Q4 2023 Wag! Group Co Earnings Call

Participants

Garrett Smallwood; CEO & Chairman; Wag! Group Co

Adam Storm; President and Chief Product Officer; Wag! Group Co

Alec Davidian; CFO; Wag! Group Co

Jeremy Hamblin; Analyst; Craig-Hallum Capital Group LLC

Matt Koranda; Analyst; Roth Capital Partners, LLC

Greg Pendy; Analyst; Chardan Capital Markets

Aria Cole; Analyst; Cole Capital

Presentation

Operator

Greetings. Welcome to the Wag! Q4 2023 earnings conference call. (Operator instructions) Please note this conference is being recorded.
I will now turn the conference over to your host, Garrett Smallwood, Chief Executive Officer and Chairman. You may begin.

Good afternoon, everyone, and thank you for joining Wag!'s conference call to discuss our fourth-quarter and full-year 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 is included in our earnings release today and our filings with the SEC, including our upcoming 10-K for the year ended December 31, 2023.
We also remind you that we undertake no obligation to update the information contained on this call. These statements should be considered estimates only and are not a guarantee of future performance.
Also, during the call, we present both GAAP and non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are available in today's earnings release. These non-GAAP measures are not intended to be a substitute for our GAAP results.
Lastly, you can find our earnings release and earnings presentation posted on the Investor Relations page of our website.
And with that, I'll now turn the call over to Garrett Smallwood.

Garrett Smallwood

Good afternoon, and thank you for joining us today to discuss our financial performance for the fourth quarter and full year 2023 and provide guidance for fiscal year 2024. First, I'll provide a brief overview of our financial results for the fourth quarter and discuss our 2024 plans. Following that, Adam, our President and Chief Product Officer, will share updates on our strategic plans and key initiatives for 2024 and beyond. Then Alec, our Chief Financial Officer, will provide a more detailed analysis of our fourth-quarter and full-year 2023 results, discuss our capital allocation priorities, and share our 2024 guidance.
We're excited to announce another successful quarter for the Wag! team in line with our expectations for revenue and adjusted EBITDA, which resulted in the high end of our range for fiscal year 2023 for revenue and midpoint of our range for adjusted EBITDA. During the quarter, revenue grew 27% year over year to $21.7 million, which was a new quarterly record. This growth was driven by the success of our wellness business, fueled by pet parent demand for pet insurance and wellness products. In addition, we are seeing early signs of success with maxbone within services, which validates our longer-term growth initiatives by expanding our reach within retailers to the premium product category.
Our adjusted EBITDA was breakeven, an increase from a loss of $0.4 million in the same period last year. As we navigated a dynamic macroeconomic landscape, our primary objective centered around achieving a sustainable equilibrium between growth, profit, and margin. In the fourth quarter, platform participants increased to 600,000, an increase of 38% year over year, and like premium penetration remained above our 50% target.
To summarize 2023, this was a year of operational efficiency as we demonstrated adjusted EBITDA profitability for three consecutive quarters, reaching fiscal year adjusted EBITDA profitability significantly ahead of schedule. We did this while growing revenues 53% year over year and reinvesting in the platform.
A few highlights for the year include entering the pet food and treat category with our acquisition of Dog Food Advisor and the launch of Cat Food Advisor, deepening our offerings in the wellness category with our exclusive offering of Paw Protect, the only pet insurance product offering instant pay in the US and entering the premium pet essential category with the acquisition of maxbone. We couldn't be more excited about the proprietary technology, breadth of our platform, and deep relationships we have with premium households as we enter into 2024.
In 2024 and beyond, we are focused on profitable revenue growth and reaching more US households as the all-encompassing trusted partner for premium wellness, service, and products. We will do this by reinvesting free cash flow into growth, which we expect to achieve in the back half of 2024. We believe we are in our early innings on a secular growth trend in the premium wellness, service, and product categories in which we operate.
We are nearly overwhelmed with the opportunities ahead of us, and the resilience and strength of the premium households and service who are showing no signs of slowing down. Accordingly, we are eager to build, innovate, and acquire in order to expand the Wag! platform and deliver for our customers.
As of today, we are setting a path to reach more than $200 million in revenue by fiscal year 2027, which quantifies the clear demand for our platform. This translates into a year-over-year profitable growth of at least 25% for the next four years. We will do this while maintaining disciplined headcount growth to the use of AI and process automation.
In summary, the team at Wag! continues to execute against our goals and deliver strong and sustainable growth. Our fourth-quarter and full-year results demonstrate our ability to scale our platform faster and more profitably than anticipated and show the effectiveness of our strategy and business model to become the number one platform for premium US households. Our 2024 guidance, which Alec will outline shortly, demonstrates our commitment to durable year-over-year profitable revenue growth.
And with that, I will turn the call over to Adam to review our strategy for 2024.

