TRUP - Earnings call transcript Q2 2019

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Operator

Greetings and welcome to the Trupanion Second Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Laura Bainbridge, Head of Investor Relations for Trupanion. you. Thank

begin. may You

Laura Bainbridge

welcome Participating second Darryl on and Financial Executive and results Rawlings, XXXX conference Officer; Officer. Chief Plouf, call. today's Tricia to afternoon quarter Trupanion's financial Chief Good call are

like Litigation would we of operations, the the call, certain opportunities, I begin, financial known Harbor make we to a everyone Reform unknown of the provision Securities today's Act involve will that of Private the that These regarding statements meaning from performance those Safe uncertainties results remind high XXXX. forward-looking and discussed. degree and actual to and materially conference of during future risks within Before statements cause Trupanion of could differ

which and risks our included of on with uncertainties XX-K well discussion Investor Commission. Relations these detailed and website filed X-K A Forms the the reports other on be Securities recent can Exchange company's as and most found earnings and release, as are in our

Relations on measures release results, comparable found can we Today's company's review that in encouraged use U.S. expense presentation the today's stock-based prepared are measures which it expenses, income, tab. intended performance Investor the contains addition operating adjusted basis, non-GAAP Earnings will expenses references which financial refer of operating expense. the or income on Investors is to acquisition. rate for non-GAAP before most the the compensation directly or reconciliations and income to GAAP. noted, to acquisition margin, our expenses, new margin EBITDA; website accordance and free cost, including of Quarterly GAAP exclude adjusted cash to margins depreciation limitation, term to performance, evaluate variable these substitute operating or and pet to internal of measures be When measures otherwise fixed with flow. in Unless be presented press uses management adjusted These a Trupanion's under a in without and return, to non-GAAP non-GAAP not are financial financial non-GAAP the

that via to is be like replay Trupanion's would site. available will call today's Investor remind also the I on on Lastly, available everyone Relations website. also A webcast

And the with to Darryl. that, will call over hand I

Darryl Rawlings

opportunity afternoon. of to length good you Annual We during month's and at he Shareholder the Laura, to last speak Thanks, many Meeting.

So purposes brief. keep call, of today's for I'll my remarks

XX% total of period. QX line in operating XX% year to with enrolled XXX,XXX we income XX% revenue XX% quarter $X.X up over grew XX% internal our million, year-over-year the return pets. our quarter estimate the with Adjusted and the totaled target. rate over for at ended prior We

on and in You'll the year. these on evaluating our recall a we focus performance. three we're solid was it quarter, our meet objectives this to measures track when for mind, With

retention. our Growth discussed of internal at in We're those to more conversion, month. our adjusted aimed XX-day of comprise headcount Nirvana continue at the strategies deployment including We our targeted return operating Shareholder the last same-store of initiatives also rates around spend, initiatives, software. both Meeting and our deploying incremental investing income in for our at Annual and including bulk sales

a letter. who recall, as years this success hard highlighted to annual I know XXXX maintain my initiatives Those opposed multiyear area perspective. in an quarters. we long-term our us in to shareholder These You'll of as measure expect we opportunity that well, you, of and are know

to expansion decades us The do the competitive the and ahead deepen additional modes. of are income building are We this investments flexibility so. our provides adjusted operating our we to making company for

and retain hard before, comes been by I'm repeating, I of walk people. attract our Shareholder attended and these level humbled at execution but worth I've down Annual greater we've it initiatives. away with behind here Meeting, that Trupanion. is For talent hope of the those it the appreciation a you teams able said it's to to

did Before to with OIC. In Letter, we last month's of have as we size in California while with in we I'll Annual I brief business settlement expect update way business. the some we with corrected. a settlement provide of made materially settlement finalize changes acknowledged on past do the ongoing, to but that in Conversations we starting Insurance short, with reflect of Washington turn agree the the have center our it call mistakes licensing to since a State's nothing State. Separately, we in Shareholder not settlement the findings, In my to I weeks coming are this. the over the Trish, XXXX related regulatory the expect Department the

we of industry reserved believe nor team any growing meaning are are resulting practices Insurance. meaningful a business licensed these and do State in we expect members. with We regulators operate our lines have our dialogue matters and value seriously. center the not to any rapidly We take to do and and welcome we relationships adequately at committed expect we the impact, of fine, We communication with for contact changes potential we as already any Nevertheless, our level. building Departments maintaining all expect upon financial

