Executive Summary

Q3 2024 was materially weak: revenue fell 39% year-over-year to $13.2M, driven by Wellness and Pet Food & Treats marketing inefficiency tied to Google AI Overview and search changes; Adjusted EBITDA swung to a $(1.9)M loss and GAAP EPS was $(0.13) .
Management cut Q4 and FY24 guidance; Q4 revenue is now $15–$18M and Adjusted EBITDA is $(0.5)M to $0.5M; FY24 revenue is $70–$73M and Adjusted EBITDA is $(0.5)M to $0.5M, down sharply from prior outlooks; focus shifts to debt reduction and free cash flow .
October showed a rebound: Wellness revenue grew 79% m/m and platform participants exceeded 170,000; management is cautious but expects stability into Q4 and 2025, aided by diversified channels and new partnerships .
Balance sheet actions: repaid $5M of debt in Q3 (total $10M YTD), reducing quarterly interest expense by ~$0.5M versus start of year; evaluating asset sales (Dog Food Advisor/Cat Food Advisor) and targeting a refinancing update by end of Q1 2025 .

What Went Well and What Went Wrong

What Went Well

October/November recovery in Wellness: “Wellness revenue grew 79% month over month in October, and the first couple weeks of November are continuing this trend” .
Cost discipline and debt paydown: repaid $5M of principal in Q3, lowering interest expense in Q4 by ~$0.5M; additional $10M debt prepayments in 2024 and headcount reduction of nine positions to save costs .
Strategic pipeline: preparing prescription management software for a meaningful launch in Q1 2025, with active dialogues on large distribution deals; stronger partnerships expected to support Q4 and 2025 .

What Went Wrong

Severe marketing inefficiency and traffic shifts: Google AI Overview and search result changes disrupted SEO/SEM for Wellness and Pet Food & Treats, leading to lower conversions and pulling back spend intra-quarter .
Sharp revenue and profitability deterioration: Q3 revenue fell to $13.2M and Adjusted EBITDA to $(1.9)M; included ~$0.9M nonrecurring corporate expenses; YoY declined from +$1.0M Adjusted EBITDA in Q3 2023 .
Guidance reset and increased conservatism: Q4 and FY24 guidance cut significantly due to uncertainty around further search changes; management remains cautious despite October improvement .

Financial Results

Consolidated Performance (Quarterly)

Metric	Q1 2024	Q2 2024	Q3 2024
Revenue ($USD Millions)	$23.219	$18.651	$13.204
Net Loss ($USD Millions)	$(4.241)	$(2.251)	$(6.262)
Diluted EPS ($USD)	$(0.11)	$(0.06)	$(0.13)
Adjusted EBITDA ($USD Millions)	$0.168	$1.639	$(1.943)
Adjusted EBITDA Margin (%)	0.7%	8.8%	(14.7)%
Net Loss Margin (%)	(18.3)%	(12.1)%	(47.4)%
Platform Participants (000s, period-end)	671	467	367

Year-over-Year Comparison (Q3 2024 vs Q3 2023)

Metric	Q3 2023	Q3 2024
Revenue ($USD Millions)	$21.800	$13.204
Net Loss ($USD Millions)	$(2.196)	$(6.262)
Diluted EPS ($USD)	$(0.06)	$(0.13)
Adjusted EBITDA ($USD Millions)	$1.007	$(1.943)
Adjusted EBITDA Margin (%)	4.6%	(14.7)%
Platform Participants (000s, period-end)	632	367

Segment Revenue Breakdown

Segment	Q1 2024	Q2 2024	Q3 2024
Services ($USD Millions)	$5.3	$5.6	$5.4
Wellness ($USD Millions)	$15.8	$11.5	$6.5
Pet Food & Treats ($USD Millions)	$2.1	$1.5	$1.3

KPIs and Balance Sheet Metrics

KPI / Balance Item	Q1 2024	Q2 2024	Q3 2024
Cash & Cash Equivalents ($USD Millions)	$12.603	$9.234	$8.445
Accounts Receivable, net ($USD Millions)	$11.104	$7.512	$6.548
Notes Payable – Current ($USD Millions)	$1.913	$2.075	$19.015
Notes Payable – Non-Current ($USD Millions)	$21.428	$21.468	$0.000
Operating Cash Flow ($USD Millions)	$0.168	$(2.021)	$(5.274) (nine months YTD)

Note: October platform participants exceeded 170,000 (monthly), indicating early signs of recovery heading into Q4 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q4 2024	N/A (no prior Q4 guide)	$15M–$18M	Initiated
Adjusted EBITDA	Q4 2024	N/A (no prior Q4 guide)	$(0.5)M–$0.5M	Initiated
Revenue	FY 2024	$92M–$102M (Aug 7, 2024)	$70M–$73M	Lowered
Adjusted EBITDA	FY 2024	$4M–$8M (Aug 7, 2024)	$(0.5)M–$0.5M	Lowered

