Trupanion, Inc. (TRUP) Earnings Call Transcript & Summary

Greetings, and welcome to the Trupanion 2020 Annual Shareholder Meeting. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Gavin Friedman. Please go ahead, sir.

Hello, everybody. Welcome to our 2020 Annual Meeting of Stockholders, which I now call to order. My name is Gavin Friedman. I'm the General Counsel and Chief People Officer of Trupanion, and I'm going to serve as Chair of this meeting. First, we'll briefly address the formal business of the statutory meeting. And then we'll transition to the extended shareholder presentations and Q&A sessions that we have planned, and that will provide the opportunity to learn more about our business, meet the team, ask questions and just generally otherwise engage with us. Those presentations will be available via a live video stream on our website at investors.trupanion.com, starting at 9:30 a.m. Pacific time. Those who have registered previously will be able to interact with the team and ask questions. Joining us today are all Board members and management of Trupanion as well as representatives of Ernst & Young, our independent auditors. For this formal portion of today's annual meeting, we'll briefly do 3 things: first, address procedural matters relating to the formal business; second, relay voting results; and third, adjourn the meeting. So moving forward, we'll start with -- move on to the procedural matters relating to the formal business. Each of our Class III directors, which includes Dan Levitan, Murray Low and Howard Rubin are up for election today, and we will also consider whether to ratify our independent auditor and conduct a say-on-pay vote on executive compensation. Trish Plouf, our Chief Financial Officer, has been appointed to act as the Inspector of Elections for this meeting, and has executed the oath of Inspector of Elections. If any stockholder or proxy holder present in person today has not registered their presence at registration earlier this morning, please do so at this time. We have nobody here in the room. The notice of meeting and the proxy statement for this meeting was provided to all of the company's stockholders of record as of the close of business on April 17, 2020. A declaration of mailing will be included with the minutes for this meeting. The Inspector of Elections has advised me that holders of a total of at least 30,109,656 shares of common stock are represented at this meeting in person or by proxy, which does constitute a quorum. This meeting is authorized to transact business. Stockholders may now make statements or ask questions pertaining to Trupanion or any of the meeting proposals. I will note that throughout the day, we have a number of Q&A sessions and would remind people that, that is probably the most appropriate forum to ask the most appropriate person your question. While electronic voting closed at 11:59 p.m. Eastern Time last night, the polls are open for any stockholder present or represented in person today. Any such stockholder who has not returned a proxy or who wishes to revoke a proxy may do so now and vote on the matters to be considered at this meeting. We will now move to the next agenda item, which is the voting results. Proposal 1 is the election of Class 3 directors. The first item of business is to elect 3 directors to serve as Class 3 directors until our annual meeting in 2023 or until the directors' successors are duly elected and qualified. The Director Nominees are Dan Levitan, Murray Low and Howard Rubin, and each director is elected by a plurality of votes cast. The second proposal is appointment to auditors. The second item, and this is to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the year ending December 31, 2020. The affirmative vote of at least a majority of the shares of common stock cast is required to ratify this appointment. And proposal 3 is say-on-pay. The third item is to approve the advisory and nonbinding votes on the compensation of our named executive officers. The affirmative vote of at least a majority of the shares of common stock cast is required to approve this proposal. Moving on to the results. At this time, the polls are now closed, all votes have been cast on the matters to be considered at this election. Tricia, as Inspector of Elections, will you please report on the results of the voting.

Sure. The results of the voting are as follows: each of the nominees has been elected to the Board of Directors. These nominees received the highest number of for cast -- of votes cast. A proposal to ratify the appointment of Ernst & Young LLP has been approved by a vote of more than 50% of the votes cast, and the advisory and nonbinding vote on the compensation of our named executive officers has been approved by more than 50% of the votes cast.

Thanks, Tricia. This completes the formal business to be conducted at this meeting. Before we adjourn, I'd like to please remind you that starting at 9:30 a.m. Pacific we will be hosting our extended informational session with leadership on the Zoom platform. For those who have registered and received a link to participate in these interactive shareholder presentations, we encourage you to log on right now, following adjournment of this meeting to allow for any troubleshooting. And these presentations can also be accessed through a live video stream on Trupanion's Investor Relations website, at investors.trupanion.com. Since there are no other matters to come before the meeting, the meeting is now adjourned. Thank you.

Thank you. That does conclude today's shareholder meeting. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Welcome, everyone. Thanks for joining us today. We're excited to welcome you to the Trupanion 2020 Annual Shareholders Meeting. While this is not the format we had hoped to be hosting the event in, we appreciate you all joining us today. We're excited to connect, and we're grateful for the technology platforms that enable us to do so. As you all know, with technology, sometimes there are hiccups, so we appreciate your patience in advance. So before we get started, please take a moment to familiarize yourself with our safe harbor statement. And the agenda for the day. Several of you have attended our events in the past. And so you are familiar with our focus on Q&A. Today is going to be no different. We'll have some prepared remarks to jump-start things. But then we'll quickly move into 3 different Q&A sessions. The first Q&A session will be our lead and convert, featuring members from our lead-and-convert team, and that will be moderated by Margi Tooth, our Chief Revenue Officer. We'll take a quick break, and then we'll jump right into the Nirvana Q&A session, also moderated by Margi Tooth. And lastly, we'll have our corporate and business development Q&A, featuring members of corporate and business development initiatives, and that will be moderated by Asher Bearman, our Chief Strategy Officer. For those of you who have joined us for the formal webinar we'll host a virtual happy hour at the end of the event, offering a more casual opportunity to connect with members of our team. Don't worry about committing this agenda to your memory. We'll broadcast the agenda throughout the day and help keep you grounded in today's series of events. So we have a jam-packed agenda, as you just heard, so we will get it right started. Part of what makes this event so impactful is the ability to interact with extended members of our leadership team in an open Q&A format. So bring your questions. And despite the format of this year's event, we're confident you'll walk away with a feel for all things Trupanion. Last time we spoke in this format, I hadn't been at Trupanion for a little -- for more than a year, and hadn't yet relocated my family up to Washington. Well, it's been about a year now. And since that time, we've welcomed [Figaro] to our family. That's the cute tuxedo cat in the picture. And as you can see he made fast friends at [ Calvin ]. And while I've been working with Trupanion full-time for just about a year now, I've actually worked with Trupanion for several years back to January 2015, when the company brought me on in an outsourced capacity to help run the Investor Relations function. And in the time, I've been able to work closely with members of the team, experience the culture and build a true understanding of the work that we're doing and its importance. It's for all those reasons that I wanted to join the team full time. I've learned a lot in the past year, developed a greater appreciation for the team members behind our mission, the work that we're doing, the long-term focus of the company and the consistency of our business model. As you can see, this next slide lays out our quarterly revenue growth since the time of our IPO. And if you were to stretch this out even further, you'd see that this revenue growth consistency extends. Now you overlay that with the stock price, and you can see that the markets aren't always efficient, which is why we lean into the philosophy of Benjamin Graham. Ultimately, we believe that the markets will weigh the substance of a company. And we know that many of you participating with us today do the same. So with that, thank you for your support. We're thrilled that you're here with us today, and we're excited to kick things off. Before I turn the call over to Darryl, we're going to actually play a quick video with some words from Warren Buffett. So please enjoy. [Presentation]

For me, it's about execution and the team. And unlike the meetings that a lot of us attend in Omaha every year one thing that I always find a little discouraging is I want to hear from the people running the businesses and the initiatives. And today's goal is for our shareholders, our owners from around the world to be able to access to the teams that are leading our initiatives. So with that, let's watch a short little video. [Presentation]

Okay. So we like to talk about the power of the pet, and that video is kind of a fun one. But the power of the pet is ingrained in our DNA. It's a -- it is a part of the social fabric of humanity and those that have a cat or a dog that sleeps on their bed or sits and watches television on the couch with us, we all understand that. What's more important is that our team really understands the power of the pet. And from that, that's something that we draw a lot of comfort in. In periods of uncertainty, in times of change, anxiety, when people are nervous, when people are scared, the power of the pet becomes even more important. Their unconditional love is what we crave. Specifically in times of a recession, the ability for people to budget and care for their pets for the unexpected accident, illness becomes more important. For veterinarians who are concerned about their clients being able to afford the care if their pet becomes sick or injured, the messaging about Trupanion or high-quality medical insurance becomes a higher priority. And last, our ability to pay hospitals directly in times of recessions are even more important. It's a big differentiator for ourselves and our business. So on the next slide, what you see is kind of our hockey stick slide. This is showing the revenue growth quarter after quarter. You'll see that every quarter our revenue exceeds the previous period of time. Now this is not because we are amazing at execution. It just demonstrates that we have a large underpenetrated market, and we have a business model built around monthly recurring revenue. Now in times of recession, people have asked me what happens. And if you look at this slide, you'll see between 2008 and '09 in the upper box or the smaller box that we grew right through that. But some people have said that we were so new into the U.S. it's not a great way to look at the business. So what's going to happen this time? In Canada, where we've launched in 2000, you can see that every quarter, every month, we -- our revenue exceeded the previous month, going back from 2000 to today. You'll see that in the Great Recession in 2007 and '08 that we grew right through it. And for those that follow the Canadian economy a little bit closer, you will notice that during the oil recession in 2015 and '16, we also grew through that economic time. So having expanding revenue is helpful. It helps the engine of the growth of the company, but it doesn't help unless we have our operating income or operating profits also expanding. So you'll see since 2015, the amount of profits that we're making from our existing clients continue to grow. And more importantly, is that we're able to reinvest those dollars, all pretax dollars in acquiring more pets at what we consider to be very high internal rates of return. And it is with that effort that we will continue to try to grow this business for the next 10 to 20 years. So we're going to hear throughout the day from the leaders of people running initiatives that's going to be open Q&A. But I want to take a little time to remind everybody that you as shareholders, institutional shareholders are the same as every employee in the company. Everybody at Trupanion is an owner. And the level of effort that the team has put in since COVID has been amazing. In early March, we asked everybody to go home to protect our neighborhoods and ourselves and to make sure that we could really service our clients. And the level of commitment and the ability to service our clients has been phenomenal. You're going to hear more about that throughout the day. But we shared this video with the team at the end of April. So I hope you enjoy. [Presentation]

Well, I hope everybody enjoyed that. I get -- I know that I and we get choked up when we watch that. As shareholders, you should be really proud of the team. They've done an amazing job. And as you're going to learn throughout today, the job we have done in improving our customer experience is not only helping our underlying growth but it's really creating value for everybody. And so with that, I'm going to hand the meeting over to Trish.

Thank you, Darryl. Hey, everybody. Thank you for joining us today, and we're really excited about you're here. I'm going to talk a minute about some financial-related items that we've talked to last [indiscernible] about finances in the past. And so I'm just going to briefly touch on some things that I believe are noteworthy for you all this year, and that we want to dig into a little bit more. Let's start with our margin profile. We've talked a lot about our margin profile over the years and target margin profiles, particularly. As a reminder, we have 2 segments that roll up into Trupanion Inc. overall. We have our subscription business segment, which is primarily our direct-to-consumer [ Trupanion ] products. And then we have our other business segment, where we're participating in other products in a B2B capacity. And these 2 segments, they have different strategies, and they have different margin profiles. And I'll talk more about that in a minute. One thing we did beginning this year because the strategies and the margin profiles are quite different, we began breaking out starting in our [ finances ] in February, some of our key metrics and our more fixed expenses, adjusted operating margin -- grew adjusted operating margins for both segments. Previous to 2019, we only broke these out through gross margin as the margin profile beyond there were not significantly different. So I want to talk more about it and make sure that the why and how we're looking at these 2 business makes a little more sense. And I spoke about this briefly at the last shareholder meeting. Now let's dig in a little bit more. So let's start with our subscription business. Our subscription business is about over 80% of our revenue, is our primary focus currently. And we have a target margin on a target adjusted operating margin of 15%. And this 15% adjusted operating margin target we've had in place for many years, and we've been making really good progress. Darryl showed you previously in terms of the income that splits out and how much that has been growing and how that's been such a strategic focus because that income is then available to invest in growth, which is very important to us. So like I said, we've been making good progress towards this 15%. We ended 2019, at 13%. So good progress in this area and a lot of [ little bps ]. So let us talk a little bit more about the [indiscernible] that go into that 15%. You can see here on the slide, the blue colored are our Q1 results and then right next to it, we have our target. So we're targeting paying out 71% of every dollar back in claims, and we call this cost of goods. And this represents the cost of paying veterinary invoicing and the cost of processing those invoices. We're targeting paying -- spending about 9% on variable expenses and variable expenses refer to really the customer experience and relationships. And so it really refers to everything we need to do to maintain our [ envisioning ] of the business at any time. So think about things like customer service, things like credit card fees and taxes that we need to pay on premiums as well as the ongoing payments that we made to territory partners for the book of businesses that are -- that continue in their region. So those residual payments are part of the 9%. And then we have fixed expenses and our goal is to get that to 5%. And fixed expenses represent really support and overhead for the overall business. So things like general and administrative expenses and technology expenses. And this -- getting this to 5%, as Darryl mentioned, has been a really good focus for us in our journey to 15%. And as well as getting our cost of goods closer to what was 70%, now 71%. Given the scale that we've had in variable expenses, we're able to target a 71% now rather than 70% as variable expenses have been consistently around 9% of revenue opposed to 10% a few years ago. Like I said, we're focused on the 71%, and we're focused on the 5% of fixed expenses. Speaking of 5%, we've had this goal for a long time. We said many years ago, our goal was to achieve 5% of fixed expenses when we had between 650,000 and 750,000 total enrolled pets. Happy to say that we crossed that threshold just this last quarter in Q1, we crossed over 650,000 pets. And I'm also happy to say that we are on a run rate to achieve 5% fixed expenses in 2020. So we're very happy with that progress, very proud of our ability to achieve this operational scale and the opportunities that it opens up for us. Our goal is also to hit the 71% cost of goods on a more consistent basis over the next 2 years. And we're actively working on initiatives related to pricing and claims efficiencies on the processing side to help get us there. Now I do want to point out that due to a timing of pricing rolling through over time and also some strategic initiatives that we have related to get our software installed in more hospitals as well as getting more claims automation roll out, it would be -- it would not be unusual to see variances from time to time. We're never going to be perfectly at 71% every single quarter. So in general, we consider an annual variance of 1% and a quarterly variance of 2% in -- on the 71% target to be normal. So for our subscription business, what I really want to sum up here is we're so close to our target margin profile. We're targeting getting to 14% year this year, as I mentioned, achieving 5% fixed expenses and then getting a little closer to the 71% in the Cost of Goods area. And this sets us up really well going into 2021. So just want to take a moment and say, we're really excited on what we've accomplished here. Now let's talk about the other business segment. So like I've mentioned, work this out more separately to really be transparent because the businesses are different. The strategies are different and the margin profiles are different. Now this segment, like I said, is how we participate in other products in the space, and they represent business-to-business relationships, many of which are contractual in nature and come into our -- on and off our book in lumps, and most have a lower margin profile just based on those contracts. So it's important that we showed this out separately and think about that separately from a strategic perspective. And like I mentioned, there are a lot of strategic benefits to this segment. I'm not going to get into them right now. We can definitely talk about them in Q&A. But especially when we look over the next 5 years in thinking of what we want to do. So big picture, how this margin profile lays out is based on the different mix of B2B relationships that we have and currently is a lower margin profile. But overall, this segment is profitable to us. It has strategic advantages that we are excited about. And we are able to then use the total profit, which will just pop up here in green, our total business, in a minute. And you will see total adjusted operating income of $12 million for Q1 2020, and that's growing 26% year-over-year. So overall, we have 2 profitable segments when it comes to our -- this book of business, that -- generating funds that we can then turn around and invest in growth and other strategic initiatives. Now I do want to take one minute because I've gotten this question a lot over the past 6 months of kind of the methodology that we used to break out our fixed expenses between segments. And we base it -- we have done it currently based on the revenue that each segment contributes and whether -- and why we did it that way and whether it's appropriate. In the picture, we do think it's appropriate although as the mix of business in those segment changes, we will obviously continue to re-evaluate and make sure that it makes sense. The reason that we did it this way is because there are a lot of indirect costs within our fixed expenses, meaning technology to keep systems running, systems that support both business segments, people like me and Darryl, who oversee business segment, actuary team and regulatory teams that spend time on both business segments, audit fees, which we incur from the external auditors as well as us doing internal audits cover both business segments. So you get my point that there's a lot of things within there that are expansive in twofold. And so we felt that, that was appropriate. All right. Let's talk a little bit more about the 15%. I just talked about how -- we've talked so much about hitting 15%. And that is obviously very important, the dollars that spin out. But I also want to talk about how we hit 15%. And the how is also really important. So hopefully this chart, this little image looks familiar. This is from our most recent shareholder letter, there's a lot of numbers in the shareholder letter, but -- and it was a little lengthy this year for a good reason, of course. But hopefully, you noticed this chart. And I want spend a minute on it because I think it's really important information. And that is, in all 3 columns here, we hypothetically -- so these are just examples. We hypothetically achieved 15% adjusted operating margin. We achieved our goal. But we achieved it in 3 different ways. And the 3 different ways that we achieve it actually matter quite a bit. You can see in the middle, this is our target margin profile that I just talked about. But there would be 2 other examples of how we could achieve -- have achieved this or achieve this in the future. Example one, we're paying less back to our customers, and we are more inefficient in our expenses, both variable and fixed expenses. And so while paying 15%, our value proposition for our customers is slowing. Example 3 is essentially the opposite. We are paying 73% back to our customers. So they are getting more value. They're either receiving more coverage or the same amount of coverage at a lower price than example 1 or 2 and we are more efficient in our customer experience, variable expenses as well as our fixed expenses. And so we hit 15%. And we've seen for a long time that our -- well, example 2 is our target, example 3 is something longer-term that we really strive to do because example 3 is a company that has a lot of competitive moats. It's harder to replicate and that, for us, means more -- higher retention rates, more member referrals and it's a really great business. And so that is what we strive to do. One thing I'll note is we bought our building a few years ago for many strategic reasons that capital within our insurance entity as well as saving us on expenses and this would be a path where we could see because we did that, being able to lower our fixed expenses to 4% of revenue over time rather than our 5% target. I don't want to give specific time frames or make promises because we're really laser-focused on hitting 5% right now. We're excited about that. But we absolutely see a future where example 3 could be our target margin profile. And we see it now more than ever when we're so close to the target. Hopefully, that makes sense in the dramatic differences in the type of company that we would be in those 3 areas. So I talk to a lot of our overall financials, overall margin profiles. We also care a lot about unit economics. And one of the reasons that we care a lot about unit economics is because at the end of the day, we have a certain amount of process, which I just talked about, adjusted operating income from our existing book of business and all the expenses related to the existing book of business at any given time. And we use that prospect to invest and add more [ impact, huge ] market out there. We're trying to capture it as well as some other strategic initiatives, which we can talk about today. And we want to be really disciplined in those areas and very thoughtful about what pets we're adding, how much are we willing to pay to acquire a pet and so we're really focused on these unit economics to do that. I'm going to highlight them quickly because a couple of things have evolved a bit. Some of this we talked about in the shareholder letter. So every month, and this is just our current numbers at a period of time. And I also highlight that this is for an average pet, we know that this is insurance, some pets are lucky, some pets are unlucky. So this is a blended average of 70% -- 71% value proposition. So we collect about $58 a month from our customers and then we turn around and hand them their invoices back of about $42. Providing that great customer experience as well as those residual payments that the territory partners, that's $5 a month. And then the overhead that I was talking about with fixed expenses is roughly $3 a pet. So on a cash basis -- EBITDA basis, it's well $7.50 a month. And then on average, based on our current retention rate, we keep pets for about 71 months. And so that comes to $535 lifetime value, and that the lifetime value includes our fixed expenses. That's one update we made at our year end 2019 information. We are now including fixed expenses in our lifetime value. We feel it is very appropriate for that to be a fulsome metric. We have updated that. And we're -- so when we talk about lifetime value, we are not excluding key expenses. We are including fixed expenses. And then we have an approximation of what our cost of capital is because we need to hold money in an insurance entity to support the revenue that we have. It's one of the requirements. And so that's a little over $0.50 right now per pet per month. So overall, we are generating roughly $7 a pet per month, which is a little under, $500 in its total lifetime value. And so what -- the main thing that I mentioned is this helps us with pet acquisition. So let's talk about that. And I mentioned, we really employ a lot of discipline in our pet acquisition. And we do it by looking at that cash flow per pet roughly between $500 in blue compared to our pet acquisition cost, which is in orange, which in Q1 on a 12-month trailing 12-month home basis is $223. And so if you did normal math, that's over a 200% return. But because pets stay with us for 71 months, and that's when we're earning that $500 lifetime value. When we take time into account, it equates to roughly a 38% internal rate of return. And our target is to be between a 30% and a 40%. And this is all within our subscription business, so we're isolating that and that margin profile of most unit economics. And having this discipline and the 38% internal rate of return and us feeling like 30% to 40% is the right number for the foreseeable future. Just taking this relationship into account, also taking this payback period of time when we recover the initial $223 into account, we feel like this is appropriate. And even though I said this before, we're really excited about hitting our target margin profile, we don't believe that will change our discipline. We still feel it is appropriate to be very disciplined in how we allocate capital, not only in total, but then how we think about it in detail. And we're still focused on that, and that remains one of our top priorities. And so the team that does this is our revenue team, and you'll see many of them today as they're led by Margi Tooth, and I'm going to turn it over to her.

