Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Wag Group Co (NASDAQ:PET) reported a strong recovery in wellness revenue, with a 79% month-over-month growth in October.
• The company successfully paid down $5 million in debt during the third quarter, reducing interest expenses by $0.5 million in the fourth quarter.
• Wag Group Co (NASDAQ:PET) is actively exploring asset sales to address debt issues, which could benefit the company and shareholders.
• The company is launching a new prescription management software for the veterinary industry in Q1 2025, which has attracted significant interest.
• Despite challenges, the underlying metrics of Wag Group Co (NASDAQ:PET)'s business lines remain strong, with new user cohorts reaching all-time highs for lifetime value.

Negative Points

• Wag Group Co (NASDAQ:PET) experienced a 39% year-over-year decline in revenue for Q3, totaling $13.2 million.
• The company faced a challenging marketing environment, leading to inefficient marketing spend and increased customer acquisition costs.
• Adjusted EBITDA decreased to a loss of $1.9 million, impacted by lower revenue and non-recurring expenses.
• Google's changes to search engine results negatively affected Wag Group Co (NASDAQ:PET)'s visibility and conversions, impacting their wellness business.
• The company had to reduce headcount by nine positions in Q4 2024 to manage costs and increase profitability.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Signs with PET.

Q: Can you explain the challenges faced with marketing efficiency this quarter and what changed from your expectations? A: Garrett Smallwood, CEO, explained that the priority has been to diversify acquisition channels and improve marketing efficiency. However, unexpected changes by Google, including significant alterations to search engine results and the introduction of AI offerings, impacted their marketing strategy. They are now focused on adapting to these changes and improving customer acquisition efficiency.

Q: When did the marketing dynamics start impacting the business, and why does the Q4 guidance seem conservative despite improvements? A: Garrett Smallwood noted that the impact was felt throughout the quarter, with significant changes from Google affecting their strategy. They are cautious with Q4 guidance due to ongoing uncertainties and are focusing on stabilizing their marketing efforts.

Q: What is the current cash burn rate, and how do you expect it to change in the fourth quarter and into 2025? A: Alec Davidian, CFO, stated that they ended the quarter with $15 million in cash and equivalents. The net change in cash over the quarter was just over $9 million, including debt paydown. They are managing cash carefully and expect improvements as they stabilize operations.

Q: Can you provide more detail on the Q4 revenue guidance and expectations for different segments? A: Adam Storm, President and Chief Product Officer, indicated that services and pet food and treats will likely follow year-over-year trends, while wellness is expected to bounce back significantly in Q4. The guidance reflects a cautious approach due to recent marketing challenges.

Q: What are the plans regarding potential asset sales, and which assets are under consideration? A: Garrett Smallwood mentioned that they are considering selling the Dog Food Advisor and Cat Food Advisor websites, which have strategic value to pet food companies. They are also considering their prescription business but are more cautious due to its potential upside. The focus is on addressing debt and achieving free cash flow.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.