Wag! Group Co. (PET) Q4 2022 Earnings Call Transcript

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Wag! Group Co. (NASDAQ:PET) Q4 2022 Results Conference Call February 21, 2023 4:30 PM ET

Company Participants

Dawn Frankfort - Managing Director astatine ICR

Garrett Smallwood - Chief Executive Officer and Chairman

Adam Storm - President and Chief Product Officer

Alec Davidian - Chief Financial Officer

Conference Call Participants

Tom White - D.A Davidson & Company

Matt Koranda - ROTH MKM

Jeremy Hamlin - Craig Hallum

Jason Helfstein - Oppenheimer

Brian Dobson - Chardan Capital Markets


Good time and convey you for opinionated by and invited to nan Wag! Fourth Quarter 2022 Earnings Call. At this time, each participants are successful a listen-only mode. After nan speakers' presentation, location will beryllium a question-and-answer session. [Operator Instructions] Please beryllium advised that today's convention is being recorded.

[Operator Instructions] I want to for illustration move nan telephone complete to your speaker coming Dawn Frankfort, Managing Director astatine ICR. You whitethorn begin.

Dawn Frankfort

Good afternoon, everyone, and convey you for joining Wag!'s convention telephone to talk our 4th fourth and afloat twelvemonth 2022 financial results. On nan telephone coming 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 statement that today's comments see forward-looking statements. These forward-looking statements are taxable to risks and uncertainties, and impact factors that could origin existent results to disagree materially from those expressed aliases implied by specified statements. A chat of these risks and uncertainties are included successful our SEC filings.

Also, during nan call, we whitethorn coming some GAAP and non-GAAP financial measure. Reconciliations to nan astir straight comparable GAAP financial measures are disposable successful our net release, which we issued today. The net merchandise is disposable connected nan Investor Relations page of our website and is included arsenic an grounds successful nan Form 8-K furnished to nan SEC. Lastly, you tin find our net position posted connected our IR website and pinch nan SEC.

And pinch that, fto maine move nan telephone complete to Garrett.

Garrett Smallwood

Thanks, Dawn. Good afternoon, everyone, and convey you for joining america to talk our fourth 4th and afloat twelvemonth 2022 capacity and strategical priorities for 2023. I'll statesman by reflecting connected Wag!'s first twelvemonth arsenic a nationalist company, which was topped disconnected pinch our champion 4th to date. We're building a beardown non discretionary user branded premium pet attraction level that is transforming nan pet manufacture by becoming an each inclusive, trusted partner for nan premium pet parents.

In 2022, we toggle shape Wag! from a work business, to a premium level for pet attraction needs. This inflection is centered astir our belief that being engaged shouldn't extremity you from owning aliases taking attraction of your furry family members. We saw nan guilt and accent that pet parents person and not being capable to supply their pet capable attraction and care. And arsenic such, our ngo is simple. We beryllium to make pet ownership imaginable for engaged group and to bring joyousness to walk and those who emotion them. And successful 2022, we person made this possible.

The twelvemonth was defined by our committedness to patient and disciplined growth, which we accomplished pinch our occurrence successful nan wellness category, accrued Wag! premium penetration, robust partnership, momentum, operating ratio and discipline, and nan acquisition of Our accomplishments this 4th and for nan afloat twelvemonth would not beryllium imaginable without our passionate and hardworking squad astatine Wag!, who person laid nan building blocks for semipermanent occurrence successful 2023 and beyond.

We couldn't beryllium much excited astir what we person accomplished and we are conscionable getting started. To framework nan remainder of our chat today, we will reappraisal our 2022 financial results and screen our compelling maturation strategy that positions america to present predictable and sustainable financial performance, while combining each corners of nan pet marketplace into our trusted platform. After different exceptional quarter, we are raising our 2023 guidance for some gross and adjusted EBITDA. We antecedently provided successful our woody announcement position astatine nan opening of 2022.

Before turning it complete to Adam, President and Chief Product Officer, who will springiness an update connected our strategy and cardinal initiatives for nan year, I will springiness a precocious level summary of our 4th fourth and afloat twelvemonth 2022 performance. Then Alec, our Chief Financial Officer, will talk our 4th fourth and afloat twelvemonth 2022 results successful much item our superior allocation priorities and our guidance for 2023.

In nan 4th quarter, we proceed to execute connected our subject strategy and execute achieved grounds gross of 17 million, up 110% year-over-year, driving afloat twelvemonth gross maturation of complete 173% to 54.9 million. Importantly, we proceed to put successful our business focusing connected our highest ROI assets while being disciplined, delivering 4th fourth adjusted EBITDA nonaccomplishment of astir 400,000 and betterment from 2.5 cardinal nonaccomplishment nan twelvemonth prior.

Further, we saw patient level participants of much than 434,000 and Wag! Premium penetration remains beardown successful nan 4th fourth astatine 54%, arsenic we rolled retired $14.99 pricing tests successful cardinal markets crossed nan United States Resulting successful Wag! Premium value summation for caller Pet Parents to $14.99 from $9.99.

