Hey, everybody, this is Kaumil Gajrawala, the new-ish Jefferies Consumer Staples, Pet and Wellness analyst. Excited to have Garrett Smallwood on, Chairman and CEO of Wag! Group. I don't exactly know how to say it with the exclamation mark. Am I meant to, like, scream it or something? Yeah. Why don't we just kick off with a brief sort of business introduction and including kind of business philosophy? What problems are you looking to solve for pet owners? Of course. Well, first off, thank you for having me. Always good to see you. I'm the CEO of Wag!, my name's Garrett Smallwood, and if you think about Wag!, I want everyone to think about it as the button on the phone for the paw, for the premium pet parent. So we believe that there's about, you know, well, you know this, there's about $140 billion of forecasted pet spend this year, and we actually think a lot of that, maybe even the majority of that, is driven by the premium pet parent. Maybe 10%-15% to even 20% of households in the U.S. that really love their dogs, their cats, maybe even their pigs, and they spend a lot on their dogs and cats and pigs. They have things like pet insurance and wellness plans. They maybe do weekly dog walks. When they travel, the dog stays at a premium boarding place, whether that's with a friend or a family member or a facility, and we wanna capture all those dollars. So Wag!'s goal is to be the destination of choice for the premium pet parent on the mobile device. Can you maybe go over. You went over some of the occasions where the product is used, or the, I guess, platform is used. Forgive me, I guess you don't call it a product anymore. Yeah, can you just maybe go over the sort of suite of offerings? Yeah, absolutely. So I think Wag!, and you said it right, I usually say Wag! really loud, but we're on a call, so I'm gonna- That's how you do it. Yeah. M ost famous for the on-demand dog walking product, that business kind of started in 2015. It's right when Uber was really heating up, and it was like: Well, if you can do it for rides and black cars, why shouldn't you do it for your pet? As most people know, dog walking historically is a service that usually requires a big budget and a real commitment, right? It's $500-$700 a week, it's every day at 2:00 with the same person and a group of dogs, and a lot of people, that doesn't necessarily work, right? So, the on-demand dog walking product for Wag! is really amazing. It is basically real- time. You could find a great walker in your neighborhood in less than 15 minutes. You submit a request to the Wag! The mobile app, it goes out to the network of caregivers. Believe it or not, there's more than 450,000 background-checked and pre-approved caregivers on the Wag! platform, and that's kind of the headline, most famous Wag! product. Since then, we've expanded a bunch of other products and services because we have this high-frequency use case. So think of things like one-on-one dog training, overnight sitting and boarding while you're away, wellness and insurance plans with our partners, like Lemonade, and then most recently, pet food and treat advice through Dog Food Advisor. So we really, again, wanna capture the full circle of pet spend, and the way we could do that is because it's such a high-frequency use case. The average Wag! Customer is using us something like 4x-5x a month, and the premium customer is using us like 7x-8x a month. Right. Got it. Who would you say you compete with? Yes, there's two big players. The first is gonna be all of those families and friends and kids and neighbors on places like Nextdoor, and I'm sure when you walk down the street in New York, you might see it on a flyer, right? There's even Craigslist still somewhat of a competitor we think about. But most of the market is still offline. Most of the market for sitting, boarding, walking, training, and everything else is found through kind of these local pros or even friends and family. The second is gonna be some of the online aggregators, so we think certainly about Care.com, Yelp, Rover, who have kind of a listing engine, but we're really, like, the booking experience engine, so it's, it's very different, right? Those are very, like, Web 1.0 products. We're very, like, Web 2 or 3.0. Our product's really managed, holistic. You pay through the product, you pay through the platform, you get a really consistent experience. It's something like, at this point, 12 million-plus reviews, and the average rating on the product, or on the service is 4.97. So, like, just you can't compete with that. Yeah. Yeah, yeah. Well, you brought up something which I think is important because a lot of investors seem to compare you quite directly to Rover. If you'd like to just compare and contrast the business offering, that'd be helpful. Yeah. Yeah, I mean, Rover's built a really great, I think, like, travel business. It's much more akin to maybe an Airbnb, right? The majority of that business is gonna be sitting and boarding. The majority of that business is gonna be long duration, overnights, three, five, six, seven nights away, but the frequency is actually pretty low. I think it's something like 2x-3 x a year at best. Wag!, on the other hand, is super high frequency, majority daytime services. So 5x-7x a month, 50x+ a year, really like mobile-first use case, where you just get a great person, they show up at your house, no one is there. That allows us the optionality for things like Wag! Premium, which is our subscription product, a lot like Amazon Prime. Right. For $14.99 a month, you get a bunch of other benefits. That product is subbed by something like 50%+ of the Wag! audience, the services audience. So just, there's a bunch of other things that are corollary, but not quite the