Good day and thank you for standing by and welcome to the Wag! First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today Dawn Frankfort from ICR..

Good afternoon, everyone, and thank you for joining Wag!'s conference call to discuss our first quarter 2023 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 are included in our SEC filings. Also, during the call, we may 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 issued today.

The earnings release is available on the Investor Relations page of our website and is included as an exhibit in the Form 8-K furnished to the SEC. Lastly, you can find our earnings presentation posted on our IR website and with the SEC. And with that, let me turn the call over to Garrett..

Thanks Dawn. Good afternoon everyone and thanks for joining us to discuss our first quarter 2023 performance. Wag! delivered another quarter of impressive topline growth ahead of our expectations.

We are broadening our reach as a go-to non-discretionary consumer premium pet care platform, transforming the pet industry by becoming an all-inclusive trusted partner for the premium pet parent.

Our team is capitalizing on the secular growth in pet ownership and we are just getting started in providing an ever-expanding array of products and services to our pet parents.

I will begin today by giving a high-level summary of our first quarter financial results for Adam, our President and Chief Product Officer, gives an update on our strategy and key initiatives for 2023.

Alex, our Chief Financial Officer, will close out with a more detailed overview of our first quarter 2023 results, our capital allocation priorities, and our guidance for 2023, both revenue and adjusted EBITDA, both of which we are raising today.

Wag! exists to make pet ownership possible and to be the trusted partner in your pet journey from puppy to senior daily to annually. By growing our footprint in all corners of the pet care market, we are ensuring Wag! is there for pet parents every step of the way.

We accomplished this by focusing on disciplined growth, as seen by our performance in the first quarter of 2023. We are thrilled by our ability to integrate new assets into the Wag! Platform, and not only add value to our business, but also to the pet parents.

As demonstrated by the acquisition of dogfoodadvisor.com and our entrance into the $62.7 billion pet food and treat category. This acquisition is just one example of how we are introducing our community to other valuable assets.

We are excited about our entry into the dog food category as it is the largest growing pet care category in terms of TAM, demonstrating how we are proactively managing and recycling our capital to maximize shareholder returns.

In the first quarter, we saw continued momentum across the business and achieved record revenue of $20.6 million, up 113% year-over-year, including pet food and treats. Our adjusted EBITDA loss was $0.4 million from a $2.6 million loss in the same period last year.

We are proud to say that this quarter marks a milestone revenue run rate for Wag! and we are now projecting EBITDA profitability for fiscal year 2023. Our focus remains on striking a sustainable balance of growth, margin and profit, especially considering the ever-developing macroeconomic backdrop.

During the quarter, platform participants increased to $611,000, an increase of 88% year-over-year and Wag! premium penetration increased to 55%, significantly ahead of expectations even at the fully rolled out $14.99 new member price point. Taking a step back, approximately 70% of US households own a pet in 2023.

And of those, we specifically target the premium pet parents or roughly the 15% of past households in the current market with a proven propensity toward premiumization across pet categories.

In Q4 2022, we tested Wag! Premium pricing, resulting in a price increase for new pet parents from $9.99 to $14.99 per month, illustrating the resilience of our premium business in a tough macroeconomic backdrop.

Although, we saw continued growth in Wag! Premium in Q1, exceeding expectations, we faced headwinds in our services business due to severe storms and rain across California and the coastline.

Despite the headwinds due to inclement weather, we continue to believe that pet parents are planning to utilize Wag! services as they return to office and weather returns to normal in some of our largest and most penetrated markets.

This belief is rooted in the fact that premium penetration grew in the face of service softness, demonstrating pet parents' intention to use our products when the need arises. Next, we recognized seasonal tailwinds in our wellness business as a result of pet adoptions in Q4 2022, which pulled forward demand for pet insurance and wellness plans.

On that note, we are thrilled to announce, the addition of pawprotect.com to our suite of wellness products.

Wag! is now the exclusive marketing partner of Paw Protect, the only pet insurance plan with Instant Paw Protect is the only brand in America to offer each customer an interest-free fee-free and credit check free line of credit to cover veterinary bills.