As a reminder, Wag! Premium penetration is cardinal to nan level resiliency, arsenic it builds a heavy and repeatable narration pinch Pet Parents driving beardown transverse waste rates, and an accrued LTV. As you mentioned past quarter, we proceed to trial for illustration premium pricing and benefits to support our semipermanent premium penetration target and adhd worth to premium.

During nan quarter, we saw continued momentum successful our wellness business, which is simply a testament to our expertise to toggle shape Wag! into a holistic pet attraction level that tin meet immoderate and each request nan pets and those who emotion them. As good arsenic fortify our overnight services business led by awesome relationships betwixt Pet Parents and Pet Caregivers, which drives agelong long overnight stays and was accelerated by incremental upwind and canceled flights passim nan U.S. which led to stronger than expected ALD.

Turning to LTV to CAC for nan 4th quarter, we saw an summation to 7 to 1. Demonstrating our operational excellence, ratio and trading spend, each of which proved nan Wag! astatine a non-discretionary station pandemic neat. During nan quarter, we thin into strategical partnerships, wherever we did not person to put successful accepted trading channel, which resulted successful an integrated personification acquisition complaint of 70%.

We proceed to prosecute business opportunities and 2023 specified arsenic pinch alignment healthcare are members enrolled and eligible scheme that qualifying information tin usage a Wag! app to person their covered pet attraction benefits erstwhile they person an upcoming process aliases hospitalized aliases request support station discharge.

Moving to nan proviso broadside of nan marketplace, we proceed to judge that Wag! is nan champion gig successful America. We cognize that dedicated Pet Caregivers who person chosen to supply their services to america person contributed to our success, which is why we are perpetually collecting feedback to guarantee that Pet Caregivers are equipped pinch nan devices they request to not only person a successful service, but a prosperous book of business.

By investing into nan Pet Caregiver experience, and not only nan Pet Parent experience, we are distinctly positioned to support a beardown activity position wrong nan proviso broadside of nan market. This is evidenced by continued important liking successful nan Pet Caregiver gigs contempt nan macro environment. The mean value that Pet Caregivers are paying to subordinate nan level was from astir 41.50 successful Q3 to astir 53.30 successful Q4 and moreover further from nan 29.95 astatine nan commencement of nan twelvemonth based connected existent clip proviso and request equilibrium, but there's logic we person been capable to support a antagonistic proviso broadside CAC.

Before I passed nan telephone complete to Adam to talk our maturation initiatives, fto maine summarize why I'm truthful bullish astir nan early for our shareholders and positioned arsenic a class leader successful nan pet attraction industry. One our 2022 financial results show nan effectiveness of our strategy and nan benefits of continued finance successful our existent merchandise offerings and measured description we're advantageous evidenced by our supra targeted returns crossed nan business. We proceed to beryllium nan trusted connected request integer marketplace for premium Pet Parents.

Two, we person nan capacity to turn while sustaining awesome operating margins arsenic a consequence of our capacity driven culture, our exceptional talent, nan inherent cross-out capabilities wrong our platform, arsenic good arsenic nan transverse markets wrong nan pet manufacture and nan continued humanization of pets paired pinch our customer-centric technology. Wag! is an accessible, multi-faceted level that is consolidating nan fastest increasing secular maturation areas wrong nan pet industry.

And finally, we are proactively managing and deploying our superior to beryllium accretive for shareholders, arsenic seen to nan Dog Food Advisor acquisition successful January of 2023. All of these factors lend to my excitement and assurance astir nan early of Wag!

And pinch that, Adam will supply further colour connected our strategy.

Adam Storm

Thanks, Garrett. I'll now locomotion done nan 5 apical level elements of our strategy, driving semipermanent shareholder worth and really they germinate going into 2023. One, accelerate maturation successful existing markets; two, grow premium subscription offerings; three, level description ; four, opportunistic M&A; and five, operating scale.

We made important advancement successful 2022 accelerating maturation successful existing markets, capitalizing connected nan slow and dependable return to agency and station pandemic activities. At 50% return to agency per nan Kastle Back to Work barometer, we person important room to tally successful 2023. We judge nan request for precocious value personalized pet attraction acold exceeds nan existing marketplace owed to nan increases successful pet take and return to agency policies.

We scheme to proceed to turn wrong existing markets and seizure further stock of wallet done nan compounding effect of our premium subscription and further merchandise lines. Coming retired of nan pandemic, location is an influx of caller pet parents who will besides participate successful nan return to normal displacement and will request to utilize our non-discretionary services.

With nan continued inclination successful nan humanization of pets, we judge we are entering a secular inclination successful nan pet wellness and wellness categories led by millennials and Gen Z galore pet parents progressively see nan needs of their pets, not conscionable arsenic important to those of nan remainder of nan family but much important.

Approximately 70% of U.S. households, aliases astir 91 cardinal homes owned a pet arsenic of 2022 and 70 cardinal of those are canine households. Of those, we specifically target nan premium pet genitor aliases astir 15% of households successful nan existent marketplace who person a proven propensity towards premiumization crossed pet categories.

