Wag! Group Co. (PET)·Q2 2024 Earnings Summary

Executive Summary

• Q2 revenue declined 6% year over year to $18.65M as management deliberately scaled back marketing to prioritize profitability; Adjusted EBITDA reached a record $1.64M (8.8% margin), up from $0.11M (0.5% margin) a year ago .
• Management reiterated the July 10 reset of FY24 guidance: revenue cut to $92–$102M (from $105–$115M) while Adjusted EBITDA was raised to $4–$8M; Q3 guidance calls for $20–$24M revenue and $1.5–$2.5M Adjusted EBITDA, with expected positive free cash flow in 2H24 .
• Balance sheet actions are the key near-term catalyst: $10M equity raise in July, planned debt paydown/refinance (current rate 15.8% targeted to ~10%), and ~$340K quarterly interest savings beginning in Q3; combined cash and AR ended Q2 at ~$17M .
• S&P Global consensus estimates for Q2 2024 were unavailable for PET; as a result, a formal beat/miss analysis versus Street consensus cannot be provided (estimates unavailable via S&P Global).

What Went Well and What Went Wrong

• What Went Well

  • Record profitability: Adjusted EBITDA of $1.64M (8.8% margin) on $18.65M revenue, driven by reduced/optimized marketing and operational efficiencies .
  • Disciplined cost structure: Platform ops 15% of revenue (vs. 18% YoY), G&A 20% (vs. 24% YoY), with AI and automation improving efficiency; S&M cut to 59% from 67% in Q1 2024 .
  • Clear deleveraging path: $10M equity raise, debt paydown/refi expected 2H24, target debt rate ~10% (from 15.8%), ~$340K quarterly interest savings from Q3 .
  • Quote: “Our results were highly intentional as we reduced marketing spend to increase profitability… our adjusted EBITDA increased to $1.6 million, a quarterly record” .

• What Went Wrong

  • Top-line contraction and engagement pressure: Revenue -6% YoY to $18.65M and platform participants -15% YoY to 467K as marketing was curtailed and mix shifted toward returning users .
  • Sequential revenue decline: From a record Q1 ($23.22M) to Q2 ($18.65M), reflecting deliberate pullback in spend and seasonality/mix .
  • Services headwinds and macro/marketing environment: Management flagged a tougher paid media backdrop (election-year CPM/CPC pressure) and is shifting toward partnerships and non-Google/Facebook channels .

Financial Results

Segment revenue trend

Operating mix and KPIs

Notes:

• Q2 revenue decreased 6% YoY to $18.651M; net loss improved to $(2.251)M; Adjusted EBITDA improved to $1.639M (8.8% margin) .
• Decline in Platform Participants reflects mix shift as marketing was reduced; ARPU increased per management commentary, but a specific figure was not disclosed .

Guidance Changes

Management context:

• Rationale for FY guidance reset: reduce near-term marketing to prioritize profitability and balance sheet flexibility ahead of debt refi; marketing efficiency expected to improve and re-accelerate post-refi .

Earnings Call Themes & Trends

Management Commentary

• Strategic priority: “Strengthening our balance sheet and demonstrating consistent profitability is going to be utmost importance… we believe we’ll be in a position to deliver positive free cash flow going forward” .
• Cost discipline: “Platform operations and support… 15% of revenue versus 18% a year ago… Sales and marketing… 59% of revenue, up from 54% a year ago, but down from 67% in Q1” .
• Debt and interest: “We plan to use the [equity] proceeds to pay down high interest debt… approximately $340,000 of quarterly interest cost savings starting in Q3… we think… we can get to a rate closer to 10% [from 15.8%]” .
• Growth vs. profit: “As we return to growth, we expect to maintain a healthy adjusted EBITDA margin to balance profitability and growth going forward” .
• Product strategy: “We’re very excited about the long-term growth prospects of our prescription B2B SaaS platform… WeCompare… majority of the growth contribution to come in 2025” .

Q&A Highlights

• Timing of re-accelerating marketing: Management will first refi debt; then lean back into growth in late 2024 with a more balanced approach to EBITDA margins (targeting ~8–12% in 2025) .
• Demand backdrop: Premium pet wellness remains durable despite macro volatility; sequential improvement expected in Q3 vs. Q2 .
• Marketing ROI and channels: Election-year ad environment is tougher; shifting to partnerships and non-search/social routes for better ROI and durability .
• ARPU/Customer mix: Pullback in marketing tilts mix to returning customers with higher ARPU; increased emphasis on upsell/cross-sell within platform .
• G&A scaling: G&A will not scale linearly with revenue as growth returns; efficiencies in headcount/tech to continue .

Estimates Context

• S&P Global consensus estimates for PET’s Q2 2024 revenue and EPS were unavailable via our S&P Global feed at this time; therefore, we cannot quantify a beat or miss versus consensus. We will update comparisons if/when S&P Global estimates become available.

Key Takeaways for Investors

• Record Adjusted EBITDA with sharply improved margin demonstrates operating leverage available when marketing is dialed back; this sets a higher profitability baseline for post-refi growth .
• The debt refinancing is the pivotal catalyst: expected 2H24 close, interest rate potentially dropping toward ~10% from 15.8%, with ~$340K/qtr interest savings starting Q3; equity proceeds already raised to facilitate paydown .
• FY24 guidance reset lowers revenue but raises EBITDA, signaling a deliberate pivot to cash generation and balance sheet health; positive FCF expected in 2H24 .
• Near-term growth may remain constrained until refi is finalized; watch Q3 delivery against $20–$24M revenue and $1.5–$2.5M Adjusted EBITDA guide for confirmation of trajectory .
• Wellness remains the structural growth pillar; Services should benefit if return-to-office trends improve and as channel strategy pivots to partnerships .
• 2025 setup: Expect renewed growth investment with a higher EBITDA margin target range (8–12%) as the company balances expansion with sustained profitability .