same. I think about it as like Uber and Airbnb, right? They're both like, you know, products that you might have on your mobile device or you search on the web for, but they're ultimately different fundamental use cases. And I think Uber is a great example of building a great platform. I think it's a little bit tougher to do that when you don't have the frequency, so we really lean into the fact that you're using Wag! every week. Right, I see. And so how do you. I guess it must be very difficult to come to know what share you're taking in a market where so much is friends and family or whatever you wanna call it, but maybe versus the things that you can look at, whether it's Rover or anything else that's kind of available, how has share been trending, and what, you know, what are your plans to keep gaining share? Yeah, I mean, we're really early, so I think it's important to note, I, I said earlier, Wag! is a majority daytime use case, right? So it's like, hey, you're at the office, and your poor pup is alone at home all day today, so you're gonna book a Wag! Walk today to get that dog outside for 20, 30, or 60 minutes. The catalyst for the majority of services are things like back to work, back to office, back to some level of travel, and those are all future tailwinds for us, which we're really excited about. When you take those things into account, we're still less than kind of 5% of service spend in terms of the total category this year. Right. Meanwhile, I think, like, travel is certainly back, probably stronger than ever, and all those tailwinds have kind of been recognized. So we think about it as like, you know, there's certainly a lot of room to run as people resume back to normal life post-pandemic, and any of those tailwinds are really, like, back to office, back to conferences, you know, back to living their life and taking trips. Yeah. Yeah. That's how I think about the use- Okay. The kind of trigger of the use case. Got it. How do you. And maybe we connect this to customer acquisition costs, but how do you increase brand awareness? How do you get people onto the—like, initially get that app downloaded, Yeah, so- Perhaps what it costs, and then we can get into kind of LTVs and such. Yeah, yeah. So we have a $350 three-year LTV and are growing. It's up something like 3x in the last two or three years, and that's a function of us capturing more share of wallet, experience, and transaction count from the customers that we have. The majority of customers are gonna find us through the Google Play Store and the Apple App Store. We're a top 50 or 100 travel app at any given time. We have 10,000 ratings. People love it. The other thing that's actually really interesting is that we have a lot of caregivers who refer their friends and family. So, the caregivers on Wag!, it's really important to note this, they're not a professionalized supply. They're not like a professional dog walker in New York who now wants to walk dogs on Wag! That's not how it works. What it normally is, is it's a person who loves dogs. It might be a college-age female who would never drive for DoorDash or Uber, but really wants that gig, gig economy income, and Wag! is a perfect way to do that. It's a daytime use case. It's usually in the middle of the day, no one's usually home, and you walk a really cute dog or take care of a really cute cat for 20, 30, or 60 minutes. The other, other corollary is like these seniors, maybe these retirees who are very active and they love taking care of pets, and they don't really want to manage a book of business, so they actually end up referring customers to Wag! for us. And our LTV to CAC last quarter was something like 7:1. We actually have a lot of room to run there, but we've been very focused on profitability. It was our first quarter of EBITDA profitability. So, Adjusted EBITDA profit, I should say. So, yeah, hopefully that answers your question. Well, it's a good lead to the next question, the question we've been asking everybody really during the conference, which is balancing growth versus profitability. The opportunity is logical, makes sense and substantial. We're in a different world than we were in maybe three years ago, two years ago. How are you managing that balance? Where are some of the key areas of focus to, you know, continue along the path of profitability, which you're, you know, you're there now, or you've started, but, you know, it's a path. And then what, you know, needs to come off the top? How well do you expect it to impact top line? Yeah, I think, you know, last quarter, we're still guiding to 50% year-on-year growth for the year with now Adjusted EBITDA profitability. We have not seen a significant impact to the premium pet parent that maybe others might be seeing. So that's an important first note. We've been really focused on these Tier One, Tier Two, even Tier Three markets. You're talking places like New York City, Denver, Seattle. Those pet parents are very resilient and committed to dollars. Now, meanwhile, I think that you're certainly right. Three or four years ago, I remember everyone telling me it was grow, grow, grow at all costs. It was a crazy time to be operating. It certainly feels like now is growth, margin, and profit. We have something like 95%+ gross margins. We've guided this year to more than 1% of EBITDA pro-profitability, but we still feel like there's a lot of room to run for growth. I don't think that's gonna change. I think growth, margin, and profit is gonna be next year's goal and the year after. I don't see us returning to growth at all costs in this current environment, you know, anytime soon. When I think about where you're spending money, areas of investment, whether it's marketing and cashing right