Q4 2022 Wag! Group Co Earnings Call
[music].
Okay.
Good day, and thank you for standing by and welcome to Wag fourth quarter 2022 earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated messages buys in your hand is raised to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now.
To hand, the conference over to your Speaker today Dawn Frankfort, managing director at ICR.
May begin.
Good afternoon, everyone and thank you for joining <unk> conference call to discuss our fourth quarter and full year 2022 financial results.
On the call today are Garrett Smallwood, Chief Executive Officer, and Chairman Adam Storm.
Evidence of Chief product Officer.
Alec Davidian Chief Financial Officer.
Before we get started please note that today's comments include forward looking statements. These forward looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements for discussion of these risks and uncertainties are included in our SEC filings.
Also during the call when they present, both GAAP and non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued today. The earnings release is available on the Investor Relations page of our website and has been included as an exhibit in the form 8-K furnished to the SEC last.
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.
Thanks, Don and good afternoon, everyone and thank you for joining us to discuss our fourth quarter and full year 2022 performance and strategic priorities for 2023.
I'll begin by reflecting on wax first year as a public company, which was topped off with our best quarter to date, we're building a strong non discretionary consumer branded premium pet care platform that is transforming the pet industry by becoming an all inclusive trusted partner for the premium pet parents and.
In 2022, we transform Wang from our services business.
Premium platform for pet care needs.
This inflection is centered around our belief that being busy shouldn't stop you from owning or taking care of your furry family members.
The guilt and stress that pet parents have not being able to provide their patch sufficient attention and care and as such our mission is simple.
We exist to make pet ownership possible for busy people and to bring joy to pass and those who love them and a 2022, we have made this possible.
The year was defined by our commitment to healthy and disciplined growth, which we accomplished with our success in the wellness category increased Wap premium penetration robust partnership momentum operating efficiency and discipline and the acquisition of pharmacy Dot com or.
Our accomplishments this quarter and for the full year, it would not be possible without our passionate and hard working team wag.
Building blocks for long term success in 2023 and beyond.
Can't be more excited about what we have accomplished and we are just getting started.
Frame the rest of our discussion today, we will review our 2022 financial results and cover our compelling growth strategy that positions us to deliver predictable and sustainable financial performance, while combining all corners of the pet market into our trusted platform.
After another exceptional quarter, we are raising our 2023 guidance for both revenue and adjusted EBITDA. What we previously provided in our deal announcement presentation at the beginning of 2022.
Before turning it over to Adam President and Chief product Officer, who will give an update on our strategy and key initiatives for the year.
I will give a high level summary of our fourth quarter and full year 2022 performance.
Alex <unk>, our Chief Financial Officer will discuss our fourth quarter and full year 2020 results in more detail our capital allocation priorities and our guidance for 2023.
In the fourth quarter, we continue to execute on our disciplined strategy achieved record revenue of $17 million up 110% year over year driving full year revenue growth of over 173% to $54 9 million importantly.
Importantly, we continue to invest in our business focusing on our highest ROI assets, while being disciplined delivering fourth quarter adjusted EBITDA loss of approximately 400000, an improvement from $2 5 million loss a year prior.
Further we saw healthy platform participants have more than 434000, and wag premium penetration remains strong in the fourth quarter at 54% as you rolled out 14 99 pricing in key markets across the United States.
<unk> and wag premium price increase for new pet parents.
<unk> 99 from 999.
As a reminder, wag brand penetration is key to the platform resiliency as they build a deep and repeatable relationship with pet parents, driving strong cross sell rates and an increase LTV.
As we mentioned last quarter, we continue to ask about premium pricing and benefits to maintain our long term premium penetration target and add value to premium.
During the quarter, we saw continued momentum in our wellness business, which is a testament to our ability to transform <unk> into a holistic pet care platform that can meet any and all needs of pets and those who bought them at a lot of strength in our overnight services business led by great relationships between pet parents, and caregivers, which drives longer.
<unk> overnight stays and was accelerated by incremental weather and canceled flights throughout the U S, which led to stronger than expected.
Turning to LTV to CAC for the fourth quarter, we saw an increase of 701, demonstrating our operational excellence.