heels states a the of about we prefer Since license well-versed. partners topic territory achieve within territory require partners, State our of are It few so. that representatives have which role inquired we've contact have discussed with we do necessary dialogue the our is regulators XXXX at they licensing requirements. if their we on over a in and center a the helped State of years with that the process length will operate they a hundreds Recently,

value are receive are want and want the and fairly. that We and at we're often their to different. the what we we culture customers say, regulators. customers a fundamentally, transparency, same our transparency important doing no things. tote culture. Trust, More are these live of treated we well with is by aligned high tenets Companies proposition, there values Regulators Trupanion ensure

who best a attending the meet importance Meeting. team, Annual has attend the in-depth once Culture the get be and year, this culture, which key reasons of to country experienced business opportunity the is the able around Shareholder who understood, to initiatives. of of to especially our experience want to our This the we We globe. is event the from an across be traveled to were of stress thank one those year those you understanding

event We make is Your see year hope helps participation XX. a you to this June success. what all next on

I'll that, to with Trish. hand call over And the

Tricia Plouf

Thanks increased Darryl. full-year up Total $XX.X June over quarter XX% our results quarter detail, by second XX% well the enrollment in pet in updated revenue Subscription quarter million, Today $XX.X pets year-over-year the strong and XX% enrolled XXX,XXX provide and our I'll was million Revenue review Subscription third for in up second to as outlook. and led other was business as segments. of year-over-year. quarter, year-over-year both XX. our pets as

year-over-year of veterinary revenue X%. members. monthly XX% U.S. pets year an revenue XX. increase local Canadian our growth of X% for increased XXX,XXX quarter channel. of Total within to average average per enrolled year-over-year leads over and the X% Pet currency, historical by from enrolled from pet our and Subscription X% Monthly $XX.XX, X% business our Subscription increased June for from in our increased for our as by per to prior line benefit members core continued pets was to In pet average with the

will mind year of XX.XX% XX-day Keep in to act retention is Average periods compared period. prior the and was headwind. growth in in XX.XX% as retention accelerated retention XX-month a that monthly a metric trailing

improvements expect our see we improvement do QX of Given not this over tenure dynamic, though XX.X% to meaningful sequential we average in relative historical QX. did

quarter, for BXB other the has totaled is that comprised revenue, a which Our component, $XX.X business generally XX% of of an million year-over-year. revenue our increase

per number enrolled Generally grew not Year-over-year primarily by would to Other XX% margin business expect growth see variability an to a was year. pets. quarter, in an about of line which increase expense Subscription per increased expense year-over-year invoice X% speaking, basis on the with basis. gross to pet ARPU the in we X% our Though per segment is it more just invoice in annual veterinary unusual veterinary under in quarter-to-quarter. reflects on increase impacted pet X%

in XX%. our XX% gross continue other includes of our Fixed approximately year will the expenses were target of from X% our the gross $X.X down or basis Total total We expect and was scale. within points margin subscription prior revenue that business fall target basis which from to quarter, operational XX% million full-year period annual XX and to margins X.X% segment. our XXX

owning in $X.X for the in reflects of the Adjusted Scale office totaled $X.X a benefit year or Net million. from quarter, home income $X.X period. fixed the in a XX% was second our loss the prior quarter operating building. expenses million increase million

As a percentage revenue, to year-over-year margin XX%. basis XX points expanded adjusted operating approximately of

growth reminder, invest As and operating a to available are other the funds income in long-term initiatives. adjusted

to our improvements as investments same-store spend This income operating million encouraged in teams around in approximately $X.X rates acquisition that subscription a late has third see year XX,XXX of building $X.X as were During primarily the the is trend the period. prior adjusted small quarter deployed in well We million continued related in new we and pets, compared since incremental in of the to the quarter, sales to quarter. conversion conversion. our

spend the target. rate pet we XX% of operating return internal for with remain is our in measure to of deploy XX% return rate adjusted long expands, amounts our return rates our greater as at quarter, income single As our return Internal we of average estimate our the of intend internal free achieve a We flow to and XX% acquisition positive. targeted cash pet. for can we capital line how on as

supplement calculation this our relations found website. can earnings behind on in be quarterly investor details Additional our

in for Adjusted the EBITDA quarter million million to $X.X was compared $X period. prior-year the

cash and loss $X.XX period. second million share loss prior a Our flow million the in up $XX.X loss basic million or in million, prior-year free per cash, had diluted negative was and and million of the cash was $X.X At diluted million $X.X June $X to short-term investments, XX, of $X.XXcent flow debt. a cash from long-term basic or $X.XX equivalents net the loss In quarter, share was $X.X in year and $XX.X compared we million, period. per net operating

now XXXX. outlook quarter and third to for the I'll our full-year turn

in quarter year-over-year of expected growth at $XX representing the For the million, XX% to to third million of revenue is be midpoint. range XXXX $XX the

For in second and of to the half. are revenue the increased guidance into increasing reflect the full year range visibility year performance our first the we our half

$XXX million revenue the we a growth XX% the result, be As midpoint. representing year-over-year million for at in $XXX to the range now of full-year expect to

Embedded X% X%. are range for growth historical We IRR range subject to revenue adjusted to in Other XXXX, targeted year revenue to expect keep the $XX ARPU estimate our and fluctuations continue for to million revenue operating projections income in million $XX year. around is currencies. our spend allowable we business in U.S. forecasted We Also, that of line within be now averages with acquisition levels, of our Canadian around rate of the guidance in million. for to $XX the of please conversion the estimate our to XX% between $XX mind million revenue At XX%.

guidance, our we of rate projections, the quarter and which a Four June. used XX% full in approximately third our year at end the was conversion

to for your today. call I back time turn the now will Thank Rawlings. you, over Darryl

Darryl Rawlings

Thanks Trish.

for we've be XXXX held on we to that updated recently Before Annual this to I Seattle date of is participation our of we've which our success on date XXXX based event highlight June want feedback. up the and XX, open at it now Shareholder the here Meeting headquarters. Q&A, the Shareholder critical updated shareholder will

in We your and are you with accessible shareholders interested planning. as want meeting the assist notice to this make providing all to to

our on Additional relations forthcoming details will website. be investor

And with up open questions. for that, Operator? we'll it

Operator

is [Operator Shweta now go Great, Our is you. ahead. Markets. sorry, Khajuria from here RBC Please first live. Capital line from your question thank Instructions] I'm

here Please the go go next question to ahead. will James. from from Andrew Raymond We Cooper

Andrew Cooper

for than expense percent And a of seen guess any first in the anything a that anything in me, anything else graduating XX%? Excuse little of but could more there out of particular claims relative higher this we've trend quarter in to from question. thanks your to has goal to XXXX a jumped that just thanks. the bit me, XQ quarter makes movement just you lit revenue, the or that was lumpiness from Hey, quarter is color point you been is first on, basically I confident the give bit as that

Tricia Plouf

can I high give more Yes, quarter. at color single particularly a within a This Tricia. hi bit is little a level Andrew.

how When really variability increasing of characteristic ARPU it's revenue, to per claims Your on a lumpiness single is per and in correct. or same number percentage how is is of claims increasing a of a pet is pet quarter rate. factor as they always increase don’t the which at based a comes

X%. increased X% claims closer increased QX, ARPU For in example, while at to

both in are talked variability claims they year-to-date year a getting, also to that increasing in just is patented headwind being we're full at about about said, when this previously those with as and the X%, is more addition in couple that and more we For provide our talked software does year, are through with That dynamics some so software hospitals. there line. a We're before, that processing they X% XX% than accelerating so as it last about are trade-off. okay we've we've

increasing make are help to through see which X% trying and that them our of and pull next claims hope X% to increasing to update we back the while are closer pricing But in pricing the year year we to would be delta. half into typically where up around

is like there I an that we'll cost nothing XX% still of variability. the opposed the ratio in feel to be as to overly in the single concerning full XX year we prepared that But quarter right about my the are comfortable We goods and we're remarks, now. is mentioned very as or XX%. anomaly between the So XX% for closer the

Andrew Cooper

could Subscription but the to little your around non-subscription kind business of in in of higher thanks. kind million that of higher maybe is more increase core helpful. about non-subscription But I on think as or question, color Okay, bit one the give end, another obviously if the could. more business tightening And you and the any tightening guide, than financial level on, expectations the the the other That's $X business, just that or a more business? kind then we then

Tricia Plouf

Sure, is bit level of year. through little both, a at the we're high a it halfway

actual more more going lot visibility have first and for the half the half. second a We into

it's full So to year visibility. the when tightening the about it the comes for of really range,

have are related that all do We well. beginning in to to with performing we business at the million of less that year fact $X the segment that the visibility really segment Other are not areas have of the raising segment and and

into year. QX actual in, as we're as business back to has well the into through So remaining subscription million with core currently our $X also closed The we're QX and well we But in outlook in performing into which well. that the really and flowing wouldn’t mainly it's real visibility segments not we're and big through we came really $XXX,XXX flowing that visibility all lot that do we through business. through performing above $XXX,XXX We but of there, came more QX our overall, and is have fully variations that well. expect QX the half are about as

Andrew Cooper

what in as of and Okay, and that one there the on the kind of quarter you later sneak great. XQ, I'll worked started back to mentioned you hasn’t jump in into could the then And pay efforts is of what's But, dividends more anything could if then just the some part in but in particular I give and conversions queue. worked? though

and that at color we the full that upside not Any comments continued of there so found you been be bucket testing something maybe And great? how could you rolled where quarter. of from drive in exiting scale, necessarily have then, were has even done much what would kind second more or out

Darryl Rawlings

the it's things on been good the and I hard, a opportunity I've privilege it tell we about to have Sure, looking is to visions. book having to in doing is from are a mean, this really million, to high over funds have a over XX in I longer and which the about for some these Darryl. to year job. at giving teams working operating access level, us XX% invest just we profits years can million at you, investing from our term I company this meaty mean Oh, $XX existing be we're $XX some growing have

areas getting So investing trying Naphia in more conversion investing rates and kind around increase churn [indiscernible]. tight the same-store We're investing the is of software in. we're and definitely also one investing and and sales. of of that claims Nirvana in areas kind veterinary our automation, in to in hospitals have our We're

analogy and about, Conversion those the don’t is would Trupanion. I get we're because most percentage with are something a higher the like peoples in category, that, of that we know to of know, store and passionate what the converting buying grocery buying up. driving we leads internally of hard going kind really you of type believe can I product we to to of our use is is this tuna. until like you get a it open It

think a getting broader what albacore. with customer industry's Trupanion of the payouts, we best we piece and tuna higher the target service a of big And like think the is opening solid are can coverage,

of of sometimes conversion the in And kind that the a being able our of you around to can know open locations. articulate and is that is multiple tuna, do really being stuff. focused product able flaky You watery, benefits and there to

more the them choice and some better the we of where consumer, educate impact think the a we the we're of And areas higher percentage that. seeing we're seeing will make

have that asking run you in think area. hit all going be are you which across, is we and but to you be and rate, do we're going in Now, these implying, more investing the to more people think I question, in we've the there conversion tests QX I something would thing means is for smaller we're light big tell incremental to focused higher a us were much able are that on changes, done switch this pets, to and a

Andrew Cooper

it. Great, in back I'll I jump the appreciate queue.

Darryl Rawlings

Yes.

Operator

Capital from Markets. question Please go next from RBC here ahead. Your Shweta is Khajuria

Shweta Khajuria

about that earlier, please. Hi all, sorry questions couple of

were you sales growth? to been impact, in discuss you impactful deploying sales you've - trends claims clinics, with automated same-store on integrating, started the same-store isolate sales you since has software growth if please how seen same-store on So who could veterinary the

you of are spend, the and that growth second channels portion quarter this initiative, could expense. And on was XX% XX% what of you pet of acquisition call your the with last called about seeing XX% test then, marketing spend, you spend acquisition out you talk growth what was

seeing IRR So XX% is, getting it there you. to and if Thank XX% is to what more is closer you're now optimized target?

Darryl Rawlings

for question. the Well, thanks

was question in around we same-store claims specifically deployment first the software, are had after So asking of areas where automation. more sales you and

how explain works. this me Let

have today So we software. increased our

of XX% that our going Every last We through one invoices automation is in year. more have we did hospitals those tool.

being not of XX% hospital automation, XX% so hundred that One tool of with automation has have hospital, automation. by universally one done and them are done go we actually don’t the XXX% has They percent through or to are them XXX% about a that finalized zero. and one another

we track the don’t we So by same-store have sales areas automation.

that we We know two we've same-store had before sales last the have it's shareholder in and XX% about we software software. meetings from where the mentioned this the up do

So have experience really the it's we to better consumer, but customer net excited veterinarian, automation, don’t the the not, better we're factor. for better directly that to link have about, we ability the for it's

I about it to is to can our the and cash an was a million invest, invest investments. spending core that year, question we're of XX% XX% we of about in to positive try and about $XX we're flow we earlier other we'll breakdown goal our where have really of XX% Those mix. invest being IRR this Your money anticipated mentioned typically XX% of and maybe have

that have XX%, year Year-to-date been year-to-date installed area more an but Big our building be not getting managers and the definitely to not in areas, optimized learning it support for software closer to still out IRRs we're and have has there about most mature software, been most we space the hospitals there. which is and the of in of XX%. stage XX%, it X% where the there account XX% this yet factor it into XX%, area call that has us are and growth between might bulky been that's has typically

content lot seen. We more that a are mainly invest creating we conversion also and investing in in having people there and

progress mentioned we're We are we seeing earlier excited. as

may XX% been in a what trying idea we have innovation. project. investing These on be of no last the there spend long-term internal to we're invest bucket, bit to return amounts to are are or very that a rates on be the And areas the about more. smaller half we've going Year-to-date, back hope then we little

about other in how channels could those partnering different the our kind distribution be expansions with doing future we think of or potential and total that’s So spend.

Shweta Khajuria

you, Thank Darryl.

Operator

Mark go is ahead. next from from Capital Our Please question Argento Street Lake Markets.

Mark Argento

Trish. hi Darryl, Hi

also territory about mentioned Just a I know -- you in the just of at from a on trying agreement immaterial in but business and moving a going California had there had Washington. later of mentioned financial the a to this to how you be perspective, you licensed the do partner if environment that of after you’re to kind settlements? are process reach kind followup perspective I an know blanket are from your regulatory regards think towards you point, you

Darryl Rawlings

asked California of audit you glad know issue experts, first California think of may had because we legacy need call an we and at center licensing not the on which previously profile product and because question that Department is related. is not informed XXXX. where around are I'm by Where told people did based all it get I license. we timing XXXX Mark, up showed to lawyers and our were Washington Insurance the to of but and Well related the is, it a that

licensed do we we're in timely a not in is the And moved matter good that the to taking, listened that and we into line are we they calls was they solicitation. types thought that to to competitive them we execution did those When questions have of but penalized. get that We there them should it needed lot And frankly get the timeframe. penalties. and We therefore of a was quite why not agree crossed quicker, deserve that, licensed. getting

call get behind in The we’re guys XXXX this is California into because and expect related. licensing, related us were that and was letter the it Washington issue. area legacy we a three an you it's to buckets it different letting they to related know, about area shareholder talked so was shortly. not center not I

Mark Argento

$XX other for terms one talked just line then you in million probably – for roughly So quick I here the that's item XX%. a about XXXX, of think Trish

it think XX% should growth over of there I continue I that at the was segment and driving just in guess that’s anticipate what's that bringing the pace going growth? we to that grow quarter and level year-over-year. on What's

Tricia Plouf

as mean all nicely. reminder I there four they're is and in growing a Sure, there different buckets

So versus it’s service necessarily partnership regards ensure one the where With for Veterans another. not our Affairs, with veterans. dogs we

And so at related is the programs to our least employer employer it with that nicely growing things regard portion to of where a pays nicely. benefit that is growing

we’re to a underwriting business. and on book while add as and quite one performing well their partner business so XXXX, one growth be rates then And to other outsized the as bit others rolling us causing is started is continuing And one is is it of well. that still off building year-over-year their with to in now

general, growing all it’s the channels market of and products, in have overall in as overall core the so, market, is we’re so strategy part our well positioned And different nicely to as as that well well.

the rates the our the more are comes we that range expectation, segment imagine when on or seeing right be XX% continue currently. outlook, year expect and or would are it our based building So, around for industry like to in things comes XX% be we announce unless it growth we to long-term to grow different something up around would XX% general which growth off Apps to in on guidance. to full coming you now when

Mark Argento

helpful, very you. thank Great,

Operator

go is question from Craig-Hallum. ahead. Kevin from next Our Ellich Please

Kevin Ellich

about taking understand guidance my did make so sure to asking Trish, just wrong. and maybe for math keep the the here, sorry but I the right, got I I've questions, numbers thanks Hey, just

excluding is that bit was at revenue So full-year, that and driving revenue what's correct look the like down effectively the it that? a the little taken business looks other guidance if so subscription for if we

Tricia Plouf

be $X be be shouldn’t up should for midpoint the It it by down. coming that full-year, million the it would coming is

Kevin Ellich

Got I have maybe it, wront. been again,

Tricia Plouf

yes. Yes it’s been has just higher performance,

Kevin Ellich

commented kind wants the the are that or become any be I what’s I mistake And Mark do to you back in to got going guess and you is do California, impact math. if going Washington, about on incremental, the Partners in productivity? my Darryl plan the the a that allow that but them asked licensing with to case-by-case to about other of Washington. guys Territory other have Okay, cost And that? to example territory you state licensed to What's also it question for in you to of going then states, the - I point, guess, of plan you seen partners

Darryl Rawlings

Great over question, of cost require with are dollars already through that And doesn't impact. major a licensed. a so them of We it anytime have consumers. right be we Territory directly licensed Partners, year Partners it’s dealing couple is process. now of for hundred to gone have XX% The were they them it minimal, so Territory a

category’s category have growth. -- -- We on the as this continues to regulation grow have been based changed

states Partners not we’ll if individual ongoing required that of the We have on that And be of and Territory any would then had get and do conversations historically that be licensed. historically and prefer those make all states years having we they Then if to an the get if licensed. we change a totally us it. think it forefront we’re conversations supportive and that’s why at we have for them not it But will will eye keep becomes want everybody. we’ll trend we of to them

Kevin Ellich

far? seen from so on so no you've Okay, but what impact productivity

Darryl Rawlings

gets at. it's it our more veterinarians a more certainly for it’s the what the a do. specific not licensed, it’s good there us us, we ever net very productivity. force industry that what that the week in where point and our to business good category, impact is for Licensing, be for today. the is about thing this something the for takes a calling would material on remote No and on because that that sales not specialize be happens we’re things process Territory through Partner to If Its we to basically, required is

embrace they're and we which to high So the that sure it's do regulation to consumers doing try as what is getting. what have long visibility as make regulators

equal customer good all proposition we’re getting targeting So there in which with industry the people level are great is value highest the sustainable experience. transparency. we believe The

Kevin Ellich

about retention that's you the spend going, same-store while conversion about talk okay Darryl? and And helpful. how are it, Got do how talking plan we're you much and and sales, initiatives then the to it, to targets, long-term are improve can what

Darryl Rawlings

Well better of give I are than them a could all the today. wish and you long-term are number. targets I specific they

for believe highest the already hospitals month we’re sub think by had customer more effectively, retention We at pet includes at we directly XX/X. more payout we've priced best a experience We’ve XX.X% accurately historically product more and we’re categories. take paying Let’s ratio. example that the got health. we’re covered We the

leading I the go also can XXX%, upside. we telephone, areas the get. not on from every amount up that conversion people mean retention highest a categories take be huge it’s look on end people get We quote get area. many that of blended. maybe online, we’re enrolling. But at think people might how to There XX%. XX.X% I I quote to rate look think the on outside about in our conversion perfection I'll how it isn't We a at tense a going like a how

growing the and can we internal We've know much receives a between about the improvement information to X% that were our have every we so phone people. delta that faster XX% rate. of blended we that get be right helpful. is that conversion pets if at target, rate And consumer right That’s will at we converting over our rate we that a accurate on conversion in but know the not to are time higher XX long level all we of convert got when

XX%, to people been that those XX%, to if XX% our we blended shareholder told XX%to some shareholder types if on rate is We impact can so go XX% a about -- of conversion to XX% -- you XX% big business. letter real the or they the meeting percentages make

Kevin Ellich

helpful. Thank you. That’s Great.

Operator

from Capital. Our ahead. Instructions] from is Greg question go [Operator next Please here Gibas Northland

Greg Gibas

Thanks afternoon. my for taking Good questions.

talk was can you acquisition the side over this question, spend could was I about towards terms if how how I could teams break down direct-to-consumer maybe and much spend in First, on if is versus followup the change mix pet of acquisition time? directed conversion to leading you pet expected wondering

Darryl Rawlings

question that to and people that it’s lead the is not you seen a break generator. the not conversion case. and have actually lead We we how do into that actually many believe direct-to-consumer, interesting, and be or asked well, Yes, everything imagine

increasing really already rates is we’re leads the approach conversion the that getting our quality from from direct-to-consumer Our veterinarians.

Remember, we're enroll. not trying to

is target audience Our not today. XXX million and dogs the cats

pets Our get from a to think enrolled five-year shelter but being are four be in a in entered in first could time the which our we adopted pet to is often puppies they or dog the somebody six new kittens, target household. being the the product three in and also being the of audience is that and household month

acquisition on partnering find What we now lead those cost get it right see we’re higher C, of have D in higher we conversion. and where is hospitals layer do of our lease to XX% we leads. and broken what And that a is that percentage sometimes pet conversion and XX% don't that we more already we getting get when about market our software about we of rate number those a a a high

I not have are can it's leads. exceeding an think are that efficient, business we growing think become faster and in we they more a costs years our our year-over-year, sand to an increased lead side. efficient. we’re cash. the but went investing gets growth big more it impact. and more more conversion -- was a in our subscription If been If XX% back we driven about crystal look more conversion was We scale years that deployable at ball my make lead, is you They we couple where get area our XX% the ahead, by in leads Conversion more and area and get

Greg Gibas

they helpful. really details you we -- was the a do you Great. operations already guess expect second That’s to take eventually? to go then I some just how Insurance your presence and And and should market partner on long from have me market you to to penetration ramp X% international for can where current with why a we up that in to guys Australian what expect provide announced, expansion also where Hollard decided recently respect with in

Darryl Rawlings

early us. Australia is for Well, days

global and a into One player different going at is, a look So we long-term our in couple into market although we language, Australian us to are that the ways. have of market be aspirations felt we a to try similar to market, that for than rates acts easier is speaks to Canadian jump to penetration the higher, play very an same expand China.

we was veterinarians. recommended reviewed, having the partner so partner why like we we're with decided on designed partner and and a distraction it to and did our did. a local positioned in partner that to be to American with had by how void a that that we that's want not a there expertise, that's So we product And market went core be the local into Australia, felt business, to we partnered North

And just many a bugs are where hospitals, retention see rate. handful rates, it working is, what’s today like get, leads out we’re we at the dozen the we what in to is how are of we’re literally a the and conversion

there’s experience, of a we've all going we We in -- our also feel want to the understand sure will ducks confident that in row. time over market. from we our hospitals expand we of hospitals we're numbers our keep try And dozen Australia the that understanding good make X,XXX those and number not to to customer got until we’re out and about then get be that will hospitals long-term really could at

it. embracing got surprise that we’ve like I'm big learning our the will time to intuition that a not and correct and our that of a encouraged product, lot consumers do to are us, I got for It’s they say we've it. And -- veterinarians but was ahead

show in the count pet not our those does for Just our count. watching up pet financials, total

line a have this We separate investment. for item

Greg Gibas

Thanks.

Operator

Block ahead. Jon Stifel. from from is question Please next go The

Unidentified Analyst

for marketing chain, for Hi. spend the the I accruals test might Jon. Tom from the of court? growth that This initiatives guess is start so you my on buckets moving some can on specific off up be the three taking questions. [ph], share the maybe either buckets, different Thanks your in

Darryl Rawlings

- radio category ago and growth market. say years would can it then and and several some went into I Yes, kind we established were innovating of the around TV

where return based in and So different there that trying some times we on rate more we and core. are certain are rate market different day, we into penetrated, internal left of now markets of moved of conversion channels, were in those then the different getting messaging

software. more are enough we would veterinarians, penetration markets you tell we from not in I growth is D .We enough C the in Now not rate that is ready of a not buying lot do have do to a general mode of high and our there's think

marketplace We long of through. how have the kind in but not enough that’s been it runs

several rates as X% you above hopefully in but XX% tell are managers signing contacting That veterinarian off definitely would firmly that account that of that innovation would to we fine-tuning there. core in territory I in are team in four be below be hospitals will and growing stand a mode or our one another to that years visits. XX%, and three out, imagine and going internal keep return I years would was the started us between lot ago. and I growth say an today, to be of partner

Unidentified Analyst

how to effect? take guess proceeding to rate it use around that reduce quickly XX%, Thanks. to for that some long Great. pivot The of initiatives That’s one helpful. And does year to take how churn. are them and of the I

Darryl Rawlings

unsatisfied dogs like something why letter somebody which is failed broke the last first was churn rate that into to are view I shareholder that churn Well, renewal. categories, was people things before reasons also my year, in I down but payments the a different highlighted say they or that I’d had year how canceling view and and looked in like they at pet many

in if doing we’re and when years is continue is pricing what by within the we’re our by churn and band, subcategories year-over-year more than for rates How are many by is typical we've typically and than ahead, as rate more X% to years fine-tuning will and more renewal changing people a less for which the accurately this their XX%, we X% those more subcategories pricing XX%, impact. been people

because was, of some upfront that have months-over-month. some people people they churn year more initiatives about we were an churn enrolled the XX% education, year cover about we before in they talked going first it them. The to work because you got we of what the we’re highest about number car they trying – number And would churn, at and a and first hoping a were by wellness pets thought dog to hour in exam, that highest their on churning cover the that turn

area. expecting different. be way main or works example, a were may There different a education they in is others, Other people churn for the upfront maybe so deductible some something because

these encouraged have We mentioned by, have I any earlier we're areas, a seen but that improvements XX.X those in make as glimmers where in is of to improvements blended areas hard. we really trying

been we will focused mean, for we’re think we're probably leading time. category. are I keep we we long These the the [ph] think have for initiatives a We on. have The buckets Adam funds making needle another the we will it we progress will move if doing couple progress way. keep we see we if and can and deploy any make the and next can’t years for

Unidentified Analyst

Great. Thanks.

Operator

Guggenheim. The ahead. Westenberg go question from Please next from is David

David Westenberg

question. Thanks taking the Hi. for

I whether would flows, than And be but it to know of about aiming I on factors the of rather range, of know claims? it pets, know lean catch to ebbs would that theme sort that target be then gross of I that the some of a maybe also the up it X%. and subsequently, pricing got healthy that you'd higher what consumer mix and little maybe know bit up was were more to kind there given just I a So, price, when higher case, and profit, particular go this you're maybe back in much

you a increased already did mean, I I So and know it actually little there. monthly, just you color bit more but maybe

Darryl Rawlings

don’t mean, last our the for XX overly cost X% I think X% average up it's to of They goods I X%. Well, complicated. gone years. have

staying XX. they target would is that our us Our are the ARPU year-to-date. X% same at a XX, If went up keep about

have ARPU than Chris earlier, goods earlier, up one of variants. this going our as us our and our be which up another mentioned in And our more headwind approximately as hospitals year. to we make to cost of point. we need need software that XX% We as we we I more did And is a have going last to up about software time X% we for also mentioned deploy X% be

is being that and we've in three four instant. years been It ago $XX to right investing The thing roll our over is, get is in not from about got we've the three years time was able we means last that targets we've to out. while the $XX have changed. our all what and four improve or have still year, million margin So flexibility to is this over build million dynamic about of to but it this business, the got to not it nice or

David Westenberg

Got you.

side. then And on cost to going the Okay. back

more and Your understand costs the conversion pet to conversion. I above channel XXX of of that another quarter its spending now you've of maybe is exploring closer acquisition in and XX% you are the kind

in kind of that acquisition you're visibility you kind of exploring and could you think of pet this expense terms is cost? Thanks. on kind go-forward Now of the channels know any basis there you rate out normal see, a

Tricia Plouf

have Yes, Dave, we how at return our to mean of inform spend. much calculated we I level a internal rates available to are high using

XX% spend that we of can can XX%, guardrails and feel if our will. internal rates we of we do return we effectively, to extent So so within to the

year enroll would that spend long-term the nature building around as about, category pets was our much are before and do The long-term in things out prior and in carving the are of that the biggest of was and all so spend about more and thinking the thing now that growth. money XX% earlier, things teams mentioned to the different available years our Darryl going is or quarter more lower, pot and and compared this that toward year that almost is of last talked we’ve in and to

also flow are positive. apples And and and those us. that little ahead with a of we we’re within cash So and are to comfortable oranges, mind, XX% sure but XX% about we do making the in this being we bit have excited feel it’s opportunities those we guardrails, the while

Darryl Rawlings

XX% goal at revenue midpoint. remarks, year-over-year our my opening to the drive to right In is XX%

XX% XX% right internal so so we’re about adjusted is doing And goal expand about our that want we're return the now, or Our operating we at and at midpoint. between we’re right to of rate and year-over-year, and XX% income XX% that. about excited

year So capital. we able going excited about how the deploy good to and about this we’re is feel where

David Westenberg

within maybe being of was That but thank just And very to metrics you. about are bit opening last initiatives a Day terms you little at some thank one know now, progress just maybe from text gave then a switching think going? in little emails maybe I bit helpful. a right is, on messages, rest metrics Is can us of of message the All been you. the the give I minutes. Analyst offline. I’ll that you kind And take the text of this how experience of that have kind of the you

Darryl Rawlings

the been the do the working at person right how to question get email. - using a have one we’re historically And is, lot think conversion on more we time? is, your the content of I are So, right you initiatives

rates email the have do in speed that. years, declining rates over in open people been seeing the which We’re

inboxes as I think to other can understand get full, spammed but our ways communicate. that's all finding that we’re -- we

be encouraged drive going we're it’s so other to So results instant on to but messaging in -- by ways seen the testament that still we’re a text, to and things things not far. our like only like website, people telephones of the we've

Operator

as question-and-answer the concludes This today’s concludes session today’s teleconference, I’m this teleconference. well sorry as

may your time. again disconnect lines participation. You for at Thank you your this

Trupanion (TRUP) 30 Jul 192019 Q2 Earnings call transcript