now or capital outlays, what are some of the big areas of focus? Yeah, we're really focused on building delightful products first and foremost. So I think we've really led the charge on inventing the category, and then finding new and innovative ways to deliver great experiences to pet parents. Where that's the fact that we basically invented on-demand dog walking, you know, we recently acquired Dog Food Advisor, and then scaled that to Cat Food Advisor. We operate the largest pet insurance marketplace on the, in the U.S. We haven't talked about that, but we've partnered with the leading pet insurance companies, helped them find great pet parents, and we have a business that we work with called Paw Protect, which is literally one of the most amazing pet insurance products in the U.S. It's underwritten by Embrace, provides instant pay at the time of transaction. You don't have to pull out your credit card. It's a phenomenal product. These are all things that are a function of R&D. Sales marketing will obviously follow, and we'll lean into sales and marketing as efficiently as we can. I think we've generally guided to three to five to one LTV to CAC, depending on the quarter, and we have some seasonality broadly in the business. And then finally, I think we'll continue to be thoughtful about opportunistic M&A. It's a very difficult fundraising environment for the majority of companies, and we've been really privileged to now be an Adjusted EBITDA profitable company. We're guiding to free cash flow at some point next year, and so I think we'll continue to be really thoughtful about opportunities to acquire small assets that we think we can kind of integrate into our ecosystem and platform and build into something really special. I want to get back to M&A, but you mentioned something which I think is important is a lot of the market is concerned about what's happening with discretionary spending in the pet space. You mentioned earlier that hasn't impacted you much. So can you just maybe build on that a little bit? Why do you think that is? It is different for many, and so any insights there would be helpful. Yeah, it's really, it's really fascinating. So when times get tough, most people, most Americans, most households are actually, like, doing things that they didn't do during the pandemic. So let me give you an example. When times get tough at work, you actually start showing up at the office more, and maybe traveling for work more, and being more visible. Those are catalysts for Wag. You're now out of the house, and it's a forced use case. I think about it like when your toilet stops working. You're not just gonna leave it. You have to call the plumber. When your dog's inside, and they're stuck inside for nine hours a day, you have to call somebody. We are that call, you know, metaphorically. The other things are true, like I think we have not been dependent on travel broadly, but as business travel comes back, it's a great use case for Wag!. These are Tier One, Tier Two, and Tier Three premium households. They're not gonna downgrade their pet spend. It's not an option. There's nowhere else to go. And we don't see it really impacting things like, generally, wellness or pet food, because again, we're selling premium products. People who are buying pet insurance are probably very interested in, in services, or premium pet food, or premium treats, or CBD, or whatever it might be. So we've been really intensely focused on assets and products that appeal to those consumers for that particular reason. And if you just look at the pet spend between, let's say, 2007 and 2009, it wasn't really that different. Sure, the mix changed a little bit, but the numbers still kept growing, and so I think we continue to be bullish on the category. How should we be thinking about? Let's get back to M&A. So, you know, EBITDA positive, free cash flow is still coming. If you talk about your cash balance, and you know, you're kind of alluding to M&A, is it contingent on when you get to free cash flow positive, and then something to look at, and we're kind of talking about it now, or it? Do you see something happening there? If you just look at the business and our history, we've been generally acquisitive, whether that's small tuck-ins or even some bigger stuff. Cash is not a hindrance for us. It's really the quality of the asset. What's really interesting for us is that there are very few pet businesses like us that can absorb smaller assets and give them, like, fantastic reach ultimately. It's not really a fit. These smaller pet assets aren't really a fit for private equity. They're not really a fit for retailers. They're not really a fit for these huge companies, maybe like a Chewy. I don't speak for them, but they haven't been super acquisitive. Meanwhile, us, our customers expect lots of new products. They love email offers. They love hearing from us and trying new things in the app. We have a thing called the Premium Benefits Center. We integrated products from Maxbone recently, the premium pet retailer, which is like leashes and harnesses and other awesome little products. So, our customers have come to expect it, and the buyers aren't necessarily there for these assets. So for us, it's just about being picky. We want to find the right asset, give our shareholders the right level of return, and make sure it's not gonna be a drag on the P&L. So we can't buy these cash-incinerating machines, right? We need to buy things that are fundamentally sound, that we can help accelerate, but ultimately at, you know, hopefully some level of profitability. Okay, great. Maybe let's move now a little bit to you know, the scaling of the business. So obviously had quite a bit of growth. Now we're talking about