We have successfully integrated Paw Protect into the pet insurance marketplace, which powers brands such as Forbes and US News. In the first quarter, we saw an LTV to CAC ratio of 6:1, demonstrating our continued operational excellence and efficiency.

Organic user acquisition rate was 70%, which is a result of focus on the pet parent and pet caregiver experience thoughtful virality and referral campaigns and strategic partnerships. We remain excited about our ability to thoughtfully integrate and support pet parents throughout their pet’s life through our new partnerships and initiatives.

Briefly touching on the supply side, we maintain supply and demand equilibrium through a variable platform fee, which averaged $53.17 in Q1 2023. As we have stated in the past, we believe that Wag! is the best gig in America, even in a tough macroeconomic environment.

Despite softening macroeconomic conditions, the demand to be a Caregiver Wag! Community is as strong as ever. And we believe more and more pet levers will turn to being a Pet Caregivers with Wag! to leave a little stress, get some sunshine and hang out with some cute pups.

To summarize, I want to highlight my excitement for all that Wag! has accomplished this quarter and since we've been public. Our financial results demonstrate the effectiveness of our strategy and the benefits of continued investment in our current product offering.

Our success underscores our capability to scale our business across multiple markets within the pet industry, driven by the inherent cross-sell opportunities generated by our platform, and we are committed to profitable growth for the remainder of 2023.

Please refer to our updated management presentation for more color on the success of our business and how far we have come in just four short quarters.

With real-time insight into consumer trends, we are leaning into the fastest-growing secular categories within the premium pet care market, propelling our growth well ahead of the projections we put forward during our go-public process, at the end of 2021.

As you'll see, we have been able to scale our platform faster and more profitably than anticipated and well ahead of external expectations. And with that, I will turn the call over to Adam Storm, to provide additional insights into our strategy..

Thanks, Garrett. I will now walk through the five top-level elements of our 2023 strategy, driving long-term shareholder value and profitable growth. One, accelerate growth in existing markets; two, expand Premium Subscription offerings; three, platform expansion; four, opportunistic M&A and five, operating scale.

Coming off a strong year in 2022, this quarter showed an acceleration of growth in existing markets capitalizing on the return to office trend and post-pandemic return to normal. The Kastle Back to Work Barometer remained steady, hovering just below 50%.

We believe the back-to-work trend will continue, slowly but surely as individuals return to the office due to labor market pressures. We believe the demand for high-quality, personalized pet care far exceeds the existing market given the increased rate of pet adoption and increased spend per pet.

As Garrett mentioned, we saw positive seasonality and significant growth in our Wellness business in Q1 as a result of outsized pet adoptions in Q4 of 2022. As a result, we now have two types of seasonality in the business, Travel and Pet Adoptions.

Further, the trend in the humanization of pets is gaining traction, as Millennials and Gen Z increasingly consider the needs of their test, to be just as important as those of the rest of the family.

Moving on to our Premium Subscription penetration, in 2022, we hit our long-term target of 50% penetration, due to the success of our second growth driver, expanding subscription offerings.

As a refresher, Wag! Premium Subscribers receive a 10% discount on all services, VIP customer support, unlimited 24/7 expert pet advice and exclusive partner offers all of which drive customer satisfaction and retention and their willingness to purchase our expanding set of products and services.

This quarter, we've expanded our offerings to include Lifesaving Recall Alerts from our partner at Dog Food Advisor and 50% off your first box, The Farmer's Dog Premium Pet Food Subscription.

Our premium penetration at 55% came in far ahead of plan, even at the increased price of $14.99 per month, as a result of the ever-increasing value of the bundle. We will continue to focus on increasing the value of the Wag! Premium subscription for every member through additional benefits, partnerships and offers.

Third, we remain focused on platform expansion and diversifying the products and services within the platform, including new features, such as the launch of service extensions or pet caregiver who are having a great time on a walk or drop-in service and extend the service real time for 20 or 30 minutes.