Hi, Tricia, thank you. Hello, everybody. It's a pleasure to be speaking with you all today. And I hope that you're all well, where you are in the globe. I know this is a trying times for us. So I appreciate you taking the time out of your day to spend it with us and have your questions answered. For those of you that haven't met me before, just a brief introduction. My name is Margi Tooth. I am the Chief Revenue Officer here at Trupanion. I've been with the company for around 7 years this year. And prior to joining Trupanion, I was just over 7 years in the U.K. in the same industry. So I am a seasoned veteran that I don't necessarily like to share with people of over 15-years plus in animal health and specifically in insurance. My role here at Trupanion, I oversee the revenue teams, as Tricia mentioned, and what does that mean? Effectively, it means all the teams that are out there are trying to grow revenue, which is obviously a good thing. So we -- that includes the lead team, so the teams generating the brand awareness in the market, working with the veterinary breeder shelter communities. The conversion team, who take those leads in pet owners and convert them. So for any sales team, web team, digital acquisition teams and then leading into the teams that are responsible for taking care of the members, so our customer marketing team and our customer care team. So it's kind of the whole brand experience for Trupanion. So I'm going to talk to you for a few minutes now about market evolution. What that means for the overall category and specifically Trupanion's role and then looking at some future state things. So hoping this will work because I'm just taking control of the screen, there we go, it does. Love technology. So first of all, this is a snapshot of the pet medical industry. So as you can see, and as many of you will be aware, it's growing very healthily. Currently a $1 billion category, and some, just knocking on the door of $2 billion likely to happen this year, if you look at that current run rate. So it's growing around 22% year-over-year. Trupanion is a growth leader in the category. So from the data that you saw just said, the industry added around $330 million in revenue, Trupanion Inc. for the whole of our book of business, and that's inclusive of the Trupanion's subscription business and the other business, added around 29% to the market in terms of revenue growth. So from our numbers, we believe that to be the largest contributor to growth in the industry. There are around 3 key players that make up a little over 2/3 of the industry. VPI Nationwide, very close to Trupanion in terms of growth and Healthy Paws making up the difference there. Now there are 16 other players that occupy that the rest, that 1/3 of the market. And they tend to switch and change every now and then as the products start to evolve as the market grows. We have some great competitors there that really help the industry to get better and improve and help as a brand collectively. So from Trupanion's perspective, our revenue was $384 million in 2019, which reflects a 26% year-over-year growth. And when we think about what that growth means for Trupanion, that's trending ahead of the industry, which, as you saw, is around the 22% mark. So really positive things. And so we have a lot to be optimistic about, leading the growth of the industry for the second year in a row, which tells us a lot of things. It tells us that our strategy in terms of our approach to the veterinary community and supporting some grassroots pet ownership is really working. And other things that we know are key metrics are trending well. So what do I mean when I talk about key metrics? So we have the -- we're in a fortunate position where we can reflect on our performance as a company with other markets that may be more heavily penetrated that we all have experience of. So if we take, for example, our current run rate is that 1 in 4 pets will convert when they come to us with the right messaging. So they've had the right understanding and education that we can then take on to convert them. So that's really great. That's coming from the vet channel, and 1 in 4 is good. So in the U.K., we can compare it to around 21% time penetration in the market, so significantly ahead of us. But the like-for-like in terms of comparison, there's 1 in 5 pets. So we're 1 in 4. The U.K. at that time was 1 in 5. So already a real positive. The next metric that we can track to is our conversion rates when people call. So we've spoken a lot before in the past about how when someone gets through to one of our guys on the phone, they do a brilliant job of giving the brand cuddle and really helping to bring them through to explain the value proposition, why Trupanion. 1 in 2 will do that. There are some cohorts that will be higher than 1 in 2 so an incredibly effective sales process that our members go through. In the U.K. at around 21% penetrated, it was 1 in 3. So again, much better. And then the one that really kind of drives the most value when we look at the lifetime value of our members. Our average member stays with us, as Trish just alluded to, 71 months. If they get beyond that first year, they stay with us up to 100 months. If you look at products in the U.K. market, they're there between 30 and 60 months, the top end being the 60 months. So again, we're converting better, and we're getting really good lifetime value. So lots to be optimistic about when you compare us to the more mature markets out there. And then if you take -- a fun fact for you, and I'm sure there'll be many questions coming up later regarding COVID and the impact of COVID on the industry and on Trupanion specifically, we've had some really, really strong performance over the last couple of months in terms of conversion rates. And from what we can see, we're doubling where we were before and doubling in terms of the industry average. So that's exciting, too, more on the COVID metrics to come. So when you take all of these things and you combine it with the fact that our adjusted operating margin is expanding, it means that we can start to do some more testing, control and disciplined, as Tricia mentioned, and ensuring that we can take advantage of the situation we find ourselves in with the new channels opening up. So there's a lot to be think about, a lot to be optimistic about there. So with all of that happening, what happens with higher penetration. So what should we expect overall as the market starts to go beyond 2%? And so we're going to have a quick look at that. We have a handful of territories today and one of the benefits of having such a sustained and well-trodden pathway with our territory partner model, is that we have a lot of data that will tell us what works over time and how can you get that penetration rate higher. And you can see here on the chart, it's a handful of territories that are already trending over that 2% penetration rates with new pets coming in that are enrolled with Trupanion. So these are new Trupanion pets in a particular territory. And you can see here that there are just as a sample, you've got markets that can go as high as 8% -- just over 8% penetration. So we've got some data points that will allow us to understand, well, what happens when you get to that point. What should we expect, therefore, when the whole book gets to that point? So very quickly, let's have a look at this. So this chart shows you the year-over-year growth rate by market penetration in new pets, which I'm sure you could have all read. And as you see here, the yellow dot, this is your 8% penetrated market. The growth in new pets is significantly higher than the growth that you have with a lower penetrated market. And there's a little bit of difference depending here. So keep in mind that these territories are across the whole of North America. So there are some geographical factors to consider. But you can see growth rates to trend line, the more -- the higher the penetration the quicker we grow in new pets, which is good, a good sign. So what are the factors that contribute to that? So first thing, high conversion rates. The value proposition is better understood. The experience is better understood and so we're able to convert higher. As a result of that, the cancellation rates are less than half of the average. So when you look at markets that have that high penetration rate, again, it comes down to really good understanding of the value proposition, both from a vet perspective, but also from the member experience point of view. And then couple that with the more highly penetrated market, we see a much stronger referral rate. And remember that referral rate we measure on percentage of total book. So just to kind of show you what this looks like, geographic -- graphically or geographically -- although geographically because you've got territories. This is our overall from a conversion rate perspective and then how that trends depending on the penetration rate. So territories -- highest penetrated territory that we're looking at here. And you can see conversion rates not any close to 25%. So really effective conversion. If you look at the overall just under 15%, which is improved and is really good. And then you can see here that the penetration rates of these markets is, again, nudging 20%, just over 20%. So really strong, really effective and it means that adjusted operating margin that we continue to invest into these spaces goes a lot further because we're able to convert at a high rate. So then let's look at Refer a Friend, Add a Pet and cancellations. So you've got 2 things on this chart. First of all, let's have a look at the blue boxes here. This is a percentage of people in these markets in these territories, the percentage of Add a Pet and Refer a Friend as a total of their pet book. So you can see the average for the business. And then what you can see here is what happens to the territories that are in growth mode. So they're really in that full-on growth mode as they start to mount up a higher penetration rate. This is what you would expect to see if you're starting to see an awful lot of pets coming through from our core channels as word gets out. So there is a tipping point where the Refer a Friend and Add a Pet starts to take off, which we can see because when we get to an 8% penetrated market, you really start to see that accelerate well above the average of the book of business. And then if you look at the cancel rate here, you can see how -- overall as a cancellation in -- for the overall book of business, where that typically would trend. And there's a massive difference in the market when you get to a heavy penetration, again, alluding to the fact that people understand the product they're buying, and they understand the value proposition. So with maturity, we believe the market will bring opportunity. These signs are there for us to look at to learn from and to understand how to apply. So let's take a look very briefly what those opportunities are, and then we'll dive into what it means for Trupanion in general. So increased investment into the category. Not just from Trupanion, where we have our increase in adjusted operating margin, we can put more money in. We will and have been investing far more into the category, we should expect more investment to come in from other players, other people that have seen what an impact this industry is having and want to join party. As a result of that, new distributions, perhaps more quirky distribution channels will open to such as spread the message of insurance. New customers as a result of that, will enter the market, so people who are otherwise unaware of insurance and what it could do for them and the problem it solves. And new products are created for those people. So a different type of pet owner potentially or a pet owner that was unaware is certainly more aware, and they're looking for something a little different to what exists in the market. So you see new products enter. And what that means for us as much as it's opportunity, it continues to be opportunity with the partnerships that we have. So as we think about the moats that we build across the industry with our territory partners and with our patented software, those relationships matter more than ever as more opportunities come our way because naturally, people become a little bit hesitant with so much change in the market. So that, for us, is a huge opportunity to maintain and support those people in the veterinary community. So let us take those opportunities and apply them -- I said opportunity a lot of times. I'll try and change up my verbiage. So let's take those and apply them to 10 to 20 years ahead. And think about what do we do as a business to ensure that we're in a prime position to continue to grow at 26%-plus. So first of all, insured clients will -- customers will switch providers. So what do I mean by this? What we saw in the U.K. when the market got to a certain tipping point, and we are not at that point yet, anywhere near that point yet, insurers will go after other customers because they want to win that business over because the market starts to cap out. So imagine, you're almost at that point on market saturation, and you're going to see people that are looking around they're saying well, maybe I can get something cheaper. I'll talk about that in a second. So for Trupanion, we have to be staying on top. Our member experience is absolutely critical. And we need to ensure that not only is our experience brilliant, but also our product is as well. So our product evolution, and you will be able to ask questions about this because I'm sure many of you will have them, is something that we have to continue to do. We have to continue to have the best possible coverage and whether that means making little tweaks to coverage to take us from what we lovingly call internally 1.0 to what we lovingly call internally 2.0 and it may be 3.0, 4.0. We don't know where we will stop, but we know that it won't stop because we have to continue to be the best that we possibly can, so our members don't think about leaving us. In addition to that, considering ancillary products that we can add to that member experience that will increase value. So again, reminding them when they're not necessarily interacting with the coverage they have, a day-to-day value that we bring. So looking at ways in which we continue to add value and loyalty to the member experience. So they don't even consider switching. Degradation of brands. So what I mean by this is something that happened in the U.K., where you take a brand that's synonymous with quality and synonymous with brilliant level of coverage, and you match it with a product that frankly isn't. So we will not do that. Trupanion will be guarded as a brand, and it will be only one product and that's the product that we have today at Trupanion, which will remain the best there is, the best that we can possibly make it and providing the maximum amount of value back to our members. That will avoid any confusion in terms of brand and any degradation of that quality of coverage. So linked to this, as the market starts to get more heavily penetrated, and you see more people coming in because there's more money and more investment, there is product confusion. You're going to get a lot more products coming through. In my personal experience in the U.K., I've competed with grocers. I've competed with tire manufacturers, all in the pet insurance space in the U.K. As medical insurance for pets in the U.S. and North American market starts to grow, we should absolutely expect to see an awful lot more brands that, frankly, some might say don't really have a place in the industry, but they do because they're appealing to certain people. But it creates a lot of confusion, and people don't articulate the value proposition very well. You also see -- and we see a tiny bit of this right now, commoditization, where someone comes in and they're just looking for the cheapest, they're not interested in value and linked to that confusion. It can be challenging. So we need to make sure that we're really increasing our ability to educate, communicate the value and ensure that there is a lot of clarity between different products out there. So future state, what do we do about that? Well, create some new products. Think about what products are missing the market and how -- with different branding, and I will call it out again, not Trupanion. But how some of those new products clearly define and articulate a different value proposition. So making sure people understand the difference between top tier, middle tier and bottom tier. And that's okay because there is a product for someone out there. Everyone can have something. They may not want the top tier, they might want the bottom tier. So how do you communicate the difference between the products? And being able to be the voice behind that will help to communicate that more broadly to the industry. Developing a differentiated product suite basically is talking about this clear swim lane. So when you have the golds or the bronze, how can you make sure that someone understands why they're getting what they're getting. And this is linked very much to our product evolution for the Trupanion product today. We introduced what we know is the coverage summary, which is a medical report to help people understand what is covered, providing absolute transparency from the offset so there are no surprises. That type of differentiation is really key for people to understand what they're getting because it's quality and it's the value-add that a top tier product will be able to provide versus others. And again, with product confusion. The key to our strategy, the reason we've been able to grow as well as we've been able to grow is because of the way that we partner with the veterinary industry. It is at the heartland of everything that we do. And the partnerships with them will remain incredibly critical to the success of Trupanion to make sure the products we have is fit for what it should be doing. So if we have a product and we evolve it to such a point that when someone goes to the veterinarian. And it doesn't do what it's supposed to. That's a problem because we won't grow. So making sure that we deepen those partnerships, we hope to eliminate as much confusion as possible and we make the process of having the care for your pet as easy as possible will be how we continue to grow future state. Established tactics evolve. And this is something that we at Trupanion, I think, do a pretty good job of, constantly looking at how do we adjust the way that we are spending our money, where are the new channels we can consider? What does that investment look like? What should it return? And how do we do more of it? So we really will be doing even more of it as we look future states. So never thinking about just kind of cashing in on one channel and just focusing on that, looking all the time at testing and learning and innovating to ensure that we are continuing to find new ways to convert quicker -- new needs, new ways to find new members. And using that money really smartly to define an evolution of tactics. And I've maybe finished this slide. So very quickly, market burn-out. This is a long way away, but it is something that we should anticipate happening at some point in time, when the market gets to such a point that it's saturated pretty much as much as it can. And so you're going to start to see members churning out because they've had a bad experience because they've had a product they didn't understand. And when that happens, we need to ensure that we're in a position as Trupanion to continue to grow. So we can only continue to grow if we add more stores, if we think about increasing our footprint and adding more geographies. So looking at where those geographies could be, understanding what that strategy looks like to be able to keep growing at the pace we've been growing at. So we have a plan, and we think we know what's coming. Obviously, we don't have a crystal ball, but that's certainly kind of the road map for us ahead if we look future state. So just to summarize before we move to Q&A, there is a really big category out there. You know it. You're here for that reason. There's a lot of opportunity. And the great thing is we're at the front of that opportunity in driving forwards. The veterinary first strategy is absolutely the right one. When we think about what we've been doing with our software, being able to give our members the best possible experience, the fastest experience in times like today, it has been an absolute godsend to so many people, is really proving the value of what we're producing here. It allows us to have a really great, quick, efficient and effective way of communicating and helping our members, which we're excited about. Consistent and evolving tactical road map that we have allows us to rapidly pivot and adjust, which can help us to make sure that we maintain our lead growth as well as looking for conversion opportunities. So again, the leading conversion contributes to our revenue growth. We have to have both working well in order to get to where we need to get to. And the really exciting thing is when we look future state and we shine that light ahead, we can see that the conversion in mature markets is happening. It takes a while. It's hard, but that curve is picking up. So if you saw from the chart, within an acceleration come through as the market becomes more heavily penetrated in general, which is a great sign. And finally, we understand future opportunities. So we have a pretty good understanding because of our model because of the data we've been collecting in markets now for over 20 years. It allows us to see the different stages and life cycle of our model and how we can hopefully make sure that we are armed and ready and poised to move forwards in a way that will allow us to continue to grow at the rates we have been. So that is it for me, you'll be pleased to know. So I'm going to now just kind of very briefly summarize what's coming up before I hand over to Laura. We have several of the teams, so many phases that are new, many faces that you may never have met before that you'll meet today. We're going to be going through a lead, convert, Nirvana, our corporate and business development. The topics on the screen in front of you are topics that we would love you to ask us questions about. There are obviously many more than you see, but please note them down, I know it can get confusing between the different groups. So we will do our best to make sure that the right group gets the right question. But we can't wait to hear from you, and thank you. Laura, over to you. I can't hear you, Laura.

Thank you, Margi. We're going to take a quick break now and come back for the Q&A portion of today's event, starting with our lead team. You'll see a timer at the top of this screen. That will actually fill up as the time passes and will be completely white after 5 minutes. That's your queue to be back here and ready to start with the Q&A. So with that, we're going to take a quick break. [Break]

Hey, everybody. Welcome back. We're excited to jump into the Q&A. Before we do so, just a couple of ground rules. First, the success of the Q&A session depends on your participation. So there's a few ways to participate. First, you can raise your hand via the Raise Your Hand button. That should be right in the middle of your screen. I see a couple of you have already found that button. Great. When you raise your hand, you'll jump to the top of the queue. And when you do that, I can actually un-mute your line, and I will also try something a little bit fun, try and move you onto the screen. So I'm going to promote you to the panelists, and that will bring you on screen. And if you feel comfortable, please feel free to share your video. We found that face-to-face helps, and we would love to see some of your faces. The other option is to submit questions via the Q&A box. You should also see that at the bottom of the screen, and I can see that given the number of questions in the box, you all have found it. So one last final point. We've grouped the Q&A session into 3 topics: Lead & Convert with dedicated time to both Lead and Convert; Nirvana; and then Corporate and Other. As best as you can, please limit your questions to the appropriate topic. If your question is better-suited for another section, don't worry, we'll go ahead, we'll note that down, and we'll make sure that we visit it at the appropriate time. So with that, actually, I'm going to hand it quickly over to Darryl, who's going to jump in here and give some more perspective on the Q&A, and then he'll turn it over to Margi.

Thanks, Laura. I think in the -- when the Warren Buffett video -- there was a little delay in me getting on. So as a reminder, today, it's all about Q&A. It's all about U.S. shareholders having the opportunity to interact directly with the people driving our initiatives. So dig in and enjoy, and we'll talk to you soon.

Thanks, Darryl. Hopefully, everyone can hear me. So it gives me a great pleasure to kick off the first of the sessions that we have for Q&A today. And the first one of those is going to be focused on Lead. So this is all of your vet, breeder, shelter, technology, patented software, all of that good stuff and really how we're thinking about increasing the footprint for Trupanion. To kick us off and to give us some highlights of 2019 performance and a little bit of what's coming up for 2020, I'd like to welcome a new face to the panel, Dusty Bonner, who is our Head of Leads, to give you some oversight before we go into Q&A. Dusty, over to you.

Appreciate it, Margi. So today, we got a group of folks here that are primarily responsible for bringing those new opportunities into Trupanion, bringing us the lead to our company. So just jumping right into the very short PowerPoint that we have is what did we do last year, just as a quick recap. I think we're going to move our PowerPoint here. I don't know if I'm delayed here or not. Here we go. So what did we do last year? So last year, from 2018-2019, we grew at approximately 11% in total lead volume. So that's okay. But as Margi previously mentioned that the market is growing about 20% year-over-year, so making our 2020 goal pretty simple. So clicking to the next slide here. Our goal for 2020 is simply to grow at a 20% increase. And as we look at how we're going to achieve those things, we have market leaders and many team members here that are laying forth a really great pathway to get there. And this year, we had, obviously, coming on board during the whole shakeup of COVID, we've taken a lot of lessons learned away from that and have still been able to adapt and grow very well into the month of May, having a 5% growth year-over-year, which has been great during all this time. And all those lessons learned have allowed us a great foundation to finding new ways to bring in leads that we traditionally weren't doing as much of and allowed us -- when we do get everything back to normal in the veterinary hospital space, we'll see much quicker growth going forward in order for us to hit our big goal of over 1 million puppies and kittens that we know are entering into our hospitals each month. And so that's our end goal where we're trying to get to. And I think we're going to jump right into some of our questions here, but wanted to kind of list out the folks that we're going to have on our call here to answer questions, here's the areas that we primarily work in so we can answer questions. If you ask a question that doesn't apply to this group, Margi will either answer it for you or redirect it to the right group. So Margi, I think we're ready to roll.

Okay. Perfect. Thank you, Dusty. So we're going to clear that off the screen so you can see a bunch of beautiful faces as the team pops up and comes on to answer your questions for you. Before we get into broad introductions across the group, what I'd love to do, first of all, is just going to touch on a point Dusty made there. The 11% growth year-over-year is okay. I mean, as you said, we're not unhappy with it. It's not as good as it could be. And so we've realized in 2019, we wanted to make a change in terms of how we're focusing with our quote volume, with our lead volume and really establishing key metrics to help move us forward as a business in keeping with the growth of the market overall. So we created a new role, and that role is the role that Dusty occupies as Head of Leads. Dusty, let me pick on you first to introduce yourself before I go around the screen. Can you give the group a little bit of background and take it from there, please?

Sure. So a little bit about me. I was a Marine officer for about 10 years. I have fun and exciting experiences there in leadership and management and development of young men and women. We -- from there, my family and I moved and started a consulting company in veterinary medicine. So we were all over North America, working in veterinary hospitals with a group of doctors and managers. I had a lot of fun to the point where I started buying a number of hospitals as well and managed and operated those and have sold most of those at this point. And Trupanion asked me to come and consult with them about 3 years ago, I think, in the field, and I've been with them on and off ever since consulting, and this last April, I joined the team full time. So I'm really excited to be here today. And with my management experience in the Marine Corps, my hospital experience in owning and consulting in hospitals, I hope to bring a really dynamic approach to the team.

Thanks, Dusty. So when Dusty mentions that he joined us 3 years ago, he was recruited, located, identified, spotted, whatever you'd like to say, by our Chief Product Officer and Chief Veterinarian, Dr. Steve. Hello, Dr. Steve. Can you say a few words?

Absolutely. Hey, everyone. Welcome. Thanks for joining us today. Some of you have seen me before, but for those of you that are new, I'm Dr. Steve Weinrauch. I'm the Chief Product Officer, Chief Veterinary Officer here at Trupanion. I've been with the company -- came in around the same time as Margi, so just under 7 years now. Before that, I built and ran 3 of my own hospitals in the Seattle area. My wife is also a veterinarian [Audio Gap] veterinarian. So we also practiced and lived in the U.K. for 7 years before hopping the pond and coming to the U.S. In my role as Chief Product Officer and Chief Veterinary Officer, I'm here to make sure that we always keep our finger on the pulse of the veterinary community. We want to be the most vet-centric that there is. And I'm also looking out for our product 10 years out from now, and we can talk more about that later today.

Thank you, Steve. So a lot of our products hinges on the ability to be able to get our software out there. Chantal, welcome to the panel. You're on mute.

Apologies. Thank you. Hi, everyone. Good to be back with you again this year for those that we've seen previously and nice to meet or nice to be here with everybody that's joining us for the first time. So I'm Chantal Catteeuw, VP of Veterinary Systems, and I oversee our veterinary-facing technology. As Margi mentioned, that includes our patented software and some of the initiatives we're doing around driving leads in hospitals.

Thank you, Chantal. And then this year, we have -- you can see a lot of faces here that are really focused on markets. So heading up that and someone I know that many of you have met before, MJ Hewitt joins us as our Eastern Market Leader. MJ, welcome. Oh, you're also on mute.

Hi, everyone. I'm MJ Hewitt, formerly MJ Manwell. Some of you may have met me as MJ Manwell. I was recently married this year. So I've been with Trupanion since 2009, so going on 11 years this year. My role as Eastern Market Leader is to oversee our revenue, strategy, operations, everything that's covering our Eastern market. Our Eastern market expands from Atlantic Canada down to Puerto Rico on the Eastern side of the United States and Canada as well as some territories across Chicago and Indiana.

Excellent. Thank you, MJ. And so MJ naturally works very closely with the territory partners that exist within those markets. Delighted to be joined by one of them here today, who has been in the state of Nevada for a long time. Shelley Skedden, welcome from Atlantic Canada.

Hello, everybody. Good to be here today.

How long you've been with us, Shelley?

It's going around 18 years now.

18 years?

A little bit.

Yes, a little bit. So the real Trupanion veteran on the screen here because Darryl is not here. So welcome to -- and thank you for joining us, Shelley. And as someone who works very closely with Shelley as an account manager and here by popular demand after last year's Investor Relations event where we wanted to dig in specifically into the role of the account manager, Stella. Hello.

Hi. I'm Stella Brockbank. I work very closely with MJ on the Eastern market, and I'm an account manager that focuses with our New England territory.

Thank you, Stella, for being here. And then just moving a little bit to Maddie on my screen. I don't know where everyone's screen is, but in my world, Maddie is a little bit to the left of the Stella. Maddie oversees as the Head of Partner Development. Maddie, can you tell us a little bit about what you do and how long you've been with Trupanion?

Yes, absolutely. Maddie Serwold. I'm the head of our partner development team. I've been with Trupanion for a little bit over 7 years, and I oversee our hospital and shelter operations.

Thank you, Maddie. So there's a lot of people that can speak a lot of vet information here on the screen, but one channel we've been particularly excited about is growth over the last couple of years, but particularly in 2019, is the breeder channel, and Chloe is here to speak to that. Hi, Chloe.

Hello. My name is Chloe. I head the breeder support program at Trupanion. I've been with us for about 7 years, and my team helps to partner with responsible breeders across the U.S. and Canada.

Thank you, everybody. So now you know who everyone is and you know who we can direct questions to. Laura, do we have any questions to answer?

Yes, we do. We're going to take a question first from the line of Shweta from RBC, who has joined us here.

My question on Leads is what percentage of leads are generated through vets versus referrals versus breeder channels and -- versus online? How has that changed over the past year? And how do you expect that mix to change over the next 5 years?

Thank you for your question, Shweta. It's a great question to kick us off. So when we think about the funnel, we think about Leads. As I mentioned, the reason we have Dusty and the team is to try and expand that footprint and grow our Leads source. Dusty, do you want to kick off with this one? Oh, you're on mute.

If I can figure out how to do my mute button. So not knowing the statistic off the top of my head, I know it's a vast majority, I believe it to be around 80%, is coming from the vet-facing things that we work on specifically. Now as far as what comes in through the online resources and things of that sort, I can't speak to that. That's more of...