Adam Storm

Thanks, Garrett. I'm excited to share the three top-level elements of our strategy to drive long-term shareholder value and profitable growth in 2024 and beyond.
One, best-in-class technology. As a technology company, we're excited to continue building proprietary solutions to capture the hearts and minds of our customers. We'll leverage our technology and best-in-class user experience to innovate on comparison tools for wellness products, matchmaking services for the highly fragmented pet services landscape, and white label solutions for premium partners such as Tractor Supply, Forbes, and Bright Horizons. These proprietary partnerships develop a unique and defensible moat in combination with our offerings that make Wag! a leader in the market.
Two, platform expansion and M&A. As evidenced by our successful acquisitions and seamless integrations of Dog Food Advisor, maxbone, and Furmacy, we'll continue to pursue opportunities to expand the scope of our offerings for our customers. Our technology-first DNA allows us to move swiftly, both on the buy and the integration, increasing the return profile of the deal and delivering value for the customer.
We are excited to announce another incredible opportunity in WoofWoofTV, one of the largest social media platforms for pet lovers, which we closed in Q4 2023. WoofWoofTV expands our reach with pet lovers with more than 18 million followers across Facebook, Instagram, TikTok, and more. WoofWoofTV provides a unique media asset that enables Wag! to develop proprietary content for Wag! on-brands and partner brands. Don't hesitate to give them a follow on Instagram or like on Facebook.
Three, operational efficiency. We believe a hallmark pillar of a successful technology company is the ability to scale revenue without a corresponding increase in headcount. In 2023, we achieved a record $1 million in revenue per employee, which we expect to increase in 2024 and beyond. This was accomplished through intense focus on automation, proprietary marketplace technology that does not require significant customer service or sales headcount, and the inherent scalability of our digital products.
As Garrett alluded to, 2023 was our year of efficiency. 2024 will set the foundation for consistent and repeatable growth for this year and beyond. This growth will be achieved by doubling down on our best-in-class technology, broad and accessible platform, seamless M&A, and intense focus on operational efficiency.
I will now turn the call over to Alec to discuss our fourth-quarter and full-year financials and 2024 forecast in more detail.