This drives increased AOV, LCV and pub happiness. In the back half of 2023, we're excited to begin testing pet caregiver samples where pet caregivers working with top brands can provide pet parents and their pubs, customize treats, foods and vitamins were purchased through the Wag! app.

Growing the marketplace through thoughtful product development and expanding the set of services available through our platform is integral to our growth plan in 2023. Fourth, we plan to prioritize growth through opportunistic M&A as we did in 2022.

Wag! is strategically positioned to capitalize on pet specific M&A as a function of our deep understanding of the consumer and our technology-first DNA, which allows us to rapidly integrate and expand our platform. In early April, we acquired Maxbone, a top-tier digital platform for modern pet essentials.

The Aqua HAI expands Wag!s reach into the pet supplies market and deepens our commitment to the needs and standards of the premium pet care. In addition, this improves our ability to thoughtfully curate the Wag! brand through pet caregiver apparel and collaborations.

The final element of our strategy is operating scale, which I will briefly touch on and Alec will expand on. Our unit economics and fixed cost operating leverage drove operating margin improvements across the board this quarter. Adjusted EBITDA margin improved from minus 22% to minus 2% year-over-year, a 20 percentage point improvement.

As Garrett mentioned, we're now intensely focused on positive adjusted EBITDA margin for the remainder of 2023, which we'll achieve through efficient marketing payback cycles, continued operational excellence, platform integrations and cross-sell and best-in-class customer experience.

I will now turn the call over to Alec to discuss our financials in more detail.

Alec?.

Thank you, Adam, and thank you, everyone, for joining our first quarter 2023 earnings call. It has been an excellent start to the year, with growth outpacing our expectations through our three diversified revenue stream, putting us on a path to achieve profitability this year.

I'll begin with our review of the first quarter 2023 financial results followed by our 2023 guidance, which we are raising to-date. Q1 23 was another new record quarter for us, with revenue of $20.6 million, up 113% from Q1 2022 and including pet food and treats revenue that was a new revenue stream for us this quarter.

Adjusted EBITDA loss for the quarter improved $0.4 million compared to $2.1 million in Q1 2022 ahead of expectation. We have, in effect, doubled the business in the space of 12 months, while reducing our adjusted EBITDA loss by 85%.

Our continued acceleration is the outcome of our commitment to disciplined growth, our ability to expand our platform to earn the entire pet life cycle and continued product innovation. As awareness of pet wellness offerings in the US evolves, we see a long runway for pet wellness offerings.

As a reminder, pet insurance penetration in the United States is less than 4% versus well over 20% in the UK. Our wellness offerings are comprised of wellness plans, a pet insurance comparison marketplace and the pet prescription software growing from $5.2 million in Q1 2022 to $13.9 million this quarter.

We continue to add new insurance providers to the pet insurance comparison marketplace, which is available to pet parents through well-known brands such as Bone, TractorSupply, US news [ph] and many more.

In Q1, we added the Paw Protect brand to our insurance comparison marketplace and are the exclusive distributors of this differentiated insurance product. Service revenue grew from $4.4 million during Q1 last year to $5.4 million this quarter as we have seen a steady increase in workers returning to the office and increased travel versus a year ago.

Finally, for Q1, our newly acquired Dog Food Advisor contributed $1.4 million of revenue through our third revenue stream pet food and treats Turning to expenses during the first quarter. Cost of revenue, excluding depreciation and amortization, was $1 million in Q1 2023 or 5% of revenue compared to $0.8 million or 8% of revenue in Q1 2022.

The dollar amount increase was a direct result of increased demand, driving incremental payment processing fees and background check costs via increase in pet parent activity and pet care giver applications. Nevertheless, cost of revenue decreased as a percentage of revenue as our technology costs scale with revenue.

We are demonstrating incredible control over our variable and fixed cost and plan to continue our focus on cost control measures for the remainder of 2023. Platform operations and support expense was $3.2 million in Q1 2023 or 15% of revenue compared to $2.6 million or 27% of revenue in Q1 2022.

