Q4 2024 Wag! Group Co Earnings Call

Good morning, and welcome to the web fourth quarter and full year 2024 earnings conference call.

Unknown Executive: Good morning and welcome to the WEG fourth quarter and full year 2024 earnings conference call. At this time, all participants are in the listen only mode. A brief question and answer session will follow the formal presentation.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Unknown Executive: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded I will now introduce your host Greg rubles with Investor Relations. Thank you you may begin.

Greg Robles: I'll now introduce your host, Greg Robles with Investor Relations. Thank you. You may begin.

Good morning, everyone and thank you for joining <unk> conference call to discuss our fourth quarter and full year 2024 financial results.

Garrett Smallwood: Good morning, everyone. And thank you for joining WAC conference call to discuss our fourth quarter and full year 2024 financial results.

Garrett Smallwood: On the call today are Garrett Smallwood, Chief Executive Officer and Chairman, Adam Storm, President and Chief Product Officer, and Alec Davidian, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of these risks and uncertainties are included in our filings with the SEC. We also remind you that we undertake no obligation to update the information contained on this call. These statements should be considered estimates only and are not a guarantee of future performance.

Gary Smallwood: On the call today are Gary Smallwood, Chief Executive Officer, and Chairman, Adam Storm, President and Chief product Officer, and Alice 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.

Gary Smallwood: The results to differ materially from those expressed or implied by such statements.

Gary Smallwood: A discussion of these risks and uncertainties are included in our filings with the SEC.

Gary Smallwood: We also remind you that we undertake no obligation to update the information contained on this call.

Gary Smallwood: These statements should be considered estimates only and are not a guarantee of future performance.

Garrett Smallwood: Also, during the call, we present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued today. The earnings release is available on the investor relations page of our website and is included in Exhibit and Form 8K furnished to the SEC. These non-GAAP measures are not intended to be a substitute for GAAP results.

Gary Smallwood: Also during the call we present, both GAAP and non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are available in our earnings release, which we issued today. The earnings release is available on the Investor Relations page of our website and has included an exhibit in form 8-K furnished to the SEC These non-GAAP.

Gary Smallwood: <unk> are not intended to be a substitute for our GAAP results and with that I'll now turn the call over to Garett Smallwood.

Garrett Smallwood: And with that, I'll now turn the call over to Garrett Smallwood. Good morning, and thank you for joining us today to discuss our financial performance for the fourth quarter and full year of 2024. First, I will provide business updates and an overview of our results.

Gary Smallwood: Good morning, and thank you for joining us today to discuss our financial performance for the fourth quarter and full year of 2024.

Gary Smallwood: First I will provide business updates and an overview of our results following that Adam our president and Chief product Officer will share brief updates on our strategic priorities.

Adam Storm: Following that, Adam, our President and Chief Product Officer, will share brief updates on our strategic priorities.

Alec Davidian: Then Alec, our Chief Financial Officer, will provide a more detailed analysis of our fourth quarter and full year 2024 results and discuss our capital allocation priorities.

Gary Smallwood: Alex <unk>, our Chief Financial Officer will provide a more detailed analysis of our fourth quarter and full year 2024 results and discuss our capital allocation priorities.

Gary Smallwood: Before discussing our financial results I'd like to provide an update on the strategic review process as board led initiative remains focused on identifying opportunities to enhance shareholder value and position the company for long term success.

Garrett Smallwood: Before discussing our financial results, I'd like to provide an update on the strategic review process. This board-led initiative remains focused on identifying opportunities to enhance shareholder value and position the company for long-term success. Our board and management team remain confident in the strength of our business and our ability to execute our strategic plan. That said, we continue to evaluate a range of options and will maintain a disciplined and deliberate approach throughout this process.

Gary Smallwood: Our board and management team remain confident in the strength of our business and our ability to execute our strategic plan.

Gary Smallwood: That said, we continue to evaluate a range of options and we will maintain a disciplined and deliberate approach throughout this process. There is no set timeline for its conclusion, we will provide updates as appropriate.

Garrett Smallwood: There is no set timeline for its conclusion, and we will provide updates as appropriate.

Gary Smallwood: Now moving to our results we are encouraged by the forward momentum in our business wellness has normalized since Q3.

Garrett Smallwood: Now moving to our results. We are encouraged by the forward momentum in our business. Wellness has normalized since Q3, and we've signed three new major distribution partners that we believe will accelerate demand within our insurance comparison business. These partnerships are expected to drive meaningful impact as they go live through Q1 and begin materializing in Q2. Additionally, we are realizing multiple positive tailwinds in our services marketplace, which is benefiting from increasing demand as more office workers return to in-person work. Operationally, we remain focused on managing the business efficiently. We continue to maintain strong gross margins and are integrating AI to automate rules and optimize headcount.

