Operator: Our next question comes from the line of Jason Helfstein with Oppenheimer.
Unidentified Analyst: 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?
Garrett Smallwood: 2027 revenue mix, I think we have a lot of confidence 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 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 rates went from 3% to 7% and expect it to grow at 8% to 9% CAGR. So I think those will be the two current tailwinds I would call out. Not to say services is in a great business isn’t growing nicely. But I think that has 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 in all three parts of the business for what it’s worth.
Your second question on pricing, taking 10 steps back, pet caregivers on the Wag! platform set their own rates. So that’s pretty nice in terms of how people manage market equilibrium and 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 of 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. So I think we’ll continue to flex our muscle on benefiting from price resilient as long as we’re delivering the right experience.
Operator: Our next question comes from the line of Matt Koranda with ROTH MKM.
Matt Koranda: Just wanted to clarify on 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 you the opportunity to maybe expound upon relative growth rates between those three categories?
Garrett Smallwood: I mean, in terms of ’23, you saw our wellness group of businesses, which is purchasing pet insurance purchasing loans plans, getting advisement of that, et cetera, grow pretty tremendously. And I think it’s a function of, A, we have a phenomenal product and a phenomenal marketplace; and two, consumer demand, which is kind of unbound frankly. I think we’ll continue to lean aggressively into that business. It’s hyper efficient, it’s a great marketplace, it’s an amazing product experience if you haven’t tried it. Not to say pet food and treatment 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: 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 that 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: We actually published in our management presentation available on wag.co. Slide 15, which provides kind of an illustrative platform participant growth and consolidated P&L reflective of kind of different examples of quarterly platform participants, both at 1 million and 1.5 million profit participants, along with consistent growth in sales and marketing spend, along with operating expenses. And the flow through 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 we’ll continue to reinvest profits back into growth. I think we’ve seen it in kind of other comps, $200 million to $250 million revenue guiding real EBITDA scale, and I expect similar for us, a little earlier, $150 million to $200 million, but we’re producing 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 and margin, but more growth, I think, in the foreseeable future.
Matt Koranda: And then just last one. You’re projecting second half free cash flow positive, I guess, and then you mentioned some debt paydown plans or authorization for $10 million paid down. 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 than just save on the higher cost of debt there? Maybe just talk about the rationale there, that would be helpful.