While there has been an increase in expense in dollar terms year-over-year, this increase has been principally driven by PACER related compensation costs and stock compensation expense. However, platform operations and support expenses approximately half as a percentage of revenue as a result of our platform scale and operational excellence.

Sales and marketing expense was $13.3 million in Q1 2023 or 64% of revenue compared to 63% of revenue in Q1 2022.

We continue to strategically invest dollars in partnerships with product initiatives and launches and general marketing spend in order to capture net new pet parents and cross-sell them complementary platform offerings when the WAG ecosystem. However, as seen by a flat percentage of revenue year-over-year, we remain judicious with spend.

G&A expense was $5 million in Q1 2023 or 24% of revenue compared to $2.4 million or 25% of revenue in Q1 2022. The dollar amount increase in G&A expense is driven by personnel-related compensation costs and stock compensation expense as we hire and retain key talent.

M&A-related costs and public company compliance, including expenses related to the compliance with the SEC and NASDAQ including legal, audit and consulting fees.

That being said, G&A expense as a percentage of revenue is flat compared to a year ago, even with public company compliance costs illustrated by our ability to scale to date and into the future.

Adjusted EBITDA, which is a key profitability measure that we use to manage the business improved from $1.7 million to an adjusted EBITDA loss of $0.4 million. This compares to an adjusted EBITDA loss of $2.1 million in Q1 2022.

To put that into perspective, adjusted EBITDA margin improved approximately 20% from minus 21.8% in Q1 2022 to minus 1.9% in Q1 2023. Our focus for the remainder of 2023 is crossing the line to adjusted EBITDA profitability. Turning to our balance sheet.

We ended the first quarter with approximately $33 million in cash, cash equivalents and accounts receivables.

Our balance sheet remains strong in the context of our operating cash use and puts us in a comfortable position to fund our growth objectives while also maintaining flexibility to pursue strategic M&A when we believe opportunity aligns with our goals.

Moving to our guidance for 2023, as Garrett mentioned, we are thrilled with another quarter of impressive growth. And as a result, we are raising the full year 2023 guidance previously provided on our fourth quarter 2022 call.

For the full year 2023, we now expect total revenue in the range of $80 million to $84 million, an increase of 46% to 53% year-over-year and an 8% improvement versus our prior forecast at the midpoint of the range. Adjusted EBITDA in the range of $0 million to $1 million, a 150% improvement versus the prior forecast at the midpoint of the range.

The forecast incorporates our internal target of the rule of 50, meaning revenue growth plus adjusted EBITDA margin north of 50% for the full year. With our updated full year guidance, we're projecting revenue growth of 50-plus percent year-over-year and adjusted EBITDA margins of 1-plus percent.

This range will allow us comfortably to meet our projected revenue targets and maintain a profitable growth trajectory. Our financial guidance includes the following considerations. Severe weather affects service demand and holidays drive incremental overnight vessels daytime service demand.

Going forward, we expect the skew to overnight and daytime services depending on summer and holidays, most likely in Q2 and Q4. pet adoption during the holidays also affects at insurance penetration and demand for wellness plans. Going forward, we expect seasonal strength in Q4 and Q1 for wellness.

We anticipate that continued growth in the pet industry, driven by factors such as rising pet ownership pen insurance nitration and increasing demand for premium pet products and services will have a positive impact on our financial performance in 2023, including on our entrance to pet food and treats.

General trends related to the state of the economy, interest rates and consumer confidence. We have factored in potential risks and opportunities related to these macroeconomic factors in order to accurately forecast our financial performance.

We recognize that there may be potential risk to our financial performance in 2023, such as disruptions to global supply chains, changes in consumer behavior due to unexpected events such as delayed or lower-than-expected return to office digital and performance marketing trends, the potential impact of AI and our ability to expand through partnership.

In summary, our strong Q1 2023 results demonstrate our ability to execute and achieve impressive growth in a tough macroeconomic backdrop as we lean into the fastest-growing sector categories within the pet care market that deliver the most value to pet parents and to shareholders.