Context: Earlier FY24 guidance was $105M–$115M revenue and $2M–$6M Adjusted EBITDA (May 9, 2024) before being reduced in July and then reset in November .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
Marketing/SEO and Google AI	Prioritized free cash flow; tightened payback windows; adopted AI/automation (Forethought.ai); scaled back S&M to improve profitability	Search changes (Google AI Overview) disrupted SEO/SEM, hurting Wellness and Pet Food & Treats efficiency; pulled back spend intra-quarter; October rebound	Deteriorated in Q3; stabilizing in Oct/Nov
Debt reduction & refinancing	Paid down $5M in Q1; completed $8.6M equity offering to pay down debt after penalty expiry; focus on deleveraging	Repaid $5M in Q3; interest down ~$0.5M per quarter; targeting refinance update by end of Q1 2025; considering asset sales	Intensified deleveraging focus
Product/Rx (Furscription)	Announced Furscription; building prescription SaaS; WeCompare launched	Prescription management software “ready for prime time” with meaningful launch in Q1 2025; active distribution dialogues	Advancing toward launch
Partnerships & channels	Diversifying acquisition channels; focusing on highest ROI partners/publishers	Expanding to Meta/TikTok/Amazon ads; emphasizing premier partnerships (e.g., Bright Horizons; Tractor Supply-like)	Broader, diversified mix
Platform Participants	Record 671k (Q1); 467k (Q2)	367k (Q3 period-end); October exceeded 170k monthly	Down in Q2/Q3; improving in Oct
Cost actions	S&M scaled back in Q2; SG&A efficiencies	Headcount reduced by nine roles; at least $2M annualized cost reductions targeted	Accelerated savings

Management Commentary

CEO on marketing environment: “We experienced changes to Google that impacted our listing results… we cannot spend efficiently on our Wellness business… these changes are transitory… positioned for a strong rebound in Q4 and into 2025” .
CFO on nonrecurring costs and cost actions: “Adjusted EBITDA included $0.9 million of expenses that we do not expect to recur… we have eliminated 9 positions and initiated plans to reduce other costs… reduce annualized operating costs by at least $2 million” .
Asset sales under consideration: “Two assets… Dog Food Advisor/Cat Food Advisor and our prescription business… we believe paying off the debt with proceeds from select assets is in the best interest of the company and shareholders” .
Q4 guidance tone: “We are being relatively conservative… cautious with our assumptions” .
Channel diversification: “Diversify spend… more Meta… more TikTok… more Amazon ads… focus on premier partnerships (e.g., Bright Horizons; Tractor Supply-like)” .

Q&A Highlights

Guidance and conservatism: Management acknowledged uncertainty in Google’s ongoing changes; hence conservative Q4 guide despite October improvement .
Segment expectations for Q4: Services and Pet Food & Treats likely in line with YoY trends; Wellness expected to drive the bounce-back .
Marketing spend: Q4 marketing spend likely above Q3 in absolute dollars, but at higher efficiency due to partner adaptation and SERP dynamics .
Balance sheet/cash burn: Ended Q3 with $8.5M cash (and $6.5M AR turning to cash post-quarter); debt interest now ~$0.5M lower per quarter versus start of year .
Refinancing and prepayment: Refi timeline pushed to Q1 2025 to allow rebound and possible asset sale proceeds; prepayment penalty on current debt has expired .

Estimates Context

S&P Global consensus estimates for PET were unavailable due to missing CIQ mapping in our data access. As a result, explicit comparisons versus Wall Street consensus for Q3 2024 and Q4 2024 cannot be provided at this time [SpgiEstimatesError].
Directionally, the company missed its internal Q3 guidance (issued Aug 7) and reset FY24 expectations, which implies consensus estimates likely need to be revised lower; however, without S&P Global data access, we are not publishing consensus figures .

Key Takeaways for Investors

The quarter’s weakness was driven by external search/SEO shocks; October’s rebound suggests the core demand engine remains intact, with Wellness recovering as partners and channels adapt .
Guidance reset is significant; FY24 revenue cut to $70–$73M and Adjusted EBITDA to roughly breakeven, emphasizing debt reduction and cash generation over near-term growth .
Deleveraging is tangible (total $10M debt prepaid YTD); asset sales and a Q1 2025 refi update are potential catalysts to reduce interest drag and improve equity value .
Cost actions (headcount reduction; vendor/priorities review) aim to lower operating costs by at least $2M annually, supporting a return to positive Adjusted EBITDA in subsequent quarters .
Channel diversification (Meta/TikTok/Amazon) and premier partnerships should mitigate reliance on Google SERP volatility, supporting more resilient acquisition economics into 2025 .
Near-term trading: watch for Q4 execution versus the reset guidance, October/November momentum sustainability, and any announced asset sales/refi progress; these items likely drive stock narrative near-term .
Medium-term thesis: successful deleveraging and re-establishing efficient Wellness marketing could restore growth and profitability; Rx product launch (Q1 2025) provides incremental optionality .

Wag! Group Co. (PET)·Q3 2024 Earnings Summary