Alec Davidian

Thanks, Adam. We have previously described 2023 as a year of efficiency and optimizing the business for future success, which we continue to define as consistent profitable growth. While executing to this, we have finished 2023 and Q4 strong, which are as follows.
For the full year 2023, we generated record revenues of $83.9 million, which represents 53% year-over-year growth and is at the top end of our guidance range. Record adjusted EBITDA of $0.7 million, representing the midpoint of our guidance range. And finally, record platform participants with Q4 totaling 600,000 platform participants representing 38% growth from a year ago. The meaningful growth of these three key metrics as compared to last year demonstrate the strength of our business model, strategy, and execution.
The Q4 revenue was $21.7 million, a Q4 quarterly record, representing 27% year-over-year growth. Adjusted EBITDA breakeven. I will note this was slightly lower than our prior guidance, which is a result of post-holiday demand in conjunction with the fact we saw a significant opportunity to lean into sales and marketing in the back half of Q4, primarily in December. The opportunity was too great to not deploy capital and take advantage of the surge in consumer demand, which we expect to be recognized in Q1 2024.
Delving deeper into the financial results, revenue category results were as follows. Full-year services was $24.4 million, growing 12% year over year; wellness was $52.9 million, growing 60% year over year; and pet food and treats was $6.6 million. Services in 2023 include a nominal amount of e-commerce revenue from the award-winning portfolio of products on maxbone.com.
Looking at the fourth quarter, specifically, services was $6.3 million, growing 7% from a year ago, driven by favorable fitting and boarding mix uptick. Wellness was $13.5 million, growing 21% from a year ago, driven by strong pet insurance and wellness plan demand. And finally, pet food and treats was $1.9 million. As a reminder, pet food and treats is a new revenue category we entered into at the start of 2023, encompassing Dog Food Advisor and Cat Food Advisor, which has grown 40% from Q1 to Q4.
Our expenses annualized as a percentage of revenue illustrate operational excellence and scaling and are as follows. For the full year 2023, cost of revenue, excluding depreciation and amortization, totaled $5.5 million, representing 7% of revenue consistent with last year. In the fourth quarter, cost of revenue totaled $1.8 million, representing 8% of revenue, up from 6% a year ago. The incremental cost in 2023 were driven by maxbone product of wellness-related costs.
Full-year 2023 platform operations and support expense totaled $12.5 million, representing 15% of revenue versus 25% last year. In the fourth quarter, platform operations and support expense totaled $2.8 million, representing 13% of revenue down from 16% a year ago. The 10% absolute percentage point decrease year over year was achieved through the deployment of a highly efficient processes, automation, and software tools throughout 2023.
For the full year 2023, sales and marketing expense totaled $50.5 million, representing 60% of revenue, down from 64% last year. In the fourth quarter, sales and marketing expense totaled $13.7 million, representing 63% of revenue compared to 62% a year ago. As mentioned earlier, we experienced record consumer demand post-holidays and deployed capital thoughtfully take advantage of the opportunity.
Full-year G&A expense totaled $19.2 million, representing 23% of revenue, down from 59% last year, which did include one-time cost of going public. Fourth quarter G&A expense totaled $4.7 million, representing 22% of revenue, down from 23% a year ago. This is the outcome of revenue scale, operating leverage, and hiring discipline.
From a balance sheet perspective, we ended the year with $28.3 million in cash, cash equivalents, and accounts receivable. This balance also reflects full cash payment of $1.25 million for WoofWoofTV that closed in December. Becoming adjusted EBITDA positive in the second half of 2023 has significantly reduced cash burn compared to last year.
Now looking ahead to our 2024 guidance, a longer-term outlook, we expect to generate the following: revenues of $105 million to $115 million in 2024, which represents growth of 25% to 37% over 2023. Adjusted EBITDA in the range of $2 million to $6 million, representing 177% to 731% over 2023. This guide anticipates 2% to 5% adjusted EBITDA margin, together with positive free cash flow in the second half of 2024.
Additionally, on the heels of a strong 2023 and expectations for 2024, we are also announcing that our Board of Directors has authorized a debt paydown of up to $10 million of principal in 2024. If the full $10 million paydown is executed, it would result in $1.6 million of cash interest payment savings on an annual basis, which directly contributes to free cash flow.
Looking beyond 2024, we expect an average of 25% compound revenue growth for the time periods of 2024 through 2027, assuming no meaningful change in the macroeconomic environment, with the expectation of driving towards over $200 million of revenue in 2027.
In summary, our strong fourth-quarter and annual results illustrate. Firstly, the strong demand and tailwinds within the pet category, which according to Morgan Stanley, is set to grow at a CAGR of 8% over 2022 to 2030, reaching a projected total of $277 billion. Secondly, management's ability to execute and drive disciplined growth, which we have achieved for seven consecutive quarters. And thirdly, confidence in the next stage of Wag!'s journey as a profitable growth company in 2024 and beyond, which we have outlined here today.
And with that, we now welcome Q&A. Operator, can you kindly open it up Q&A?

Question and Answer Session

Operator

(Operator instructions) Jeremy Hamblin, Craig-Hallum Capital Group.

Jeremy Hamblin

Thanks and congratulations on the strong results and guidance. I wanted to start with just asking a little more detail on your FY24 revenue guidance. It implies a 25% to 37% year-over-year growth. Included within that, what's the organic growth rate that's embedded within there? And that's part one.
And then part two is on the EBITDA portion. Of the deals that you've done, whether it's WoofWoof or maxbone, what is the EBITDA contribution from acquiring those platforms that's embedded within that guidance in terms of -- my assumption would be that they are going to be a drag on EBITDA? Any clarification would be super helpful.

Garrett Smallwood

Hey, Jeremy. It's Garrett. Great to hear from you. Thanks everyone for being here. So there are two questions, let me make sure I get them right. So in terms of our fiscal-year 2024 guidance on revenue of $105 million to $115 million, that is entirely organic and does not assume any M&A-related growth.
Second question related to EBITDA of businesses that we have acquired and integrated to our platform, just taking a step back, generally, we look at businesses that are highly efficient and have the ability to cross-sell or upsell into our existing customer base. It's part of our kind of our M&A thesis. These businesses cannot be exactly efficient on business. They also won't be kind of at scale. Frankly, that's why we acquired them. So I think about them as kind of a neutral effect on both revenue and EBIT.
I hope I answered both of your questions, Jeremy.

Jeremy Hamblin

Yeah, great. That's helpful. And then just in terms of -- one of the things that has been a bit tricky here as we start 2024, weathers had an impact across the country, particularly in January, whether it was kind of storms, freezing temperatures for first few weeks of January. We've also had some torrential rains on the West Coast where you guys have some exposure. I wanted to just get a sense for how that might be impacting your business? And then kind of related to that platform participation, the number of participants that you're seeing here in Q1, and kind of the typical -- a reminder, just the typical seasonality that we should expect?

Garrett Smallwood

Yeah. Hey, Jeremy. Garrett again. Thanks for the question. There's two questions. One, how has kind of weather impacted the business. Taking a step back again, we are very fortunate to have a incredibly diverse platform business at this point. As a reminder, pet parents and households count on us for anything from pet food advice to pet treat advice to purchasing the right insurance or wellness plan in addition to daytime and overnight services. So there's certainly been some impact of weather. Nothing outside of normal, and I think it's already kind of baked in.
One thing I'd add there, Jeremy, is January, I think, some of our strongest start to the year in the history of the business. So we are not seeing a slowdown in the consumer that we service, which is generally the premium household.
I think your second question was around seasonality. Generally, I would expect 2024 to trend similar to 2023 in terms of quarter-over-quarter growth and kind of mix of revenue contribution by different parts of the business. You know, Q1, Q3 versus Q2, Q4 as a function of adoptions and weather and summer and everything else should stay consistent.

Jeremy Hamblin

Got it. And then in terms of the comment particular to the strongest start that you've ever seen, is that being driven like which segment are you seeing that? Is it across all three of your segments, whether it's services bookings or food and treats? Or is that being driven here by wellness and kind of pet adoption maybe being higher than expected?

Garrett Smallwood

I certainly think that one's right. I think we've seen just from a macro perspective, more adoptions, more premium adoptions, those premium pet parents need things like premium pet food, early pet insurance, early wellness plans and are starting to think about services. As a reminder, kind of 12, 18 weeks a little bit early for dog walks. You might be meeting a walker for the first time or considering an overnight. But it's not yet a current priority prior to Q2, Q3 thing once you've adopted your pet. That would generally, say the strength mostly in pet food, treats, insurance, wellness, and health.

Jeremy Hamblin

Got it. Okay. And then last one for me, and I'll hop out of the queue. But in terms of the cost of revenues, obviously going to change from what your prior business model look like, kind of pre food and treats business. But how do we think about scaling that portion of your financial model as you guys move forward? I mean, I think you like your platform operations and support has been pretty remarkable. That was basically flat year over year. On revenue growth, that was up high 20s on a percent. But you're obviously going to see your COGS move higher as you have that food and treat business. But just a sense for what you're expecting on that? And then kind of within the component of your projected growth for this year, what is coming from the food and treats piece of your business?

Alec Davidian

I'll take the cost of revenue line. It was 7% in '23. I'd expect it to be consistent in '24. That's going to be a function. The costs are a function of payment processing fees and background checks, which increase with revenue volume. There will be some scaling. It could come down to 6% as the business does scale, but it will be in that 6% to 7% region.

Garrett Smallwood

And then, Jeremy, on the second question, in terms of pet food and treat contribution overall, we really like that category. We really like the space. I think you'll see us continue to lead in there. Alec, what did it grow -- what was 2023 growth for that business?

Alec Davidian

From Q1 to Q4, it grew [40%] (inaudible)

Garrett Smallwood

So I think we're going to continue, Jeremy. I think generally, the revenue mix in '24 will look something like the revenue mix in '23, just broadly.

Jeremy Hamblin

Got it. Super helpful and best wishes this year.

Garrett Smallwood

Thanks, Jeremy.

Operator

Jason Helfstein, Oppenheimer.

Hey, this is Steve on for Jason. So we just have two questions. First off, how do you see the revenue mix when you reach that $200 million in revenue guidance for '27? And then secondly, how do you think about pricing or fee increases this year, if any? Thank you.

Garrett Smallwood

Hey, Steve. Great to hear from you, and thanks for being here. 2027 revenue mix, I think we've a lot of competence in all parts of the business, Steve. I certainly think we'll take advantage of the tailwinds we're seeing in the premium pet parent. Premium pet parent certainly seems to be leaning into healthy pet food and treats things like CBD, joint medicine supplements, et cetera, as well as insurance. I think insurance penetration went from 3% to 7% and expected to grow at 8% to 9% CAGR. So I think those would be the two current tailwinds I would call out. Not to say services in a great business and isn't growing nicely, but I think that is certainly been more impacted by the return to office, which has been a little bit slower. So I think we'll see how 2027 plays out as office space resumes, people's kind of mobility resumes, and the premium pet parent continues to stay resilient. But we're confident on all three of our businesses for what it's worth.
Your second question on pricing. Taking 10 steps back, pet caregivers on the Wag! platform set the run rates. So that's pretty nice in terms of how people manage market equilibrium in supply and demand, kind of happens organically, frankly. We don't think we'll do too much experimenting with pricing within the actual services being delivered. That's up related to the pet caregiver. In terms of pricing or things like subscription products, our telehealth product mix, or any of our new product launches, I generally think we are very aware that we have a premium pet parent who's looking for a massive amount of convenience and simplicity in their life, and they want to pay up for that. I think will cause you to flex our muscle on benefiting from price resilience as long as we're delivering the right experience.

Great. Thank you very much.

Garrett Smallwood

Thanks, Dave.

Operator

Matt Koranda, Roth MKM.

Matt Koranda

Hey, guys. Good afternoon. Just wanted to clarify the '24 guide. It sounded like you said sort of ratable compared to '23 in terms of mix between services, wellness, and food and treats. But just want to give the opportunity to maybe expound upon relative growth rates between those three categories?

Garrett Smallwood

Yeah. I think in '23 -- Matt, [I meant not] ignoring you. Good to see you, good to talk to you after seeing you. It's actually good to hear from you. In terms of '23, you saw our wellness group of businesses, which is purchasing penetrance, purchasing loan plans, getting advice from advisors, et cetera, grow pretty tremendously. And I think that's a function of a phenomenal product and phenomenal marketplace. And to consumer demand was just kind of unbound, frankly. I think we'll continually and aggressively in that business. It hyper efficient. It's a great marketplace of amazing product experience if you haven't tried it. Not just pet food and treats and services growth is less important, but I think you will continue to see us lean very aggressively into wellness, and services and pet food and treats will follow.

Matt Koranda

Okay. That helps. And then just in terms of the, I guess, the pull through to the EBITDA outlook. When you guys talk about sort of the margin improvement that's expected year over year, I guess I would have expected with the level of revenue growth that you're projecting? So you may see a little bit more leverage. Are we reinvesting somewhere in the P&L, maybe just talk about sort of where we're leaning in? I would imagine sales and marketing is going to be a bigger line item this year. But maybe just talk about the puts and takes around where we're reinvesting dollars on the P&L in '24?

Garrett Smallwood

That's right. Yeah, great question. We actually published in our management presentation available on wag.co, slide 15, which provides kind of illustrative platform participant growth in consolidated P&L, reflective of kind of different examples of quarterly platform participants, both at 1 million and 1.5 million platform participants along with consistent growth in sales and marketing spend, along with operating expenses. And the float is pretty, we believe pretty compelling.
To answer your question, though, we do expect in 2024 just a function of what we're seeing in the marketplace that will continue to reinvest profits back into growth. I think we've seen it and kind of other comps, $200 million to $250 million of revenue got really bit of scale. I expect similar for us a little bit earlier, $150 million to $200 million, but we're just seeing a tremendous amount of demand. We have a great product people love, and we really want to take advantage of that. So the mandate from us is continue to be really efficient and thoughtful and judicious on managing gross profit margin, but more growth, I think, in the foreseeable future.

Matt Koranda

Okay. Got you. Just last one, the projecting second-half free cash flow positive, I guess. And then you mentioned some debt paydown plans or authorization for $10 million paydown. Maybe, Alec, if you want to just cover sort of the thought process behind the level of paydown that we're targeting. If we're kind of hitting that sustainable projected free cash flow level in the second half, why not pay more down and just save on the higher cost of debt there? Maybe just talk about the rationale there would be helpful.

Alec Davidian

Yeah, that's a great question, Matt. We're thinking through paydown across the rest of the year. We will most likely staggered through the year, but it depends on the ultimately the level of performance through the different quarters. So you quite possibly seeing us paying down a bigger chunk to begin with to your point. And then as free cash flow gets later in the year topping up to remaining amounts.

Matt Koranda

Okay. Makes sense. I'll jump back in queue, guys. Thank you.

Operator

Greg Pendy, Chardan.

Greg Pendy

Hey, guys. Thanks for taking my question. Just a quick one. I guess within the guidance and the EBITDA guidance, can you talk about how you're thinking about the Bright Horizons deal? Is that something that you're going to be putting some dollars behind and hopefully that will gradually roll out? And then also is that built -- what were you thinking in terms of your guidance?

Garrett Smallwood

Yeah. Hey, Greg. Great to talk to you. Thanks for being here. In terms of Bright Horizons, this is a refresher. Bright Horizons is a public company, general BFM. They offer daycare and childcare, I believe, ages 6 months to 7 years across the US. Phenomenal business model from all everything I can understand. And we've partnered with them to offer pet care via their distributed kind of employer-sponsored channels. It really marks our entrance in the correspondent channel. So we really like this part of this deal because it unlocks a great audience, think about as major employers across the US brands like Salesforce, et cetera, and a great branded Bright Horizons. And we're kind of able to piggyback and provide a great experience to their customers.
These things generally have a ramp time. I think you're alluding to. It takes time to roll out to an employer and then go out to the employees and figure out how to actually use it and figure out to actually benefit from it actually put it to work. So it probably is more of a back-half '24, '25 thing than it is first-half 2024 thing, frankly. But it's not to say we are already seeing some early signs of promise. And we're not really excited about the partnership, but probably more of a back-half slash 2025 win for us as it's rolled out.

Greg Pendy

Got it. And then just one, final one. Just on the return to office trends, I think you mentioned that it was a little bit sluggish in the fourth quarter, and you called out boarding on top of it. So just kind of wondering, in the fourth quarter, did you see maybe some of the hybrid workers choosing to work remotely more often given the holidays or just kind of anything notable to kind of call out on that? And how do you think about that in light of the revenue guidance for 2024?

Garrett Smallwood

Yeah. I think what we saw throughout '23, frankly, was a really trepidatious employer and employee. Meaning, like no real push or incentive to go back the office. I think we've generally hovered around 48% to 50% throughout the year across the major markets. And that's a few days a week. We're not assuming some massive step change there. We certainly think the macro pressure and the layoffs we're seeing, especially across larger companies may accelerate the return to office and kind of the dependency then on Wag! daytime services. So we're not necessarily pending it in. But just in terms of migrating, we really -- it wasn't any sort of step change that year. I think we saw kind of a slower employer than maybe we had originally thought to push people back to office, but didn't really change the pattern or use case. I think people still depend on us while they're stuck in meetings all day, people still dependent as well around the weekends, people still dependent on weather traveling. And enter into 2024, I think we might see some level of improvement that you expect to be at the 85%. It probably gets to 55% or 60% by the end of the year is my guess.