I can speak -- yes, I can do that. So when we think about the overall book of business and we look at attributing our pets based on, obviously, where they originate, and we have a really big attribution model that the conversion team can speak to as well, the vet channel overall, depending on territory, but if we take the overall market, Dusty is right, there are some markets that are over 80% in terms of penetration. But if we look at the overall North American market, it's around high-50s, low-60s for the total book of business. We also have around 10% coming through from our online channels normally. What I will say, though, over the last -- I'm going to give you a sneak peek of what's coming up, but over the last few months, we've seen a dramatic shift with breeder channel. So breeder channel has recently been generating upwards of 15% if we take the overall book of business that we've got coming through, and Refer a Friend and Add a Pet just to be a lone contributor to 33% of our overall lead volume as we start to see that shift. But typically, what we're seeing is new channel is opening up. So vet is always the underlying channel we get our pet sources from and then we build on them with breeder and shelter, as Maddie mentioned, to ensure that we're able to touch every single pet. As the market evolves and how it should shift, getting to the other part of your question, Shweta, we should expect to see -- the penetration rate will naturally start to move into broader markets online. So bringing in things like social media, but typically, right now they tend to be more of a remarketing channel for us, so they're not our origination of lead source. It really is where the person first hears about Trupanion that we're most interested in investing in to build that grassroots up. We do expect it to shift. We've seen a shift with the overall lead source slightly from a vet perspective as other channels get bigger, so as breeder outpaces in some instances and as Refer a Friend and Add a Pet through exceptional member experience starts to increase as well. So the overall channels will probably remain somewhat consistent, but that mix will probably vary a little bit. Hope that answers your question.

And now we'll take a question from Andrew Cooper of Raymond James.

Laura, hopefully, you can hear me.

We can.

I guess, one, you announced sort of the broader rollout that's starting around State Farm. When we think about that and lead generation, how do you think about that, especially as you [Technical Difficulty]

Andrew, you're sounding a little distant. Can you try and speak a little louder?

Sure. Is this better?

That's much better. Thank you.

I may just be yelling, but at least you can hear me. I guess, just trying to get -- when we think about the State Farm pilot rolling out to something broader, how is that sort of touching a different group maybe or a different set of potential customers relative to the typical vet channel? How do you think about that? And can you give us any sort of numbers or improvements or metrics around what you saw in some of the earlier pilots that gave you the confidence of "Hey, let's go ahead and roll this out at a national scale?"

Yes, it's a great question. I'm not sure if everyone was able to hear it. So we'll just repeat it at a high level. So hopefully, I've captured this correctly, Andrew, and it's lovely to hear your voice, albeit faint. So the question was around State Farm and new channels and how -- what have we learned? What data do we have to understand what does that do in terms of channel mix? And what do we expect to -- how do we expect it to perform? I'll kind of kick this off, hand over to Dusty, and I will just note that the State Farm specific question when we're talking about the metrics and performance. We will hold onto them into our Conversion space. And when we think about our lead strategy, we've been working with State Farm now for a while. And so a really great relationship with a brand that's very intertwined with the way that Trupanion operates. And we wanted to make sure that we could initially test it to see kind of how does this work? What does it look like overall? We made the great step recently to go wider with it. And it kind of hinges on the strategy that Dusty talked about earlier where we're looking at how do we get access to all of the vets out there. So Dusty, can you speak a little bit to the way State Farm helps to interweave with what we're doing in the vet channel and what we think that can do for us as a business overall?

Sure. So when you talk about interweave and what we're doing, it's all about helping tie -- bringing insured clients to those hospitals, creating a really great experience in the hospitals and then those veterinarians that are there are going to have a better experience and also continue that recommendation. So it will build on itself. And what State Farm has really brought for us is access to 27 million households. Just a tremendous amount of new pets that can come out of that. We know about half of them will have a dog or a cat in their house. So we have the opportunity to interact with them to get the messaging out to them, and we're going to do that through a multi-phased approach. So like Margi said, we started out with a test. What we just launched was the website-specific approach for 43 additional states, which we're really excited about and is having some great ramp for it. It will continue to progress over time and be refined. Just like we refine our product from 1.0 to 2.0, that this is going to continue to be polished over the next probably 1.5 years until we're at a place where we're ready to launch something new. So we'll have agents start to get involved, we'll change the website, learn from lessons that we're learning today. I'm sure there's plenty of new, exciting things that will come in that. But long and short of it is, we're going to get access to about 1.4-ish million pets just through this new change that we've made.

Yes. So just to kind of -- and to round that up, it really is about how do we make sure that we can get a touch point with every pet that we can. So knowing that you have such a brand with massive exposure to the U.S. market, it just helps to give you that -- almost that normalization of conversations. So when an agent is saying to you, do you have anything new happening in your home today, it's very similar to when someone walks in the door of a veterinarian hospital, "Do you have medical insurance? He's a medical insurance provider for your pet." So it just starts to normalize the process and helps to increase that penetration rate quicker and having a partner of that size is obviously very helpful for Trupanion just to reiterate that brand presence.

And we'll take the next question from Dave Westenberg. Dave, are you there? Do you want to ask your question? We see your video.

Did COVID change the competitive environment at all? The sales force has always been a big barrier to your company, but it seems like detailing via phone isn't as difficult. So if there -- you hadn't seen any change in competitive environment, why do you think that some of the competitors might not have took this opportunity here?

Yes, that's a great question, Dave. I'm really intrigued by your picture, but that's a different conversation. So I will kind of kick it off in terms of how we fared. Darryl alluded to this earlier today. We -- the teams and the relationships that we've been able to build are absolutely the flagstone of the company. And as we all know, having relationships with people that we can't meet and physically interact with, being able to do it remotely is a lot better than meeting new people remotely. So I think I'd love to get MJ and Shelley's perspective on this on kind of what are we seeing from a market perspective in light of COVID, how is that changing. And then Shelley, as our -- I think our longest-serving TPA, if not one of them, could you speak a little bit as to how you've seen COVID impact you in your market in the day-to-day? And hello, Dave. There you are in the camera.

So Shelley, I'll kick us off. So across the East, what we've seen is we did see a hit as far as those wellness appointments coming in, those routine visits. We also knew that we had to kind of take a pause with these partnerships that we've had. We have account managers who focus on calling these hospitals. They've built relationships over time as well as our territory partners. And we had to give them a little deep breath when this first hit to understand what that new environment is going to be, right? So are they moving to a curbside? If they're losing -- are they losing members of their staff? Are they going to more of a condensed hours? How did their environment change? Ultimately, what we saw is about a 2-week dip and then slowly but surely, during those 2 weeks, we got our field force not just comfortable with walking in the door that they've done for years and they do a great job with, but also comfortable calling. So we started working with our consulting team, getting education on what does an over-the-phone relationship building conversation look like, how can you continue to build the relationship, continue the relationships you have in a remote world using the systems that we have. So we stopped, dropped and did a ton of training across the board and people adapted and overcame to a more remote support environment. As we started to see that curve come out, our account managers are seeing a different -- having different conversations. It wasn't just about how many young puppies and kittens are you seeing each day, but it was about "Hey, how are you doing? Let's just check in with you as a people, as an industry and say we care." And ultimately, what we've seen is that curve has come out with that focus with those already in great partnerships, that we've been really seeing that curve come through and right now we're trending very well as far as that activity is starting to build back up. And they've gotten comfortable in that environment, and they know that we were there through it to help support with whatever it was they needed.

Thanks, MJ Shelley, how has your experience been?

Well, I'd like to maybe think about it as a friend or a group of friends that you have that are going through a tough time and you kind of give them a little bit of a breather because when it hit, we were probably the last area to get hit in Canada. And so really panic kind of set in, in the hospitals where we didn't want to bother them at that time. But as soon as we started picking up the phone and saying how are you doing, how can I help, it really made a difference because we had built those relationships over the years. So it wasn't like a stranger was calling and saying hey -- we were actually -- they knew we care because we've been caring for, well, for me, over 18 years. And even my TPAs that we have, they've been with me for 3 years. I mean we all have relationships. So the biggest thing I can say is getting them through this tough time is all about the relationships we've built before. And now we're starting to see -- we're only in Phase I here. So everybody is in different phases. So right now we're figuring out Phase I with the hospitals and trying to make them just basically be more relaxed around their clients and things like that. So yes, it's just about relationship-building and moving forward with that.

Yes. Thanks, Shelley. I do just want to -- I know we have lots of questions to answer, but I think a couple of things, and I also want to get Stella's perspective on this. So specifically to answer your question about the competition, as Shelley and MJ both said that relationship that we have there, you can't build that dialogue over the phone. So from a competitive perspective, we haven't seen -- we haven't really seen anything on that front. Stella, you're an account manager for many of the areas particularly hard hit by COVID. Can you speak to your experiences that you've seen as the extended part of the field team and what you've noticed differently and how you've been able to react to that?

Yes, absolutely. So I agree with Shelley. We have these relationships. We've been working with these hospitals -- I've been working with them for 5.5 years. So 4 months was not going to change the relationship. Calling and saying, oh, they're homeschooling their children now, there's a skeleton crew and being empathetic and helping them to adapt and not calling about how many puppies and kittens are you seeing currently but, like Shelley said, calling as a friend, you have this relationship, what are their pain points, what are they having a hard time with, is there something I can do as an account manager, can I gather medical records, what can I do to be a helper during this time as well as my field team, can I drive, stand 6 feet away from you and drop something off, how can we help, what can we do? And now we're seeing this is going to keep changing and how do we adapt with the hospital to help them? If it's a skeleton crew, if they're working in cohorts, what can we do to support them and be there for them? And it's just been -- I think it's only created a stronger bond, quite frankly.

Thanks. Dave, dose that answer your question?

Okay. Great. We're going to go take a few questions from the box. We have several. I want to just remind folks that we love to hear from you directly. So those that are brave enough to raise your hand, you can go ahead and skip the line. Otherwise, we'll keep pulling some questions from the box. So we have a question from [ Diersten ] here. Why is the core business over the subscription business -- sorry, why is the core business over the subscription business growing at a slower rate than the overall pet insurance market? Is this largely due to the law of large numbers in the 30% to 40% target IRR constraint?

It's a great question. So if I understood it correctly, one of the things that's really important to notice is the pet count business in terms of how we're growing that. We're not growing -- a wise person once said to me, you can't spend pet. So we're looking at revenue. We're looking at lifetime value. We're looking at how do we take what we're doing today and build on it sustainably. We could absolutely adjust some of the things we're doing, and we could grow much quicker. I have no doubt about that. We could go out there and do all the cheap, gimmicky things and create a really rubbish product, frankly, that would allow us to grow far quicker. But what we have and what you saw earlier in the charts that both Darryl and Tricia went through and Laura went through is that, up and to the right, beautifully predictable monthly subscription recurring model. The revenue we get is really the lifetime value of that pet. It's not in the first month. So we're not focused on that immediacy of growth rate. We're focused on the long term, and it's a very deliberate strategy. One thing that we are doing, and we can speak a little bit more about this in the conversion session, too, is we look at where can we expand quicker using the existing market factors that we know to be successful, and we can build that cohort out that we call our core budget expense as budget. When we spend X, we pretty much know what we get back. But right now, our pace is very measured, is very controlled, is very sustainable. You can see that our revenue growth is significantly ahead of the average in the industry from the data that we have. And I think it's the best way to be right now to be sustainable.

That's great. And we have another question from [ Zach Eric ] of [ Finvest ]. Can you give us an update on Trupanion 2.0?

Yes. We can give an update on Trupanion 2.0. I know there are a couple of very eager people there. I'll kick off with Dr. Steve, who you can see is our Chief Product Officer. Steve, can you give us an overview of 2.0 for those that are a little less familiar with the concept and the products that you created? And then perhaps MJ, you can speak to that from a market perspective and how that's going so far.

Sure. Thanks, Margi. Happy to. So the concept here is you don't stay great by staying stagnant. We always want to be in front of everyone else out there, and we want not 1 or 2 or 3 or 8 moats, we want more and more and more moats. So the concept here is we need to take insurance from being a dirty word to being something that people get really excited and happy about. So we already know that we have the best product out there, period. What we wanted to do is iterate. So we're looking for more simple, more transparent, broader coverage and really what it comes down to is a better member experience. Our member has a great experience. They're going to add pets. They're going to refer friends. The vets are going to see that excitement, have a great experience as well, and we'll have veterinary advocacy continuing from what we have had before. So the 2 biggest things that we've done is we've removed deductibles in favor of having a payout percent and added coverage summary to help us be -- coverage summaries to help us be more transparent, which Margi talked about a little bit in the opening statement. Basically what that means is if it's not listed on your coverage summary, which you get in the first 30 days during your free-look period, then it's covered. That's our promise to you, it will be covered for the life of your pet. So we've been testing this in Florida. The plan was to look at this over a 6- to 18-month period, and we're looking at really 3 factors in general. We're looking at combined conversion rate. What I mean by combined conversion rate is conversion over the phone and conversion over the web; also, ARPU, which is monthly price. And we're looking at retention over time. So if we have a long-term retention and we have, for instance, the same or a higher ARPU than the customer has spoken, that's a really good thing. So, so far, so good. Good feedback. And maybe I'll let MJ dive a little bit deeper from here.

Sure. So -- I'm making sure I'm off mute. So we launched 2.0 in Florida. Florida has 5 territories that cover the state of Florida. There's 2,000 hospitals. There were 12 people on the teams in the field that -- when we launched. And the feedback from a subjective perspective was, we heard, we listened and we answered and the improvements that we made in 2.0 were what the vet community wanted, what they needed. As far as those categories and numbers, ARPU is up. We're still -- there's still time to look at that retention rate. We need a few months to really understand what that's doing. But the conversion point is where I'm specifically focused. From a Florida perspective last year, same time, Florida, across all of our states and provinces, was #3 as far as quote-driving, lead-driving areas. But it was bottom of the list when it came to conversion. I mean it was 26% lower than our top lead-driving states and provinces as far as conversion rate. And as of the last 3 months, since 2.0 launch, that conversion rate has grown to supersede where those other markets were. So what I'm seeing is we are -- we were hit a little bit by the timing of the launch with the changing of the world. So we did see a little bit of dip in those leads, but since then with that growth curve out and that conversion, when the world starts to come back live again and our lead volume hits where we were last year, if we can continue this conversion rate, which is fantastic, we're going to be in a great spot. So to me, that's -- the product is starting to sell. The lead and the interest is already there, and our territory partners in Florida have done a very good job of creating that network of interest and that network of driving leads and now we're able to convert them.

Okay. Thanks. So we've gotten several questions from you on the topic of the IDEXX-Covetrus partnership. So a couple of the questions around this topic are, does the partnership in some way improve lead generation and/or conversion? And can you give an update in general, if not specifically, what is the goal of these partnerships?

Okay. Laura, keep me straight and make sure that I don't miss this question. So let me kick off, and Chantal can help me out here when we think about these relationships. So first off, Covetrus and IDEXX, 2 great partners of Trupanion, very aligned in terms of our overall mission and the passion towards the veterinary industry and the growth of our businesses. So that kind of helps to start with having that. They both know as diagnostic companies that our clients have 2x the amount of diagnostic treatment. They also know that they have 2x the supplies that these companies provide in terms of distribution. So there's great alignment in helping to grow the word on the street in terms of the normalcy of insurance. They also -- particularly excitedly for us and for Chantal, they have the lion's share of the market when it comes to practice management systems. So Chantal, could you speak a little bit to pick up on the other side of that question around the role that they play to help us there and then the access to those leads that, that would provide for us?

Yes, absolutely, Margi. Thank you. So when I think about these partnerships, it's -- really strong, well-aligned industry partnerships are strategically important for what we are trying to do for a couple of really important reasons. One, it's going to expand the breadth and depth that we have access to within the market. So when we add additional PIMs integrations, we're opening up a whole subset of hospitals that otherwise were incompatible. That's not only going to result in a better opportunity to have deeper partnerships with those hospitals, but we're going to be providing more of our members with an exceptional experience, streamlining those hospital workflows. Secondly, when we think about driving same-store sales, that technology integration is really core to that, not only because of the compatibility, having that electronic Exam Day Offer available within the hospital, but if we look at some of the things that we can do really creatively with some of our partners, it's really drive using [Technical Difficulty]

Your audio.

What did you hear? Where should I pick back up?

Just, I think, talking about the unique nature of the partnership. Go back about 30 seconds.

Did you -- you guys heard everything about the compatibility, expanding depth and breadth in the market? Okay. So I'll start at same-store sales. So with same-store sales, when we look at technology integration, from that perspective, we are able to do some creative things in helping to... [Technical Difficulty] and I have like the best Internet on the face of the earth. Sorry, guys.

I can hear you perfectly now.

Okay. Will keep trying. So to repeat myself again, those technology integrations allow us to do some creative things around helping to drive hospital workflow and helping those hospitals to identify ideal pets for a Trupanion Exam Day Offer, which, of course, helps to drive same-store sales and helps drive those leads.

Thank you, Chantal. We got there. So just to kind of -- to wrap this up as well quickly because I know there are lots of other questions. I think the point that Chantal touched on is so critical. And one of the roles that the huge value that Chantal is able to bring to those conversations is how do you think about that workflow and making sure that the insurance is communicated effectively in terms of this is why you should consider insurance for your pet. And just having that conversation and nothing more than that, nothing more in depth, but popping up throughout that workflow process is a really important part of that. And then to answer that second part of the question, does it help conversion rate? Absolutely. You saw that stat earlier on that I presented, where 1 in 4 pets, if the messaging is right, will convert with Trupanion. That's where it starts. It has to start in the vet space. It has to start with the understanding when you walk in the door, who is your medical insurance provider. And that's where the practice management systems really play a part with Trupanion. So we love IDEXX and Covetrus. They're fantastic partners of ours, and we look forward to doing more fantastic work with them from a data perspective for the foreseeable future.

Okay. Another question from [ Zach Eric ] of [ Finvest ]. As a reminder, though, I'll continue to pull from the Q&A box, but if you want to cut the line and join us here on screen, we'd love to hear from you. You can do that by raising your hand. Okay. Question from [ Zach ]. Is there any way you could describe vet cohorts, talking about the older cohorts and how they may have higher new pets per month penetration than the newer ones. And while the newer cohorts are diluting the overall base, they are still growing new pets per month. Any additional detail around that would be appreciated.

Well I think that sort of sums the whole thing up. But yes -- and I know a lady who is very passionate about this as we've been working together on figuring out partner hospitals for a long time. MJ, could you speak to what you see in the Eastern market and, generally, kind of what you see in terms of that penetration cohort there?

Sure. So I mean the question actually summed up a lot of what the answer is. So when we look at -- when we kick this off and we started adding hospitals onto our partner program between 2016 and 2017 was about 20% of what represents our total software hospitals right now. Those hospitals when we kick them off, they were performing 3x better than the hospitals that we've been onboarding in the last 1 to 1.5 years. Their average enrollments per month when we kicked them off was well over 1. And what we saw post, obviously, installation, post support from account management, post support from the whole program itself was that we were seeing a good 1 enrollment, 1.5 enrollment list, but we're talking about across maybe less than 1,000 hospitals between those 2 years. In the last 2 years, between 2018 and 2019, we're onboarding 1,500 to 2,000 hospitals per year. They're making up about 75% of our hospitals overall in our partners program. And between that -- in that 75% cohort, when we're onboarding them, they're more at 1 enrollment. And even if you look at 2019 -- sorry, 1 enrollment per month. And even if you look at 2019, the average enrollment per month for the hospitals we were onboarding is 0.6. So when you think about that collectively, we have a larger pool in 2019 of hospitals that we're onboarding with a much lower starting point. So we have a lot of ground to gain and a lot of relationships -- a lot of relationship time line that we had on the front end in 2016 and 2017. When we onboarded those hospitals, we had already spent several years of building relationship whereas a lot of 2019 hospitals. We are actually kicking off the relationship with software, which, in my mind, is like you can grow a fish in an ecosystem of paper and paper [ ETOs ] and we did a great job of that for many years. But right now we have an opportunity to grow big fish in a world where that ecosystem is electronic [ ETOs ], texting, e-mail, faster claims, all of that impacting Nirvana. So yes, all of the answers to the question were in the question itself, but we do see the difference in the cohort. However, we still see that incremental lift over time. So when we think about hospitals in 2019 that were rolling at a half of enrollment per month average, when we look at them 1.5 years from now, we should still expect to see that 0.2, 0.3 enrollment lift every 6 months, and we're trending in that direction. So even though the overall, I would say, diluted group is looking like a smaller average enrollment number, it's still growing at the same pace.

Great. So we have a couple of questions here. They're somewhat related. So I'm going to group them together. How does Trupanion calculate the penetration rate at the territory level? Is it consistently using the same source of data? And then along those lines, you mentioned 3 territories with greater than industry penetration rate up 3% to 8%. How long did it take these territories to get there? And what percent of territories do you have that are in that 3% to 8% penetration rate?

Okay. Right. Yes. A lot of questions. So if we kick off with the -- what was the first question? I was listening, I promise.

How do you calculate the penetration rate at the territory level?

Okay. That was it. So how do we calculate it? We do, do it consistently. So we're not looking at markets in a different way. At the high level, a territory is carved up to be relatively even. So when you think about all of the territories we have across North America, the intention is that it gives everyone the same opportunity. So within every territory, if I can speak, we look at the population of people. We look at the penetration rate of households with puppies and kittens and cats and dogs. And please excuse my dog in the background. And we then map that to our overall book of business. So we know the number of insured clients that Trupanion has. So we take that number and we apply that same formula across the book so we can see the different penetration rates. I can speak to this a little bit, and I know that both Dusty and MJ can, too, but in the interest of kind of getting 3 more questions, just high level, when we look at the age curve, and you saw that happening in Shelley's market, with that top market to the right there that you saw in terms of the penetration rate, so over 8%, that's taken, Shelley just said it, 17 years. Now as the market starts to grow and snowball, what you're going to see is, again, in that chart, the acceleration of the market over time. Typically, we need to have some good relationships. But as our software gets out there and the Refer a Friend and Add a Pet starts to pick up, the snowball effect starts to happen. So we're seeing an acceleration in growth of territories far ahead of where we were 2 years ago, 5 years ago, and we will expect that to pick up. So you're not going to be waiting 18 years, but another way for a territory to hit 8.5% in the next 18 years, if that makes sense.

Great. Thank you. So when you look across your data, what are some of the more impactful drivers of Leads? Is it the territory partners, the inside sales rep or Express deployment? And that comes from the line of Stifel.

Okay. Dusty?

So what do we see the most focus of Leads coming from? Can you restate the question, please?

Yes. When you look across your data, what are some of the most impactful drivers of the Leads? Is it the territory partners, the inside sales reps or Express deployment?

Sure. So what we see as the greatest factor is having the combination of our software and that territory partners relationship. I think the combination of those as we kind of launch into this. And then we have our account manager coming in, and we'll have MJ talk to this a little bit here, but our account manager continuing to support that while the territory partners go on in creating new relationships. And I think that that's been the most powerful thing that we've had. So MJ, anything you want to add there. I stole some of your thunder there, I think.

That's okay. Not to repeat the answer, said differently, I think of it like a layer cake, right? Our widespread most important factor of driving Leads in hospitals is our territory partner relationships. Period. There's nothing better out there. What we can do to enhance that ability to drive Leads is we can layer wonderful things on top of it. We can layer our software on top of it. We can layer our account manager support on top of that. We can do that so that they can actually focus attention elsewhere as well. So it's not just about lift in same-store sales only. It's about lift as well, and at the same time, as going wide and increasing that footprint. So if you take away everything else, our territory partners are the foundation of being able to drive Leads in hospitals, but everything else is enhancing that world and -- which is allowing us to do more of it over time.

Yes. And I would say it's really simple. When you get our software in the hospital, not just the pet owner, but the hospital team sees the benefit to them and the way they can practice best medicine, that's your source of Leads. You don't need to do anything because they want to be able to practice the medicine they trained years to do. And that's what changes the game. The software is a game-changer. Having that relationship upfront is what allows you to then get the software in there. And that really is -- it's no more complicated than that. You have territory partners like Shelley, and there are many of them across North America. We're fortunate to have them, and they can take in our software, which is a very easy solution to a very difficult problem.

Awesome. Thank you, and I'm welcoming [ Russell Mullen ] into the conversation.

My question, I think, is maybe for Chloe. Just kind of curious on some of the things going on more recently with the pandemic around -- we've seen in the media just like an increase in activity of pet adoption. Maybe that's more just the specific in the shelter as opposed to the breeder channel. But just kind of curious to see what you're seeing out there as far as that activity and then if that is kind of the case with more activity. And then what are your conversations like with breeder, shelters these days, maybe some challenges or what's happening or what's different today from before?

