2023 and obviously beyond.

And we're just kind of testing waters across a number of different mediums with different efficacy, but we can definitely say that the market is changing pretty rapidly.

Okay sounds good thanks, guys and congrats. Yes. One moment for our next question. Our next question comes from Brian Dobson with Chardan. Your line is open. Hi, good evening, thanks for taking the question. So. As you are thinking.

Yes.

One moment for our next question.

Our next question comes from Brian Dobson with Chardan. Your line is open.

Hi, good evening, thanks for taking the question.

So.

As you are thinking.

Thinking about premium premium subscription penetration the growth. There is very impressive do you see a natural tops to that penetration level or how do you expect that to. Call it evolve over the longer term. Yeah, absolutely Adam it looks like about premium. Yes, I'd be happy to.

Call it evolve over the longer term.

Yeah, absolutely Adam it looks like about premium.

Yes, I'd be happy to.

Yes, so when we launched the premium product in the first place early 2020. Great. The increase at cornerstone. Launch a bunch of new. Value add benefits into the ecosystem to achieve that 50% target just based on kind of all the cohort metrics when you look at it. Thank you Brian . We hit that 50% Mark our perspective on premium is changing a little bit from penetration being the primary metric that we drive towards. Moving towards pricing and bundling like Eric alluded to pricing, making sure the monthly versus annual plans are priced correctly for all of the different products and services that are serving as your entry point to the ecosystem and then bundling as wellness and health related services get larger.

Great.

The increase at cornerstone.

Launch a bunch of new.

Value add benefits into the ecosystem to achieve that 50% target just based on kind of all the cohort metrics when you look at it.

Thank you Brian .

We hit that 50% Mark our perspective on premium is changing a little bit from penetration being the primary metric that we drive towards.

And become a more meaningful part of the ecosystem. <unk> about how specific bundles. Sure. That leading towards a. A set of value adds that are better for that. Health conscious customer. So that's kind of that's kind of our perspective, there is to maintain penetration. 50% or so and then monetize the network incrementally better. Excellent. Thanks Thats helpful. Would you mind expanding on some of your key strategic partnerships with brands like tracker supplier Kimpton. Do you see those relationships impacted your customer acquisition cost over time.

<unk> about how specific bundles.

Sure.

That leading towards a.

A set of value adds that are better for that.

Health conscious customer.

So that's kind of that's kind of our perspective, there is to maintain penetration.

50% or so and then monetize the network incrementally better.

Excellent. Thanks Thats helpful.

Would you mind expanding on some of your key strategic partnerships with brands like tracker supplier Kimpton.

Do you see those relationships impacted your customer acquisition cost over time.

I mean, it's just. First off to fantastic suite of brands I think kimpton is one of the most pet friendly hotel brands in the country crackers plasma because largest retailer. Plumbing, just exceptionally for their customers great customer first Hal I think comes from home depot, Macy's just phenomenal retail executive. So we generally want to align ourselves with brands that we think take care take care pet parents and help get us into the house frankly, and so we will continue to build out those relationships think about additional ways to be present in store online through loyalty programs et cetera et cetera.

First off to fantastic suite of brands I think kimpton is one of the most pet friendly hotel brands in the country crackers plasma because largest retailer.

Plumbing, just exceptionally for their customers great customer first Hal I think comes from home depot, Macy's just phenomenal retail executive.

So we generally want to align ourselves with brands that we think take care take care pet parents and help get us into the house frankly, and so we will continue to build out those relationships think about additional ways to be present in store online through loyalty programs et cetera et cetera.

I think it really is just to start. Excellent thanks very much. One moment for our next question. Our next question comes from Jason Jason <unk> with Oppenheimer. Your line is open. Thanks, two questions I do apologize if they were already asked just jumping around multiple calls. Can you help us understand what percent of customers use more than one service in the corner and maybe how that compares with last year, just the evolution of customers taking more than one service starting with one and kind of growing and then I guess the same idea with frequency is there a way to think about. Kind of. The number of purchases per week. Youre seeing today versus nine months ago, or a year ago, just to understand those two variables. Thank you.

Excellent thanks very much.

One moment for our next question.

Our next question comes from Jason Jason <unk> with Oppenheimer. Your line is open.

Thanks, two questions I do apologize if they were already asked just jumping around multiple calls.

Can you help us understand what percent of customers use more than one service in the corner and maybe how that compares with last year, just the evolution of customers taking more than one service starting with one and kind of growing and then I guess the same idea with frequency is there a way to think about.

Kind of.

The number of purchases per week.

Youre seeing today versus nine months ago, or a year ago, just to understand those two variables. Thank you.

Hi, Jason good to talk to you. Look our I think we shared early on our long term rebooking rates kind of people that book of first service then going to book. Another service continues to be about 90 plus percent. So once you kind of try it and keep on buying it so to speak. We haven't disclosed multi service booking rate. Because thats pretty. <unk> pretty aggressively quarterly based on sitting on boarding drop it and whether believe it or not incremental weather changes customer behavior, meaning if you're in Miami last quarter, you probably went from using a lot of walking into a lot of dropping. And so it's difficult to give you an exact answer there if I could just generally say we're excited about the trend we're seeing and then in terms of frequency and customer behavior. Look the average pet parents, accusing us four to five times, a month that really hasnt changed premium pet parents continue to be that seven plus number that really hasnt changed what we're just seeing is kind of more customers falling into that premium cohort if that makes sense. Thank you.

Look our I think we shared early on our long term rebooking rates kind of people that book of first service then going to book. Another service continues to be about 90 plus percent. So once you kind of try it and keep on buying it so to speak.

We haven't disclosed multi service booking rate.

Because thats pretty.

<unk> pretty aggressively quarterly based on sitting on boarding drop it and whether believe it or not incremental weather changes customer behavior, meaning if you're in Miami last quarter, you probably went from using a lot of walking into a lot of dropping.

And so it's difficult to give you an exact answer there if I could just generally say we're excited about the trend we're seeing and then in terms of frequency and customer behavior.

Look the average pet parents, accusing us four to five times, a month that really hasnt changed premium pet parents continue to be that seven plus number that really hasnt changed what we're just seeing is kind of more customers falling into that premium cohort if that makes sense.

Thank you.

And I'm not showing any further questions at this time I'd like to turn the call back over to management for any closing remarks. Thank you all for time, we're excited to continue to build this business and become a button on the phone for the path millions patterns, where it was a great day. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Thank you all for time, we're excited to continue to build this business and become a button on the phone for the path millions patterns, where it was a great day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Q3 2022 Wag! Group Co Earnings Call

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