We remain focused on disciplined operational excellence and delivering shareholder value and achieving profitability for the fiscal year 2023, while delivering targeted 50% year-over-year growth. And with that, we now welcome Q&A. .

Thank you. [Operator Instructions] Our first question comes from Matt Koranda with ROTH MKM. You may proceed..

Hey, guys. Good afternoon. Just wanted to see, if you could touch on the pretty large acceleration in platform participants that you saw during the quarter. Just any more color on where you're seeing success in acquiring participants -- any commentary on sort of the balance between pet parents and carryovers on the platform.

It was helpful that you -- the demand on the carryover side is so really strong, but just maybe unpack the large increase for us on a quarter-over-quarter basis?.

Yes. Happy to hear Matt, it's Garrett. Great to hear from you. Taking a step back, we saw 611,000 platform participants in Q1. It's about 88% year-over-year growth. We saw that kind of across the platform. We saw some services growth.

We saw some pet food and treat demand, and we obviously saw significant wellness demand, kind of, equally spread alongside the revenue beat proportionally. As a reminder, we try to -- we really do spend a lot of time managing the supply and demand equilibrium services.

We really don't want to get out of balance that’s become real problems on the demand or the supply side. So really no imbalance or nothing different than prior quarters in terms of caregivers.

I think we called this out in Q4 and Q4 was going to be kind of the most seasonal in terms of services and why you saw kind of a deceleration in Q4 and then a reacceleration in Q1. Hopefully, that helps. .

Yes. Great. And then on wellness side, just I mean, very strong growth. Curious if you have any more commentary on just the key drivers of wellness revenue this quarter.

How do you expect that to trend for the rest of the year and the context of the guidance that you provided? Just sort of help me understand kind of different pockets of wellness revenue that you have.

Obviously, the insurance marketplace likely being the largest but just -- how is the -- if you can touch on sort of how the wellness plan growth is unfolding versus your expectations, sort of, the other components around there that would be great. .

Yes, 100%. So wellness as a reminder, is a few buckets of products. It's things like wellness plans, it's our pet insurance comparison marketplace. 24/7 expert advice. A lot of that is going to be in terms of Q1 and what you'll see kind of throughout the rest of the year is going to be just a function of seasonality.

Q1, you saw a significant amount of new pets adopted as part of the holidays in December. And so we saw that kind of demand spike early in Q1. I think we'll see some kind of taper off events and normalization in Q2, Q3 and then probably another kind of reacceleration in Q4, specifically within pet insurance and wellness plans.

And again, I think, we're really thinking about this year as 50% year-over-year revenue growth for the totality of the year and then really focused on EBITDA margins this year. So targeting a 1% plus EBITDA margin, which gives us a guidance of 0 to 1.

So I think we're really thinking about how we manage the bottom just as much and the tough, hopefully answer your question, we do expect some seasonality in wellness in Q1 and Q4..

Okay. Fair enough. That makes sense. I'll just sneak one more in before I jump back in here. Just on the Dog Food Advisor acquisition, it looks like it's running nicely.

Curious, if you maybe can talk about if you're seeing anything in the way of synergies from that acquisition and paying it out the way it platform or just any early commentary [indiscernible] ,how that's trending. .

Yes, absolutely. So we're thrilled to be the owners of dogfoodadvisor.com, which we believe is the number one marketplace for pet food and treat advice on the Internet. Huge thanks to Dr. Mike Sagman [ph] website many, many years ago and it's taking care of this community.

We're early in our adventure of recognizing synergies, building out the platform and accelerating the growth in that business. We're certainly ahead of, I think, our internal expectations if you look at Q1's performance.

The really nice thing about Dog Food Advisor was kind of validate our thesis it is a premium pet parent, the most popular products on Dog Food Advisor who are really seeking out are things like human-grade dog food, which obviously is very complementary to things like WAG services or they're seeking advice on best treats and they're looking at kind of more expensive treat options than maybe the standard pet parent.