Absolutely. Great. I wonder how many of you guys watching have adopted or purchased a pet in the last 2 months because it certainly is something that a lot of us at Trupanion has. In the breeder space, this is a relatively new channel for us and so we are kind of proving out this year what's really working. We have so much to learn from the relationships in the vet space, and we have a system that's similar to the vet relationships that we've built across U.S. and Canada. So it's one-on-one support. So you can -- from what Margi was saying earlier, the distribution of Leads has shifted over COVID to be a little bit heavier on the breeder side, which I think is testament to -- breeder is a biological process, right? The puppies are born, the market exists and in a lot of ways being able to recommend Trupanion adds a level of peace of mind that a lot of buyers really want to have right now. So our team has really been working hard to have great relationships with the partners that we're working with and maintain a level of normalcy through an uncertain time. Similarly, in the shelter space, I would say, although I think Maddie can speak a little bit to that, but in that space, it's a little bit different because there's a brick-and-mortar element where you have a location that's either open or not open. So certainly, adoptions have increased. And we are trying to support one-on-one. Just like Shelley's mentioned, just like MJ and Stella, every partner is different right now, and it's all about partnership, the relationship to make sure that we're matching what we're doing in the best way we can.

Yes. Thank you, Chloe. That's great. Maddie, would you mind speaking a little bit about how we work with our shelters and the relationship between shelter and veterinarian?

Absolutely. So we're continuing to build relationships in the shelter channel, and we've seen that maintain and grow even through COVID. Really, our main focus is getting adopters into the veterinarian. And so they're getting an introduction about Trupanion at the shelter. Our focus is to get those adopters into the vet hospital where they're hearing about Trupanion again. And so even through COVID, we have seen that maintain and grow within that channel.

Great. And we're coming up pretty quickly on time here. So we have about 5 minutes left for this Q&A session. So quick -- we've had a couple of questions come in from folks on the conversation and partnership with Vetter. So just looking for more information around that partnership, is it broadly similar to the partnerships you've previously created with other practice management vendors? Or is there something new and unique? And how does that partnership help you with your software?

Great question. Chantal?

Yes. It is a great question. So broadly, it's similar. Ultimately, looking to open up more market opportunity for compatible hospitals. And so with Vetter, we were able to now access 1,300 more hospitals in North America than we had access to previously.

Okay. Great. And next, we are going to take a question from the line of Maria Ripps.

Well, I just wanted to ask you about your sort of DTC initiatives. I think that was kind of -- you had a little bit more focus on that about a year or so ago, but we heard a little bit less about it recently. Can you maybe just refresh us on where you stand on that and whether you had any sort of changes in terms of how you approach that channel since the COVID started? And any changes in your thinking around that?

Maria, that is a great question, and I'm going to -- I'm afraid we have to put you on ice for the Conversion team. You're a little bit ahead of time. So when the Conversion team comes on, they will absolutely love to talk to you about what we're doing in that space.

Maria, we'll welcome you back for that next session. And then maybe we'll wrap up with 1 or 2 more final questions. Just back on the topic of State Farm. This comes from the line of [ Janet Diersten ]. Is State Farm exclusively working with Trupanion for their pet insurance products? And how does Trupanion split the economic for pets acquired through State Farm? Does Trupanion expect to earn a similar IRR for this channel?

Great question. So yes, State Farm chose Trupanion. They did not choose to make State Farm pet insurance. So it is an exclusive relationship with Trupanion. I'm not going to get into the details of the partnership specifically, but just in terms of the IRR, every single pet that we get, we're trying to do -- we're trying to get them to the 30% to 40% mark. We have no reason to believe that they will be outside of that, and it's early days, but we're excited about what we see. We maintain those guardrails of efficiency, and we stay very diligently close to those.

Okay. Great. Maybe the final question for this session, and I apologize, we have more questions than we have time to answer. So if you had a question that wasn't answered here, feel free to join at the very end for our Zoom room Happy Hours, and you can try and ask a few more questions there. But question for Margi around the U.S. versus U.K. Has she noticed any major differences in vet or consumer behavior? Is there any reason that U.S. may see better or worse insurance penetration than the U.K.? And lastly, what's the market share of the largest provider in the U.K. and their likelihood of expanding in other geographies? And that comes from the line of [ Sameer ].

I need to do a better job of listening all the way through this. So I'm going to start at the bottom. Likelihood of them coming into other markets like North America, they've tried and they have not done a particularly good job. There's a couple of them that play in the Canadian space a little bit, but they haven't come into the North American market. I think in terms of the differences for penetration for us -- what am I seeing differently? There is a far more attentive way of caring for a pet and Steve can speak to this, too, but when you think about as a pet owner going to the U.K., the relationship between a pet and a vet is very strong. There is less of -- there's a lot less handholding through the process in the U.K. So I think that's different and actually plays in our favor. There is a lot of noise in the U.K. market around what you should and shouldn't have. And people are not used to discussing health insurance. And I know that's always a big thing. In the U.K., you've got the National Health Service. Here, you don't have. But actually, again, that plays in our favor because people are used to thinking about insurance and coverage and paying for cost for care, which you don't think about in the U.K. as a human being. And I think in general, there are a lot of similarities around the different channels that we start to see coming through. But by and large, that's why we can take those comparisons, and we can feel good about them because there are some similarities in the growth and, naturally, the size of the U.K. is a significant advantage there because you can spread a message of a good product far quicker than you can in such an enormous market like North America. But generally, a lot of reasons to be positive, and the growth rate that we're starting to get on in terms of our trajectory and you look at a time in the U.K. when it hit 2%, it started to grow approximately on average around 1 point a year from that point on. So we have a lot of reasons to be optimistic. Hopefully, I touched all those questions.

Yes. Great. Thank you. Okay, everyone. Thank you so much for joining for this portion of the Q&A session. We are out of time. So with that, we are going to take another quick 5-minute break, and we'll ask that you join us here back in 5 minutes, and we'll have the Convert team up with us. So thanks so much. See you in a minute. [Break]

Hey, everybody. Welcome back. We are going to jump into the next topic today and welcome our conversion team to the Q&A session. Margi will continue to moderate this session. But -- and so I'm going to go ahead and turn it over to her. Just for a quick time check, we have about 35, 40 minutes dedicated to this Q&A session. So please feel free to again raise your hands if you have questions and you want to come on live or you can continue to submit questions via the Q&A box. So, Margi, I'm going to hand it back over to you.

Hello. Thank you, Laura. So let's move on to the next question. We're going to be talking about conversion. And to speak to us about that, this is -- and just to recap, to frame your questions, just specifically thinking about how do we get the members to convert with Trupanion? This is our web and phone initiatives. I'm really pleased to welcome to give you an overview of 2019 highlights and what's coming up in 2020, which will be provided by Bradley Lamb and John Gallagher. So, Bradley, welcome back to your second shareholder meeting. Take it away.

Thank you. So I've been with Trupanion for about 1.5 years now. And last year was my -- yes, my first time participating in this event, and I'm super excited to share the progress the team has made since then. But first, I wanted to kind of refresh everyone's memory on the mission of the conversion team. So the conversion trend team tries to find ways to effectively communicate Trupanion's value proposition to pet owners and across our channels. We do that through a number of different methods. One of them is content. And we touched on content a bit last -- in our last session. With that being said, I'm really excited to share the debut of a new video in our Dishing with Darryl series that does just that. So enjoy. [Presentation]

I hope you all enjoyed that as much as my team loves producing that. It was really fun. And you can find more of Dishing with Darryl on our YouTube channel. So check them out. So I just wanted to take some time before we dig into this chart to provide a bit more context on what our team does. So we work closely in partnership with Dusty and the Leads team that you just heard from. As they drive us leads, so the young pets, the 1 million puppies and kittens that go to the veterinarian each month. And then we go to work. And we articulate our value proposition clearly and simply, and we deliver that light bulb moment for a pet owner for when they understand why they should enroll their pets with Trupanion. So today, I'm going to share some of the progress that the team has made over the past year and highlight some of the specific initiatives that have contributed to the improvements. We can then discuss each of these initiatives in our Q&A. So [ 2018 ] was a foundational year for the team. We grew and built the team, did a lot of testing and learning, which is in our DNA. And we experienced some peaks and valleys along the way, but we learned a lot and have been applying what we learned to our 2020 initiatives. And we're seeing some very positive results. So I want to quickly take a look back via this chart at 2018 versus 2020. So we're going to look at blended or combined conversion rate in this chart. Why we look at combined conversion rate is it shows how we are performing from both a web and a phone perspective on conversion. So as you can see, at the beginning of 2018, blended conversion was trending around 12.1%. In 2018, you'll also note that blended conversion increased and then took a bit of a dip. This was largely tied to some changes in the comp model for the phone sales team. And John Gallagher can speak to that a bit later. So it did impact conversion, but it also had an immediate impact on LVP or lifetime value as well as a 90-day retention. So it had some positive impacts on both of those areas. So then if we go to 2019, you can see the blended conversion rate was 12.9%. So that was a 6.6% year-over-year increase or an 87 basis point improvement. Looking at 2020, we started the year at a 13.9% blended conversion rate, which was a 7.8% increase or a 100 basis point improvement. So we're currently quarter-to-date tracking at 14.7% blended conversion. So solid progress continues. So I'm going to get a little bit more granular on that and look at May-over-May 2019 to 2020. So in May 2019, we were trending at 13.7% blended conversion. In this year, May 2020, we were up 14.2%. So that's a 3.6% improvement. So what that shows is we've been able to climb back up and achieve the blended rates that are on par with where we were before the changes on the phone sales came. We've also been able to do this during the COVID period. So we've seen that pet owners are looking for something that they can rely on during this time to help them budget for the expected, and we've been there to help. And I also want to briefly touch on some of the circles in this chart, what those mean. So those are some of the initiatives that we rolled out through the year last year. So circle one represents when we expanded our texting series call our call driving call to action. So for people who have opt in to receive text, we tested various versions of messaging to get people to call to activate an Exam Day Offer and enroll. We tested the placement of the CTA throughout the texting journey, and we also tested things like including videos as content and supplemental content within the journey, and we continue to do this today. Circle #2. That represents when we expanded our content portfolio, again, with call, driving CTAs. So in addition to some of the video series like the Darryl video that we showed earlier, we also rolled out some new breed content throughout the year last year, culminating with the new breed guide that we launched at the beginning of this year. The new breed guide has a focus on breed conditions and illnesses, and we layered on our claims data into the guide. Within that, we also have a tight call-driving CTA. So a pet owner could come, research conditions and illnesses related to their breed and then call us and understand what Trupanion -- about the product and what we cover. And that's performed quite well for us. Circle #3. So that's when we did 2 things. We launched live web chat, and I believe I touched on the launch of web chat last year. And then we also started testing direct mail. So web chat has proven to be a solid conversion tool for us, both from a web and a phone perspective. So from a phone perspective, a pet owner starts on the web chat, transitions to the phone, engages with one of our sales agents and then converts. From a web perspective, a pet owner can get their questions answered in real time with chat and then continue to enroll online. So we've seen some positive numbers with chat, and we'll continue to optimize chat this year. From a direct mail perspective, we launched a retargeting campaign with direct mail geared at young pets. So, basically, retargeting based on what we know about the pet owner and the young pet the pet owner has. And it's been a solid conversion tool for us. And we'll do more of that again this year, too. And Circle #4, finally. That's an increased focus on our call driving initiatives and call driving efforts. Year-over-year, we've been able to increase the number of calls we drive to John and the sales team by about 10%. And we've really challenged the team to think big, think bold and to come up with the big ideas that will get more volume to the phones so that we can convert them. More to come on all of these through 2020. I just want to touch on web conversion for a minute. It's an important part of the combined conversion piece. So when I started at Trupanion in January, well, the web was converting at about 7.7%. Quarter-to-date, today, we're converting at around 9.5%. So we've made some solid improvement there, and we intend to continue to grow. But web is just one part of the combined conversion component. So I want to ask John Gallagher to also provide some highlights on the phone side.

Thanks, Bradley. As Bradley mentioned, I think last year, when we talked about phone conversion, we talked about conversion ARPU and also 90-day retention. And so we've made some pretty significant strides in all 3 of those areas throughout the past year. As Bradley mentioned, she's been able to drive 10% more call volume to my team, and we've actually been able to find our footing and starting to convert those Leads, which is showing some really positive impacts on conversion. With COVID happening in March, we actually took that opportunity to really train up our sales team on competitors and anything they may need to know about the value of Trupanion. And we're seeing that paying off very significantly in conversion rates over the past few months. In terms of ARPU, we've actually seen ARPU increase very steadily over the past year, again, going back to more training and value-based training on the initial sale of the enrollment and policy. 90-day cancellations continue to make the biggest improvement out of anything from the phone sales team. This is a multi-team effort, not only is it also the phone sales team responsibility, but also the nurture team, which we can speak about later in the Nirvana section. So that's a really brief update on the phone sales team as it stands now. And if we go to the next slide, I'll be joined shortly by a few other members of the conversion team. So I'm going to pass it back over to Margi to introduce them.

Thank you, Bradley. Thank you, John. So in -- so we can make sure that we keep moving quickly with time, I want to do a quick whistle-stop tour on the screen to introduce the folks that you have in front of you now. So you've met Bradley. Bradley, you've already mentioned you've been here for 18 months. Anything else you'd like to add to your intro?

No. Glad to be here. Let's move to the team.

Okay. Perfect. So Cara joins us. You had lots of questions before about State Farm, Cara. How long have you been with us? And what's your role?

Hi, everyone. I'm Cara Butler. I've been with Trupanion for about 1.5 years, and I lead our corporate partnership with State Farm.

Thanks, Cara. Paul, there is a question coming up for you in D2C. Welcome to the team.

Thank you, Margi. I'm Paul Piggott. I've been with Trupanion just under a year. I look after D2C and Social PR, a couple of other functions onto the conversion team as well.

Perfect. Thank you, Paul. And part of Paul's team, [ Willis ] joins us. [ Willis ], welcome.

Thank you, Margi. I am [ Willis ]. I've been with Trupanion for almost 2 years, and I am a digital customer acquisition specialist.

So you can talk all about Google and search and all those great things. And then another member of Paul's team, Michael Nank is joining us. Hello, Michael.

Thanks, Margi. Michael Nank. I've been with Trupanion about 3 years now. And I head up the PR efforts, earned media, working with the press with all the national dailies, local and regional.

And a lot of what we do from a PR perspective requires data as attribution in D2C and everything conversion-related. Monica, welcome to the team.

Hi. I'm Monica Prichard, I'm the Director of BI within the analytics team. And I've been with Trupanion about 9 years now. And our team works with Conversion team and other departments for everything on their metrics.

Thank you, Monica. And last but not least, John. We've already met you. How long have you been with us? And kind of can you just briefly introduce yourself?

Yes. So I've been with Trupanion 4 years, and I oversee the contact center, which includes sales, retention and member experience or customer care.

Thank you. I see Maria has joined us again.

Yes. I welcome Maria back. Now that we can -- Maria, would you like to just repeat your question for the benefit of this team?

Yes. So can you just please refresh us again on where you stand with your D2C initiatives? And again, it seems like there was a little bit more focus on this, like at least we heard a little bit more sort of focus on this like a year or so ago, a year or 2 ago. But just refresh us again how important it is for the company and whether there were any changes in terms of how you think about it, like, due to recent developments due to COVID.

Yes. It's a great question, Maria. So just as a reminder, Bradley, would you mind kind of helping people understand, again, kind of what the role TV plays for Trupanion? And then perhaps, Paul, you can speak specifically to what we've been doing, what we've been seeing and where we go from here with it.

Yes, absolutely. So yes, you're right. We have used D2C as a channel in the past. D2C has been a great way for us to get our brand out there from a brand awareness and visibility standpoint. We have traditionally focused on a regional approach to linear TV and radio. We've focused on areas where we have a high percentage of active hospitals, a large number of new pets coming into the market and strong LVP. So that's been kind of the factors that we look at when we invest in those -- in this area. This year -- and Paul will go into this. This year, we've kind of doubled down on our look at D2C. So Paul and team have put together a strategy that includes new elements like connected TV, which you can go into, which gives us more of a national reach and, actually, from an attribution standpoint, helps us to understand how the dollars we're investing are more apples-to-apples relating to the number of pets we acquire. So with that, Paul, I'll let you go into a bit about both the linear and the connected TV strategy that we just dug into this year beginning in Q1.

Thanks, Bradley. Yes, we've continued to play both regionally and, to some extent, nationally in both linear TV and radio. As Bradley mentioned, one new channel for us or one new tactic is connected TV. So connected TV is TV that you can watch through a connection as opposed to through traditional linear. As Bradley also alluded to, what that gives us is a really strong lens into who is watching those TV ads, and other ways that we can communicate with them on a retargeted basis as well. We can get far, far closer in targeting firms to [Audio Gap] That's something that clearly we can't go and do in a more linear environment. In terms of how COVID changed, I will say, Q2 was expected to be a little bit of a quiet quarter for us in D2C terms. It didn't end up being that way. So we did invest quite heavily for a couple of [Audio Gap] one, people were consuming much more media; and two, the costs of media were actually down a little bit, sort of just -- media environment was more competitive. So we went and spent a little bit of money on linear, and we certainly went to spend it in the connected TV space as well. And then on attribution, I'm going to hand off to Monica, if I may, who can talk a little bit about how we measure performance in this space.

Yes. So when we think about attribution, there is a lot of different ways that a potential customer can hear about us. They might talk with a friend and then talk with their vet and then click on an online ad and see a direct-to-consumer ad. So we're always looking at this on how do we appropriately allocate these pets to a channel. And so we have a higher grip how we attribute a pet to a channel and then look at all those touch points that a pet experience. So maybe a pet click on TV ad, and now with connected TV, we have more insight into being able to tie that back to a specific policy rather than just looking at the overall market approach for the lift. So we're always using this to monitor our spend and look at the different guardrails for is this test successful and, yes, how to best use our resources there.

I think if I can just kind of sum all of that up, the main -- Maria, when you were referring to what we talked about a couple of years ago, the overall approach to using the tactic of TV is exactly the same as it was 2 years ago. It's very much a conversion driving tool. It's why it sits in the Conversion team. That's on an intuitive reaction to most people when they think about TV and what it can do for us. But we know that if we put it in a market where we are already generating to those points that Bradley mentioned, higher penetration software, really deep relationships with the veterinary hospitals, already high lead generation growth in conversion rate is already above the average, we see that really help to get us ahead of action and push it through, which then leads into the guardrails that Monica talked about. So very much a conversion tool and the market yet isn't at that point where we could put TV on and everything would go up. Thanks for the question.

Thank you, Maria. So our next question comes from the line of [ Greg ]. What new channels are you most excited about to expand conversion rates moving forward?

Yes. That was great. And Bradley, we've got lots of opportunities with us that COVID has opened up that we weren't necessarily expecting. So do tell us about.

Yes. Absolutely. So I think one of the things that we're most excited about is paid social. So COVID has actually opened up a lot of new doors. Paid social is the one that we've been kind of focusing on -- our efforts on. We've always used paid social historically like a year, 1.5 years ago as more of a brand awareness visibility tool. We know now it is a conversion tool. So it's a solid conversion tool. In COVID, we have been seeing that as the vet channel -- as people aren't going in or haven't been going into their veterinarian as often, and we saw a little softer EO volume, we've been able to tap into things like paid social to keep our -- both our lead volume and our conversion volume steady. And so we've been using both a prospecting and a retargeting approach to paid social. And Paul and team have kind of focused on that strategy and refined it. And we're excited about continuing to use it throughout the rest of the year and get stronger and stronger and more efficient as a growth into a core channel for us. With that, Paul, do you mind telling us about the -- a little bit about this strategy there?

Yes. Thank you, Bradley. I mean, again, it's a place where we can get pretty close to pet owners, right? And that's not always true of all of the tactics that we play in. And I think our ability to reach pet owners at scale and in an efficient way is what excites us most about paid social. We -- as Bradley mentioned, we played a little bit there before. We are seeing or we are deliberately increasing our investment in that space. We don't yet see a significant decline in efficiency, which I think is incredibly positive. So it's an area that's really exciting to us. We will continue to test creative messaging, some of our targeting tactics. And then our ability to retarget, I think, has gotten much stronger in the last 12 months as well. So yes, really, really exciting, too. It's one to watch. I think we have a big opportunity ahead.

I think in data that Monica alluded to there, Paul as well is really helpful in understanding more about the markets where it's effective. So making sure that we've got that kind of broadened our footprint. Is that how you're working those plans through as well?

You mean in terms of regional focus?

Yes.

Yes. So our primary channel really use Facebook, and Facebook enables us to optimize for conversion. So even when we deploy our budgetary spend nationally, basically be smart enough on the back end to go, okay, we're seeing the greatest commercial uptick in Ontario, like that. Those -- we are a little bit more deliberate than that, but albeit Facebook does a really great job. So where we have markets that we feel in our heart we can double down on investment even beyond what Facebook enables us to do as well.

Thank you.

Great. And we have a question from Shweta. Shweta, you can go ahead and ask your questions.

Let me try 2 quick ones, please. Where do you think can conversion rates go over the next, call it, 2 years? From 14.7%, that's a very good improvement from 12% that you showed on the chart. So where do you think can it grow? What is your target for near- to midterm target? And second is, you also mentioned that calls that were coming in, that grew 10%. What are some of the initiatives that worked that drove call volume?

Great questions. So from a -- I think John and Bradley can both add some color to where can conversion rates go to. It's a little hard when your conversion rate is already at over 50% in some instances. But nevertheless, I'm sure we won't shy away from a challenge. So let's kick off there and then hand over to Bradley who can pick up the rest of the conversation as well in terms of call driving test. So, John, where do you think conversion rate can go from the phone perspective? And as a reminder, when we talk about that blended conversion rate, we are taking the phone and the web together to create that blended, the 14.7%. So John?

Yes. It's a good question. I think, honestly, right now, we're seeing that conversion rates are starting to hit all-time highs. The last couple of months, we've actually had our overall conversion rate on the phone go a little bit over 50%. And when we look at the younger pets and the pets that we're really trying to bring in, it's even higher than that. So, I mean, I do think that it can go higher, but then we also want to think about being cautious in terms of bringing in the right mix of pets because, ultimately, the long-term lifetime value, the value that, that person is going to see from the Trupanion policy and all of those things are something that I want to weigh back and forth, because if we go back 2 years, we kind of put the foot on the gas in terms of conversion. And then it also -- there were repercussions on the back end in terms of 90-day and long-term retention. So kind of weighing both of those. It can definitely go higher. How much higher? it remains to be seen, but I'm confident that we can push it a little bit higher.

Thank you, John. Bradley?

Yes. So from a web perspective, so we've seen markets with a higher penetration, so penetration of upwards of 20%. We've seen web conversion in those markets go as high as north of 20%, right? So we're working every day on the website to continue to optimize our web experience and provide a best-in-class experience. Like I said in my comments, we've already made improvement from 7.7% to around 9.5%. From a web perspective, we've had a few days this quarter where we've converted between 10% and 12% on the web. So the progress is being made. And so we'd like to get as close to that 20% mark as we can. It's going to take time. And as the market matures and as an understanding of our product and awareness of our software grows, I think we'll see that improvement happen from a web perspective.

Thank you, Bradley. And then in terms of the call driving initiatives, can we speak a little bit about sort of things that you know are working to drive that volume into the contact center?

Yes. So -- sure. Absolutely. So it's a combination of a number of things. It's not any one thing. So the big -- one of the biggest things that we've done is the enhancement of our messaging. So explaining the why. So why is calling a better experience? So it's the interpersonal engagement with a pet passionate agent. It's the ability to have your questions answered in real time. It's just all of that lending itself to that interaction with a phone sales agent. And of course, John's talented phone sales agents. So really get hitting that a home. As a matter of fact, we just revamped our homepage. We're doing a test of our homepage, and we have an entire module dedicated to the why. So if you might want to check that out. We also are doing similar messaging optimization in our digital communication. So Paul's team is doing a similar testing pipeline of different types of why messaging with digital communications. Also, our texting initiatives. Honestly, they're driving a lot of volume to John's team. And we have more to come. So it's just a combination of a number of things. And we're always testing and learning. So once we find an approach or a tactic that's hitting the mark, we expand that more broadly, and we'll continue to do that throughout the rest of the year.

Great. And we have a quick kind of follow-up question on that topic from the line of [ John Young ] from [ Kerani ]. At last year's meeting, the company talked about 85% of people coming to the website and 15% coming to the call center. Can you give updated metrics on what percentages are going to the call center today?

Yes, absolutely. Bradley?

So I maybe John can tell, but I think it's improved a bit to about 90% or 90% compared -- sorry about that. About 20% -- excuse me, I got my numbers backwards.

Yes. Yes. So it's improved a little bit. It definitely has seen an uptick coming to the contact center, which also gives my team the opportunity to convert them at a higher rate, so.

Flipped.

Yes.

And especially when you look at the lead mix as well. I mean, the overall lead as we get the brand out there through broader channels. And definitely through, as John was mentioning before, the hospitals have a different process, whether they're using software or they're not using software. There is a very different behavior in certain hospitals as well. So you're seeing that channel mix a little bit different. So being able to improve that at the same time is a bit hard. And naturally, as many of us will know, it's not -- people are not necessarily inclined to pick up the phone these days. So the key message there that Bradley was speaking to before, it's how do you encourage people to have a conversation when they otherwise would not, because everything is so easy to do without conversing.

Okay. Great. And then a question from Danny Kibbi of Phoenician. How do overall conversion rates compare to State Farm conversion rates?

That's a great question. I knew there'd be a State Farm question in here. So, Cara, would you like to talk about that and how it kind of matches between the two?

Yes. Absolutely. Thanks for your question. So just as a refresher for everyone, Bradley talked about the 3 different spend buckets. There is core, there's growth and there's innovation. And so as a reminder, State Farm is still very much in that innovation bucket. So the overall conversion rates that we're seeing for State Farm right now are about 2% to 3%. So much lower than we see on our native channels, and there's a variety of reasons for that. The first being that marketing to State Farm customers is a much more mass-market approach. If you think about the Trupanion customers that we have, that's the first 1% to 2% of pet owners in the U.S. that have insurance, whereas State Farm, we're marketing to 27 million households. So we're learning about these State Farm buyers and who they are, and they're much earlier in the buyer's journey, and they are not early adopters of the product. So we are getting a lot of leads and a lot of interest, but it's taking a little bit more time to learn about how do we convert them and how long does it take to convert these types of leads. It's really State Farm's job to introduce the customers to Trupanion and then our job to take those leads and figure out how we move them down that buyer's journey and ultimately includes a purchase decision. Another reason that the conversion rate is lower is when you think about State Farm's agents, obviously, State Farm's strategy is focused around their 19,000 agents. Agents sell over 100 products. Compared to the agents on John's team who only sell Trupanion, they are experts at selling 1 product. And so we really need to continue to work on the resources that are available to those agents to be able to sell it and also acknowledge that they will probably never get to a 50% conversion rate with our product, although we hope that we would -- or they would, but there are definitely room for improvement there.

Great. Thank you, Cara. Okay. We're now going to take a question from the line of Dave Westenberg. Dave, you can go ahead and ask your question.

So it sounds like DTC is a function of penetration rates in certain markets. Is that right? And does that imply a DTC channel marketing would be more effective as the product grows in a certain penetration rate driven by the sales force? And in other words, would this actually lead to a sustainable high IRR as one leads to another?

Yes. Thank you, Dave. Thank you for coming back and asking other questions. So, I mean, I can pick up the high level. Yes, yes and yes. We -- there's nothing really more to say about that. An obvious question's when our investors answer them. That is exactly right. Paul, would -- I mean, maybe perhaps you can elaborate a little bit on our thinking around testing in markets to see if we can accelerate the growth curve where we maybe don't have such higher penetration rates and just thoughts on that.

Yes. It's an area where we test a little bit, albeit we are looking for a minimum threshold within the market across some of the metrics that Bradley mentioned before. So in terms of addressable market. LVP, [ central active ] hospitals. So those are some of the things that we're really looking for. Unless they get above -- I don't want to share the exact metrics, but unless they get above those -- that minimum threshold, we don't really go and play in those spaces. I think what something like connected TV, for example, in Sydney outside of D2C as we look at things like paid social, what that enables us to do is to really target ones in a way that enables us to maybe play in some of those emerging markets that might not meet that minimum threshold. In linear terms, it remains true, though, that we are looking for a minimum requirement that the market can go and respond to any demand that we drive off our D2C effort.

Okay. Great. We're going to take another question here. I think it's related to the -- that the conversion team can help address more broadly. Have you ever tested printing Trupanion marketing info on doggy bags or in dog walking locations or outside vet offices or outside relocations such as pet value to help drive conversion?

Yes. Great question. I'll take this one. So we don't have a territory partner on the line. If we did, they would talk to you about all of the things that they do in their local territories. It's one of the reasons that we have a territory partner. They really are part -- they're the heart and soul of the community from an animal health perspective, which is one of the ways in which they build those relationships because they really do care. They are the most creative people that you could ever possibly imagine. And I assure you that if you can think of it, they've done it in terms of branding. So doggy bag, benches, all kinds of things and all kinds of locations to ensure that the brand is in a place that's fitting and appropriate and meets with the audiences. So always testing it. We haven't tested it on a ground scale. There are certain things kind of that we are testing all the time in terms of merchandise to ensure that we can push the brand out there. The main point of focus for us is really making sure that we have a software, that we have the messaging at the point when the pet goes to the hospital for the first time. And from that perspective, we'll continue to do that so we can keep an eye on our guardrails. Because some of those things are pretty expensive to do without a direct attribution of cause and effect.

Okay. Great. And a similar line of questioning from Jonathan Block. Are you testing dollars when you're thinking about, from a conversion perspective, consistent across all regions? Or do they vary by market?

That's a great question. Bradley, would you like to speak to our regional differences?

Yes. And so first, I want to just briefly go into how we allocate our budget between the different buckets of spend just so everybody understands how we allocate cash spend. So when we look at our investment, and Cara kind of touched on this, we have 3 different buckets of spend. One is called core. So those are the tried and true channels that we know that we allocate x number of dollars, and we will get x number of pets in returns. So an example of a channel like that would be PPC display advertising. So that is what we call performance marketing. So that is a core spend. Then we have what we call a growth bucket. So that's about 15% of our spend, and that's where we are able to work with great accuracy, project we invest x number of dollars, then we will get x number of pets. And our hope is to move growth channels into core. An example of that would be our paid social initiatives that Paul touched on. And then we have our tester innovation market -- innovation budget. And so that's a smaller investment, but we do actually look at regions and markets where we think that we want to invest them to have the most impact. So when we look more broadly, we try to allocate that budget in a way that we will effectively impact conversion, enrollments and prove out our innovation spend by investing those dollars. So the team is always looking at, from a regional perspective, where we can kind of allocate budget so that we'll have the biggest impact, and we'll actually prove out some of our testing or innovation channels.

That's great, Bradley. And you touched on there about paid search and kind of looking specifically at regions. And it kind of ties into a question we had earlier. [ Willis ], would you mind speaking a little bit to, at a high -- really high level, how do you think about the different geographies between Canada and the U.S. and how you operate your budget and how flexible and how agile are you with that spend on a week-to-week, day-to-day, month-to-month basis?

Yes. I'll try to speak a little bit louder. So the way that we like to look at our budgets across both PPC and display. In search, we -- as Bradley mentioned, this is the core spend, we do look at paid search along to like big categories. One is brand, and the other is generics or nonbrand. And we typically love to really, like, drive a lot -- let me take one step back. When we look at trends year-over-year, we see a lot of growth in the category and search volumes. And this has actually kind of took a little bit of dip when we saw COVID coming to play. And why is that important? Because we were monitoring spends across both Canada and the U.S. very closely, and we're using data from search volumes to kind of be one data indicator in terms of how consumers are reacting both from a geography point of view as well as from a category point of view. And definitely what we monitor very closely today, as well as across what competitors are doing. So because of that, we use a lot of different strategies. We segment our audiences really particularly across when they're coming from vets and whether they're coming from breeders. I think that's one thing that's allowed us to become really agile and efficient with a lot of our spend. And the way that we look at that as well as on a regional basis, we like to do adjust our bids across where they may be, whether they are coming from the proximities to vet offices or they're coming from a region where we know that we have a high propensity to pay hospitals. I think those are some of the types that we use to make sure that we're spending most efficiently, seeing where we can scale, identifying different types of keywords, long tail, short and whatnot in order to make sure that we are having the most impact and really being able to make sure that we are finding the audiences and growing incrementally. It's like a little long-winded.

No, it's perfect. Thank you, [ Willis ]. I think when we -- one of the other things as well, just kind of quickly to wrap this up from -- Monica, from your perspective, the way that we think about attribution across the board and looking at the role of PPC, can you speak a little bit to how we plug that into the overall journey of a pet owner to come up with the pack? Because whilst our overall acquisition cost of PPC might be x dollars, we know we have to put another cost there. So if you could speak a little bit to that at a high level, that would be great.

Yes. So I touched on how we look at the touch points of a customer on their journey when looking at modeling our spend by different channels. And so with PPC, where we can tie that back to a customer, we can look at that customer journey and see maybe they're a Refer a Friend pet. So if they came in and we asked them how they heard about us and they said their friend or maybe they had a conversation with their vet. So we look at that and we allocate that spend on PPC, not just to an Internet bucket because we know that, that pet may have clicked on an ad, but then come through a completely different channel. So when we're looking at allocating costs and seeing if that spend is efficient, we're really looking at what's that final bucket that we're putting them into? And then what will serve path along the way?

Thank you. Or sorry. You have a question?

So final call for questions for the Conversion team, if you have -- if we get -- we have time for probably 1 more question. Anybody would like to ask a question, you can submit it now through the Q&A or raise your hand, and I'll call you.

So while we wait for someone to do that, just very quickly, I feel like we should make a bit of a shameless plug for some work that Michael and Dr. Steve and many of the team have been doing. So those of you that won't be aware of the fact that we've been pretty active on social media from a webinar perspective. Michael, can you speak to that a little bit about kind of what's your role being there? What have we seen? What type of traction have we been able to get as a leading voice in animal health when it comes to COVID?

Absolutely. Thanks. So when COVID really started making headlines back in March, 1st of March, we really made a concerted effort to highlight not only our data, but our expertise that we have staff with Dr. Steve as well as some of the folks that Dr. Steve could pull together for the COVID council webinar. So since March, we put about a dozen press releases out on the wire. And as a result of that, we've gotten about 40 mentions within top-tier publications throughout the U.S. And we've really seen a growth in kind of consumer as well as veterinary trade press, picking up kind of our expertise and using us as subject matter experts. So it's been a really productive time for us.

Thank you, Michael. And I think kind of, Bradley, if you can touch on this very quickly. It's been an effort that really we want to make sure we could put something out there that combines the benefit to our members to allow them to ask questions and full credit as well to the customer marketing team. They're playing kind of an organizational approach to this. But what have we seen in terms of volume from the webinar? And kind of if you could speak to that.

Yes. Absolutely. So we've had some great success with pet owner and member-facing webinars. We produced 2 so far. Collectively, the 2 webinars have had over 770,000 views. So that's enormous. And so we've been really pleased with that success. And we've had the ability to prepromote and then postpromote these webinars and continue to drive engagement. And so from a web promotion, digital communications, paid social standpoint, we've really gotten a lot of great visibility and actually helped a lot of pet owners and members to understand topics related to COVID. We actually have another webinar coming up on June 17 that is related to myths about COVID. So tune in.

Great. With that, we'll take 1 final question from Danny of Phoenician. Can you elaborate on the improvement in conversion in Florida? Did the fact that they not shut down improve the conversion in the market?

Yes. So we can speak to this at a high level. MJ is also going to be back on -- in the Nirvana session. MJ is really our expert when it comes to Florida. Conversion overall in Florida is -- literally, the day that we launched 2.0 in Florida was the day that COVID kind of really struck and took hold of most of North America. So the timing on that one was ironic. But when we look at how we are progressing in the conversion rate improvement, John, perhaps you can touch on this a little bit from what you're seeing from your perspective in terms of the contact center and the ease of being able to sell our product that is just so incredibly transparent.

Yes. Yes. Sure. 2.0 has been great for the contact center team. We put a lot of resources and time in training and making sure that they understand the key differences in the 1.0 and the 2.0 policies, and it's been well received by the people that are calling in. The conversion rate, like MJ mentioned earlier, has seen a significant improvement in Florida. And really, it is coming down to just how easily understandable the policy is. And we're answering all the questions that they're calling in about, and they're really comprehending what that product truly is. So early signs are very, very encouraging from a conversion rate standpoint.

Okay. Great. Thank you, Convert team, for joining us. That wraps up this portion of the Convert session, and we will be back here in just a minute with our Nirvana team. We're going to take a quick 10-minute break here. It says 15 minutes up on the screen. I think in the interest of time, we'll do our best to maybe start back up here in 10 minutes. So again, we will see you all shortly. Thank you. [Break]

Hey, everyone. Welcome back. Like I mentioned, we're going to go ahead and get started a few minutes early to try and get us back on track. So the next portion of Q&A is going to be dedicated to all things Nirvana. Margi will be moderating this session as well, and she will be welcoming in a moment the Nirvana team. So, Margi, over to you.

Thank you, Laura. So I think you're all supposed to have full bellies after this introduction, but guessing that you don't necessarily eat really quickly, well, you may be munching your whole way through, so maybe you picked up the popcorn. But, yes, back again to talk to you is some about Nirvana, and I'm going to be joined by Emily Dreyer, our Head of Customer Marketing; and John Gallagher, whom you've already met, Head of Contact Center, to talk to you a little bit about Nirvana. But let's first of all kick off with, what is it -- what is Nirvana? We talk a lot about it collectively. And many of you, I'm sure, are somewhat familiar with how we describe it. And I will just give you a moment to admire this very sweet little roly-poly puppy on the screen. Who is in -- hedonistic state, a state of Nirvana. And that for Trupanion is when we add pets and our follow rates. Those 2 rates of addition for pets and growth are outweighing our cancellations at any given time. When we get to that state, we're in a state of perpetual growth as a company. And the only way we can get there is by having fantastic brand experience, a fantastic member experience and ensuring that we're living up to our value proposition for our pet owners and for our partners. So now that we've recapped on Nirvana, what does it mean? And how do we look at it? So specifically, when we think about our progress towards Nirvana, and I know this is of great interest to everybody, we think about the gap. We think about the pet gap. So specifically, what I want to show you is how that pet gap has changed over time. And then John and Emily will join us to talk more about what does that look like in terms of the progress we're making. So what you have on the screen is, let's first of all look at the blue chart here. So this is the gap to Nirvana, and this is where you want this bar to be as tiny as possible and effectively a zero because that means there's no gap. So you can see going back 5 years to January 2016, our gap was at around the 2,000 -- just over 2,200. Now the other thing I want you to pay attention to in this chart, if you will, please, is the yellow line. This is reflecting -- if you look at here at the right axis, this is reflecting the total book of pets that we have at any given time. And if you follow it all the way through to today, you're going to see that's over 500,000. So this is looking specifically at the Trupanion subscription book of business. And what you can see in the green line is the trend line. So how is that trending? How are we performing overall? And you can see that we started to make some really good progress. And you can see that trend line is coming down a little bit. Now there is what we call here our COVID impact. So this is the experience that we had in March, just after we all hit -- COVID hit the country and hit North America and the world. And you can see it had an enormous impact on our cancellations in a very, very small window of time. What happened very quickly after that is we start to see that come down. Look at this. This is under the trend line and then look at what happened in May. So this is where you guys really -- in terms of getting excited about performance and the impact of what's been happening in the business, this is where we get excited because this tells us that we're doing something right, a lot right. So what's driven this big decline? What's driven this improvement over the last couple of quarters? And how do we do more of it are questions that we're asking every day, and I want to hand over to John who can give us more insight into how he thinks about it and the impact of members who are trying to cancel when they call to cancel with us. So John.

Yes. So like Margi said, one key part of the Nirvana puzzle is when people request to cancel, we have the opportunity to save them, and we want to do that. So as you see, the blue line on the bottom is the -- dating back to March '19, the save rate. And then you'll notice in orange line there, which I'll talk about here in a little bit. But first, I want to talk about the 3 dots in there, so we kind of have some context. Back in October, it was really a broad-based approach of who is handling cancellation requests, and we decided to really strip down and make a specialized team once again for the retention team for these types of calls. And then in December of '19, we decided to change the comp model around, kind of like we did with the sales team a few years ago, to really drive the right behaviors and the right metrics for Trupanion. And then the last dot there is when we finally staffed up the team enough, we kind of finally then did separate them. And from that point forward, the retention team really has been handling the vast majority of cancellation requests coming in when the person is requesting to cancel and providing that customer service, that member experience that we really want them to have. And so you can see that the 2 trend lines past that last point have really been trending in a nice direction. And honestly, the retention team is already a little bit above where there is still a very small subset of member experience agents taking cancellation requests. The vast majority is handled by the orange line now. And some of these agents on the retention team have save rates north of 40%, which is really, really encouraging. And so that's kind of why you saw the drastic drop-off in cancellations over the last 2 months, because we've been able to make significant strides with saving pets. And now this is only 1 part of the Nirvana puzzle. So I'm going to pass it off to Emily to continue.

Awesome. Thanks, John. So as John mentioned, the team has made some really strong progress in terms of our cancellation rate, and that's represented by the blue line on this chart. The other piece of Nirvana is our Refer a Friend and Add a Pet as a percent of the book, and that's represented by this purplish, reddish line here. And as Margi was alluding to, Nirvana's hard because we're growing Refer a Friend as a percent of the book while the book also continues to grow. So to do this, we're really doubling down on the experience that we're providing to our members while also being focused on specific markets and accelerating their growth to [ purchasing -- mention ] Nirvana. So 1 market that you've likely heard us talk about before is Atlantic Canada. And before I get too far into talking about Atlantic Canada, I want to address how you see the strategies first. So keep in mind that this is one territory, and it represents 15,000 to 20,000 pet wares. The chart that we were looking at before represents about 500,000 pets. This chart is also monthly. So it will -- it shows you how volatile and noisy Nirvana metrics can be on a monthly basis. But I think it's important to show that going back to 2017, we've really been flirting with that Nirvana line for quite a while. And looking at 2019 as a whole, for the vast majority of the year, this territory was in Nirvana. Now we made -- we switched back a little bit in our progress towards the end of last year and the beginning of this year certainly as we saw some impacts from COVID. But the past couple of months, we're really starting to widen that gap again. And that's a true testament to Shelley, who's the [ TP ] in that territory, and all of the account managers and their teams driving software usage as well as the member experience progress teams here in Seattle. But you -- so you've heard us talk about Atlantic Canada. What you haven't probably heard us talk about before is that one of our largest markets has actually just crossed the line into Nirvana last month, which is really exciting, definitely hits home for me because I am actually from this market. And I'm just super proud of Michelle Rosen, who's the territory partner, and all of her team in building such strong relationships with the hospitals. It's also a big testament to the market leader, MJ, who you've met, and her entire account management team in ensuring our software usage is strong. And definitely, all of the member experience focused teams in Seattle being hyper-focused on this market. So without further ado, the market that we're talking about is Boston. Yay.

Excellent. Excuse the fireworks there because we didn't know how -- if we were in the office, we would have been jumping around and celebrating, as I'm sure many of you are. Thank you, Emily. Thank you, John. It's really exciting to see this crossover in a market as large as Boston. I'm surprised the patriot isn't continuing to talk, but I'm going to take over now and kind of move on. So -- but I echo the statement that Emily just made. A huge effort from Michelle Rosen and her team, and that's taken a long time to get to this place. They're very excited. So with that news, we're looking at progress in Nirvana across the business. And throughout today, so far, you've heard some snippets of what's been happening with COVID and how do we move forward to the business? What do we take from this as positive signs of recovery. So a couple of things I want to just revisit that you've heard of already. So we're going to compare a very tight area of time. So comparing May 2019 to May 2020. We're comparing this window of time because if you look at anything in Q1, there was a pretty huge impact from COVID. And if you look at April, it was in very, very early stages of recovery for COVID. We think that May is probably a little bit more stable. So I want to just show you the early signs that we're seeing as a business. Our lead growth year-over-year was up 5.3%. Really important point to make here is, and as you heard Dusty and the team alluded to before, animal hospitals are not yet back at the level that they were beforehand. So they're actually technically -- their wellness visits, they're way behind the curve. So when we make a 5.3% increase in our lead volume at a time when our biggest lead volume drivers are not actually active, that's some really good progress. So a lot of signs to be happy. So when they come back on board, you should see that lead growth really move well into double figures, which we know is the goal for this year. Our conversion rate, you've seen already, has gone up. There's a difference from around 13.7% to just over 14% in terms of our overall conversion rate. So really positive when you can combine the 2 and very excited. So overall, you combine the 2 together and you've got a net pet growth of 9.1% year-over-year. So this is kind of starting to show that as we come out of our homes and as we start to go back to the veterinarians, as we start to adopt more pets and get more sociable and start doing a lot more as a world, you can see that the early signs are there. What's also exciting is we got all this growth. Unsurprisingly to us, the price sensitivity is not there. The average revenue per pet has gone up by 5%. So all very positive and moving us in the right direction. But 1 thing that is really critical to note, and John and Emily both just touched on it in their presentations, is when it came to it in March, and actually, Darryl mentioned this earlier, too, we needed to double down on what we could actually do, the things that we could control. There was an awful lot that we're not able to control when it comes to the lead visits, the lead volume. So we can't make all of the veterinary hospitals open up and start issuing exam day offers. We can't do anything about the fact that the world has closed down. What we can do is make sure we're there for our members. And we've talked a lot about the impact of what happens if we can answer the phones the first time they ring. What happens if we can pay the claim within seconds so that they never have to worry about being out of pocket. All of those things came into action and some, and the teams rallied massively to secure our highest conversion rate from moving from 98.56% in May 2019 to 98.83% in May 2020. And you saw the impact on those charts of what that does for the pet gap, but also what it does when you look at the individual save rates of people they're calling. There is never a better time to have insurance than a time like today. Who knows what's going to happen next? Who knows what's around the corner? You need to be able to budget for the care of your pet, and that message has been heard loud and clear through all of the work that you've heard of from the teams today. So this is all great. Why am I telling you this other than it feels pretty good, and I wish I could press the firework button on my phone again. But what's even better than fireworks is the net pet growth. So when you put all these things together, the revenue comes to net pet growth. Year-over-year, we saw that improve by 29%, which is huge, very exciting and something that I hope that you all will take a lot of excitement from, too. So without further ado, I've spoken enough on this topic, we want to bring on the members of the team from Nirvana. These are some of the things that you can be speaking to them about. So if you can take a note of those topics, then it's -- it will be a great way for you to know who's going to be speaking to what. I think we have some questions already coming through. But I will hand over to Laura -- or, no, actually, I think I'm introducing people. So, everyone, turn on your cameras and be a Brady Bunch and meet many of the Nirvana faces and teams from across the business, and you'll see that they are a host of different teams who are here to answer your questions on our Nirvana journey. So I'm going to kick off with introductions. I'm going to start with Tricia. Tricia, hello.

Hello again. Tricia Plouf. In addition to, obviously, overseeing the Finance team, I also am fortunate to oversee the Claims teams, the Actuary and Analytics team and Technology team.

Thank you, Tricia. So let's start with the Claims team. Hi, Catherine.

I'm Catherine Frazier, and I'm the Director of Claims. Been at Trupanion since 2014.

Thanks, Catherine. And Denise.

Yes. Thank you, Margi. I'm Denise Bean. I've been at Trupanion for nearly 2 years as the Corporate Controller and oversee payroll, our corporate statutory accounting, treasury and also our accounting ops team, which includes scale payments.

Thanks, Denise. Welcome. And Mary, hello, welcome to the team. Oh, we can't hear you, Mary.

All better? Wonderful. Hi, everyone. My name is Mary Rothlisberger I lead up our Analytics team, really partnering with all the folks you see here to use data to help support their initiatives. And I will be celebrating my 7-year Tru anniversary next month.

Thank you, Mary. And working very closely with Mary is Jessica. Hi, Jessica.

Hi. My name is Jessica. I lead up the Actuarial department here. I have been in -- at Trupanion for almost 7 years as well. Mary and I were hired pretty close together at the same time. And most of what I do here is pricing, along with reserving and other things that actuaries would do for insurance companies.

Thanks, Jessica. And a face that many of you will be familiar with because he comes on and steals the show pretty much every single time. So we got in there first with the Nirvana, the net pet growth. But Mr. Jaw spearheads our technology for their software. Hello, Dave. Welcome back.

Thank you, Margi. Hi, everyone. I'm Dave. I've been here for 6.5 years, and I lead up our claims automation efforts as well as pretty much anything that utilizes machine learning.

Thanks, Dave. And Emily, we just heard you present. Would you mind just giving a quick intro, please?

Yes. I'm Emily. I head up our customer marketing team, and I've been at Trupanion for 7.5 years.

And she's from Boston, in case you didn't catch that. And part of Emily's team, Kathryn was with us last year. Kathryn, welcome back. Hello.

I'm Kathryn Mailler. I'm also on the customer marketing team working on member communications, and I've been at Trupanion about 6.5 years.

Thanks, Kathryn Erica, a new face on the screen for today. Welcome.

Thanks, Margi. I'm Erica. I'm a leader supporting the phone sales and retention efforts, and I've been here for just about 8 years.

And MJ, Shelley and John, welcome back. You guys need no introduction. So let's get straight into questions. Laura?

Yes. That's great. We have a question from the line of David. David, I have -- you can go ahead and ask your questions.

Can you hear me? So the question is about automation. So in his shareholder letter, in the shareholder letter this year, Darryl challenged the team to automate 50% of claims this year, up from 32% last year. So I'll ask one question so Margi doesn't have to remember 5 of them. I might have a follow-up. But what does it take to get there? What does it take to get to 50% from where you were at the end of 2019?

Thank you for your consideration, David. It's obviously in me. I definitely can't do very well with question remembering. And so I can hand this straight to Dave. He can answer that question far better than I can.

Sure. Thank you. We're close. We're actually right at 45% already. I believe we started the year at 38%. And we'll probably get there before the end of the year, so a little bit ahead of schedule. We picked up some unexpected efficiencies along the way, which is always nice. What does it take to get? Well, I'll probably answer your question, even going past 50%. It's a combination of things. What we're really trying to do is not -- the way I look at it is not that we are trying to accomplish a task. More so, we are trying to replicate the decision-making process inside the brains of the humans that actually do the work. And it's not always obvious how to do that better. Sometimes, it's as simple as presenting our machine learning models with information that they did not have before. Sometimes, we get a freebie and the state of the art of the technology moves forward, and we all benefit from that. So those are a couple of examples. None of them are straightforward. All of them take a lot of idea generation to both start and finish.

I'll just chime in here briefly just to make sure everybody has a little bit of context. What David is referring to, and him and his team have done an excellent job on is, claims that come in through our software and getting that to over 50% as quickly as we can. About between 30% and 40% of claims come in through our software and the rest don't come in through our software. Dave, can you talk a little bit, while we're working on getting more software installed, which will naturally increase that number of overall claims, what we're doing with machine learning on claims that don't come through our software to drive efficiencies and customer experience?

Absolutely. Sorry if my answer was unclear. But I was talking so far about claims coming through our software only. Claims that do not come through our software, also very exciting is that we'll probably be automating our first non-software claim within the next month or so. And when I say non-software, I mean like someone takes a photo of an invoice with their phone and send it in. So we have to go through an extra layer of machine learning that actually recognizes where the text is on that invoice and kind of transcribes it digitally, at which case, we run it through our regular automation algorithms. So as Tricia said, that makes up the majority of our claims. And similar to starting automating our software claims, we'll start slowly -- we'll start slow once we know we can do it, and then we'll just ramp it up over time.

Just I'll just close the loop on one more thing because we talked earlier about Nirvana and customer experience driving a lot of our excellent retention rates. So I just want to close the loop on claims quickly because we do have a portion of claims that don't go through automation. And honestly, that team has been knocking it out of the park the past 2 months in terms of our service levels. Catherine, can you just very quickly touch on some of the great service levels we're seeing right now, even if automation isn't involved?

Yes. As Tricia said, that's been an area of focus for us and something we've -- the team has done a really great job at in the last couple of months. Software claims, both automated and manual, are typically done in less than 5 minutes and often within seconds. So our nonautomated and non-software claims are a big opportunity for us to have a huge impact on the customer experience. And so far this quarter, we've paid 70% of the non-software claims within 48 hours and in fact about 80% within 3 days.

Thanks, David. So we'll take a question from [ Bill Baker ] who's asking, in looking at the slide presented earlier, looking at referral cancellations, can you expand on the specifics of how you promote customers to tell friends not to cancel? And what has succeeded in this effort? And what has failed?

Yes. Thank you for the question, [ Bill ]. I've been kind of -- we'll kick off this response by echoing what Tricia just said. The reason that you certainly get that peak in overall percentage improving from an Add a Pet and Refer a Friend perspective is because we're able to provide people the best possible member experience. Not just something that's okay, it's only going to warrant anyone educating their friends and telling people about it, if they have an amazing experience. So that, for us, is no more complicated than that. But in doing that, it's really, really hard, as Emily said. So Emily and her team have been working furiously to try and promote a number of initiatives since last year when we spoke about it. Emily, can you touch on a few things that you've done that, to [ Bill's ] question, that helped both work from a Refer a Friend perspective and some that haven't gone quite as well as you're expecting over the last 12 months?

Yes. Definitely. So to speak to some of the things that maybe haven't worked so well first, I can end on a positive note. So I think it was end of 20 -- no, end of 2018, actually, we tested a campaign where we sent bandanas to a certain segment of our members, like a surprise and delay, they were branded and holiday themed and beautiful. And it just didn't work. And there wasn't -- I don't think there was enough, like, necessarily incentive or we didn't have exactly the right segment based on what their experience have been. So I'd say that's probably an example of something that we've learned a lot from. And so we pivoted last year, and definitely this year, to try and make it just really easy for our members to refer their friends at the times that make sense for them. So some things that have worked really well -- in the last session, you heard Bradley talk about our webinar efforts and what we've been doing on social media. And that's had a really significant impact on our referral rates as well. We promote the webinars to our members, and it's just a really easy way for them to tag their friends and tell their friends that, oh, this is who I have. I'm with Trupanion, you should look into it as well. And then lastly, we've also launched a -- about maybe 1.5 years ago, launched a program where we can actually reward our members when they refer friends, and that's started to uptick quite a bit as well.

Thank you, Emily. And I mean, I think kind of the main point there is how do you create that wonderful experience that's worth sharing and worth telling about. So I don't want to labor the point, but it's important that everyone knows that we figured out how, and it's now going to be how do we maintain those levels that Catherine and her team will be delivering in actually outstanding service to our members and makes them want to tell people. So Emily, in line with that, I know you've been working really closely, you and your team with Erica, and specifically to touch on the point in Bill's question around cancellation, so Erica, can you speak a little bit about how have you been helping that cancellation rates? And what are you doing from a contact center perspective to help really nurture people?

Yes. Thanks, Margi. So in conjunction with Emily's team, we have piloted a team of 6 folks who we are calling the nurture team. And what the nurture team is doing is they're testing different ways to reach out to members to connect with them in those first 90 days, help educate them, help set expectations and create a relationship that will hopefully last their pet's lifetime and their relationship and their partnership with Trupanion. And so that's really gotten us to a point where we are able to bring that connection to a whole 'nother level and really make an impact for our members in those first 90 days.

Great. And now I'm going to welcome back into the conversation, Dave, who had a question. David, you're good to ask your question.

All right. Sorry. I have an infant in my hand, so if you see or hear anything. So we've been finding a massive move from traditional -- or not massive, but a large move from traditional PIMs to cloud-based PIMs, particularly related to like COVID-related telemedicine, new functionality that is required on new PIM system. So -- and also, in addition, we found some market share wins from some of the smaller players like Hippo, Rhapsody, et cetera. Anyway, could that throw off your goals for Trupanion Express? And then I have a follow-up question -- or an unrelated question actually on the keep and convert. I think last year, you guys talked about how -- in terms of convert on the phone, how communication of the product was a really important part of peak. So if you guys kind of run through, I think, some of the things that you talked about, like, last year was like communicating, it doesn't cover preexisting conditions. And can you talk about the progress you've made there? Sorry, I'm asking 2 questions, but I thought I have opportunity since I have an open mic now.

I have a pen now. I took David's feedback seriously. So that's kind of keeping track of question. So if we kick off the software side of things, I'll speak to that, because Chantal is on the call at this point. And thank you for coming back on and asking questions, Dave. So no, it doesn't. It doesn't change our plans at all. We are fortunate enough to have some very strong relationships, both with IDEXX and Covetrus, who have a lot of cloud-based PIMs themselves as well as knowing those that you speak of. So Hippo manager, Rhapsody, we are always trying to find ways that we can improve the client experience in the hospital as are all of the purchase management systems provider, and we will continue to work with them as best we can and get them onboard. Obviously, there's a technology roadmap involved in that. So very much on course with that, very aware of it and I'm happy to be playing an active role in that. When it comes to PIM conversion rates and the things that the transparency in the areas that we really can kind of shine in, John, can you touch on that please a little bit? And then maybe hand off to Emily, who can speak to coverage summaries with Catherine, I can't find her on my screen, to talk about the transparency that, that presents.

Yes. Sure. So it's mostly around the 90-day, I think, right? The transparency and the sale of the policy to the caller. So over the past 1.5 years, we really have made a lot of strides in training and really kind of taking off the guardrails of handle time and really wanting our agents to have a conversation with the member. If it takes 5 minutes, great. If it takes 25 minutes, great. Whatever it takes to make sure that whoever is on the other end of the phone fully understands what they're buying for the life of their pet and really kind of instilling in them that we are here for the long term. If we go back a couple of years, it was much more of just getting the pets in. So our conversations have changed somewhat over the past 1.5 years on to kind of instill the value of Trupanion, of why Trupanion, and we've actually been able to make some pretty good progress within the 90-day space with an improvement of a couple of percentage points over the past year. So it's really encouraging. And I mean, I will pass it off to Emily so she can kind of talk about the coverage summary piece of it, which I think was also an additional layer of transparency into what Trupanion offers the member.

Yes. And sorry, before we go to Emily, that's just kind of -- sorry, John, that was me. I can really on direct traffic. So Catherine, could you please give us a high-level overview from a claims perspective the coverage summary? And then Emily, perhaps, you can speak to the member experience that, that presents.

Yes. So coverage summary at a high level is a snapshot of the pets' medical history before they enroll through any waiting periods. We've used these for years in the claims department to improve efficiency, particularly on our software claims, and they've also been a big piece of why we're able to automate as many claims as we are. Recently, in the last couple of months, we have pivoted to making these more member-facing to improve the transparency to our members that they also can understand their coverage and want to expect better. And I'll hand it off to Emily to talk more about those efforts.

Yes. So I think I might be speaking to 2 separate things. But in terms of the coverage summary piece, a lot of that is -- some are partnership with the Claims team and making sure that we're working together to communicate with members in a really transparent way. And a lot of the work that we have done with coverage summaries has led to changes in how we communicate overall. So the idea behind coverage summaries, as Catherine mentioned, is really making sure that members understand exactly what their pet-specific coverage will look like for the life of their pet. And that's important because -- not only just in the first 90 days but moving forward to make sure that they have a really great experience with us years down the road when they end up having to claim. And in terms of the sales piece and the onboarding piece, I think, again, that just speaks to a really strong partnership with the sales team and making sure that we're understanding how those conversations are going with our members so that our team can continue those conversations and pick up any pieces to make sure that they understand exactly what they're covered for and what they can expect from us in the future.

Awesome. Thanks, everyone. We have another question here from the line of Greg Gibas. Given you had an improvement in the difference between out of pet referrals and churn in 2019 over 2018, do you have any goals for improving this gap in 2020? And how should we think about annual improvement targets for this metric?

Yes. We have many goals, and we increased them in Q2 when we realized it was an area that we could really focus on and hunker down on. In terms of kind of overall, what we should expect to see, and I'll take this and keep it at a pretty high level, but you should expect to see us really driving towards closing that gap. We have some markets, so having Boston, and we've got Shelley here, who's our territory [ progress ], been in Nirvana for 3 years. So when we think about that, kind of we know we can get there. So really, it's the case of how many more markets can we get to that point, and there are a handful. I think that actually came up earlier in the questions as well, and I probably missed that one. There are a handful of markets that are getting closer to that stage. But really, we're looking at it across the business in how do we make sure that we can bring the whole business there. It's a very lofty goal, whether we can do it this year or next year, we have to look at that. But understanding that Refer a Friend is something that is pretty limitless. There is a cap on how many people will add a pets to their households and how many pets they will have. Some people have many, but they're not going to continue to add for, like, 10s and 20s of pets whereas we have a lot more opportunity with refer a friend. And then cancellation rates, I think we're doing a fantastic job as a team -- John's team from a retention perspective, savings in pets. It's a combination of this team's efforts.

Awesome. A question from Jon Block, again, from the box, and I'll just put another plug out there that if anyone would like to ask a question live, you can go ahead and jump to the front of the line by raising your hand. But we'll start back here with the question from Jon Block. What is the overall level of penetration of a market when it crosses into Nirvana? And is there a penetration rate that you consistently see when the market reaches or approaches Nirvana?

That's a great question. And as you saw from the chart I showed earlier, very, -- we're seeing a difference. So it depends on the size of the market. So as Emily touched on her presentation, there's a certain percentage that will be -- you have to take a percentage of book as we're looking at. So as a percentage of book, if that book is really big, that percentage is relative, obviously, but it's a lot more to do. So the tipping point from the data that we've looked at a high level is anywhere between 4% and 5% of penetration is where you start to see that shift. But it depends. It depends on the geography. It depends on a lot of things. But ultimately, if you don't have the software, it's not going to get there. And what I would love to kind of call on Shelley to speak a little bit to, what you saw in 2017 when you first entered that state of Nirvana and kind of what for you was the tipping point that you saw in your market?

Basically, the Nirvana first hit in Newfoundland for us. And it was the clinics really getting involved in talking about medical insurance to their clients, and then their clients using it, liking it and actually loving it and telling other people in the waiting rooms and stuff. And at the specialty referral centers, they were talking about it there, too. And then we also noticed on the social media sites, there was a lot more chatter about whose medical insurance provider they had, and it was Trupanion. And then when people would ask questions, members of Trupanion were actually answering the questions and not going to Trupanion, but just saying, "Hey, well, this is what I found with my policy." So we started seeing a lot of that. And as the territory is growing in 4 provinces, we're starting to see that happen actually now in the other provinces. And it's just -- the momentum is building and building and building. So yes, I mean, part of the key factor is the clinics like us, the clients love us and they're willing to share it and talk about it. So yes, that's part of what we've been seeing on the ground.

A question from Danny Kibbi of Phoenician. How does Nirvana affect PAC?

How does Nirvana affect PAC? It's really great because it helps improve our adjusted operating margin, so we can spend more of it. I mean we're doing -- Emily, do you want to speak a little bit about the areas that we actually invest into from a PAC perspective for Refer a Friend?

Yes. Definitely. So Refer a Friend has one of the most efficient PACs of all of our referral channels. And when we're investing into Refer a Friend, it comes in a couple of different areas. A lot of it is with social media, as Charlie mentioned, getting our members to talk about us online and come to bat for us sometimes and tell their friends. So really kind of facilitating that conversation. Otherwise, the spend can also be around general customer experience and making sure that we're supporting our members through their experience with us through various different touch points. But I'd say most of the spend tends to be around social media.

And when we think as well, I think it's fair to say, isn't it, Emily, that when we can kind of carve out the budget, we've got -- you've heard earlier in the conversion team meeting, we have our core growth on innovation. We haven't really invested a lot in Refer a Friend marketing before.

Yes. That's true. The spend has definitely increased quite a bit. We have a really solid core budget as we would think about it. And this year, we have definitely been doing a lot more in our growth and innovation spend categories as well.

And the really great thing is, because it's been performing so well, the things that we're in growth on innovation have fallen straight into core, which is great. So that's kind of where we find new channels and new distribution that will help PAC. And the IRR on that is really, really strong. We like it very much.

Awesome. A question from Andrew Cooper, Raymond James. There have been some changes in the cancellation policy recently. When we think about the May retention number, what impact might that have had? And how much of the March-April churn may be into the funnel of folks looking to cancel and led to more of a single month lift in May?

That's a great question. No. I think if I read between the lines, Andrew, one of the things that you're specifically asking about is failed payments and the impact of fail payment. And I would just -- before I hand over to Denise who oversees all that for us, just so you know, all of the numbers that you saw across the board earlier in terms of Nirvana metrics, retention rates, they were inclusive of a forecast of fail payments that would have impacted. So you're comparing like-for-like. We're not kind of putting any rose-tinted glasses on when we look at this. So Denise, if you can share thoughts on the changes we made in the cancellation process, that would be great.

Sure. I'd love to. Thank you, Margi. Appreciate it. Yes. As COVID progressed in Q2, some of the states requested that we extend the grace periods. And so we moved all policies to 60 days. Recently, California, which is the larger state for us, actually requested longer. So that, along with the change to 60 days, will move about 800 policies from Q2 to Q3 to cancel. That being said, we've also seen a lot of positive trends. So fewer members are actually incurring the fail payment process, in general, roughly about 80 a day, which is pretty large. And we are really, in this space, we do better than the average company. So some really good data points there. In addition, the recovery rates are very similar to pre-COVID, so nothing concerning from that standpoint. And lastly, I'd say, in Q2, we've really been able to take the opportunity to look at the messaging and seeing some really positive improvements just by adjusting some of our key touch points and then using -- increasing the use of text messaging. So this is definitely an area that we'll continue to look to refine and improve so that we can have some strong impact to the overall customer experience and fail payments.

Yes. I'll just add one thing here, specific to the question that I want to make sure comes across. Obviously, we've had a bit a variance with COVID over these months. And like Denise said, we've seen fewer customers eventually entering failed payments. And we don't know how that trend will continue as possibly consumers spend changes as more people go out. But one key takeaway that I want to make sure people gather from all this information is, like Denise mentioned, one major factor in failed payments, we believe, and to our results, is the communications and better touch points that we've added to this process. And for cancellations overall, we are seeing much better results in our save rates, as John mentioned in the chart earlier as well as a lot of focus on 90-day. So while we do have this small change in just the timing of failed payments, overarching all of this, irrespective of that, is very positive trends that we're focused on continuing as we emerge out of the COVID environment.

Yes. And I was -- I mean Tricia took the words out of my mouth, I just want to kind of do a nod as well to the things that Catherine has been doing because part of that overall cancellation process and to make sure that we increase our focus, as I alluded to, this is something we can control. We actually can hold on to the people that chose us. We can't really help it if there aren't people out there looking. There happen to be people looking to. But Catherine, would you mind speaking a little bit to the work that you've been doing on the value and those renewal notices as they come up because that's a sensitive time for people. And there is a natural -- one might think that this would cause a higher cancellation rate than a lower. But if you could speak to that a little bit, that would be great for the audience. Thank you.

Yes. So all of our communications are built around consistency and value. We want -- whether you're getting an e-mail or talking to somebody on the phone to provide the additional value like you've probably seen in the Why Trupanion packet that you all got, within those communications in the time that makes the most sense to receive them. So we want to give our members the contacts that they need, whether that's with a rate increase or failed payment on what they can do next or better understand why that's happening, how it's happening. So we've absolutely been incorporating more conversational tone into all of our messaging and making sure that we're weaving in that value messaging in different stages of the journey from the start.

Great. A question from [ Janice Scandi ]. For members with lucky pets, how does Trupanion convey the value of having pet insurance when those members haven't filed a single claim in 3, 4 or 5 years?

What a great question. I'm going to pass off to John initially to speak about what happens from a retention perspective and perhaps Erica as well can speak to that. And then Emily, some of the efforts that you've been making to really reiterate the value proposition.

Yes. Sure. So I mean if they haven't filed a claim, that's one of the key things that Trupanion does for them. But also throughout that time, I think we would have touch points with them, whether that's from Emily's team, or if they call into the contact center for any reason, whether that's a billing issue or anything, making it the best experience possible when they do need us for anything. And if that's leveraging chat or e-mail or a phone call, making sure that it's fast and it provides them the best answer possible, that's definitely a key in driving value with each touch point that we have with them.

Yes. And I think from a nurture and a retention perspective, it's really drawing out that Why Trupanion that they felt when they did partner with us and enrolled their pet when they first got insured and just, again, creating that bond and that relationship and educating on how we can be there in the future. Especially if they have been enrolled for 3, 4 or 5 years, and they have not filed a claim, their pet may have advanced to geriatric stage in their life where they are more prone to have something come up. So making sure that they are prepared and they understand how we can be there by their side to support them by continuing their coverage and being prepared if something does come up with their pet.

Yes. I'd say a lot of the same things that Erica said, certainly our approach on speaking to members who we would consider to be lucky. And we definitely, from a marketing perspective, segment those members out and definitely communicate with them differently. We do -- like Catherine mentioned, you all received the Why Trupanion booklet. We pull a lot of our messaging directly from that booklet itself. And a lot of it, too, is just making sure that we are reiterating the value and that just because they haven't used us, there's still a lot of value there. So I would say there's that. And then the other piece is also just offering like other educational content to them as well. We have so much data, and we're really able to give them information about their breed and about their geography and how that might impact their pet as well. So doing more things like that as well for that segment.

Great. Thank you all. Okay. Switching gears a little bit. Can you explain the changes you're rolling out, allowing customers to raise but not lower deductibles after enrollment? What led to that change? And how do you expect the change to affect various critical components of lifetime value: churn, retention, rate of change in ARPU, distribution of ages across the portfolio.

That sounds like a question for an actuary.

I would love to. So I'll answer the drivers of the change and hand it off to John to talk about how that has impacted the other components in terms of customer experience. The reason why we made that change is we were -- as we were digging into our data and looking at it more, a couple of trends stood out. One of them is that pets that stick -- enrollment is a -- at a deductible and stay there actually seem to have a better experience than the pets who enroll at a deductible, maybe increase it and then decrease it again. And what we found is that we're probably getting anti-selected against on the pets that -- when a member lowers their deductible after having it be at a high point, there's a lot of selection, anti-selection in there. It's not a very small -- I mean it's not a very big percentage of our pets that do it, but they are a very expensive piece. And we didn't think that it was fair -- if we're trying to be fair across all of our price categories, that it would be fair for, say, the $0 deductible or the $100 deductibles to be eating up the experience of the pets that were maybe anti-selecting against us. So it's a small percentage. It was an expensive percentage, and it seems like the natural thing to do is, say, you could always go up, but going back down is not something that we think is in anyone's best interest, except for the few people that want to take advantage of that.

Yes. And then from the contact center perspective and the sales perspective, we've actually seen some very positive things from ARPU from very early retention numbers because that's a switch that hasn't been around all that long. But ARPU, like I mentioned earlier, has seen a nice little lift. This is coming from the sales agents understanding that when they have the caller on the phone that they need to make sure that they're selling the policy at the value that the member can purchase it at and want to purchase it at versus shopping out of their own pocket because knowing that they can only raise their deductible is kind of the journey that they are on now. From a retention standpoint, it's actually better for the retention team because it gives them more price points in a conversation. If there is a rate change or if there is something that the number is requesting to cancel about, it actually gives them more price points when they're calling back in for that. So there's some encouraging signs there as well. And then ARPU, obviously, is correlated with the deductibles. And so if we're selling lower deductibles because they can only move it up, it's kind of helping us lift ARPU as well.