Greg Pendy

Got it. Thanks a lot.

Operator

[Aria Cole], Cole Capital.

Aria Cole

Thank you very much. That was fine. I thought that was an excellent pronunciation of my name. Quick question, can you hear me?

Garrett Smallwood

Yeah. Hey, Aria.

Aria Cole

Thank you for taking my two questions. I'm sure when you do financial analysis, you look at comparisons other companies. As you well know, Rover had been public. When they reached $110 million of sales a number of years ago, they were reporting EBITDA margins of 11%. And if you hit the guidance you're suggesting here for 2024, you'll be $110 million in the and middle range as well, reporting about 4% EBITDA margin. So the question really is, what is different about the mix of your business, the two businesses that your margins are going to be lower. Is there something, some structural reason for why your margins are lower versus theirs because of what you offer? Or is it a function of you're just investing more money in sales and marketing to drive future growth?

Garrett Smallwood

Yeah. Hi, Aria. It's Garrett again. Thanks for being here. I'm not sure if Rover was a public company when they were doing $110 million. But I can certainly say that when you are a public company, you are burdened by additional costs, which probably takes EBITDA margins down. As a reminder, it is not cheap being public in terms of both headcount, compliance, regulation, just generally best practices. So I would add that in there, it's probably actually a multi-percentage point impact to our fully loaded EBIT margin. A second part of that is I think we're probably in a different stage as we think about future growth. I think we're really investing in durable, long-term growth, maybe a bit differently than maybe they were. The third point I would add is there is the management presentation we published that gets a sense of kind of EBITDA margin scale along with our gross -- sorry -- free cash flow scale, which was just published. I think that gives us, everyone a better idea kind of how we look as we get to a higher platform participant numbers.

Aria Cole

Got it. Thank you. And then just a follow-up question. Just looking at the quarterly seasonality of your business. As you look at 2023 of the year just finished, the number of platform participants actually did not rise between March '24 (sic - "March '23") and December '24 (sic - "December '23"). But then in 2022, it had more of a sequential quarterly rise during the year. What I'm trying to understand is going forward, how should we think about the seasonality of your business? Is it a business that can grow the number of participants every three months versus the prior three months? Or is there a real seasonality in the business where the business has the most participants early in the year and it plateaus there?

Garrett Smallwood

Yeah. I certainly think that there is some level of seasonality in the business in Q1 and Q3, primarily. Q1, Q3 are more sitting and boardings occur in the services business, a significant number of pet insurance plans, Wellness plans and vet communications happen as a function of new pet adoptions, and a few other unique marketplace dynamics. But I would say '23 is going to look a little bit different than 2024 as we're really going to be reinvesting in growth in 2024, whereas maybe a little more prudent '23 to reach adjusted EBITDA profitability. So we expect quarterly participants to grow year on year. Maybe not always quarter on quarter, but certainly year on year.
Last thing, Aria, is can you please send me an email with your Rover numbers? The last numbers I have are $97 million in revenue with '21 at minus $9 million of EBIT. So if you have something different, I'd love to see it.

Aria Cole

Okay, no problem. Again, thank you very much, and best of luck in the year ahead.

Garrett Smallwood

Thank you, Aria.

Operator

Thank you. We have reached the end of the question-and-answer session. I'll now turn the call back over to Garrett Smallwood for closing remarks.

Garrett Smallwood

Yeah, thank you, everyone, for being here. We're extremely excited for 2024 and the years to follow. Again, I've said this for three or four times now, we have updated our management presentation available, wag.co under Investor. I think it's under Press Releases in presentations. Please give it a look. I think it answers the majority of questions you may have as you think about the business, of the customers, and us as management. And we look forward to keeping in touch for a great year. Thanks, everyone.

Operator

And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.