So not to say there isn't demand across but certainly validates our thesis that premium pet parents being on research on their pets food and they're going to Dog Food Advisor for that research.

So obviously early for us in terms of expanding via CRM, expanding via referral offers, expand via bundles, but we're in that journey right now, and I think we're excited to continue to lean in..

Okay. Super. [indiscernible] this quarter. I’ll jump back in queue..

Thank you. Our next question comes from Tom White with D.A. Davidson. You may proceed..

Hey. This is Wyatt Swanson on for Tom. Thanks for taking our questions. I just want to talk a little bit more about category share trends so far this year.

Could you give us a little bit better sense of what you see as the key investments, you needed to further improve your category position and how investors should think about the growth output for the yield from those investments looking out over the medium to long-term?.

Yes. So right now, I think we operate in a couple of different interesting sectors of pet spend -- and great to hear from you and thanks for the time. The first being, obviously, service is kind of on a most famous for, things like on-demand dog walking, on-demand drop-ins, sitting onboarding, training, et cetera.

Second will be wellness, which we talked about earlier, things like wellness plans, and Pet Parents course and everything else. And most recently, a pet food and treats. And I think -- what you're going to see from Wag! and management specifically, is we're going to lean into the fastest-growing secular Pet Parents.

So where do we see the most kind of TAM upside? Where are Pet Parents naturally pulling us forward and where are we then going to find the best ROAS and the best ROI kind of on time and R&D.

So, so far, because of kind of the slow back to work and kind of people returning to normal, slowly but truly over the last three years and just generally pet trends, we have found those to be wellness, pet food and treats and services probably in some of that order.

So we're investing in all thoughtfully, but we're really leaning in at any given time into what we think is the fastest-growing category. I hopefully answers your question. We think the time is kind of dynamic. There's a best time at any given time..

Got it. Okay. That's very helpful. And then just related to back to work. We noticed that the barometer is actually starting to pick up again over the past few weeks.

Can you maybe talk about whether that's in line with what you've seen in terms of demand so far in the second quarter and where you foresee that going?.

I mean, look, I really have been trepidatious to give my opinion or thoughts on where people will land with back to office. I think it's been three years now almost of us saying we're going to go back to normal and not really going back to normal. So I'd hate to say what I think is going to happen.

In general, our expectation is a very slow and steady return to office, led by red states, frankly, like more open states. So let's say things like Texas, Florida, et cetera, and probably the lagging stage to be things like places, like New York and California. So we're being really conservative about our back-to-work assumptions.

And look, that accelerates that would be upside and I think, certainly, you can -- the castle back work barometer is a good indication of where people are and what's happening. But I'd be -- I would not want to say that it's definitely going to get to 80% retention..

Okay. That’s helpful. .

Yes, that's great. Thank you very much..

Our next question comes from Jack Cole, Craig-Hallum Capital Group. You may proceed..

Thanks guys. This is Jack on for Jeremy. Congrats on a great quarter and thanks for taking the questions. My first one would be -- so it sounds like demand for the -- to be at PCG still remains strong.

Could you talk a little bit about the rationale behind the lag business as an option for PCG, the new $199 option? The way I read it, it looks like only new applicants can currently use this option.

Just any color on how popular it's been so far and when you plan on offering it as an upgrade for current PCGs?.

Yeah. Thanks for time, Jack. So look, we are really interested in building great tools for caregivers to build their business.

That's how I think about it, right? It's really what tooling can we give to caregivers to build incredible businesses on Wag! And so you've seen us over the last year or two, roll out extensive new services and options, 20, 30 and 60-minute drop-in, digital only in-person training, we’re at the kind of forefront of we think services product development.

Do you want to see what our competitors are going to do next year, look at what we did last year. So generally, Wag! Pro fits into that bucket. It fits into our ability to enable caregivers to have great tools to scale the business. And I think we're still early on in that journey.

I think we're far from done in terms of powering caregivers with things they can do on the platform. In terms of what's next, we're experimenting with it with new caregivers. We'll probably test it with existing caregivers, but it's really just one of our thoughtful rollouts for the community..