That's great. Thank you. So a question from [ Andrea D'Adanno ]. Is it fair to assume that healthy/lucky pets are mostly young pets and that sick/unlucky pets are mostly older pets. Is it insightful to look at an average claim by pet age?

That sounds like another question for an actuary.

Yes. It does. Here's how I would answer that question. I don't know that it's necessarily true that all -- that only young pets are healthy pets and only old pets are unhealthy pets. Really, what we see is that we have pets of all ages claim and create claims. A lot of the conditions that we cover can show up at any point in time: allergies, ear infections, knee replacements or cruciate tears. And even if we think about how -- if we were to think about the experience by age, these are a pretty expensive group. They eat things that they shouldn't. They fall off of things that they're not supposed to do. Pet owners get really worried about their puppies and take them to the vet all the time. I mean I know I do. By the time my dog was 2, I just told them to put a Band-Aid on it. So anyway, just we find that puppies are expensive. They do tend to get healthier by the 1 or the 2-year old. That being said, they're still eating things. They're still getting ear infections. They're still doing stuff that they're not supposed to do. So I think that answers -- I hope that answers your question.

Yes. We have one thing here, getting back to this discussion as well as the unlucky pet discussion and lucky pet discussion earlier. Jessica is absolutely right. Something can happen to a pet at any time along their life pathway, and we see a lot of them as puppies. We see some as they get older in life, but it's not like human care where it gets exponentially more expensive. That being said, I mean, nobody adopts a puppy and hopes that they're unlucky so that they can get a return on their investment. That's not really what people are setting out to do. So while we do have great messaging around the benefits of Trupanion if they happen to have a lucky pet, it's also just that reinforcement of the value that we will be there if something happens. But a consumer's mindset is to be very happy if they have a lucky pet, knowing that we will be there for them if they don't, not hoping for something to come up so that they get a return.

Great. And just a follow-up question to that from [ Andrea ]. Given that Trupanion is growing rapidly mostly by enrolling in their pets, is it fair to assume that the book of pet is currently skewed towards younger pet? And as Trupanion goes towards steady state and the age distribution of the book becomes more balanced, what does this imply in terms of the young -- subsidizing the older pets and would average premium per pet have to raise to offset this dynamic?

Jessica?

Yes. I'll take that one.

Do you want to give Mary a go? it's up to you.

She can chime in, if there's extra to add. It's a very good question. What I would say -- the way I think of it is we actually -- we are growing rapidly. We've always grown pretty rapidly every year. And we've always had a focus of enrolling younger pets. The -- since the inception of time or at least since I've been paying attention to the data, the majority of our pets have always been under 2. So what we're doing now, although we're calling focus to it, isn't actually that different from what we've been doing the entire time or what has been happening the entire time. I look forward to when we would say the average age is hitting an equilibrium. I think we're getting close. What we've seen is that our average age of our book is not changing that much or very quickly. I don't really -- I think that's really all. I was trying to think if there's anything -- what other questions you asked that I might want to put in there. And so I don't think I don't have anything to add...

I think I may add to build...

Yes. Go for it.

I was just going to say, to build on to what you were saying, Jess, right? We've been -- we found that young pets have the best experience, right? And so we've targeted enrolling young pets for a long time, and we'll continue that in the future, too. So looking forward to what will the mix of business look like in the future, we'll continue to target young pets as we go forward. They just -- like I said, have the best member experience. If a puppy enrolls at 8 weeks old, like my dog [ Gretchen ] did, she has no preexisting conditions. And nobody in the industry is covering preexisting conditions. And so I have that peace of mind to know that anything unexpected will be covered by Trupanion.

I think as well, a key part of our strategy, to kind of dovetail into both what Jessica and Mary said is when we think about the practice management systems, and our goal is to get access to every single one of those new pets that's entered into the practice management system. That doesn't always mean it's a puppy. But the vast majority of them are. The vast majority of the pets enter a new hospital going in the first time because they are little and they need to have their vaccinations, and they get a first checkup. And -- but when you go and adopt a pet from a shelter, it may be 2, 3, 4, 5. So you're always going to see a natural element of a mix anyway in the age curve of the pets that we're enrolling because we're still trying to communicate to the new pet owner. We're still trying to make sure that we get our message across. But to Mary's point, they are puppies. The best possible experience is to get them is when they're tiny and give them a lifetime of coverage that will give them peace of mind for every pet owner. But you're always going to get a little bit of organic mix through there just naturally with our strategy.

Yes. And I think the key -- the second part of the question was around pricing and around growth and especially -- and Jessica can speak to this, if I miss anything, our Canadian market is a great example of this. I mean we've been -- Shelley has been in her territory for 18 years. And Canada has done a really good job of consistently enrolling kind of those younger pets year after year. And the age of the book is very stable and continues to grow rapidly. And that's really -- we're very close to that in the U.S. as well. Like Jessica said, we do not see dramatic changes in the age of our book year after year, and we wouldn't expect that to impact -- have a big impact on our pricing or our growth if we're really focused on that 70% value proposition and bringing in that right mix of pets every year.

Okay. Thank you. And I welcome [ Bill Baker ] into the question queue of the conversation. You had a question. [ Bill ], go ahead and ask a question. Okay, while we're waiting for [ Bill ] to unmute his line, we'll take another follow up. And we have time for a couple more questions. So if anybody...

Here we go, I unmuted it.

Great.

Sorry. My question is, it seems like a couple of years ago, the -- you got this -- the industry got this surge of web business happening with people pitched pretty hard on comparisons. And so a lot of people signed up with your competitors. And I'm wondering if like our personal experience as a family that we have at home with 2 dogs might not be happening to others and how that might be impacting your Refer a Friend and general penetration. Because our story was we had previously used another pet insurance company, a very popular one, and then they just boosted our premium on year 2 pretty substantially, like, 35%. And I told my wife, hey, call Trupanion because we probably should have been with them in the first place. And she did. And the pet is now enrolled with you. And while she was on the phone, your contact rep, said, "Hey, do you have another dog?" And we happen to have an older dog who's healthy as a horse, and you could run over with a truck and she wouldn't get hurt. And you gave her a really attractive premium and enrolled her, too. So I was like I was amazed, but it seems like you've warned us in the last couple of years of meetings that the industry does raise rates aggressively and that you try not to do that and just do the inflation rate increase, and that seems like a great selling point. Is that something that's helping you at this point? Are we coming over that curve of the initial web penetration of the industry?

Yes. That's a great question. I love the sound of your dog, Bill. I think I have one of those, too, little tank. So John can speak to this as well when we think about the impact of kind of how we introduce that concept on the phone. But I think you're referring to a couple of years ago, we talked about a leaky bucket and how we generate the vast majority of these for the industry. That hasn't changed. And our territory partners going out there having that message, while we've got better at doing, and we still have a long way to go, is making sure we capture the majority and explain the value proposition. But it's not always helpful. And this is a little bit of what I was talking about earlier when the clarity between products and value proposition is not there. So if someone is going on a price-led promise, what they don't understand and appreciate is the age curve. And in that Why Trupanion book that we're now giving you a third plug in this one session, you'll see how our pricing promise really does evolve for a member. And if they are with us long enough, they will appreciate that, absent the value. John, when you think about how we sell in the contact center, how is the team positioning that? And to Bill's point, do you find that that's easily understood? And are we improving the way that we're using that messaging to really get across our unique selling points?

Yes. I think we -- as the phone sales team really highlight the key differences for Trupanion against anybody else, we really do have a truly talented sales team that now is over 50 people. It was just -- 1.5 years ago, it was like 30 people. So it's all really, really good. And really, what it comes down to, I'm happy that they added both pets on the phone call. That is definitely important. And so kind of those kinds of things like that. And also, I think when it comes to Refer a Friend, one thing we really haven't tapped into yet but I know is planning with Emily and her team on, is really leveraging the ambassador program that she has and really incorporating it into our sales process. And that's something that we are working on currently, and we'll be working on for the rest of the year that will hopefully leverage and really start to see a nice uptick in Refer a Friend enrollments, post the enrollment conversation that we're having with them on the phone.

And just kind of to wrap this up quickly, when we think about the video that Bradley shared with the [ tune up ], we're trying to find ways to articulate the value proposition that speak to those particular points around birthday -- what we call internally as birthday pricing, but the fact that we're pricing for the life of the pet. So a lot more of our messaging is around lifetime. And the pricing that Jessica and her team do is lifetime pricing. So kind of how do we really demonstrate that and articulate it, and it's something that we're making progress on. We have a fair way to go. But you're right, it is a unique part of Trupanion. We are the only provider in the market that does this now. So we're looking at how we can make a better job of really reinforcing that point with every single touch point we can.

Okay. That's great. Can you give some examples of the kind of information that you share with veterinary clinics that help them run their practices, provide better care for their pet and potentially improve their economic outcome?

I can. I think MJ can speak to this, too, and so can Shelley. This is really a nice, old question for our former veterinary consultant who isn't on this call. So let's kind of kick off. MJ, from your perspective and from your team's point of view, I know that you spearhead a lot of the ideas that come from the field and thinking about the messaging that we provide hospitals, can you speak to what that looks like? And then maybe, Shelley, you can talk about what the demand is and what the need is from the hospitals themselves?

Sure. And we're branching out these categories as we go with having that field consulting team and that consulting access to that. We understand what hospitals are looking for and asking for. But ultimately, I think one of our main tools is that we're talking about the value of an insured client, what that means to the overall experience, not just from the bottom line but from the client satisfaction, from the team member satisfaction, from the turnover of the team, all of those fringe benefits of having and increasing your insured client base are some of the focuses that we're putting on from a vet-specific community on how we can help them in that area and then expanding out into different areas. And that's from the consulting approach of what other resources do we have internally when we think about Steve's initiatives and Blue Heron's initiatives that we can help provide us ambassadors -- ambassadors to the industry. Those are the things that we're talking about with that hospital. So it's very across the board. And Shelley might have some more specifics on the ground -- boots on ground.

Yes. On the direct level, when we're trying to message medical insurance in the clinic level -- you have to excuse me, [ I'm natural light in this light 20 to 6 years going ]. It's really important that they understand that we're here to help them. And everybody in that clinic has faced the mean clients, the clients who can't pay, people who are trying to do suboptimal treatments and things that are not necessary. And having an initial client base will really solve that problem in the sense that it will help those people not be frustrated. And sometimes it's very scary to work in a clinic. I was in one doing a call with the vet owner, and the guy kicked the door in because he didn't want to pay his bill. And I mean, when you have a medically insured client base, it really prevents a lot of that from happening. It won't stop it. Don't get me wrong. But definitely, it will help. And stress in the clinic level, if we can stop that at any point, I mean, really, that's what we want to do.

Yes, I think that you're totally right, Shelley, as -- yes, Nova Scotia is obviously getting dark. Thank you for staying on the call. The -- I think the main point, if you want to ask questions like this, specific to lead and the messaging for hospitals, Dusty will be hosting a happy hour, so please free to bring that question with him. But it's really about reiterating the reason we're here, the problem that we're solving and really kind of hitting home on the fact that when people can't budget, regardless of the time but, particularly today, making sure that we have an appreciation at the hospital level that we can unlock the access to the care that the veterinarian is trained to do to provide, otherwise it would be compromised.

Great. Just a few more questions here. Are there other pet insurance companies that also price policies based on the expected claim cost over the life of the pet versus the next year or 2? And if not, why?

Because it's really hard to do. Jessica? You want me...

We are the only ones that we know of. There was one, and they've pulled away from it mostly because it's really hard to -- what Margi said, it's really hard to do. If you want to think about a policy as an annual policy, and we're going to cover this for 12 months and then think about it again in another 12 months, it makes a lot of sense that you would want to use what age is a pet right now. We don't want to think about it that way. That's not our business. We really want to make this a whole life product. We want to insure a pet from beginning to end, and it just makes more sense to do it that way. And I just don't think a lot of our -- I don't know, but I would guess that a lot of our competitors are thinking about this more on a once-a-year basis rather than an entire lifetime basis. It's my guess. Also it's hard.

Great. We have a question from the line of [ Matthew Handor ]. The May retention rate was extremely impressive. You noted recovery rates have generally trended back to pre-COVID levels. How should we think about churn going forward? To a prior question, I didn't fully understand if any weakness in April would offset the strength in May. Can you help explain recent linearities and forward expectations?

Yes. So I think we think about churn overall and the performance improvement, as we've said a few times, and I really hope if there's anything that anyone takes away from this, we've really proven that when we really focus on the things we can control, which is our member experience, we can make a massive difference in the growth and health of the business sustainably. What we now need to do in the big test is, as the market starts to come back up again, as our lead volume picks up again, as everything returns to normal, how do we resource effectively and efficiently to keep at the levels that we've been at. So Catherine talked about some incredibly impressive stats from her team. They will continue to go up, so how do we resource. And the same thing for John and his team of picking up the phone when it rings does not happen very often. So I think we all can attest to that. So keeping an exceptional level of experience is going to be a challenge from a resource perspective and executing that. But aside from that, all of the things that Denise mentioned from a failed payment perspective, Emily's team and Kathryn, looking at how can we make sure we're messaging appropriately. We've got so much focus on this as a business now. As we start to get the momentum coming through, the team understands what we need to do to keep it at that level. And now it's a case of how do we do that.

That's great. And one final question, and then we'll take a quick 5-minute break and jump into the last Q&A session for the day. Does experience suggests that hospitals with automated claims grow faster than others? Are there other factors to consider?

That's a great question. MJ, would you like to pick that up and then maybe, Mary?

So crossing over a couple of points here. So one, when Dave talked earlier, we were talking about claims automation and expanding that to non-software hospitals. But right now, we're focused heavily on claims automation. And our experience for claims automation has been in those software hospitals. So when we talked about that customer experience, and specific to the Nirvana topic that we're talking about, we're paying claims in minutes. When members aren't having to pay out of pocket, only a small portion at checkout, that not only leads to a great customer experience, so they're telling their friends and they're having those conversations that are driving this Nirvana initiative, but it also shows that vet hospital how important this is to continue to talk about with their clients walking in a door. If one member is getting that experience, why wouldn't they want that experience all the time? And that covers on those fringe benefits, not just the bottom line, not just the numbers, not just the data behind why an insured client base is beneficial to a hospital, but also why that experience is beneficial across all planes. So I would say, anecdotally, absolutely, because we can also see the increase in same-store sales that we have in our software hospitals. But looking forward to paying closer attention to that across all of the other hospitals as we expand that automation in that faster claim service, even faster than it already is when we're talking about 30 hours.

The thing that I could add, too, to what you just said, MJ, is thinking about, looking from a data perspective, what do we see in terms of behavior when hospitals have an insured client base. So a few things that my team's dug into is looking at how often pets are visiting, right? And we've noticed that insured pets are visiting more often, again, getting that best level of care. The other really exciting thing we've seen with hospitals when they have our software is that pet owners are more likely to buy, say, prescriptions from the vet hospital. So we found that 90% of prescriptions are bought directly from the veterinarian at the time of checkout as opposed to going online to 1-800-PetMeds or something like that, and taking revenue away from that hospital. So again, highlighting the real value of our software and helping pets get the best medical care and then that revenue continuing to go to the vet.

Okay. Everyone, that wraps up the question-and-answer session for team Nirvana. So team Nirvana, thank you so much for joining us today. We are going to take a quick break here, and we will be back with members of the team from corporate development -- corporate and business development. Again, it says here a 10-minute break. I think in the interest of time, we're going to break for about 5 minutes, and then we'll be back. So everyone, please join us back in 5 minutes. [Break]

Hi, everybody. Welcome back. We are going to kick off the third and final Q&A session for today, dedicated to all topics Corporate and Business Development. We have about an hour dedicated to this session. So again, if you want to ask questions, please feel free to raise your hands, of course, with the questions via the Q&A box. Moderating this next section is going to be Asher Bearman, our Chief Strategy Officer. So I'm going to welcome Asher.

Thanks, Laura. Thanks, everyone. So this is our last question-and-answer session. So in the spirit of making sure that we answer all of your questions, I'm going to keep my remarks here fairly brief. But overall, this section is going to cover all aspects of our business that aren't directly related to our subscription business. So it will talk about our other business segment, our back-office functions, support functions, like legal, regulatory, financial. All questions in these areas are fair game. And in addition, we can talk about our employee benefits and other business development channels. And we may have some exciting updates for you on lots of those. So we should have the business owners of all these available. And I would say, Laura, if you can invite them on, we will do quick introductions. And while that's happening, I'll just quickly introduce myself, and then we'll go around the room. So my name is Asher Bearman. I'm the Chief Strategy Officer. I've been at Trupanion for 7 years, full time. And I've been working with Trupanion since December of 2006. I have ultimate reporting responsibility for a lot of our other business type of activities. But the goal for this session is, obviously, for you to talk to the primary owners. So I'm going to try to talk as little as possible. And if you have further questions for me, you know how to reach me. With that, maybe I'm just going to go across my screen. I'm not going to introduce Darryl because, hopefully, you know who he is. And next up is Randy. Would you like to briefly introduce yourself and say what you're the owner of?

All right. I'm Randy Valpy. I've been with Trupanion just since January now, but I've been in the animal health space for about 20 years, 17 of that in pet insurance, running 2 different pet insurance companies, in Canada. And I'm going to be doing some of the underwriting tools that we're doing up in Canada and low- and medium-marketing products.

Great. And next up is Chris with our IT apartment.

I'm Chris Cappelletti, the Chief Technology Officer. I've been here since May of 2009. My teams are responsible for building and buying our software platforms, including our hospital software, gathering data from those platforms. So our BI group can produce lots of metrics you've seen today as well as using the data in interesting ways, so claims automation. We also manage the infrastructure to make all of that work, including the teams that helped us transition to our home workforce in the current pandemic world.

Thanks, Chris. Next up is Wei. Would you like to introduce yourself?

Yes. Thanks, Asher. Hello, everyone. My name is Wei, and I lead a team that is responsible for external financial reporting and technical accounting. And I'm also responsible for our SOX program and the internal controls over financial reporting. I have been with Trupanion for about 1.5 years.

Great. Thanks, Wei. Joni, would you like to introduce yourself next, please?

All right. I am Joni Casady. I've been with Trupanion a little over 2 years now. And I work within the people operations team, and I lead our people and culture team, which are HR business partners, all of our amazing team member benefits and HR operations.

Thank you. And I think you've all met Margi now and Tricia as well. So next up is Gavin. Would you introduce yourself?

Hi, everybody, Gavin Friedman. I lead the legal and regulatory team as well as the people operations team.

Thanks. Shawn, how about you next?

Thanks, Asher. I am Shawn McWashington. And I lead the strategy around our group benefit efforts, and I have been here since November, so just over 8 months now.

Great. And now the only member of the team that speaks fluent Australian. Steve?

Good morning, everybody. My name is Steve Rose. Just -- I wasn't going to do the stereotypical g'day. But in terms of just a quick background of myself, a veterinarian owned -- founded my own veterinary hospital, led into the IT space and data science space with the onset of IT. For me, it was really about the data that led me into insurance and worked for a number of years with the largest pet insurer here in Australia on an agile development team around the payment space at [ Reactivitz ]. So for me, that led me into Trupanion. So anything Trupanion Australia, that's me.

Thanks, Steve. And last up, Tim, would you introduce yourself, please? You're on mute. You're still on mute.

There. Hi, everyone. Thanks, Asher. I've been with the company about 8 years as an employee. Prior to that, I was involved in different roles with the company. And then before that, I was involved in the original Series A raise, all the way back to the beginning with all the other investors in Series A.

All right. With that, Laura, we'll -- we can take some questions. I think you're on mute, Laura.

There we go. I will start with a couple of questions that were submitted to the Q&A box. But again, we'd love to welcome some of you onto the screen or hear your voices. So please feel free to raise your hands. Let's start with a question that was submitted ahead of time, which is from [ Steven Lee, Chapada River ]. What is the thing that concerns you most about the long-term business? And what steps are you taking to address that concern over the next few years?

That seems like a question for probably Darryl to start with. Would you like to field that one?

Sure. Thanks for the question. My opening comments today, we're looking for long-term shareholders who really understand our business. I hope we've reinforced that we've got a large under-penetrated market and we've got a good business strategy today and strategies moving forward. I think the biggest challenge we have is execution, which is do we have the right people with the right resources on the right seats of the bus. And the goal of today is to give shareholders direct access for you to be able to talk to the people that own the initiatives. And I think having the right people and the right culture will continue to be the biggest execution challenge that we'll have for the next 10 to 20 years. But hopefully, you found during the day that you have confidence.

That's great. And actually, along that topic, we got a question submitted from John Godin. Can you comment on how you've been able to preserve the overall company culture across the organization in the past few months? And how do you see that playing out in the future as a percent of the team working remote decreases? Any anecdotal thoughts from the team on how the culture has evolved, stayed, improved over the past few months would be helpful.

Gavin and Joni, would you like to speak to that?

Sure. I can start. Obviously, at Trupanion, our culture is deeply important to us. I think we have a pretty special place to work. I think our team members are really proud to support pets every day and they think about the hard work they do and the great experience they create. And it's important that our culture is equally as good, if not better, that their experience is wonderful. I think we have a strong cultural foundation, which helped us pivot to working more remotely really easily. We already had a high number of team members, especially in our Claims team, who worked all across the U.S. and Canada. So we had some good practices to share and replicate across other teams. We've also been really purposeful about increasing the level of communication across the teams. We have weekly all-hands meetings now. Most teams are touching base daily, including all the senior leaders you've met today. And we've gotten a lot of unsolicited, positive feedback from our team members about how much they appreciate time with leaders, increased communication and feeling really supported and successful working remotely.

I guess the one thing that I would just add to that -- thanks, Joni. I agree with everything you said -- is it helped a lot to be an early mover to work -- to have everybody work from home. I think I've made our team members feel both cared for and supported, but also there was something positive about being proactive and not following other companies. And I think it really was pretty deeply meaningful to everybody. And then on the communication increase, I would say, yes, we've increased the quantity of the communication. But I think at top to bottom, this has been an opportunity to also improve the quality of the communication, and the communications have become more effective. And my personal sense is our company is feeling more connected to each other than before. And just from my role, it's been really gratifying to see. I'm just really proud of everybody, the way we've all come together and the feeling of being connected that we have today.

Thank you both. With that, we are going to take a question from Shweta. Shweta, go ahead and ask your question.

Okay. I have a question on the Australian market. Who's the biggest player right now? I know Darryl has mentioned that it just -- it kind of resembles the Canadian market, but can you talk about your top 3 priorities for Australia probably over the next 2 years?

Go for it, Steve.

Sure. Look, in terms of the first question, who's the biggest player or who's the biggest competitor, here in Australia, the penetration rate is a lot higher. It's about 6% to 8% of the market that's dominated by one particular player which essentially involves most of the brands in the market. So they are retail, not focused on our vet space, which is what Trupanion here in Australia is really focusing on, driving same-store sales in veterinary hospitals. So in terms of our focus over the next 2 years, really, we're still in our trough phase. We launched back in April 25 last year, so just over 12 months here in the market. Our real sole focus is still in pharma to drive same-store sales from what's been on average about 1.2. We really want to hit 3, 3 same-store sales per partnered hospital in a number of consecutive months before we feel confident that we've really got things dialed in and ready to go to that next phase. So once we've got that sorted, then we're going to push wider into other geographies and other areas. At the moment, we've got 12 partnered hospitals, which we're driving deep relationships with.

Great. And our next question is going to come from the line of Andrew Cooper. Andrew, you can go ahead and ask your question.

Great. Hopefully, you can hear me a little bit better this time.

We can.

We can.

Okay. Good. Sorry about that. I think it was mentioned maybe once or twice earlier in one of the earlier presentations, but maybe talk a little bit about your thoughts on a different ARPU product. And I know you mentioned protecting sort of the Trupanion brand and one Trupanion product and strategy to the consumer. So how do you think about potentially entering those other ARPU arenas? And what could we expect from a timing or communication perspective as you do sort of tinker in those spaces?

Yes. Thanks, Andrew. Great question. Randy, do you want to take that first? And Margi, feel free to chime in on it, too.