And marketing spend all of which proved that wagon non discretionary post pandemic needs during the quarter, we leaned into strategic partnerships, where we did not have to invest in traditional marketing channel, which resulted in an organic user acquisition acquisition rate of 70%.
We continue to pursue partnership opportunities in 2023 charters with alignment healthcare our members enrolled in eligible plan that qualifying condition can you just I got to receive their cupboard pet care benefits when they have an upcoming procedure are hospitalized or need support post discharge.
Moving to the supply side of the marketplace. We continue to believe that wag is the best gig in America.
We know that dedicated pet caregivers, who have chosen to provide their services to us have contributed to our success.
While we are constantly collecting feedback to ensure that pet care givers are equipped with the tools they need to not only have a successful service, but a prosperous book of business.
By investing into the pet caregiver experience and not only the pet parent experience. We are distinctly positioned to maintain a strong leadership position within the supply side of the market.
This is evidenced by continued significant interest in the pet caregivers, despite the macro environment.
The average price that pet caregivers are paying to join the platform. That's around 41, <unk> and Q3 to around $53 <unk> in Q4, and even further from the $29 95 at the start of the year based on real time supply demand equilibrium.
So that's the reason we've been able to maintain a negative supply side CAC.
Before I pass the call over to Adam to discuss our growth initiatives. Let me summarize why I'm, so bullish about the future for our shareholders and position as a category leader in the pet care industry.
One or 2022 financial results demonstrate the effectiveness of our strategy and the benefits of continued investment in our current product offerings and measured expansion, where advantageous evidenced by our above targeted returns across the business. We continue to be the trusted on demand digital marketplace for premium pet parents.
Two we have the capability to grow while sustaining impressive operating margin as a result of our performance driven culture, our exceptional talent the inherent cross sell capabilities with our platform as well as across markets within the pet industry and the continued humanization of pets here with our customer centric technology.
<unk> is an accessible multifaceted platform that has consolidated the fastest growing secular growth areas within the pet industry.
And finally, we are proactively managing and deploying our capital to be accretive for shareholders has seem to the dog food adviser acquisition in January of 2023.
All of these factors contribute to my excitement and confidence about the future of lag.
With that Adam will provide additional color on our strategy.
Thanks, Garrett I'll now walk through the five top level elements of our strategy driving long term shareholder value and how they evolve going into 2023.
One accelerate growth in existing markets.
To expand premium subscription offerings three platform expansion.
For opportunistic M&A and five operating scale.
We made significant progress in 2022 accelerating growth in existing markets capitalizing on the slow and steady return to office and post pandemic activities at.
That 50% return to office per the castle back to work parameter, we have significant room to run in 2023, we believe the demand for high quality personalized petcare far exceeds the existing market due to the increases in pet adoption and return to office policies.
We plan to continue to grow within existing markets and capture additional share of wallet through the compounding effect of our premium subscription and additional product lines.
Coming out of the pandemic there was an influx of new pet parents, who will also participate in the return to normal shift and will need to utilize our non discretionary services.
With the continued framed in the Humanization of pets. We believe we are entering a secular trend in the pet health and wellness categories.
Led by Millennials and Gen Z. Many pet parents increasingly consider the needs of their pets, not just equally important to those of the rest of the family, but more important.
<unk>, 70% of U S households, or about 91 million homes owned as of 2022, and <unk> 70 million of those are dawn households.
Of those we specifically target the premium pet chem or roughly 15% of households in the current market with a proven propensity towards premium position across the categories.
In 2022, we hit our long term premium penetration target of 50% due to the success of our second growth driver expanding premium subscription offerings.
We plan to continue testing premium pricing tiers subscription tiers and product bundling throughout 2023 to grow revenue and drive additional value to the platform.
As a result of our testing in Q4, we are raising prices for new premium pet parents to 14 99 per month.
As a reminder, wag premium subscribers receive a 10% discount on all services VIP customer support and unlimited 24, seven and expert advice, which drives customer satisfaction and retention and their willingness to cross sell to our expanding set of products and services.
Third we continue to focus on platform expansion and diversifying our products and services within the platform, including new features such as browsing book refine search which helps pet parents finding the perfect match based on pet caregivers specialties notes from pet caregivers, allowing them to make a more informed decision before requesting the service and the launch of <unk>.
Super and ultimate endorsements, which allow colleagues and existing patterns to boost caregiver at the beginning of their small business journey to show the pet parent community how great. The <unk>.
Importantly in the fourth quarter, we renewed our partnership with alignment healthcare, which provides alignment healthcare plan members with managed services. We will continue to grow the marketplace business through thoughtful product development and expanding the set of services available through our platform.
<unk> partnerships and value not only to us, but our pet parents as well and we plan to build upon those relationships in 2023.
For us in 2022 and going forward, we are prioritizing growth through opportunistic M&A.
We believe that overtime, we can enhance the value of lag with strategic acquisitions independent industry.
In the fourth quarter, we acquired Pharmacy, Inc. A concierge prescription and compounding service that delivers help directly to the pet parent store.
Additionally, we recently announced the wag entry into the pet food and treat category by successfully completing the acquisition of dog food adviser in January which helped.
Busy pet parents.
<unk> about dog food through the website, John could advisor Dot com.
This is an illustrative example of US building out the premium pet care platform.
The fifth element of our strategy is operating scale, which I'll briefly touch on Alex will provide more detail.
We are laser focused on our unit economics, and fixed cost operating leverage which drove operating margin improvements across the board.
Our customer acquisition unit economics as seen in our seven to one LTV CAC ratio continued to outpace our expectations for the quarter and year adjust.
Adjusted EBITDA margin improved by 42% in 2022.
In 2023, we continue to build our platform by investing in growth levers with a fast payback cycle low fixed costs and low opex. We will continue to be disciplined operators and remain laser focused on managing gross margin and profit.
And with that let me turn the call over to Alan.
Thank you Adam and thank you everyone for joining our fourth quarter and full year 2002 earnings call.
It has been an incredibly exciting and successful year for the wacky as we grew the business to a diversified revenue stream launched new products and executed with operational excellence.
As a result, we finish 'twenty two with all time record results significantly ahead of our expectations.
I'll walk through our financial numbers by providing an overview of.
Our fourth quarter and full year 'twenty two results and then <unk>.
<unk> to 'twenty three guidance.
Closing out our outstanding year, Q4, 'twenty, two with another record quarter with our highest quarterly revenue since inception totaled $17 million.
110% from Q4 2001.
Adjusted EBITDA loss for the quarter improved to <unk> 4 million compared to $2 5 million in Q4 <unk>.
On a full year basis, when we get to 'twenty, two revenue increased 173% to $54 9 million compared to $21 million in 'twenty one.
While adjusted EBITDA loss improved to $3 9 million compared to $9 $9 million in 'twenty one.
Our acceleration is the outcome of pet parent demand.
The ships expansion into additional markets testing and bundling right office and continued marketing efficiency.
As expected, we saw a shift of pet parent needs from walking to sitting on boarding in the fourth quarter in line with the usual seasonal demand mix and inclement weather across the country.
We also experienced continued strong demand for wellness services, which contributed to 66% of revenue in Q4 22 compared to 45% Q4 'twenty one.
Our wireless suite of services include valuable offering such as expert pet advice wellness plan pet insurance comparison options and new in 'twenty, two pet prescription compound medicine, they're promising.
Turning to expenses during the fourth quarter.
Cost of revenue, excluding depreciation and amortization was $1 million in Q4, 'twenty, two or 6% of revenue compared to $8 million or 10% of revenue in Q4 'twenty one.
For the full year cost of revenue, excluding depreciation and amortization was $4 million or 7% of revenue compared to $2 8 million or 14% of revenue in 'twenty one.
The dollar amount increase was a direct result of increased demand driving incremental payment processing fee.
Background check costs here.
An increase in pet parents pet activity and caregiver applicants.
Cost of revenue decreased as a percentage of revenue as our technology scaling initiatives took place.
Platform operations and support expense was $2 8 million in Q4, 'twenty, two or 16% of revenue compared to $2 6 million or 32% of revenue in Q4 'twenty one.
Oh, yes platform operations and support expenses, $13 8 million or 25% of revenue compared to $10 3 million or 51% of revenue in 2001.
While there has been an increasing expense in dollar terms year over year, driven by personnel related compensation costs and stock compensation expense as we hire and retain talent.
Operations and support expense of more than half as a percentage of revenue as a result of operational scale.
Sales and marketing expense was $10 $5 million in Q4, 'twenty, two or 62% of revenue compared to 65% of revenue in Q4 2001.
For the full year sales and marketing expense was 35 two.
$2 million or 64% of revenue versus $10 2 million or 51% of revenue in 'twenty one.
The dollar amount increase in sales and marketing expenses, driven by partnership activity cost of new product initiatives and launches and general marketing spend in order to harness net new pet parents and cross sell them complementary platform offering via the wag ecosystem.
G&A expense was $3 9 million in Q4 2002 or.
23% of revenue compared to $2 million or 25% of revenue in Q4 'twenty one.
For the full year G&A expense was $32 4 million or 59% of revenue compared to $7 million of 75% of revenue in 'twenty one.
Notably 22 includes approximately $21 million in transaction and integration expenses in connection with the IPO.
When excluded the like for like comparison G&A expense represents 21% of revenue in 'twenty, two which is a decrease of 14 percentage points year over year.
The dollar amount increase in G&A expense is driven by personnel related compensation costs and stock compensation expense as we hire and retain key talent.
<unk> related costs and public company compliance, including expenses related to the compliance with the rules and regulations of the SEC and NASDAQ legal audit and consulting fees.
Adjusted EBITDA, which is an important profitability measure that we use internally to manage the business improved $2 million to an adjusted EBITDA loss of $4 million.
This compares to an adjusted EBITDA loss of $2 $5 million in Q4 'twenty one.
Adjusted EBITDA loss for the year increased $3 9 million.
Versus $9 $9 million in 'twenty one.
Turning to our balance sheet.
We ended the fourth quarter with over $39 million in cash and cash equivalents.
This is primarily due to the IPO transaction cash proceeds and financing net of issuance costs that occurred in the third quarter of 2002, together with $9 8 million cash received from a forward share purchase agreements in the fourth quarter.
Aside from these transactions the increase was due to cash generated from our business operations.
Our balance sheet remains strong in the context of a breaking cashews puts us in a strong position to comfortably fund our question objectives, while also maintaining flexibility to pursue strategic M&A. When we believe the opportunity aligns with our goals.
I also want to highlight wax overall head count efficiency.
Which is another indication of our operational excellence.
Despite the 173% revenue growth we have seen in the past year, we have a weaker it head count by 9%, bringing our total head count at whack to 82.
Including all head Count County platform operations and support.
$8 million revenue per employee based on a Q4 'twenty two run rate well ahead of industry peers.
We have accomplished this through intense focus on systems automation proprietary technology, and a robust infrastructure, which enables the platform to scale without additional head count.
We are efficient and remain judicious about hiring and head count.
Our focus remains on employing and empowering the very best people in key positions, which has also come into play with recent <unk> transactions and M&A strategy.
We are building a team of best in class build as doctors designers founders engineers and pet lovers.
Our vision is the special forces as opposed to a broadly talented navy.
In addition to building a great business. We are also passionate about building a great company and that can only be done by fostering a strong culture and dedication towards our customers and our community.
In 2002, we have already begun to bring focus and accountability accountability to our ESG efforts.
Measuring managing and reporting on some of our key diversity equity and inclusion metrics and priorities, which we look forward to sharing with you in our upcoming 10-K.
Okay.
Moving to our guidance for 'twenty three.
As Gary mentioned, we are very pleased with the strong performance, we saw during the fourth quarter and the year.
As a result, we are raising our full year 'twenty three guidance that we previously included in our April 22 investor deck.
For the full year 'twenty three we now expect.
Total revenue in the range of 75% to $77 million, an increase of 37% to 40% year over year, and a 7% improvement versus our prior forecast at the midpoint of the range.
This forecast builds on our strong results in 22, while retaining an appropriate level of conservatism as we continued to face a very dynamic backdrop.
Adjusted EBITDA loss in the range of zero to $2 million.
And 91% improvement versus our price forecast at the midpoint of the range.
This range contains multiple levers, including sales and marketing spend product development and expansion and pricing power.
Our financial guidance includes the following assumptions.
The White house plans to terminate on May 11, both the public and public health and National Emergency declared in response to pivot pandemic.
As stated on January 23.
Continued trend and return to office as measured by the Cosco back to work in Egypt.
The accretive impact from the acquisition of dog food advisor in January 23, which we expect will contribute $3 million of revenue and a $1 5 million of positive adjusted EBITDA in 'twenty three.
Continued acceleration in wireless, including new ventures expansion into additional markets testing and bundling of whack premium office and improved marketing efficiency.
In summary, as illustrated by our strong Q4 'twenty to 'twenty. Two results. We have been and are currently experiencing demand in the face of a very dynamic backdrop.
Our ability to execute on that demand achieve results above our previously announced plan focus on operational excellence and integrate and operate well thought out enterprises through M&A is a testament to our business strategy for 'twenty, two and for the future.
And with that we now welcome Q&A.
And thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster and we do ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question.
One follow up.
And one moment, Bob first question.
And our first question comes from Tom White from D. A Davidson and company. Your line is now open.
Great. Thanks, guys for taking my questions Nice nice results in the quarter a couple of questions. If I could I guess, just first on web premium penetration.
I think you've exceeded kind of that long term target you first talked about so I guess when you guys refer to kind of testing and bundling is that more about sort of extracting kind of Maxim maximum revenue from this group of.
Kind of premium.
Pet parents, if you will that are sort of already already signed up.
And they're willing to kind of accept the price increases or is it kind of more about.
Introducing new bundles to maybe kind of maximize.
The penetration.
And come up with offerings that appeal to kind of a broader swath of pet parents and I had a quick follow up.
Okay.
Hey, Tom Thank you for your question.
Yes, so I would say the primary primary motivation at 14 99 price point is funding.
Price ultimately the right price for the current bundle a wag premium that said, we're going to continue to test price and different bundling combinations that might be priced lower or higher 14, 99 was just kind of the optimal.
The current assets.
Okay.
Okay, Great and then.
Gary I was hoping maybe you could give us an update on the overnight stay part of your business I think you touched on it briefly in the prepared remarks, but curious how that's been performing obviously.
A lot of the earnings results referred from like the Otas and stuff suggests that consumer travel that recovery has been very robust.
Just curious how you guys think about overnight stays as kind of a compelling opportunity may be an opportunity for you guys to.
The increase your share there I know it's nothing.
Historically necessarily a huge part of a huge focus of you guys, but I saw that browse and book feature which would maybe seem to appeal to pet parents, who are contemplating a longer stay maybe just maybe just comment on kind of that opportunity around overnight.
And again, thanks, Tom Great to hear from you.
Taking a step back look we aim to be the premium pet platform for the premium pet parent right. So that means solving their needs, whether it's overnight care in that setting and boarding drop ins, which as a reminder, we launched $23 6 million dropping in totality across the U S. In 2022, which are really great for cats and kind of non dog.
Or even sometimes senior pups pumps.
So we really do like the overnight business I think you saw with browse and brokerage to great mentioned, which is gated behind premium in some cases at the way for pet parents to discover great local pros in their neighborhood and actually message them ahead of submitting requests.
As long as our Wag neighborhood network pages.
So we're going to continue to build tools to enable great sitting in for Brian .
In Q.
To it in the.
In the last few minutes, we are certainly a healthy sitting on boarding time for the business as it usually is in Q4, particularly driven by incremental travel longer stated. Unfortunately due to a lot of just functional like flight cancellations labor and I think you all saw the southwest news.
Yes, It was just a great great.
Great Pete I think we'll continue to lean in.
Great. Thank you.
And thank you.
And one moment our next question.
And our next question comes from Matt Koranda from Roth <unk>. Your line is now open.
Hey, guys good afternoon.
Just curious if you could maybe touch on platform participation trends in the number of platform for dispense quarter over quarter.
Anything you saw in terms of churn as you raise price.
With the fortunate on the ninth year.
If you could also just clarify when that was implemented and sort of how far along you are in terms of that implementation on the tiered pricing.
Yes so.
The way to think about it and again create that thanks for the question Matt I appreciate the time.
Taking a step back usually we expect to see some degree of we'll call. It seasonality in Q4 as a function of the services business transitioning from what we'll call high frequency services things like daytime walking and drop ins.
<unk> longer duration overnight stays or drop ins.
Certainly what we saw in this quarter and we'll probably I don't know for sure we will see what the trend looks like this year, but I'm, assuming that will be a consistent trend in our business. We raised premium pricing throughout Q4, only for net new subs. So it did not affect it.
Paying subscribers and that's really important to cloud and what that means is.
The premium trend should stay pretty resilient as a result, and what we're really doing to Adam's point earlier is focused on making sure. We're maximizing the value we provide and the price. We can then capture from net new pet parents, and we discovered that that is actually about 50% higher especially monthly basis. So it didn't affect the existing subscribers.
Only affects net new subs.
Pause there if there's any other questions.
Okay.
Very helpful clarification, there so thanks for that good.
And then I guess just in terms of the 'twenty three outlook wanted to see if you guys could clarify or help us understand services versus well notes.
And the outlook there. It was helpful to have doctors advisor broken out so I appreciate that but just any further breakdown of the services versus wellness growth outlook.
And then any help on just sort of the contribution from pharmacy as well.
That wasn't necessarily broken out either so just help on that would be great. Yeah. A lot of great questions I'll do my best to parse them out. So I think Q4 is probably a pretty healthy indicating fewer.
Future mix frankly.
We're really excited about the wellness business.
We have great leadership, there a phenomenal team in place generally incredible things happening there as you can see in Q4.
Again, we're leaning into all parts of that is us what we're really trying to just maximize our ability to recycle capital efficiently and our tight times timescale.
<unk> has demonstrated that.
We really think about it it's like an optionality something we're excited to test again, integrating we think has a real future potential of the business.
But again that is a California specific pharmacy compounding business, that's working directly with vet clinics and pet parents Youll see us in Q4, we experimented with some customer offers with scaling into far back, but absent building relationships, probably continue that seems to be there, but it's not a material part of the wellness as revenue today.
Okay very helpful. Thank you guys. Thanks.
And thank you.
Okay.
And one moment our next question.
And our next question comes from Jeremy Hamblin from Craig Hallum. Your line is now open.
Thanks, and congrats on the momentum in the business.
I wanted to just first talk about seasonality a little bit in terms of platform participation in Q4.
Versus kind of a typical expectation you have to start the year certainly getting some great indicators.
With the castle.
And to work barometer that.
That you are getting more and more people back in the office wanted to get a sense for how you expect that to impact your business.
Assuming that's more for the.
Services segment.
But also wanted to get a sense for what you're seeing.
On your wellness platform and whether or not.
Growth there is being driven more by.
Engagement on the insurance marketplace, or if thats coming a little bit.
More from.
<unk>.
The other portions of.
That segment.
I'll take this one Jeremy always a treat.
Hopefully everyone sees either there okay in terms of seasonality again, I think we generally expect Q4.
To be a unique time period for the business, where our services platform participants specifically transition from high frequency daytime tomorrow overnight.
And I think that'll be.
Unique to this year or anything else.
I would say that yes, the castle back to work Barometer is a great indication we've mentioned that a few times in the past.
About <unk>.
How services.
Pet parents are thing.
As people return to us they start thinking about more than just leaving there Pat do you think about that.
That's what being talking about that may be buying insurance, maybe needing their pets are accident things delivered and picking it up so all those things.
Right.
And certainly we think that castle and the go forward trend is.
While we updated guidance frankly, our original forecast.
And I think you're seeing it with Amazon Disney everyone else. Okay. So that's the first question I think the second one was wellness growth look works out about all facets of wellness frankly, we love the ability for pet parents communicate directly with pet experts, we love that they can compare insurance quotes wherever they can.
Through reviews for Great Pet insurance companies, there's a ton of great value add in our wellness category.
But I generally think the two places youll see us really doubling down this year are going to continue to be pet parents ability to compare and read and review pet insurance options that seems to be a no brainer in terms of the value. It provides pet parents and two is there ability to shop and receive compound Rx and other prescription meds directly there.
Doorstep or from their VAT, and a really simple way those.
Those two things seem to be a great lever for us and the things that pet parents are really wanted to drive forward.
Okay got it.
And then.
Notable regarding your employee head count.
You have seen a little bit of a step up here in.
Your G&A costs.
And so I wanted to get a sense for you.
What we saw here in Q4, if that's kind of.
More of a new baseline you brought in.
We see some people from.
Transactions firm a fee youre going to add in some.
Possibly some staff from from DFA acquisition, as well, but just wanted to get a sense for where your your baseline is that if Q4 is somewhat reflected or if there was anything unique or specific to <unk>.
So that step up in your G&A.
No I think Q4 is probably a helpful baseline and look I think in the way we think about the business Jeremy at this point in 2023 is just where do we where are we going to be investing incremental dollars to maximize output.
Functionally our job, obviously, but really it's it's head count sales and marketing, possibly M&A.
But I think Q4 is a pretty good indication of G&A trends there might be other opportunities that would be surprising I would share with you if that was more M&A or things like that but I would expect that.
No surprises. So again I think Q4 is a good baseline for the future.
Okay, and then last one for me in terms of what Youre seeing from <unk>.
Key competition.
Whether it's.
That's kind of dollars being spent to.
To attract new customers.
Whether it's competition for kind of the existing debt.
What are you seeing out there from from some of your peers.
You had a slight step down.
In your CAC.
In the quarter or your LTV to CAC.
Do you have.
Is that more a reflection of the value.
Is slightly stepped down or more that the cost to acquire customers is up a little bit.
It was more our willingness to participate.
Knowing kind of where we were and so again I think I originally said was well.
We target a three to one we are six seven to one I think the trend is really good in terms of LTV to CAC of recycling. These customers really quickly and they're paying themselves back really quickly and efficiently.
I can't speak a ton for our competitors I think generally last year, Jeremy We said that we think this year there'll be a huge opportunity to be really thoughtful about marketing. We thought this would be kind of a calling of DTC companies and brands people would have to pull back pretty significantly as interest rates rose as.
The network's functionally change whether that was now Facebook or Apple and were seeing that.
We're really good at marketing frankly, we're really good at partnerships are really good at really just building relationships with customers and we'll continue to do that I have anything we've seen it be.
A bit less I wouldn't say competitive, but a bit less noise in the marketplace.
Again, we are just really really disciplined with $1 we allocate.
Got it.
One didn't talk as much.
This call on your pet caregivers and you've experimented in terms of.
The fee charged to.
To join the platform.
Is that reflecting that you feel like youre getting closer to finding that right.
Price point.
To have.
Pseg's joined the platform or any color you can share on that thanks.
Yes, it's really going to be continued we're not done to answer. Your question here, we're really focused on the equilibrium in the market clearing price basket in America, I think right I think the whole team thinks that and so we're really focused on the market clearing price to become a pet care giver.
The wagon ecosystem and I think we'll continue to test different mechanisms to make sure. The best caregivers are getting the best gigs and rewarded accordingly, so work is far from done there.
Thanks, guys best wishes.
And thank you.
And one moment our next question.
And our next question comes from Jason <unk> from Oppenheimer. Your line is now open.
Hey, Gary.
I'll ask two questions one Gary can you talk philosophically about.
Marketing versus cash flow now that you've clearly shown to your point youre good at marketing you've got.
Very nice leverage in the business of the past year.
How are you thinking about leaning into marketing now going forward relative to <unk>.
Cash flow, we did maintain kind of a breakeven cash flow and just keep leaning in to marketing.
That's it.
And kind of maybe speak on a multiyear basis right just beyond 'twenty three and then question number two we've seen kind of geographically.
Different patterns with a return to work right with any of the east coast returning more than the West coast.
Can you talk about maybe like what Youre seeing.
To the extent you've already seen like good data from the East coast and the West Coast to take you longer to return to work how you potentially can extrapolate that and how you factor that into 'twenty three guidance.