Great. That's helpful color. And then following-up on the last question, I guess, how do you guys think about just a hybrid work environment overall.

I mean, it seems to be where most workplaces and states are trending right now, I mean does that hurt or benefit your platform overall?.

I mean frankly, we would -- hybrid is great. Like we just need you in the office once or twice a week. That's how often the average pet parent choosing Wag! So we're not looking for -- we're not expecting, frankly, a four or five-day work week in the office anytime soon.

We're expecting is a slow and steady Monday, Wednesday or Tuesday, Thursday, return to office. Those are the day you're leaving your pet for free behind for six, 10, 12 hours a day. And those are the days you end up using a Wag! service, doing research on your pet food, we're updating your pet insurance plan, et cetera, et cetera.

So again, our assumptions were slow and steady, and we don't need you every day. .

Got it. And then just last one for me. You guys mentioned the headwinds seen from weather in California.

I guess more broadly, how is the Services segment performing, coastal, more urban areas versus suburban areas maybe? Is it still highly concentrated in the urban areas or spreading a bit more to the suburbs just what you're seeing regionally?.

Yeah, Adam, Why don’t I let Adam take that. He spent the most time thinking about kind of the geographies.

Adam, if you want to take that one?.

Sure, sure. So certainly, there was an effect with all of the California storms in Q1 had an effect on service volume, basically, less people in office, less people traveling, equates to less services.

In terms of the go forward, I'd really break it down along the line that Garrett said earlier, the back-to-work barometer is really going to be the driving force for the dog walking business.

In terms of how services are split out between Tier 1, Tier 2, Tier 3 markets, it's not to say that the gigantic majority of the business is in New York, LA, San Francisco, there really is a long tail to where these services are being performed. The bigger driver is really what does the return to office trend look like over the next two years.

And I think it's fair to say we all thought that that was going to trend -- would be above 50% in terms of Castle back to work by now.

So I think our go-forward expectations or that's just going to pickup very moderately over the next 24 months?.

Great. That's it for me. Thanks guys and congrats again..

Thank you. [Operator Instructions] Our next question comes from Brian Dobson with Chardan Capital Markets. You may proceed..

Hi. Thanks very much. So the pricing power in the subscription segment is impressive, considering that you saw a greater penetration during the quarter.

What does that tell you about where pricing could ultimately go better?.

Hey Brian, I'll take this one, even though Adam's are a bit most passionate about Wag! Premium in general, I think if you -- so yes, let me take a step back. Great question, thanks for it. We certainly believe and are surprised, frankly, about the fact that Wag! Premium penetration actually accelerated in Q1 to 55%.

And that's with the 1,499 Wag! Premium, monthly fee rolled out to 100%. So frankly, it took it by surprise. We are kind of sensitive to the fact that, the market is kind of very dynamic right now in terms of the macro. And I think generally, consumers are feeling significant pricing pressure.

So I don't think really our goal is maxing out or taking not 100% of our pricing power and putting it to work right now. What we're really focused on is the long-term goal of building out this platform.

So what other benefits can we give to the, Wag! Premium Subscribers? What are ways can be tied together the way you shop for pet food or the way you buy pet treats or how you by pet insurance and how could make that all part of Wag! Premium? And I think Adam alluded to it, in his remarks, specifically around, hey, we now have enabled people to get a discount on their first box of box Premium Pet Food or they get Recall Alerts and in kind of save their pets live, if the food's bad.

I think we're spending most of our time there. But to answer your question, like, yes, it certainly was surprising to us. We did not expect this level of acceleration in the quarter..

Great. Thanks.

And can you give us any color on, what the contribution might be from your partnership with PawProtect and kind of how you see that evolving over the next 12 months?.

I couldn't be more excited about the partnership with pawprotect.com, which we believe is an industry first kind of brand and experience for pet parents. Taking a step back, the reason we're so excited about the exclusive partnership is one. It's a product that's highly differentiated in the market.