Gary Smallwood: Signed three new major distribution partners that we believe will accelerate demand within our insurance comparison business east.

Gary Smallwood: These partnerships are expected to drive meaningful impact as they go live through Q1 and begin materializing in Q2.

Gary Smallwood: Additionally, we are realizing multiple positive tailwind in our services marketplace, which is benefiting from increasing demand. It's more office workers return to in person work.

Gary Smallwood: Operationally, we remain focused on managing the business efficiently. We continue to maintain strong gross margins and are integrating AI to automate rules and optimize head count.

Garrett Smallwood: Our intentional use of AI includes high-quality content creation and partnerships that enhance our ability to reach and convert customers. Additionally, we have seen stability in Google search trends, which is a positive indicator for our long-term customer acquisition efforts and a significant improvement from where we were in Q3.

Gary Smallwood: Our intentional use of AI includes high quality content creation and partnerships that enhance our ability to reach and convert customers.

Gary Smallwood: Additionally, we have seen stability in Google search trends, which is a positive indicator for our long term customer acquisition efforts and a significant improvement from hardware in Q3.

Gary Smallwood: We remain committed to evaluating all strategic options, we will continue to provide updates as appropriate.

Garrett Smallwood: We remain committed to evaluating all strategic options, and we'll continue to provide updates as appropriate.

Adam Storm: With that, I will turn the call over to Adam to review our strategic priorities for 2025. Thanks, Garrett. Despite a dynamic operating environment, the underlying fundamentals of our business remain strong. Within the services ecosystem, and as Garrett mentioned, more and more workers continue to go back to the office, which provides a tailwind for us. With increasing demand, we're focused on enhancing our product operands to deliver more customer value and drive cross-sell across our portfolio. Within the wellness ecosystem, we're excited about the addition of three major new distribution partners, which will enhance our market positioning and improve our ability to scale within a competitive marketing environment.

Gary Smallwood: That I will turn the call over to Adam to review, our strategic priorities for 2025.

Adam: Thanks, Garrett despite a dynamic operating environment, the underlying fundamentals of our business remains strong.

Adam: Within the services ecosystem and as Garrett mentioned more and more workers continue to go back to the office, which provides a tailwind for us.

Adam: With increasing demand, we're focused on enhancing our product offerings to deliver more customer value and drive cross sell across our portfolio.

Within the wellness ecosystem. We're excited about the addition of three major new distribution partners, which will enhance our market positioning and improve our ability to scale within a competitive marketing environment.

Adam: While we are sensitive to the competitive nature of these partnerships and announcing publicly we can share that they are incredibly strong brands that have retained or grown in distribution advantage through the Google search changes.

Adam Storm: While we are sensitive to the competitive nature of these partnerships and announcing them publicly, we can share that they are incredibly strong brands that have retained or grown in distribution advantage through the Google search changes. We continue to integrate AI into our business using high-quality content and strategic partnerships to strengthen our marketing efforts. Stability in Google search trends has further reinforced our confidence in our ability to drive customer acquisition efficiently.

Adam: We've continued to integrate AI into our business using high quality content and strategic partnerships to strengthen our marketing efforts.

Adam: Stability in Google search trends has further reinforced our confidence in our ability to drive customer acquisition efficiency.

Adam: Overall, we are optimistic about the forward traction in our business and remain committed to disciplined execution.

Adam Storm: Overall, we're optimistic about the forward traction in our business and remain committed to disciplined execution.

Alec Davidian: I will now turn the call over to Alec to discuss our financial performance in more detail. Thanks, Adam. Q4 results demonstrate the initial rebound from Q3, with all key metrics of platform participants' revenue and adjusted EBITDA upgraded in 17% sequentially quarter over quarter. This translates to CUPOL platform participants of 445,000, revenues of $15.4 million, and adjusted EBITDA loss of $963,000.

Alex: I will now turn the call over to Alex to discuss our financial performance in more detail.

Alex: Thanks, Adam Q4 results.

Alex: Demonstrate initial rebound from Q3 with all key metrics.

Alex: My phone participants revenue and adjusted EBITDA upgrade and 17% sequentially quarter over quarter.

Alex: This translates to keep whole platform participants at 445000 revenues of $15 4 million and adjusted EBIT loss of 963000.

Alex: Combining the Q4.