In 2022, we deed our semipermanent premium penetration target of 50% owed to nan occurrence of our 2nd maturation driver expanding premium subscription offerings. We scheme to proceed testing premium pricing tiers, subscription tiers and merchandise bundling passim 2023 to turn gross and thrust further worth to nan pet parent. As a consequence of our testing successful Q4, we are raising prices for caller premium pet parents to $14.99 per month.

As a reminder, Wag! premium subscribers person a 10% discount connected each services, VIP customer support and unlimited 24x7 master pet advice, which drives customer restitution and retention and their willingness to transverse waste to our expanding group of products and services.

Third, we proceed to attraction connected level description successful diversifying nan products and services wrong nan platform, including caller features specified arsenic Browse & Book refined search, which helps pet parents find nan cleanable lucifer based connected pet caregiver specialties, notes from pet caregivers, allowing them to make a much informed determination earlier requesting a service.

And nan motorboat of ace and eventual endorsements, which let colleagues and existing pet parents to boost a pet caregiver astatine nan opening of their mini business travel to show nan pet genitor organization really awesome nan pet caregiver is. Importantly, successful nan 4th quarter, we renewed our business pinch Alignment Health, which provides alignment healthcare scheme members pinch Wag! services.

We will proceed to turn nan marketplace business done thoughtful merchandise improvement and expanding nan group of services disposable done our platform. Wag!'s partnerships adhd worth not only to us, but our pet parents arsenic well. And we scheme to build upon those relationships successful 2023.

Fourth successful 2022 and going forward, we're prioritizing maturation done opportunistic M&A, we judge that overtime, we tin heighten nan worth of Wag! pinch strategical acquisitions successful nan pet industry. In nan 4th quarter, we acquired Pharmacy Inc, a concierge medicine and compounding work that delivers pet wellness straight to nan pet genitor store.

Additionally, we precocious announced nan Wag! introduction into nan pet nutrient and dainty class by successfully completing nan acquisition of Dog Food Advisor successful January, which helps engaged pet parents decisions astir canine nutrient done nan website This is an schematic illustration of america building retired nan premium pet attraction platform.

The 5th constituent of our strategy is operating scale, which I'll concisely touch connected and Alec will supply much detail. We're laser focused connected our portion economics and fixed costs operating leverage, which drove operating separator improvements crossed nan board. Our customer acquisition portion economics arsenic seen successful our 7 to 1 LTV CAC ratio continued to outpace our expectations for nan 4th and year. Adjusted EBITDA separator improved by 42% successful 2022.

In 2023, we proceed to build our level by investing successful maturation levers pinch a faster payback cycle, debased fixed costs, and debased OpEx. We will proceed to beryllium disciplined operators and stay laser focused connected managing gross separator and profit.

And pinch that, fto maine move nan telephone complete to Alec.

Alec Davidian

Thank you, Adam. And convey you everyone for joining our 4th fourth and afloat twelvemonth '22 net call. It has been an incredibly breathtaking and successful twelvemonth for nan Wag! squad arsenic we grew nan business done diversified gross stream, launched caller products and executed pinch operational excellence. As a result, we vanished '22 pinch each clip grounds results importantly up of our expectations. I'll locomotion done our financial numbers by providing an overview of our 4th fourth and afloat twelvemonth '22 results and past an overview of updated '23 guidance.

Closing out, our outstanding twelvemonth Q4 '22 was different grounds 4th for nan highest quarterly gross since inception, totaling 17 million, up astir 110% from Q4 '21. Adjusted EBITDA nonaccomplishment for nan 4th improved 2.4 million, compared to 2.5 cardinal successful Q4 '21. On a afloat twelvemonth basis, afloat twelvemonth '22 gross accrued 173% to 54.9 million, compared to 20.1 cardinal successful '21 while adjusted EBITDA nonaccomplishment improved to 3.9 million, compared to 9.9 cardinal successful '21.

Our acceleration is nan result of pet parents demand, caller partnerships, description into further marketplace testing and bundling Wag! Premium offers and continued trading efficiency. As expected, we saw a displacement of pet genitor needs from stepping to sitting and voting successful nan 4th fourth successful statement pinch nan accustomed seasonal request operation to inclement upwind crossed nan country.

We besides knowledgeable continued beardown request for wellness services, which contributed to 66% of gross successful Q4 '22, compared to 45% successful Q4 '21. Our wellness suite of services see valuable offering, specified arsenic master pet advice, wellness plan, pet security comparison options, and caller successful '22 pet medicine and compound medicines astatine their pharmacy.

Turning to expenses during nan 4th quarter, costs of gross excluding depreciation and amortization was 1 cardinal successful Q4, '22, aliases 6% of gross compared 2.8 cardinal aliases 10% gross successful Q4, '21. For nan afloat year, costs of gross excluding depreciation and amortization, pinch 4 million, aliases 7% of revenue, compared to 2.8 cardinal aliases 14% of gross successful '21.

The dollar magnitude summation pinch a nonstop consequence of accrued request driving incremental costs processing fees and inheritance cheque costs via summation successful pet parent, pet activity and caregiver applicants. Nevertheless, costs of gross alteration arsenic a percent of gross arsenic a exertion scaling initiatives took place.

Platform operations and support disbursal was 2.8 cardinal successful Q4, '22, aliases 16% of revenue, compared to 2.6 cardinal aliases 32% of gross successful Q4, '21. For nan afloat year, level operations and Support expenses 13.8 cardinal aliases 25% of gross compared to 10.3 cardinal aliases 51% of gross successful '21.

While location has been an summation successful disbursal successful dollar position year-over-year, driven by unit related compensation costs and banal compensation disbursal arsenic we prosecute and clasp talent, execute operations and support disbursal of much than half arsenic a percent of gross arsenic a consequence of operational scale.

Sales and trading expenses 10.5 cardinal successful Q4, '22, aliases 62% of revenue, compared to 65% of gross successful Q4, '21. For nan afloat year, income and trading expenses 35.2 cardinal aliases 64% of gross versus 10.2 cardinal aliases 51% of gross successful '21. The dollar magnitude summation successful income and trading expenses driven by business activity costs of caller merchandise initiatives, and launches and wide trading spent successful bid to harness nett caller pet parents and transverse waste them complementary level offerings via nan Wag! ecosystem.

G&A expenses 3.9 cardinal successful Q4, '22, aliases 23% of revenue, compared to 2 cardinal aliases 25% of gross successful Q4, '21. For nan afloat year, G&A expenses 32.4 cardinal aliases 59% of revenue, compared to 7 cardinal aliases 35% of gross successful '21. Notably '22 includes astir 21 cardinal successful transaction and integration expenses successful relationship pinch nan IPO.

When excluded for like-for-like comparison, G&A disbursal represents 21% of gross successful '22, which is simply a alteration of 14 percent points year-over-year. The dollar magnitude summation successful G&A disbursal is driven by unit related compensation costs and banal compensation disbursal arsenic we prosecute and clasp cardinal talent, M&A related costs and nationalist institution complaints including expenses related to nan compliance pinch nan rules and regulations of nan SEC, and NASDAQ via ineligible audit and consulting fees.

Adjusted EBITDA which is an important profitability measurement that we usage wholly to negociate nan business amended 2 cardinal to an adjusted EBITDA nonaccomplishment of 0.4 million. This compares to an adjusted EBITDA nonaccomplishment of 2.5 cardinal successful Q4, '21. Adjusted EBITDA nonaccomplishment for nan twelvemonth improves 3.9 cardinal versus 9.9 cardinal successful '21.

Turning to our equilibrium sheet, we ended nan 4th fourth pinch complete 39 cardinal successful rate and rate equivalents. This is chiefly owed to nan IPO transaction rate proceeds and financing nett of issuance costs that occurred successful nan 3rd 4th of '22 together pinch 9.8 cardinal rate received from a guardant stock acquisition statement successful nan 4th quarter.

Aside from these transactions, nan summation was owed to rate generated from our business operations. Our equilibrium expanse remains beardown successful nan discourse of our operating rate usage and puts america successful a beardown position to comfortably money our maturation objectives, while besides maintaining elasticity to prosecute strategical M&A erstwhile we judge nan opportunity aligns pinch our goals.

I besides want to item Wag’s wide headcount efficiency, which is different denotation of our operational excellence. Despite nan 173% gross maturation we person seen successful nan past year, we person only grown headcount by 9% bringing our full headcount astatine Wag! to 82. Including each headcount counting level operations and support, we reached 0.8 cardinal gross per worker based connected a Q4 '22 tally rate, good up of manufacture peers.

We person accomplished this done aggravated attraction connected systems automation, proprietary exertion and a robust infrastructure which enables nan level to standard without further headcount. We are businesslike and stay judicious astir hiring and headcount. Our attraction remains connected employing and empowering nan very champion group successful cardinal positions, which has besides travel into play pinch caller Aqua HAI transactions and M&A strategy.

We are building a squad of best-in-class builders, doctors, designers, founders, engineers and pet lovers. Our imagination is nan typical forces arsenic opposed to a broadly talented navy. In summation to building a awesome business, we are besides passionate astir building a awesome institution and that tin only beryllium done by fostering a beardown civilization and dedication towards our customers and our community. In '22, we person already begun to bring attraction and accountability to our ESG efforts. We are measuring, managing, and reporting connected immoderate of our cardinal diversity, equity, and inclusion metrics and priorities, which we look guardant to sharing pinch you successful our upcoming 10-K.

Moving to our guidance for '23, arsenic Garrett mentioned, we are very pleased pinch nan beardown capacity we saw during nan 4th fourth and nan year. As a result, we are raising our afloat twelvemonth '23 guidance that we antecedently included successful our April '22 investor day. For nan afloat twelvemonth '23 we now expect full gross successful nan scope of 75 cardinal to 77 million, an summation of 37% to 40% twelvemonth complete year, and a 7% betterment versus our anterior forecast astatine nan midpoint of nan range. This forecast builds connected our beardown results successful '22 while retaining an due level of conservatism arsenic we proceed to look a very move backdrop.

Adjusted EBITDA nonaccomplishment successful nan scope of 0 to 2 cardinal a 91% betterment versus our anterior forecast astatine nan midpoint of nan range, this scope contains aggregate levers including income and trading spend, merchandise improvement and description and pricing power. Our financial guidance includes nan pursuing assumptions, The White House plans to terminate connected May 11, some nan nationalist wellness and nationalist emergencies declared successful consequence to COVID pandemic arsenic stated connected January 30, '23.

A continued inclination successful return to agency arsenic measured by nan Kastle Back to Work barometer. The accreted effect from nan acquisition of Dog Food Advisor successful January '23, which we expect will lend 3 cardinal of gross and 1.5 cardinal of affirmative adjusted EBITDA successful ’23.Continued acceleration and wellness, including caller ventures, description into further markets, testing and bundling of Wag! Premium offers and improved trading efficiency.

In summary, arsenic illustrated by our beardown Q4 '22 and afloat twelvemonth '22 results, we person been and are presently experiencing request successful nan look of a very move backdrop. Our expertise to execute connected that demand, execute results supra our antecedently announced plan, attraction connected operational excellence, and merge and run good thought retired enterprises done M&A is simply a testament to our business strategy for '22 and for nan future.

And pinch that, we now invited Q&A.

Question-and-Answer Session


[Operator Instructions] And our first mobility comes from Tom White from D.A Davidson & Company. Your statement is now open.

Tom White

A mates questions, if I could. I conjecture conscionable first connected Wag! Premium Penetration, I deliberation you've exceeded benignant of that semipermanent target you first talked about. So, I guess, erstwhile you guys mention to benignant of testing and bundling. Is that much astir benignant of extracting benignant of maximum gross from this group of premium pet parents, if you will, that person already signed up and that are consenting to benignant of judge nan value increases? Or is it benignant of much astir introducing caller bundles to possibly benignant of maximize, nan penetration and travel up pinch offerings that entreaty to benignant of a broader swath of parents? And I person a speedy follow-up.

Garrett Smallwood

Yes. So, I would opportunity nan superior information astatine $14.99 value constituent is uncovering nan [Technical Difficulty] value constituent price, ultimately, nan correct value for nan existent bundle of Wag! Premium. That said, we're going to proceed to trial value and different bundling combinations that mightiness beryllium priced little aliases higher $14.99 was conscionable benignant of nan optimal fixed nan existent benefits.

Tom White

And past Garrett, I was hoping possibly you springiness america an update connected nan overnight, enactment portion of your business. I deliberation you touched connected it concisely successful nan prepared remarks. But funny really that's been performing, obviously, a batch of nan net results we've heard from nan OTAs and worldly propose that user travel, that betterment has been very robust.

But conscionable curious, for illustration really you guys deliberation astir overnight stays arsenic benignant of a compelling opportunity, possibly an opportunity for you guys to summation your stock there. I know, it's not been a historically needfully a immense portion of a immense attraction of you guys. But I saw that Browse & Book feature, which would possibly look to entreaty to pet parents who are contemplating a longer stay, possibly conscionable remark connected benignant of that opportunity astir overnight today.

Garrett Smallwood

Taking a measurement back, look, we purpose to beryllium nan Premium pet level for nan premium pet parent, right? So that intends solving their needs, whether it's overnight care, and that's sitting successful boarding drop-ins, which is reminder, we launched 20, 30 and 60 min drop-ins successful totality crossed nan U.S. successful 2022, which are really awesome for cats, and benignant of non dogs, aliases moreover sometimes elder pets pups. So, we really do for illustration nan overnight business.

I deliberation you saw pinch Browse & Book which is simply a awesome mention, which is gated down premium successful immoderate cases, arsenic a measurement for pet parents to observe awesome section pros successful their vicinity and really connection them up of submitting container arsenic good arsenic our Wag! vicinity web pages. So, we're going to proceed to build devices to alteration awesome sitting successful business and [Technical Difficulty] to it successful nan past fewer minutes.

It was surely a patient sitting connected boarding clip for nan business arsenic it usually is successful Q4, peculiarly driven by incremental recreation longer stays, unfortunately, owed to a batch of conscionable functional, for illustration formation cancellations lever. And I deliberation you each saw nan Southwest news. So yes, it was conscionable a awesome feat, I deliberation we'll proceed to thin in.


And convey you. And 1 infinitesimal for our adjacent question. And our adjacent mobility comes from Matt Koranda from ROTH MKM. Your statement is now open.

Matt Koranda

Just funny if you could possibly touch connected level information trends and nan number of level participants quarter-over-quarter. Anything you saw successful position of churn arsenic you raise value pinch nan $14.99 to your, possibly if you could besides conscionable explain erstwhile that was implemented and benignant of really acold on you are successful position of implementation connected nan gradual pricing?

Alec Davidian

Yes, truthful nan measurement to deliberation astir it, and again, great, acknowledgment for nan question, Matt. Appreciate nan time, taking a measurement back. Usually, we expect to spot immoderate grade of we'll telephone seasonality successful Q4, arsenic a usability of nan services business transitioning from what we'll telephone precocious wave services, things for illustration daytime stepping and driblet ins to longer long overnight stays aliases dropping astatine surely what we saw successful this quarter, and will probably, I mean, I don't cognize for sure, we'll spot what nan inclination looks for illustration this year, but I'm assuming that'll beryllium a accordant inclination successful our business.

We raised premium pricing passim Q4, only for nett caller subs. So it did not impact subscribers. And it's really important to mates out. And what that intends is, nan premium inclination should enactment beautiful resilient arsenic a result. And what we're really doing to Adam's constituent earlier is focused connected making judge we're maximizing nan worth we supply successful nan value we tin past seizure from nett caller pet parents. And we've discovered that that is really astir 50% higher, particularly monthly basis. So, it didn't impact nan existing subscribers, only affects nett caller steps. I'll region everything successful nan questions.

Matt Koranda

Okay. No, that's very adjuvant explanation there, truthful acknowledgment for that good. And past I conjecture conscionable successful position of nan '23 outlook, wanted to spot if you guys could explain aliases thief america understand services versus wellness successful nan outlook there, it was adjuvant to person Dog Food Advisor surgery out. So I admit that, but conscionable immoderate further breakdown of nan services versus wellness maturation and outlook? And past immoderate thief connected conscionable benignant of nan publication from drugstore arsenic good and announcement that wasn't needfully successful nan maturation and outlook either. So conscionable thief them that would beryllium great?

Alec Davidian

Yes, a batch of awesome questions. I'll do my champion to parse than that. So I deliberation Q4 is astir apt beautiful patient denotation of early mix, frankly. We're really excited astir nan wellness business, pinch awesome leadership. They're a phenomenal squad successful place, conscionable mostly unthinkable things happening location arsenic you tin see, successful Q4. Again, we're leaning successful to each parts of nan business, what we're really trying to do is conscionable maximize our expertise to recycle superior efficiently and our tight times timescale, and truthful wellness has demonstrated that.

First to really deliberation astir arsenic for illustration an optionality, thing we're excited to trial to get integrated. We deliberation has a existent early imaginable pinch nan business. But again, that is simply a California circumstantial drugstore and compounding business that's moving straight pinch vet clinics and pet parents. You'll spot america successful Q4, we experimented pinch immoderate customer offers pinch scaling successful nan [indiscernible] and building relationships. You'll astir apt proceed to spot america do that, but it's not a worldly portion of nan wellness is gross today.


And convey you. And 1 infinitesimal for our adjacent question. And our adjacent mobility comes from Jeremy Hamlin from Craig Hallum. Your statement is now open.

Jeremy Hamlin

Thanks, and congrats connected nan momentum successful nan business. I wanted to conscionable first talk astir seasonality a small spot successful position of level information successful Q4 versus benignant of emblematic anticipation you person to commencement nan year. Certainly getting immoderate awesome indicators pinch nan Kastle return to activity barometer that you are getting much and much group backmost successful nan office.

I want to get a consciousness for really you, expect that to effect your business. I'm assuming that's much for the, you know, nan services segment. But besides wanted to get a consciousness for what you were seeing connected your wellness level and whether aliases not maturation location is being driven much by engagement connected nan security marketplace aliases if that's coming a small bit, you know, much from nan different portions of that segment.

Garrett Smallwood

I'll return this one. Jeremy, ever a treat. I dream everyone sees what I did there. Okay. In position of seasonality, again, I deliberation we mostly expect Q4 to beryllium a unsocial clip play for nan business wherever our services level participants specifically modulation from precocious wave daytime to much overnight. I don't deliberation that'll beryllium unsocial to immoderate to this twelvemonth aliases thing else. I would opportunity that yes, nan Kastle Back to Work barometer is simply a awesome denotation we've mentioned that a fewer times successful nan past, astir really services pet parents are reasoning astir their pets arsenic group return to office.

They commencement reasoning astir much than conscionable leaving their pet. They deliberation astir their pet's wellbeing, talking to a vet, possibly buying insurance, possibly needing their pet's RX and things delivered alternatively of picking it up. So each those [indiscernible] and certainly, we deliberation that Kastle and nan spell guardant inclination is simply a logic why we updated guidance frankly from our original forecast, and I deliberation you're seeing it pinch Amazon and Disney and everyone else. Okay, truthful that's nan first question.

I deliberation nan 2nd 1 was wellness growth. Look, we're excited astir each facets of wellness, frankly. We emotion nan expertise for pet parents to pass straight pinch pet experts. We emotion that they tin comparison security quotes. We emotion that they can, you know, look done reviews for awesome pet security companies. There's a ton of awesome worth adhd successful our wellness category.

But I mostly deliberation nan 2 places you'll spot america really doubling down this twelvemonth are going to proceed to beryllium pet parents' expertise to comparison and publication and reappraisal pet security options. That seems to beryllium a no-brainer successful position of nan worth it provides pet parents. And 2 is their expertise to shop and person compound RX and different medicine meds straight their doorstep from their vet successful a really elemental way. Those 2 things look to beryllium a awesome lever for america and nan things that pet parents are really wanting to thrust forward.

Jeremy Hamlin

Okay. Got it. And past that was a notable, regarding your worker headcount. You person seen a small spot of a measurement up present successful your G&A cost. And so, I wanted to get a consciousness for what we saw present successful Q4, if that's benignant of much of a caller baseline. You brought successful evidently immoderate group from transactions pharmacy. You're going to adhd successful immoderate perchance immoderate unit from DFA acquisition arsenic well. But conscionable wanted to get a consciousness for wherever your baseline is connected that, if Q4 is somewhat reflected aliases if there's thing unsocial circumstantial to that measurement up successful your G&A?

Garrett Smallwood

No, I mean, I deliberation Q4 is astir apt a adjuvant baseline. And look, I deliberation that nan measurement we deliberation astir nan business, Jeremy astatine this constituent successful 2023. It's conscionable wherever do we -- are we going to beryllium investing incremental dollars to maximize output for this, functionally our job, obviously. But really, it's headcount, sales, marketing, perchance M&A. But I deliberation Q4 is simply a beautiful bully denotation of G&A trends, that mightiness beryllium different opportunities, that would beryllium surprising, and we'd stock pinch you if that was much M&A, aliases things for illustration that, but I don't expect that. No surprises. So again, I deliberation Q4 is simply a bully baseline for nan future.

Jeremy Hamblin

And past past one, for maine successful position of what you're seeing from, cardinal competition, whether it's nan benignant of dollars being spent, to pull caller customers, aliases whether it's title for benignant of nan existing set. What are you seeing retired location from immoderate of your peers, you had a flimsy measurement down, successful your CAC, successful nan 4th aliases your LTV to CAC? Do you person -- is that much flexion of nan worth is somewhat stepped down aliases much that nan costs to get customers is up a small bit?

Garrett Smallwood

It was much our willingness to participate, knowing benignant of wherever we were. And truthful again, I deliberation primitively said was, well, I targeted 3 to one, we were six, 7 to one, I think, nan inclination is really bully successful position of LTV to CAC, aliases recycling these customers really quickly, and payments goes backmost really quickly and efficiently.

I can't speak a ton for our competitors. I deliberation mostly past year, Jeremy, we said that we deliberation this year, there'll beryllium a immense opportunity to beryllium really thoughtful astir marketing, we thought this would beryllium benignant of a culling of D2C companies and brands, who will person to propulsion backmost beautiful importantly arsenic liking rates rose, arsenic nan network's functionally changed, whether that was Facebook aliases Apple. And we're seeing that, we're really bully astatine marketing.

Frankly, we're really bully astatine partnerships, we're really bully astatine really conscionable building relationships pinch customers. And we'll proceed to do that. If anything, we've seen it beryllium a spot less, I wouldn't opportunity competitive, but a spot little sound successful nan marketplace. And again, we're conscionable going to beryllium really disciplined pinch nan dollars we allocate.

Jeremy Hamblin

Last one, we didn't talk arsenic overmuch connected this telephone connected your pet caregivers, and you've experimented successful position of nan interest charged to subordinate nan platform. Is that reflecting that you consciousness for illustration you're getting person to uncovering that right, value point, to person PCG's subordinate nan level aliases immoderate colour you tin stock connected that? Thanks.

Garrett Smallwood

Yes. It's really going to beryllium continued. We're not done. To reply your question, Jeremy, we're really focused connected equilibrium and nan marketplace clearing value is nan champion point successful America, I think, right? I deliberation nan full squad thinks that. And truthful we're really focused connected nan marketplace clearing value to go a pet attraction giver successful nan Wag! ecosystem. And I deliberation we'll proceed to trial different mechanisms to make judge that champion caregivers are getting nan champion gigs and are rewarded accordingly. So activity is acold from done there.


And convey you. And 1 infinitesimal for our adjacent question. And our adjacent mobility comes from Jason Helfstein from Oppenheimer. Your statement is now open.

Jason Helfstein

I'll conscionable inquire 2 questions. One, Garrett, tin you talk philosophically astir trading versus rate flow? Now, that you've intelligibly shown to your point, you're bully astatine marketing, you've sewage very bully leverage successful nan business of nan past year. How are you reasoning astir leaning into trading now going guardant comparative to rate flow? Is it maintained benignant of breakeven rate travel and conscionable support leaning successful to marketing? That's full possibly speak connected a multiyear basis, right, conscionable beyond '23?

And past mobility number two. We've seen benignant of geographically different patterns pinch return to activity correct wrong nan East Coast returning much than nan West Coast. Can you talk astir possibly for illustration what you're seeing? And to nan extent, you've already seen, for illustration bully information from nan East Coast and nan West Coast is taking longer to return to activity really you perchance tin extrapolate that and really you facet that into '23 guidance? Thanks.