Two, it's a product that pet parents frankly need and even argue packagers needed. And three, we obviously believe it's a great fit for our audiences. And so still early innings on where we expect that to be, Brian. We certainly think it will help continue to power our wellness growth and there's upside there.

We haven't really kind of split out how we're thinking about that business, but generally very excited about the opportunity to promote it and integrate it. .

Great and thanks. And congratulations on the beat and raise..

Thank you. Our next question comes from Jason Helfstein with Oppenheimer. You may proceed..

Hey, guys, multitasking. So going to do my best, So I just want to make sure I got this. So the increase in platform participants from the 4.34 to 6.11. So how much of that was seasonality versus -- was any of that from Dog Advisor versus just like organic growth, like.

Yes, the majority of that is going to be from the existing lines of business, small amount for optavia.com. We didn't separate it out, but it's mostly organic. Majority organic..

Okay. And then when we think about then were there any marketplace dynamics around -- I think service revenue was kind of flattish, I think, like down a little bit sequentially.

How do you think about seasonality versus just other marketplace dynamics going on or whatnot?.

Services specifically, we think, is a function of weather. Last thing people want, Jason, and you probably feel this pain is a wet dog, especially when you're not home, especially wet dog running around and making him herself comfortable on your couch.

So bad weather in Q1 really affects dog walking, which, as you know, is an important product in our services ecosystem. We don't expect that trend to continue. We expect going forward some resilience and some acceleration.

I would also say, that in Q4, you don't see that as much an effect because boarding time period where like the dog is with you or the cats….

More or of a mix shift to stay….

People should travel. So Q2 should be better generally. We expect to hopefully inclement weather to kind of come itself, but hopefully, you've been following it just been brutal on the coast. .

Yes. And then when you think about pet insurance, just broadly, what do you think you guys and where actually is trying to do differently than the other solutions that happen in market..

And what are you referring to just in the marketplace….

I mean like what do you believe you're doing differently, right? I mean Trupanion has been out there for a while. There's been other solutions like just obviously, you're showing pretty good growth in the wellness business.

I mean, what do you think you're doing different that consumers are really finding appealing?.

Yes. There's a lot. So let me -- let me break out what -- and become the value by found and our customers certainly share with us. One is we hands down, believe we have the best comparison engine for pet insurance products and wellness plans. Like if you're shopping for pet insurance, we believe that we have the best way to shop for that.

We have the best matching. We have the best reviews, we have the best content. We get the best UGC, like we can generally make sure you're getting the right product for your pet. Nobody as you know Jason, it's actually very difficult to find the right pet insurance product.

Two, we can kind of think through what other things your pet is going to need, right? Like once you find pet insurance, we can really talk about the wellness plan, making sure you're getting the right food and treats just really taking care of your pet, at it's just your general pet wellness and ability to kind of that delight your pet.

And then finally, in terms of Paw Protect, Paw Protect is incredible. It's the only -- for our understanding, pet insurance product with Instant Pay, so no interest, no fees, you have a credit availability of credit, like you use it with -- it's just it's an amazing product.

So a strong than [indiscernible] checking out Paw Protect.com, but there's a bunch of these factors that combine to make shopping for pet insurance delightful with WAG, frankly. .

And just like one last one. I mean it does seem like against their well, you're going to see more West Coast people going back to work -- some point in the second quarter and definitely in the third, particularly at large tech companies.

That should be a tailwind just from what I heard, it sounds like you're not meaningfully baking that into your full year guidance.

Is that fair?.

That's right. We certainly hope so, but we're not facing that on the model. We're not facing the model on that assumption, frankly. .

Thank you very much..

Thanks, Jason. Thanks for multitasking.

Thank you. And this concludes the Q&A session. I'd now like to turn the call back over to Garrett Smallwood for any closing remarks. .

I want to thank everyone for taking the time to attend today, and please check out the updated Wag management presentation on WAG.co in the Investor Relations section. Hope you have a great rest of your day. .

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect..