Wag! (US:PET)2023-05-12 20:27Part I - Financial Information Financial Statements Wag! Group Co.'s Q1 2023 financials show revenue growth driven by Wellness and acquisitions, despite widening net losses and negative operating cash flow Condensed Consolidated Balance Sheet Summary (Unaudited) | (in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $24,502 | $38,966 | | Total current assets | $34,746 | $47,423 | | Goodwill | $4,501 | $1,451 | | Intangible assets, net | $8,173 | $2,590 | | Total assets | $49,650 | $52,311 | | Liabilities & Equity | | | | Total current liabilities | $16,146 | $16,491 | | Notes payable – non-current portion, net | $25,270 | $24,970 | | Total liabilities | $42,119 | $42,389 | | Total stockholders' equity | $7,531 | $9,922 | Condensed Consolidated Statements of Operations (Unaudited) | (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenues | $20,623 | $9,666 | | Total costs and expenses | $22,836 | $11,984 | | Loss before income taxes | $(3,787) | $(2,350) | | Net loss | $(3,787) | $(2,350) | | Net loss per share (basic and diluted) | $(0.10) | $(0.38) | Condensed Consolidated Statement of Cash Flows Summary (Unaudited) | (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,580) | $(2,245) | | Net cash used in investing activities | $(10,661) | $(6,720) | | Net cash (used in) provided by financing activities | $(223) | $9,664 | | Net change in cash and cash equivalents | $(14,464) | $699 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, acquisitions like Dog Food Advisor, revenue streams, debt, and identified material weaknesses in internal controls - On January 5, 2023, the Company acquired Dog Food Advisor for $9.0 million in cash, adding $5.95 million in intangible assets and $3.05 million in goodwill9293 Revenue by Offering (in thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Service revenue | $5,397 | $4,432 | | Wellness revenue | $13,855 | $5,234 | | Pet food & treats revenue | $1,371 | — | | Total revenues | $20,623 | $9,666 | - The company secured a $32.2 million senior secured term loan credit facility with Blue Torch Finance, bearing a floating interest rate and maturing in three years from August 9, 2022116117118 - Subsequent to quarter end, on April 6, 2023, the company acquired Maxbone to expand into the Pet Supplies market146 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strategic expansion and 113% Q1 2023 revenue growth to $20.6 million, offset by increased net loss from higher operating expenses - The company's strategy involves expanding into high-growth areas like pet wellness and the $50 billion Pet Food & Treats market, notably through the Dog Food Advisor acquisition150153 - Key operational trends include increased pet adoption, return-to-office policies driving service demand, and pet humanization boosting interest in wellness products158 Non-GAAP Financial Metrics (in thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenues | $20,623 | $9,666 | | Net loss | $(3,787) | $(2,350) | | Adjusted EBITDA | $(397) | $(2,112) | | Adjusted EBITDA Margin | (1.9)% | (21.8)% | Comparison of the Three Months ended March 31, 2023 and 2022 Q1 2023 revenues grew 113% to $20.6 million, driven by Wellness and Pet Food & Treats, but rising expenses led to a 61% wider net loss of $3.8 million Results of Operations Comparison (in thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $20,623 | $9,666 | $10,957 | 113% | | Total costs and expenses | $22,836 | $11,984 | $10,852 | 91% | | Net loss | $(3,787) | $(2,350) | $(1,437) | 61% | - The $10.9 million revenue increase was primarily due to an $8.6 million rise in Wellness revenue and $1.4 million in new Pet Food & Treats revenue from the Dog Food Advisor acquisition189 - Sales and marketing expenses increased by $7.2 million (118%), mainly from a $5.2 million increase in partnership-related costs192193 - General and administrative expenses grew by $2.6 million (111%), driven by a $1.4 million increase in personnel costs and $1.1 million in other administrative expenses to support public company activities194 Liquidity and Capital Resources The company continues to incur operating losses and negative cash flows, with Q1 2023 net cash used in operations at $3.6 million, but expects current liquidity to suffice for 12 months - The company expects continued operating losses and negative operating cash flows as it invests in growth197 Cash Flow Summary (in thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,580) | $(2,245) | | Net cash used in investing activities | $(10,661) | $(6,720) | | Net cash (used in) provided by financing activities | $(223) | $9,664 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on its Blue Torch Credit Facility and equity price sensitivity of contingent Earnout Shares - The company's primary market risks relate to interest rates on its Blue Torch Credit Facility and equity price sensitivity of its Earnout Shares228 Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2023, due to identified material weaknesses in internal control over financial reporting - As of March 31, 2023, the company's disclosure controls and procedures were deemed ineffective by management231 - Material weaknesses were identified related to insufficient resources for risk assessment and technical accounting, plus deficiencies in IT general controls, logical access, and segregation of duties232 Part II - Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, primarily regarding pet caregiver classification, with no expected material adverse financial impact - The company is involved in legal proceedings regarding pet caregiver classification, including a challenged $1.3 million California EDD assessment for unemployment insurance contributions107110 Risk Factors No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year 2022 - No material changes have occurred from the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2022237 Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period Mine Safety Disclosures This item is not applicable for the reporting period Other Information No other information is reported for the period Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents and Sarbanes-Oxley certifications