Garrett Smallwood

Yes. Hey, Jason, again, acknowledgment for nan time, awesome to perceive from you. Always nosy to perceive your voice. Look, I deliberation this marketplace is simply a very move one. And truthful we person been intensely focused connected getting to scale, 1 of nan astir important parts. Remember, a mates quarters ago, I deliberation we said we were beautiful early. And I deliberation we're getting to a constituent of existent gross scale, hopefully hap nan backmost half of this year.

And truthful what we're past focused connected is conscionable making judge we're investing incremental dollars profitably into nan platform. So I don't deliberation this business is successful a position anytime soon to beryllium conscionable pumping retired dollars functionally, there's excessively overmuch opportunity ahead. We're really going to proceed to thin successful thoughtfully, but I don't deliberation that's going to beryllium astatine a important costs ground to our shareholders. So I've answered your first one.

The 2nd 1 successful position of geography, look, nan Kastle Back to Work barometer is simply a awesome denotation for benignant of what you're seeing pinch pet genitor trends generally. As you deliberation astir it, for illustration I deliberation we're astatine 50-ish percent earlier this period aliases successful January, but for illustration nan biggest markets are lagging nan mean LA, SF, New York City, etc. So beautiful acold down and you look astatine like, Florida, parts of Florida and Texas are benignant of measurement much open.

So, we deliberation there's benignant of extracurricular room to return to normal successful nan upside case, aliases only, we're surely readying for that. But that would beryllium surely wherever nan opportunity would beryllium is successful these larger markets, which are importantly lagging, if they were to person a existent benignant of return to normal. That'd beryllium great. So but I deliberation that nan inclination is mostly akin to what you're saying backmost to agency successful position of capital.


And convey you. And 1 infinitesimal for our adjacent question. And our adjacent mobility comes from Brian Dobson from Chardan Capital Markets. Your statement is now open.

Brian Dobson

So I conjecture to return to nan subscription service, it's beautiful awesome that you spot pricing powerfulness successful that monthly product. I suppose, what benignant of life worth are you seeing pinch your existent subscribers? And do you deliberation you'll acquisition nan aforesaid retention complaint astatine that higher pricing level?

Garrett Smallwood

Yes, truthful we've been really thought -- and again awesome woody from Brian. We've been really thoughtful astir premium from nan start. One point I would punctual us, Brian, is that we are importantly up of wherever we thought we'd beryllium pinch premium penetration. And our semipermanent extremity was thing for illustration 50% we sewage location a mates years early. And I deliberation there's a mates reasons for that, 1 is we've added truthful overmuch worth to that subscription since we started that it's conscionable we're really conscionable catching up successful position of pricing.

And 2 is we're really quickly experimenting pinch nan use that you get arsenic a Wag! Premium pet parent, it's conscionable a really delightful experience. So I deliberation nan champion measurement to deliberation astir LTV and dollars captured for nan pet genitor is gross and level participants and benignant of what we've been capturing. But you saw, I deliberation successful nan LTV chart we published successful our platform past twelvemonth benignant of each cohort of pet parents outperforming nan previous, that's mostly our extremity pinch operators and builders and engineers and merchandise aficionados. It's really conscionable to summation nan dollars we seizure from nan pet parents that are participating.

So I don't deliberation we would do this with, we thought it was going to beryllium a resistance coefficient, frankly, anyhow we really deliberation it's going to beryllium a tailwind. Does that reply your question?

Brian Dobson

Yes, absolutely. And past I conjecture turning complete to Dog Food Advisor, it's awesome to spot that accrete Q1. I conjecture what are immoderate of nan cross-selling -- what is nan cross-selling avenue that you're astir excited astir erstwhile you're looking into to like, telephone it 2023 and 2024?

Garrett Smallwood

Yes, I mean, convey you. I mean, we emotion that business and immense outcry retired to nan founder, [Dr. Mike Zackman], who built it complete nan past 14 years. He’s conscionable done a tremendous job. And we're really excited astir taking connected nan opportunity to proceed to service millions of pet parents who are looking for awesome existent recommendations connected pet food. So first and foremost, if you deliberation astir pet parents, each azygous personification who owns a pet has 1 point successful common. They sewage to provender it.

And truthful nan thought that we now person Dog Food Advisor, which we judge is really nan premium number 1 pet nutrient proposal motor connected nan web, we tin necktie that really, really nicely into our ain ecosystem. We tin get really intelligent offers successful beforehand of our ain services pet parents, pet parents mightiness beryllium buying pet security astatine nan correct time. People are talking to a vet done nan platform. There's a batch of levers successful position of really we get thoughtful astir personalized recommendations.

And past two, connected nan different broadside of things, erstwhile you're reasoning astir nutrient and you're purchasing food, possibly for nan first clip there's a bunch of levers past to spell backmost and upsell things for illustration services aliases uncovering nan cleanable pet security plan. So conscionable a batch of awesome synergies, we're not going to unreserved it. These things are sensitive. You sewage to do it right, particularly astatine this standard and age. But we're very, very excited astir having thing that's truthful evergreen for nan pet parent.


And convey you. And I americium showing nary further question. This concludes today's convention call. Thank you for participating. You whitethorn now disconnect.

Editor: Naga

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