Alec Davidian: Combining the Q4 with the results from the rest of 2024, we finished the full year 2024 with revenues of $70.5 million, down 16% from $83.9 million a year ago and within our expected guidance range. All-year adjusted EBITDA loss was $1.1 million, down from $0.7 million profit a year ago, which is driven primarily by the factors that we experienced in Q3 and discussed previously.

Alex: With the results from the rest of 'twenty 'twenty four.

Alex: We finished the full year 2024 with revenues of $70 5 million.

Alex: 16% from $83 9 million, a year ago and within our expected guidance range.

Alex: Full year adjusted EBITDA loss was $1 1 million down from 7 million profit a year ago, which is driven primarily by the factors that we experienced in Q3 I discussed previously.

Alex: Diving deeper into the financial results revenue category results were as follows.

Alec Davidian: Diving deeper into the financial results, revenue category results were as follows. All year services was $21.6 million, wellness was $42.7 million, and pet food and treats was $6.2 million. The revenue amounts, particularly in wellness, were impacted by the Q3 Google search trends we discussed last quarter, which stabilised and coupled together with our ability to adapt. As revenues came down in the second half of 2024, we diligently managed spend to balance financial discipline and investments into the future. Accordingly, total costs and expenses for the full year were down 11% year-over-year by over $10 million. Plus the revenue was $1.4 million in Q4 and $5.3 million for the full year, which is within our historical 7% to 9% range.

Alex: Oh, Yes services was $21 6 million wireless just $42 7 million.

Alex: Pet food and treats for $6 2 million.

Alex: The revenue amounts, particularly in wireless were impacted by the Q3, Google search trends, we discussed last quarter, which stabilized in Q4, together with our ability to adapt.

Alex: As revenues came down in the second half of 2020 cool, we diligently manage spent about financial discipline and investment into the future.

Alex: Accordingly, total costs and expenses for the full year were down 11% year over year.

Alex: $10 million.

Cost of revenue was $1 4 million in Q4, and $5 3 million of FX full year, which is within our historical 7% to 9% range.

Alex: Platform operations and support expenses $2 2 million in Q4, and $10 7 million for the full year, which is within our historic 13% to 15% range.

Alec Davidian: Platform operations and support expenses $2.2 million in Q4 and $10.7 million for the full year, which is within our historic 13 to 15% range. In Q4 and 2024, we have continued to thoughtfully invest in AI and other technologies to optimize our processes and systems and are seeing increased efficiencies. Sales and marketing expenses $10.4 million in Q4 and $46 million for the full year, which is within our historical 60% to 70% range. As we experience a stabilizing marketing environment, we experience a lower ratio in Q4. However, we increased spend in December to capitalize on the typical holiday demand.

Alex: In Q4, and 2024, we have continued to thoughtfully invest in AI and other technologies to optimize our processes and systems.

Alex: Seeing increased efficiencies.

Alex: Sales and marketing expense was $10 4 million in Q4 and $46 million for the full year.

Alex: Which is within our historical 60% to 70% range.

Alex: As we experienced a stabilizing marketing environment, we experienced a lower ratio in Q4. However, we increased spend in December to capitalize on the typical holiday demand.

Alex: This resulted in an aggregate 67 Senate ratio spending people given some of the revenue will be realized in Q1.

Alec Davidian: This resulted in an aggregate 67% ratio spending people given some of the revenue will be realized in Q1. G&A expenses $4.3 million in Q4 and $16.6 million for the full year, which is slightly above our historic 20% to 26% range driven by the fixed cost nature of G&A.

Alex: G&A expenses of $4 3 million in Q4, and $16 6 million for the full yet which is slightly above our historic 20% to 26% range driven by the fixed cost nature of G&A.

Alex: From a balance sheet perspective, we ended the year with $12 2 million in cash cash equivalents and accounts receivable.

Alec Davidian: From a balance sheet perspective, we ended the year with $12.2 million in cash, cash equivalents, and accounts receivable. As part of the board's strategic review, the board is evaluating potential options that could be accretive to our balance sheet and allow us to reduce our debt balance further. As the board's review progresses and materializes, we will continue to evaluate any gaps that remain.

Alex: As part of the Board's strategic review the board is evaluating potential options that could be accretive to our balance sheet and allow us to reduce our debt balance further.

Alex: As opposed to review progress isn't materializes, we will continue to evaluate any gaps that remain.

Alex: Now looking ahead to our 2025 guidance, we expect to generate the following.

Alec Davidian: Now looking ahead to our 2025 guidance, we expect to generate the following. Revenue in the range of $84 million to $88 million and adjusted EBITDA in the range of $2 to $4 million.

Alex: Revenue in the range of 84 million to $88 million and.

Alex: And adjusted EBIT in the range of $2 million to $4 million.

Alex: In closing I want to reiterate that we remain focused on executing our strategy, while continuing to assess opportunities that drive shareholder value.

Alec Davidian: In closing, I want to reiterate that we remain focused on executing our strategy while continuing to assess opportunities that drive shareholder value.

Alex: As Garrett mentioned the sport that strategic review process is ongoing and we are committed to a disciplined approach in evaluating all potential path forward.

Alec Davidian: As Garrett mentioned, this board-led strategic review process is ongoing, and we are committed to a disciplined approach in evaluating all potential paths forward. We will provide updates when appropriate and will continue to act in the best interest of our shareholders.

Alex: We will provide updates when appropriate and will continue to act in the best interest of our shareholders.

Unknown Executive: And with that, we now welcome Q&A.

Alex: And with that we now welcome Q&A.

Unknown Executive: Operator, can you kindly open it up for Q&A? Thank you.

Can you kind of open it up for Q&A.

Speaker Change: Thank you, ladies and gentlemen, well now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone, you'll hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press star followed by the U S.

Unknown Executive: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the If you are using a speakerphone, please lift the handset before pressing any.

Speaker Change: If you are using a speaker phone please lift the handset before pressing any keys. Your first question comes from Jeremy Hamblin with Craig Hallum. Your line is now open.

Jeremy Hamblin: Your first question comes from Jeremy Hamblin with Craig Hallam. Your line is now open. Thanks. And I wanted to start with the Q4. So just in terms of understanding the cadence of how we're getting from kind of current run rates in Q4. millions in revenues to 84 to 88 million. Can you help me understand in terms of your business segments, whether it's the service revenues, food and treats, wellness, you know, kind of that jump? in revenue growth. Where do you expect that to primarily?

Jeremy Hamblin: Thanks Anna.

Jeremy Hamblin: I wanted to start with the.

Jeremy Hamblin: 25 guidance here with the revenue guidance so.

Jeremy Hamblin: Just in terms of understanding the cadence of how we're getting from kind of current run rates in Q4, which would imply kind of low sixties.

Jeremy Hamblin: And revenues to $84 million to $88 million.

Jeremy Hamblin: Can you help me understand in terms of your business segments, whether it's service revenues food and treats wellness.

Jeremy Hamblin: Kind of that jump.

Jeremy Hamblin: And in revenue growth.

Jeremy Hamblin: Where do you expect that to primarily come from as we look at 25 and kind of what's the cadence of.

Jeremy Hamblin: how you're thinking about that kind of 84 plus million.

Jeremy Hamblin: How you're thinking about that kind of 84 plus million here as we look at 25.

Jeremy Hamblin: Hey, Jeremy Thanks for the question.

Garrett Smallwood: Hey, Jeremy. Thanks for the question. The primary driver of the revenue growth in 25 will be wellness. With some participation from services, there's an implication that we're going to resolve some of our balance sheet stress and constraints. In order to kind of hit those targets, but we're integrating with these wellness partners right now. And we're, we're really excited about what that pipeline looks like. And we expect kind of. Q1 through Q4 to grow revenues pretty much sequentially as these partners roll out and scale.

Jeremy Hamblin: The primary driver of the revenue growth in 25 will be wellness.

Jeremy Hamblin: With some participation from from services.

Jeremy Hamblin: Is there any implication that we're going to resolve some of our balance sheet stress and constraints.

Jeremy Hamblin: In order to kind of hit those targets, but we're integrating with these wellness partners right now and we're really excited about.

Jeremy Hamblin: What that pipeline looks like and we expect kind of.

Jeremy Hamblin: Q1 through Q4 to grow revenues pretty much sequentially as these partners rollout in scale.

Jeremy Hamblin: Well as a follow up and since you know we're basically at the end of Q1 can you can you give us a sense of where Q1 is tracking I mean is it.

Garrett Smallwood: Well, as a follow up, then, since, you know, we're basically at the end of Q1, can you can you give us a sense of where Q1 is tracking? I mean, is it 17 million or something higher than that. Your term has been tracking given that, you know, there hasn't been any change in the balance. at this point in time that might free up the capital. Yeah, Q1 is trending well. I would say that, you know, we're kind of coming off of Q4, looking to grow a little bit sequentially. But the rest of year outlook, kind of Q2 through Q4, is really about the launch and scale of these additional partners.

Jeremy Hamblin: You know kind of 16, and 17 million or something higher than that can you give us a sense for what.

Jeremy Hamblin: Now near term has been tracking given that you know there hasn't been any change in the balance sheet.

Jeremy Hamblin: You know at this point in time that might free up the.

Jeremy Hamblin: The capital constraint you discussed.

Jeremy Hamblin: Yeah, Q1 is trending well.

Jeremy Hamblin: I would say that we're kind of coming off of Q4 looking to grow a little bit sequentially, but the rest of the year outlook kind of Q2 through Q4 is really about the launch and scale of these additional partners.

Garrett Smallwood: And it's really about just getting wellness back to the scale that it was kind of in the Q1, Q2 of 24 timeframe via these new partners. Okay, so some sequential improvement that's primarily coming from wellness. Now, historically, Q2, there's a little bit of a seasonal shift that would indicate Q2 is down from Q1. Do you expect that? case again. Yeah, I would say that Q1 this year and Q4 are going to be relatively similar. The quarter hasn't closed yet. But you know, the scaling through the rest of the year is really about the new partnerships.

Jeremy Hamblin: And it's really about just getting wellness back to the scale that it was kind of in Q1 Q2 of 24 timeframe via these new partnerships.

Speaker Change: Okay. So some sequential improvement that's primarily coming from wellness now historically Q2, there's a little bit of a seasonal shift that would indicate Q2 is down from Q1 do you expect that to be the case again this year.

Speaker Change: Yeah, I would say that Q1. This Q1 this year and Q4 are going to be relatively similar.

Speaker Change: Quarter, It hasnt closed yet but.

Speaker Change: The scaling it through the rest of the year is really about the new partnerships.

Garrett Smallwood: As it pertains to Q2, Yes, we're expecting the normal seasonality will play in. But we think that the larger the larger driver will be the new partnerships rolling out in the wellness category and scaling Got it.

Speaker Change: As it pertains to Q2.

Speaker Change: Yes, we're expecting normal seasonality will play in but we think that the larger the larger driver will be the new partnerships rolling out in the wellness category and scaling those.

Speaker Change: Got it.

Garrett Smallwood: And then from a cost perspective. You've kind of settled in here in terms of your, your GNA cost structure. Do you feel like there's anything? Additional that you need to do on that front you feel like You know as you scale these new partnerships Are there going to be embedded costs associated with that any color you can share that? I think that there's there's room to additionally optimize that's both on the, you know, the direct revenue drivers and kind of how those revenue dollars flow through the P&L. And then as Garrett mentioned earlier, you know, the use of AI to kind of relentlessly go after the, you know, cost buckets.

Speaker Change: And then from a cost perspective.

Speaker Change: You've kind of settled in here in terms of your your G&A cost structure do you feel like Theres anything.

Speaker Change: Additional that you need to do on that front do you feel like.

Speaker Change: You know as you scale. These new partnerships are there going to be embedded costs associated with that any color you can share there.

Speaker Change: I think that there is this room. Additionally, optimize that's both on.

Speaker Change: The direct revenue drivers and kind of how those revenue dollars flow through the P&L and then as Gary mentioned earlier, you know the use of AI to kind of relentlessly.

Speaker Change: Relentlessly go after it would be.

Speaker Change: But cost buckets in the business.

Garrett Smallwood: These days.

Speaker Change: Got it.

Speaker Change: Okay I think that's it for me our best wishes.

Jeremy Hamblin: Okay, I think that's it for me. Best wishes. Thanks, Jeremy. Thank you for the thoughtful question. Ladies and gentlemen, as a reminder, should you have a question, please press star 1. There are no further questions at this time.

Jeremy Hamblin: Thanks, Jeremy Thank you for the thoughtful questions.

Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star one.

Speaker Change: There are no further questions at this time I will now turn the call over to Garrett for closing remarks.

Garrett Smallwood: I will now turn the call over to Garrett for closing remarks. Thanks, everyone. I want to give a huge thanks to our employees for all of their hard work and dedication through 2024 and for this upcoming year. An exciting pipeline of products and services that they are working tirelessly on, and we can't wait to deliver them to our customers and shareholders.

Garrett: Thanks, everyone I want to get a huge thanks to our employees for all of their hard work and dedication through 2024.

Speaker Change: For this upcoming year really exciting pipeline of <unk>.

Speaker Change: Products and services that they are working tirelessly on and we can't wait to deliver them to our customers and shareholders. Thanks. So much.

Garrett Smallwood: Thanks so much.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Unknown Executive: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].