sort of this, this profitability balance. The way you operate feels very variable. How should we look at the benefits of scale as the business gets, as the business develops? Yeah, I mean, we've shown it, right? So when we took the business out, it was on a, I'm probably gonna mess this up, but it feels like a very long time ago, but it wasn't. I think we're on something like a $30 million-$35 million revenue run rate. We're now on an $80 million-$85 million revenue run rate. That was in August. That was August of 2022. So business has grown rapidly without accelerating costs. I think when we came out and said we were gonna go public, we said we're gonna burn something like, I'm gonna again mess it up a little bit, but it was something like $20 million-$25 million. I think we burned something like $6 million to get to profitability. So we've been incredibly efficient. The good news is we have pretty fixed headcount base. Sales and marketing is really efficient, and we've leaned in as thoughtfully as we can. There might be an additional opportunity there, but every incremental dollar is gonna be recognized. I mean, there's a huge amount of leverage as we scale, especially for things in the services business, which is a, you know, 1099 contract workforce who love what they do, but they're hyper-episodic. They are extremely part-time. They love participating, and as that business scales, I think it's nothing but great for the bottom line. Okay, great. We didn't really talk that much so far about your tech position. I don't know if you wanna call it a tech stack, so we can seem like we're, you know- Yeah ... in a cool sort of thing. But the, there's some infrastructure there that we didn't, you didn't really talk about as we were discussing where your business is and, and how it competes. So if you just wanna give everybody a bit of a walk around through your infrastructure, that'd be helpful. Yeah, it's really special. So I think some of it's secret sauce, so it's kinda like RenT ech, talking about how their algorithms work. But, you know, I really like the fact that we haven't deviated from our focus, which is delighting both sides of the marketplace since the company started, and that's credit to the founders, John and Josh. But, you know, when you think about Wag, it is unlike any other, what I'll call on-demand marketplace, in that both sides love it. So we have two distinct teams that are building out products for both the pet parent and the pet caregiver, 'cause we need them to love it. They have separate apps, separate UIs, separate experiences. For the pet parent, it's pretty sophisticated. You have a bunch of different services you could book at any different time. There's 20-, 30-, or 60-minute walks, 20-, 30-minute drop-ins, overnight care, training, one-on-one digital, you name it, expert pet advice, and it's all done through the mobile app. It's a delightful experience. Unlike something like an Uber, let's say, it's actually a job board on the other side. What happens is you submit a request in the marketplace, it goes to this job board, it pings a bunch of great pros, and there's a bunch of algorithms that determine kind of which is the best fit based on maybe it's distance, reviews, or history, or relationship, or quality of the pet. That's actually what gets booked. That's allowed us, that kind of technology has allowed us to really launch new products quickly and efficiently because it just works so well. Yeah, and I think the other thing that's really differentiated is the fact that we have so many unique assets, right? Whether it's Petted.com, Dog Food Advisor, Cat Food Advisor, these are all quality products and services that people come to for, whether it's advice or recommendations, and those customers are fundamentally a premium customer. And if you're doing research on $200 a month dog food, it's probably pretty likely that you also might need a dog walker or a trainer or a boarder. So we look at these things as very, you know, integrated at some point in time. Right. What is the benefit to, or, or not, not the benefit, but what synergies exist between having so many different things on the platform? Yeah, I mean, first and foremost, I think these, there's a finite pool of premium pet parents. And really, the challenge with all of these products and services, and I'm speaking a bit broadly, but you can imagine insurance or dog walking, is not that they will need them, it's finding them when they need it. And so, you know, you don't need a dog walker till the dog's probably six or seven months 'cause they have to have their shots, and they have to get out of it. But you need insurance when they're a puppy, right? 'Cause that's like when everything starts accumulating. So we think about things as like: All right, we know at some point in your pet's life, there will be a considered purchase, and we wanna have each of those things covered, so then we can hit you at the right time for everything else. Right, we have your pet's name and age and breed and history. For services- Yeah ... we see your dog, something like every week, and we get a photo and a video, so we see the quality of the coat and the teeth and the, you know, the experience of walking. So, that personalization's really powerful, and you can imagine that powers other experiences and feeds the engine. Right, I see. Moving to maybe... We touched on some financial things, but we'll get into maybe a little bit more. Why don't we start with when you're putting it all together, what the algorithm should look like? Starting with top line and then maybe working it down the P&L. Yeah, I mean, I wish I had more to tell you right now, it's September 28th. But I think just, if you think about the business, it was 60% wellness, I think 55% wellness last quarter which is growing tremendously. People are shopping for pet insurance, especially after things like holidays or summer. There are things like Dog Food Advisor and Pet Food Advisor, which make up our pet food and treats category. That's growing tremendously quickly. More and more people are looking for exceptional, high-quality pet food, and that's the same thing for cats. People are forgetting about their cats, but human-grade cat food now exists. And then you have treats and other categories, and then, and then the services business. So we're excited about all three, and I think what you'll see from us is we'll lean into different levers at different times, right? That's important, whether it's seasonality, whether it's macro conditions, whether it's return to office trends. But we real time have these levers we can pull to control and manage sales and marketing spend, growth, profitability, and I think that's really important to the business. We have massive diversification of products. We're not singularly dependent on, let's say, travel. We don't need everyone to be traveling every week for our business to be okay. What are you leaning into at the moment? I think, I think everything is interesting right now. I mean, it's- we're post-summer, right? We're well, just think about the trends. We're post-summer. A lot of people after summer, what do they do? do? Their kids go back to school-... they go back to work, their travels kind of pause, and they're now thinking more about their pet because their pet's been maybe in the backseat for the summertime, right? "Oh, yeah, let's bring the dog with us to the soccer game. Oh, yeah, let's put the dog wherever we're going for our holiday." But now, like, the dog's at home, the kid can't walk the dog, the college student's back at school. There's all these trends that normally are pent up post-summer that I think pet parents are realizing. Right, that makes sense. Have you given, I can't recall if I've seen it, a breakdown of your revenue in that... You know, how much of it is, I know you're best known for the walking, but is it, like, 80% of your business, or- Yes, no, walking—you know, look, services in general, depending on the quarter, are something like 25%-35%, and of that, the majority is what we call daytime services. So it's something like 20%+ of our business is these daytime services, and the rest of the overnight training, et cetera. The majority of our business today is our wellness ecosystem, because that's been unconstrained by the macro. That's people shopping for things like pet insurance, wellness plans. It's vet advice, so believe it or not, you can open the Wag! app right now and talk to a pet expert and get a bunch of great feedback for your pet if they're up to no good. And I'll give you an example. Okay. My dog, Toby, has been eating oak tree leaves for some reason, or the things that fall- Yeah ... off the oak tree, and I was, like, kind of stressed about it. They're like: "Yeah, you probably shouldn't do that, but that's just a dog being a dog. That's the kind of reason you open the Wag app, right? It's that peace of mind, it's the availability, it's not having to call your vet, although there are certainly times to call your vet. But the wellness ecosystem has actually comprised the majority of the business for the last few quarters, and it's just growing tremendously. Got it. I think we, when we go from the top line, if we just move down, you can pick a number at random number. We're in the last couple of minutes. How will the revenue growth work down the P&L? You mentioned a little bit about scale and some fixed costs that you have in it, but in terms of goals or intentions, can you maybe just walk us through the margin plan? Yeah, we had 95% gross margins last quarter. Even the margins, I think we've got into this year to 1%+, revenue growth of about 50%+. We're really focused in this particular, you know, closing out this year, on the bets for next year. So that's gonna be more R&D, more technology and partnerships, more working through kind of the big partners for next year distribution. And I think generally, the thing you should expect from Wag is less dependency on social media spending. So I think historically, these business, these direct-to-consumer business have been very dependent on things like Facebook, which is now Meta, TikTok to X, which was, you know, previously Twitter, everyone's rebranded, I guess, Snap. Yeah. We really don't wanna have to keep paying all the social media companies to get to the customers. So what we're gonna find us doing is launching new products, you're gonna find us partnering with big brands like Tractor Supply, you're gonna find us building out custom engines and marketplaces for other brands, whether that's U.S. News or Forbes. So I think you're gonna see us really leaning in there, and that should give us some leverage because we have to spend less on these direct-to-consumer plays. Yeah. Well, that's great, 'cause that stuff is a fortune now. Not cheap. It is not cheap. Not cheap. Not cheap. man, it was good chatting with you again. Thank you very much. We're out of time. Love your background. Very cool. Appreciate the time. Oh, thank you very much. I've actually been over the course of the day, kind of naming them. I don't know which direction I'm pointing, but we've got Mick and Keith. Oh. We've got, you know, of course, you have to have Mack and Felix, Cash for Johnny Cash. But I think on the next one, I'm gonna give each one of them a Wu-Tang name, so it's gonna be different in 30 minutes. Well, good luck, man. I appreciate the time. So great to talk to you. You too, man. I'll talk to you later. Bye.