Wag! Group Co - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $15.17M, down 34.7% year over year but roughly flat sequentially; GAAP net loss was $(4.89)M with loss per share $(0.10). Adjusted EBITDA was $(1.24)M (−8.1% margin), versus +$0.17M (0.7% margin) in Q1 2024 and $(0.96)M (−6.2% margin) in Q4 2024.
• Management said results were slightly ahead of internal profitability expectations and in line on revenue; noted early Q2 strength and all three major distribution partners went live at the end of Q1 to drive Wellness growth beginning in Q2.
• Full-year 2025 guidance was maintained: revenue $84–88M and adjusted EBITDA $2–4M; Board continues strategic review aimed at potentially strengthening the balance sheet and reducing debt.
• No sell-side Q&A occurred on the call, suggesting limited coverage; near-term stock catalysts are execution on distribution partnerships, Q2 growth trajectory, and any outcomes from the strategic alternatives review.

What Went Well and What Went Wrong

What Went Well

• “We are pleased to begin 2025 with results slightly ahead of our expectations on profitability and in line with expectations on revenue,” highlighting cost discipline and operational streamlining benefits.
• All three major distribution partners went live at the end of Q1 and are expected to drive “meaningful impact within our insurance comparison business beginning in Q2,” positioning Wellness for acceleration.
• Early Q2 trends were described as strong, with management “well positioned to accelerate growth through the second quarter,” aided by AI-enabled process efficiencies and reduced marketing spend.

What Went Wrong

• Revenue declined 34.7% year over year to $15.17M; adjusted EBITDA swung to a loss of $(1.24)M from +$0.17M in Q1 2024, reflecting weaker top-line and margin pressure.
• Net loss margin widened to −32.2% from −18.3% in Q1 2024; platform participants fell year over year (472K vs. 671K), although improved q/q (472K vs. 445K).
• Cost of revenue (10% of revenue) and platform ops (17%) were modestly above historic ranges, while sales and marketing remained high (within the historic 60–70% range), indicating ongoing cost intensity despite discipline.

Transcript

Operator (participant)

Good morning. Welcome to the Wag! Q1 2025 Earnings Conference Call. At this time, online journalists in only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press the star zero on your telephone keypad. As a reminder, this conference is being recorded. I'll now introduce your host, Greg Robles with Investor Relations. Thank you. You may begin.

Greg Robles (Director of Investor Relations)

Good morning, everyone, and thank you for joining Wag's conference call to discuss our first quarter 2025 financial results. On the call today are Garrett Smallwood, Chief Executive Officer and Chairman; Adam Storm, President and Chief Product Officer; and Alec Davidian, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of these risks and uncertainties is 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. 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 issue today. The earnings release is available on the Investor Relations page of our website and is included in Exhibit and Form 8-K furnished to the SEC. These non-GAAP measures are not intended to be a substitute for our GAAP results. I will now turn the call over to Garrett Smallwood.

Garrett Smallwood (CEO and Chairman)

Good morning, and thank you for joining us today to discuss our financial performance for the first quarter of 2025. First, I'll 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. Then Alec, our Chief Financial Officer, will provide a more detailed analysis of our first quarter 2025 results and discuss our guidance for 2025. We began the year in line with, and slightly ahead of, our expectations from a profitability standpoint, despite a year-over-year decline in revenue. Through disciplined cost management and operational efficiencies, we delivered improved adjusted EBITDA, demonstrating our continued ability to adapt and execute in the current environment. Sales and marketing expenses declined slightly sequentially and 34% year-over-year, reflecting disciplined cost control and a more efficient customer acquisition strategy through channel diversification.

We're continuing to see the benefits from the operational improvements we implemented throughout last year, including the streamlining of headcount, automation, and the deeper integration of AI into our core workflows. At the same time, we also made progress on the strategic partnership front. As previewed last quarter, all three of our major distribution partners we secured went live at the end of Q1 and are expected to drive meaningful impact within our insurance comparison business beginning in Q2. We're excited about the value these partners bring, especially in an environment where we are consciously reducing marketing spend. Looking ahead, we're well-positioned to accelerate growth through the second quarter, supported by strong business trends through April and early May. We remain committed to evaluating all strategic options and will continue to provide updates as appropriate.

With that, I will turn the call over to Adam to review our strategic priorities for 2025.

Adam Storm (President and Chief Product Officer)

Thanks, Garrett. As we continue to operate with discipline and focus, the underlying fundamentals of our business remain strong. In the services ecosystem, we're seeing steady demand as more pet parents return to the office, and we remain focused on driving additional value to customers through product innovation and cross-sell opportunities. Within wellness, the three major distribution partners that Garrett mentioned will enhance our marketing positioning and allow us to scale more efficiently, which is especially important as we maintain reduced marketing spend. At the same time, as more users engage with our platform, we're constantly exploring new ways to deliver more value and deepen engagement across our portfolio. We're optimistic about the momentum that we've seen in early Q2 and remain focused on disciplined execution while growing efficiently. I will now turn the call over to Alec to discuss our financial performance in more detail.

Alec Davidian (CFO)

Thanks, Adam. As Garrett mentioned, our Q1 results reflect our focus on operating efficiency and the initial innings of scaling new opportunities and partners to achieve improved profitability and growth in 2025. In the first quarter, we had 472,000 platform participants in the Wag! ecosystem, a sequential quarter-over-quarter growth of 6%. Revenue and adjusted EBITDA loss was $15.2 million and $1.2 million, respectively, both declining slightly versus Q4. From a revenue category results perspective, first quarter services was $4.9 million, wellness was $9.2 million, and pet food and treats was $1.1 million. Total cost and expenses for the first quarter were down 25% year-over-year by over $6 million. Specifically, cost of revenue was $1.4 million in Q1, which came in at 10% of revenue, just outside of our historic 7%-9% range.

Platform operations and support expenses sparked $2.5 million in Q1, or 17% of revenue, which is modestly above our historic 13%-15% range. We continue to thoughtfully invest in AI and other technologies to optimize our processes and systems, and are seeing increased efficiencies with every passing quarter. Sales and marketing expense was $10.4 million in Q1, which is within our historic 60%-70% range. We are continuing to thoughtfully approach customer acquisition and taking steps to expand scale in a strategic manner. G&A expense was $4 million in Q1, which is within our historic 20%-26% range, driven by the fixed cost nature of G&A. From a balance sheet perspective, we ended the first quarter with $11.7 million in cash and cash equivalent and accounts receivable.

As the board continues its strategic review, the board is evaluating potential options that could be accretive to our balance sheet and allow us to reduce our debt balance. Looking ahead to our 2025 guidance, we continue to expect to generate the following: revenue in the range of $84 million-$88 million, and adjusted EBITDA in the range of $2 million-$4 million. In closing, I want to reiterate that we remain focused on executing our strategy while continuing to assess opportunities that drive shareholder value. We will continue to provide updates when appropriate and will continue to act in the best interest of our shareholders. I will now turn the call back to the operator.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press the star two. One moment, please, for your first question. We have no further questions at this time. I would like to turn it back to Mr. Garrett Smallwood for closing remarks.

Garrett Smallwood (CEO and Chairman)

Thank you, everyone. Thank you so much to our wonderful Wag! employees who are working so hard each and every day to deliver to our shareholders, our customers, and our end users. With that, we'll let you go. Thanks so much.

Operator (participant)

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.