Yes, Hey, Jason again, thanks for the time, great to hear from you always wanted to hear your voice.
Look I think that market is a very dynamic one and so we have been intensely focused on getting to scale. One of the most important part to remember a couple of quarters ago. I think we said we were pretty early in that I think we're getting to a point of <unk>.
Real revenue scale and hope would happen in the back half of this year and so what we've been focused on is just making sure we're investing incremental dollars profitably into the platform. So I don't think this business is in a position anytime soon to be just pumped.
Pumping out dollars functionally there's too much opportunity ahead, we're really going to continue to lean and thoughtfully, but I don't think thats going to be at a significant cost basis to our shareholders. So I've answered. Your first one the second one in terms of geography look the castle back for <unk>.
Brook Barometer is a great indication.
For kind of what Youre seeing with pet parent trends generally as you think about it like I think we were at 50 ish percent earlier this month or in January .
Like the biggest markets are lagging the average L. ASF, New York City et cetera, still pretty far behind you and if you look at like Florida parts of Florida.
Texas kind of way more open so we think theres kind of outsized room to return to normal in the upside case.
I think we're certainly planning for that but that would be certainly where the opportunity would be is in these larger markets, which are significantly lagging and they were to have a real kind of returned to normal that'd be great. So, but I think that the trend is generally similar to what youre seeing on back to back office in terms of castle.
Thank you.
And thank you.
And one moment our next question.
And our next question comes from Brian Dobson from Chardan capital markets. Your line is now open.
Hey, Thanks, so much for taking my question.
So I guess to return to the subscription service.
Pretty impressive that you see pricing power in that in that monthly product.
What kind of lifetime value are you seeing with your subscribers and do you think youll experience.
<unk> retention rate at that higher pricing level.
Yes so.
We've been really thoughtful again, great here from Brian we've been really thoughtful about premium from the start.
One thing I would remind us Bryan is that we are significantly ahead of where we thought we'd be with premium penetration I think our long term goal was something like 50% and we got there a couple of years early.
And I think Theres a couple of reasons for that one is we've added so much value to that subscription since we started that we're really just catching up in terms of pricing.
And two is were really rapidly experimenting with the benefit that you get as a premium pet parents and just really delightful experience. So I think the best way to think about LTV dollars captured for the pet parent as revenue in the platform participants and kind of what we're capturing.
But you saw I think in the LTV grass, we published in our deck last year, each cohort of pet parents outperforming the previous that's generally our goal was operators and builders and engineers and product aficionados. That's really just to increase the dollars recapture from the pet parents that are participating. So I don't think we would do this with we thought it was going to be a drag coefficient frankly anything whether you actually think is going to be a tailwind.
And to answer your question.
Yes, absolutely and then I guess turning over to Doug food advisor, it's great to see that accretive in Q1, I guess what are some of the what are some of the cross selling cross what is the cross selling Avenue that you are you are most excited about when you are looking into I call. It 2023 and 2024 yeah.
Thank you I mean, we love that business and huge shout out to the founder Dr. Mike <unk>, who built it over the last 14 years has just done a tremendous job.
And we're really excited about taking on the opportunity to continue to serve millions of pet parents, who are looking for great real recommendations on pet food.
First and foremost if you think about pet parents every single person who owns a pet is one thing in common they got to feed it.
So the idea that we now have dog food adviser, which we believe is really the premium number one pet food recommendation engine on the web we can tie that really really nicely into our own ecosystem. We can get really intelligent offers in front of our own services pet parents pet parents might be buying pet insurance at the right time people were talking to a back to the platform, but a lot of levers in terms of how we.
Thoughtful about personalized recommendations and then two on the other side of things when Youre thinking about food and you're purchasing food maybe for the first time, a bunch of levers then to go back and upsell things like services or finding that perfect that insurance plan. So just a lot of great synergies, we're not going to rush it.
These things are sensitive you gotta do it right, especially at this scale and age but we're.
We're very very excited but having said that show evergreen for pet parents.
Great Thanks, and congratulations on very good quarter.
And thank you and I.
I am showing no. Further question. This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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