Sure. Thanks, Andrew. So right now, we're currently working on the development of those low and medium ARPU products with the hope that we'll launch those late this year, early next year in Canada, play within Canada, see how they perform, tweak them as necessary and then look at other potential countries to roll it out, including the U.S.A. The products will be very, very different from Trupanion. There'll be no affiliation with Trupanion, but they'll meet a different need. They'll look for people that are looking more price-sensitive versus coverage, and there's lots of other players playing especially in the medium ARPU product area, but the low is something that I think will be very niche to us at least initially, and it's going to be interesting to see how it plays out in the coming months and years.

Yes. I would just add -- thank you, Randy, completely agree. I think one of the things that we pride ourselves on Trupanion is data and being able to have access to that data and really appreciating kind of what the volume looks like for each of those different market segments and being able to work together. So Randy's team and the kind of the rest of the -- kind of the core subscription team, kind of making sure that we have a real appreciation for how do we clearly articulate the differences between the products even though there is no marketing that's associated with Trupanion and what other products would look like but ensuring that we're able to clearly articulate the value proposition, whether it's gold, medium -- gold, silver or bronze, so excited to see how we can help to really educate and take the industry to the next level.

Can you give us a little bit of color maybe on just what some of the product changes might look like? I understand from a competitive standpoint, you don't want to give too much away. But is it higher deductibles? Is it only certain items covered or anything like that, that you would just sort of be playing with that you could give us a little bit of a flavor for?

I think Darryl...

I mean, Andrew, I'd just like to add on to that question because we had a couple coming to the Q&A box that are on similar lines, just more specifics around the low -- how you will compete at the low end of the market.

I was watching Darryl shaking his head. So Darryl, do you want to go ahead and take that one?

The only thing I will tell you is our underlying value proposition of paying out $0.70-plus on the dollar will be consistent across our low and medium ARPU. So we -- although the product coverage will not be as great and it will not be with the Trupanion brand, they will have high underlying value propositions. And beyond that, you'll have to wait and see.

I had to try.

Okay. Great. Let's go back, take another question here. From [ James Reed ], in the 2014 Shareholder Letter, Darryl quoted Warren Buffett about his attraction to low-cost operators and insurance. Do you still believe you are the low-cost operator in the pet insurance sector? And what are your sources of competitive advantage, in particular against other vertically integrated players like Nationwide?

I do, but it sounds like a question for Darryl.

I'm going to hand it off to Trish.

Sure. When we think about being a low-cost operator -- and if someone else wants to chime in on how we think competitors' financials look, feel free to do so when I'm done because we don't have a lot of transparency into that. But I will tell you everything we do when we talk about that target margin profile is to do things as efficiently as we can and return the most value to our customers. And I think being within 2020, getting fixed expenses to 5% is a testament to that, scale in our variable expenses as we have and then driving efficiencies through, particularly, claims automation, not only with software claims but you've heard today trying to do non-software claims. And automated claims are much less expensive than the other routes that claims take. And then the other piece of it, which this question alluded to, when we own our own underwriter, as we do, any fee that would normally be paid to an underwriter, we do not have that. Granted we hold capital. But we don't have that. And that can be upwards of 10%, 15% of revenue for some of our competitors, and we take that amount. And that's part of their 70% value proposition, which we're now raising as well. So how exactly each of those components compare to a specific competitor? I can't really speak to that, but we -- everything that we do here is to be -- do things as efficiently as we can without sacrificing customer experience.

Great. Thank you. So we've got a couple of questions in here. So I'm going to try and combine them. Can you give an update on the EDO program and specifically the EDO program in California and where that stands? Thanks.

Gavin?

Sure, happy to. So just to level set, I think everybody knows right now, we have a thriving, valuable, active EDO program in California, whereby if a pet is physically examined by a veterinarian, the pet owner can activate a companion policy and get immediate coverage. There's no waiting period, and there's also no enrollment fee. We have -- at a high level without getting in the weeds, we have different iterations of our Exam Day Offer program in different parts of the country. And we've asked the California Department of Insurance to approve a change in the current California program to conform to the way it works in some other states, which would be, in essence, a discount and deferral programs. You get a discount for a year and we defer the collection of month 1 premium to month 2, and that filing is pending.

And as a reminder, EDO is our acronym for Exam Day Offers.

We've got a follow-up question on the topic of Australia and whether there is more detail you can provide in terms of some KPIs like conversion. And how is conversion in that market? And how does that compare to conversion when Trupanion entered the U.S.?

Sure. I'm not sure about the conversions when -- Trupanion entered U.S., but I can certainly give some more color in terms of what we're doing here in Australia. So in terms of online, our web conversion is pushing over 10%, 11% and 12% in certain months. And phone conversion, it varies month on month. Again, we're only young, but it varies from 30 up to -- and some of our phone sales has been 60 and 70 depending on the month. Certainly, that's been one of our challenges. I think in the last sort of 6 months is ensuring that we've got the right activation and conversion experience to affect our same-store sales. But the -- there is -- also, I think it's worth pointing out there's a slight difference, I feel, in terms of the consumers and the understanding. I think that comes back to the penetration rate. So the consumers themselves have slightly different questions. They're a little bit more understanding of what pet insurance -- or in terms of medical insurance or pet insurance in Australia offers them because of that penetration rate. So the questions themselves are a little bit different. So I think that's what's driven more of the online conversion rates being a little bit higher than anything else, but I'm not sure about how that equates to the U.S.

Yes. I can answer that, Steve. I completely agree with you in terms of penetration rate. If we look at markets, as they start to develop, those conversion rates would naturally go up, and we saw a little bit of data leading into that today. One point to note for the group: the Australian sales team is actually based in Seattle. So kind of the point that Steve is making there, kind of the connection there probably when we think about how great our phone sales team is, it's a very different audience. So you've got the same people having the conversation about the product, which is interesting itself. The U.S. product does convert much higher, as you heard John talking about, on average, but we do also get some really strong conversion rate over the phone. And web conversion in Australia conversely is better than the U.S. performance on average. So speaking to that point about content, the journey that, that market is on, but this is where we get one great benefit that we did appreciate we would get, being able to share that data internally, understanding, learning from each other's experiences and how we can continue to grow together collectively using those data points.

Sorry. I just -- I think it's worth also saying that the consumer experience or the feedback in terms of speaking with Seattle has actually been really positive. For the vast majority of people, it's curious because of the accents and because of the superior service. So Australians are used to a pretty poor call center experience. And when they receive someone who's actually friendly and nice and wants to help them, it's like "Whoa, nice." So...

Great. And just a quick comment before we move on to our next question from [ Richard Russo ], who said, "As a long-term shareholder with an appreciation for mission-driven cultures, should I be concerned? No Trupanion employee have a dog or cat joining them on the call today." So this is a challenge. Surely, someone on the screen can find a pet and bring them forward. But with that, we'll move on to the next question, which is, should we expect any changes to the regulatory requirements Trupanion and/or American Pet Insurance Company face when pet medical insurance gets its own insurance category? For instance, would the required cash retention rate change? And would there be increased transparency requirements? So maybe some more details on that front.

Thanks, Laura. Again, thanks, Shawn, for helping out. My dog was asleep here for most of it, but I think she's up playing with my son. Gavin, would you like to take a crack at answering this question for us?

Yes. I'd be happy to although it's hard to compete with Shawn's dog. So let me try and have a little reset because I think what the question is getting at is a couple of different components. So I think a lot of the shareholders know right now there is this initiative to draft a model law that will be dedicated to pet health insurance. And there are 3 sort of primary objectives that will tie to the question. Objective number one, I think, from our perspective, is to really grow the category, right? I think if you look right now, veterinarians are free to talk about flea medication, behavioral therapy, diet, you name it. And yet when it comes to insurance, we've got this body of law that is unclear and constrains the level of the conversation that a veterinarian can say. And the model law, if we can get it passed, I think, will open up avenues for veterinarians that have a lot deeper conversations about medical insurance for their pets. The second is the question asked, inquired about -- will change in regulation lead to greater efficiencies as far as how much cash we need to set aside to pay future claims. While getting a separate line for pet health insurance will not in and of itself lead to that, I do think the regulators are unanimously -- there's unanimous agreement that there's a need to do this because right now, Trupanion is the only company into which everybody has visibility. And once we have that dedicated line of insurance and you can see everybody's financials, claims, et cetera, I think a natural next step is to go to the state regulators and say, "Let's have requirements regarding how much cash we need to set aside that are more logically tied to the risks that are presented by this industry," rather than right now in this overall catch-all of inland marine, which is where the financials are currently reported. And then the third part of your question was tied to -- I think that was something along the lines of transparency to pet owners. And I think, yes, that would be the third goal of the model law. Certainly, it's in Trupanion's interest. I think it's in the entire industry's interest to have -- John Gallagher said this a while earlier, to have pet owners understand exactly what they're buying when they buy it, before they buy it. We all want that. And so I think all of those come together pretty uniquely and is the reason we're strongly supporting passage of this model law.

That's great. Thank you, Gavin. So a question from Maria Ripps. I want to go back to the product evolution discussion from earlier. Can you please expand on ancillary products that you have in mind, what some of those are, and how they would fit within your core subscription approach?

Yes. Sure. Maybe I'll high level this. And I think it's a good opportunity for us to talk about one of the key ones that we've been working on and that we're getting closer to launching, which is our Landspath food product that we're working in partnership with another company on. At a high level, we believe we have an opportunity to increase our share of members' pet spending by providing complementary products and services. So if we see an opportunity to address problems for pet owners and that's not otherwise solved by the industry, we'll consider researching and developing those products or services ourselves or in partnership with others. We use the same IRR targets for those investments as we're evaluating whether or not to do those of 30% to 40%. And the Landspath initiative is one of those. So with food, we have had a long-standing hypothesis: the high-quality, portion-controlled food can lead to better health outcomes for pets. That aligns with our mission, and we also believe healthier pets also live longer, have fewer accidents and illnesses and have higher lifetime values. And improving the health outcomes reduces the cost of our insurance, which increases the overall value proposition. So by investing in a pet food company, we have now the opportunity to test our hypothesis. And if we're correct, long term, we believe the Landspath food could be a significant revenue channel for us. And it also opens the door for us to provide discounts for other subscription foods that improve health outcomes whether or not those foods are affiliated with Trupanion. So we've made a Series A investment, venture capital style in what is disclosed in our financials as a variable interest entity investment. It's a minority ownership position with a buyout right based on a predetermined formula. And the primary thesis for that and the reason we chose that company is because the management team has extensive experience in developing high-quality food, in particular supply chain, production and distribution of those foods. And we partner closely with them on marketing, including product design, go-to-market strategy and back office support. So I think with that, maybe I'll turn it over to Margi. And Margi, you can talk a little bit about what's unique about the food and what's our go-to-market strategy.

Yes. And hopefully, you didn't catch the brand name as well in that. So that's kind of -- I'm going to kind of talk about the go-to-market strategy. That's what I'm here. I'm here to talk about food and the food initiative. So as Asher said, our business is based on monthly subscription. We do that really well. You've seen that. And so we base that on the cost of local veterinary care, the breed, the age. And that data we get through that, we can see that health care over a lifetime. So by partnering with Rayne Therapeutic, who are the diet manufacturers that are well-known in the veterinary industry for producing food in a very different way that allows them to really help the health and well-being of the pet. These are the nutritionists we bring in, and they go and find -- they're working with the best of the best of the best. So to Asher's point, when we said to them that this is our hypothesis, we needed someone to help us, because we've got lots of data and we can see this month in, month out, monthly recurring, but we don't know how to produce food and we certainly don't know what the benefits of what works, what doesn't work to health. So to answer that first point, Asher, about the -- what are the things that are different about this food, first of all, it's manufactured in a very different way without price being a factor. So if you -- the second you remove that price constraint, you can really do great things with food. And what the team has come up with is a food that has a huge reduction in AGEs -- now I'm going to -- excuse me, I have to look at my notes here. So AGE stands for advanced glycation end product. And what this does effectively is it reduces inflammation. And inflammation, no matter what were those colitis -- I mean any -itis effectively is going to make you ill. It makes you unwell as -- and I'm not going to get into the science because I don't know the science. That's why we've partnered with Rayne, but just so you know, this food is -- it's not cooked at a really high level. And we're creating a suite of products that effectively will allow a pet to have the best possible food they can, and that nutrition is being triggered from the veterinarian. So the whole go-to-market strategy -- this is not a direct-to-consumer play. This is going through the vet channel to reinforce the value of that veterinarian in the life of a pet to continue to get the data that we get today. So we can see that we do actually have data that proves when you feed this pet on a monthly recurring model, whether it's this food or any food, the impact on the pet's health, and we hope that it can add years onto a pet's life. So that's what we're testing. That's the hypothesis. So we are just about to launch. We're kind of getting ready to figure out how do we take the messaging and all of the details that go around partnering with Rayne and the partnership that we have together to create a brand that is a vet-led brand to consumers. It's something that will resonate that will get higher referral rates. We'll continue to have -- continue to have lifetime value that will allow us to have that IRR that we're looking for. And now I'm going to reveal the name of the brand. So give me one second. I'm going to drop the -- I'm going to drop my -- I have to drop my virtual background because the box I have to show you is going to get lost. So hopefully, you can see my office now. So this is what the brand is going to look like. It is Landspath and the brand -- this is going to be the actual box that they will receive -- the person will receive. You'll see messaging on there that talks about what's inside. And effectively, what it's going to be initially as a test is this will arrive on the doorstep and inside it, you're going to have breakfast, lunch and dinner all in one. You can decide how much you give your pet each day for breakfast, lunch and dinner, but effectively, that's one day's portion. And we're excited to test that messaging. After that, we will then work with the veterinary industry to figure out, okay, how do we help the veterinarians speak to this adequately and give them the confidence and the details they need? And then after that, hopefully, you can walk into your veterinarian and you will see -- you will be spoken to about it. So it's going to take us a little bit of time. We're excited about it. We think the partnership we have with the Rayne team to create this brand is very exciting. It uses our best skills and their best skills together and really helps to create a very different world for pet nutrition. So I think -- hopefully, that answers the questions about ancillary products. If you think about the benefit of having Trupanion and a food and the benefit that if you feed your pet this food or a food that we can record on a monthly recurring revenue, you get a discount. Again, that value proposition significantly increases. So when you think about that holistic pet care, that is our overall strategy to help the well-being of the pet. This is a major part of that. So we're excited to test it.

Awesome. Thank you, Margi. Great. Shifting gears a little bit, we have a question from the line of [ Daphne ]. When do you see the business getting to scale?

Trish?

Sure. Yes, it's an interesting question. We've been seeing this happen for, frankly, a long period of time. If we go back in time a bit, our fixed expenses were probably at their highest level right after we IPO-ed in 2014 just based on all of the initial kind of staffing and expenses that we had being a public company. And so our fixed expenses in 2014 were 17% of revenue. And at that point, we were communicating a target of 5% of revenue. And so we've been chipping away at that every single year and making progress. So I mean the short answer to the question is we've been making progress every single year. I think 2016, we got to 10%. And I would say especially over the last 2 years, we've seen that come down more dramatically, particularly with purchasing this building that we have our home office in, in 2018. So I would say consistent progress but particularly in the past 2 years to get to the scale that we have today.

That's great. Thanks, Trish. And management had recently begun discussing opportunistically buying back stock. Have your views on this changed at all in the past few months?

Trish?

No, no. Our views haven't changed on this. And our views haven't changed on this for many years. We were finally able to execute on it. I don't remember the year -- I'm sure Darryl does, that he wrote in his shareholder letter that if our buying back stock at our share price is well below intrinsic value and it's a good return, it's something that we would look to do. That was quite a few years ago. And so we did put a plan in place, and our goal would be to always have a plan in place where if our stock price is trading well below our calculation of intrinsic value -- and you can refer really to shareholder letter for more details on how we think about intrinsic value calculation. If that difference is such that we think that we can get returns that are at least equal or greater to deploying capital in enrolling pets and we're not taking opportunities away from enrolling pets, that makes sense for us to do. And so we repurchased a little bit of shares in March when our stock was dipping, and that's the first time that the plan executed. And our -- like I said, our goal would be to always have it in place with that calculation. And it is on pause temporarily at the moment. Our primary lender, just due to a COVID environment, has not allowed share repurchases to occur. So it's on pause currently, but our goal would be to get that back in place as soon as possible because our philosophy has not changed nor would we expect it to.

Okay. That's great. Thanks, Trish. And again, I'd love to hear from you -- some of you directly. So if you feel comfortable, please raise your hands. Otherwise, I'll just keep pulling some questions from the box. On the topic of your building, which I think costs about $65 million, now that you are working remotely, would you consider selling the building and remitting the proceeds of the dividend or share repurchase? Why not relocate to a rural city in Washington especially given the greater national average risks of rioting, drugs and homelessness in Seattle?

Trish, do you want to answer that? And maybe, Gavin, you can chime in as well.

Yes. There was a lot of questions in that question. Yes, we did purchase our building, $65 million when we purchased it. Like I said before, it's very strategic. We see this as our home base and culture being important to us. And we're also able to free up some capital that would normally reside in our insurance company by having our home office building help us meet the capital requirement. So that's high level. At this time, we don't have any plans to pursue selling our office building. We talked about culture earlier, and we believe that -- well I think the COVID environment has shown us that we can operate really well in a flexible environment and we likely will have more of that going forward. Many of us, including myself, can't wait to get back to an office environment and those connections and those people. And so we still see a home office, that cultural component being huge to us and we've been very happy with where we're located and how that's worked for us. I would say when it comes to growth -- and it's still early days, but we like to think of ourselves more as a global company as opposed to just a Seattle company. Our claims department, we have people all over the country. About a year ago, we started recruiting across the country as opposed to primarily in the Washington area, and we're doing a lot of trainings remotely and it's been very successful. So I would say if you asked if we're planning on buying lots of buildings in Seattle, I think us reaching more nationally and globally as we go forward is probably a lot more realistic especially as we've tested this, this remote environment. But having a home base here that's reflective of Trupanion has served as well.

Thanks, Trish. And welcoming [ Martin ] into the conversation. [ Martin ], you can go ahead and ask your questions.

I would like to understand more about the new products you rolled out in Florida. I mean you were talking about a strong conversion rate there. I mean can you give a bit more details? Are you tracking close to your 25% that you want to reach? And what ballpark are you there? And then I have a few follow-ups.

Yes. Great. Thanks, [ Martin ], for the question. Good to see you. Margi, would you like to field the 2.0 question?

Yes, sure. So thanks for the question, [ Martin ], yes. So 2.0, in terms of conversion rate -- just so again to high level, the difference between new products, there are a number of differences. One of the biggest ones for us, we believe, is the transparency we're able to provide the pet owner and being able to sell it eloquently over the phone as well as some other substantial changes that you can see. The conversion rate in general is on a really positive trajectory. And so it's not at 25% but depending on the [ co ], what you look at, if you took the blended average. But we're very happy with it if you think it's, what, 2 months in -- 3 months in actually since we launched it and where that can get to you when we get the messaging right on the website and just continue to push more traffic to the phones that we've talked about. At the moment, conversion is kind of all thumbs up, very happy with it. There are a number of different elements of the product that we're testing that will allow us to know if we should be -- when we should be pushing that out there, the main one really being if we can get the strength in the ARPU, we can get the fantastic conversion rate, we can see the lead volume coming through to drive more to the market. And then finally, it's that retention, which potentially we won't know for the next kind of 18 months on what that looks like. We do know that early stages of retention in the first kind of 30, 60 days, that's good. We're just coming up to that 90-day window. So until we get more data on that, we won't really understand kind of what the future looks like and what changes we have to make. What I will say to you that what we have today is that we will end up launching nationally or across North America as we learn and pivot constantly. But I think it's the first iteration of 2.0. It's gone exceptionally well. And that was a team effort across the board. The IT working involved in that was pretty massive. So I think as we look at conversion, lots to be learned that we can then map into our core products, but it's not quite at the levels of the core business yet. It's not far away there.

Could you maybe think that if the conversion is already good, it means that clients like it and then also retention maybe should be also above average?

Absolutely. I mean that's -- yes, that's the goal. And I think one of the benefits of having that coverage summary upfront is knowing very early on if the product isn't going to be meeting your expectations as a member. And so that was the whole purpose of it. Let's kind of see if we can sell it, first of all, which we can. And then can we hold on to it? And what is it like past that renewal cycle? So understanding kind of when we get that full year of data or 18 months of data, are we ready to go? It's not just one metric. It's really looking at those core metrics that I mentioned before we feel confident. But early signs are if conversion rate stays where it is -- well actually improves -- we don't want to say where it is, then we should be looking at what that future looks like for 2.0.

Just -- maybe just very quickly on the reasons. I mean why do you think is it converting pretty good compared to the core product? I mean is it just because you provide this catalog and people get more comfort with it? Or is it rather on the pricing side? Because I mean, clients can choose. I mean how much premium they want to pay per month? I mean what do you think? What's the reason for that?

Yes. I mean the choice is there. So just for those that don't know, rather than having a deductible, there are no deductibles with the 2.0 products, just a coinsurance product. And interestingly, one might have thought going into this that the typical coinsurance -- rate of coinsurance adoption would have been probably somewhere between 70% and 90%, and you could choose anything from 50% up to 100%. The vast majority are choosing the higher end of that. In fact, many of them are choosing 100% coverage, which is complete coverage. There is an argument and we have to dive into it from a research perspective that says if someone is going in and they're saying, "I want complete coverage," they understand the value that they're going to get from that product. And therefore, the price makes a little bit more sense than it might do if you don't get 100%. But the second you talk about that whole coverage for someone, the message is easier to convey over the phone. And then with that, you get your medical history reports or the coverage summary that we call internally, which is really -- as Emily alluded to and Kathryn were talking about -- you know what you will get with your coverage, so no surprises. And if we look at our retention issues that we have across the business, if there's ever any confusion, it's because something hasn't been covered that the pet owner was expecting to be covered. And then they feel that we haven't articulated clearly either at the time of enrollment or when the claim was denied. They didn't know that wasn't covered. So this product removes that uncertainty, and it will tell you right from day 30, this is your medical history. This is what will not be covered. So if it's not on this list, then you're pretty much good to go. And that transparency, if you accept it beyond that point, that retention rate should, in theory, be much higher because we're being completely open and upfront. So there's a number of things. The coinsurance is definitely a different approach for us. And then we couple that with a coverage summary. They're the reasons we think it's an even better product than what we have today, and hopefully, it will prove out to be.

Right. And I mean how long would it take to roll it out in the entire U.S.? I mean how long would that be?

Yes. So we're looking at an 18-month mark ideally so we can get beyond that first renewal, get some good data, get some good numbers behind it. And then who knows, depending on how effective it is, how quickly we go. There will probably be some tweaks along the way, to the way that the coverage is set up just to make it even better than it is today. So maybe we end up launching nationally with 2.2 versus 2.0, but I wouldn't expect to see that launching for the next -- for at least a year to 18 months from where we are today.

Thanks, [ Martin ]. Laura, you're on mute.

Thanks, [ Martin ]. And we'll now take a question from Andrew Cooper. Andrew, you can go ahead.

I figured nobody had asked Shawn a question. I'd make sure he was paying attention. But just sort of, I guess, any thoughts on the trajectory, if it's changed at all in terms of group benefits as well as employer selling? And then is there anything -- I guess as we think about penetration overall on an individual basis starting to climb, is there an inflection point where all of a sudden, you could have a sort of a resurgence in more groups that say, "Hey, maybe this is something that makes sense for us to think about offering or to think about trying to do something with"? Any thoughts around those lines would be great.

Thank you for the question, Andrew. Way to keep me on my toes and make sure that I am paying attention. Being newer to the group, I know we also talked about maybe it would be useful to give at least a very little information about my background. I come to Trupanion, initially beginning my insurance career at Marsh & McLennan, where in my final years, I produced about 90% of new business in the Seattle office; from there went to HomeStreet Bank, where I led a commercial sales division to their first time in profitability in about 10 years and developed a software there. To answer your question on trajectory, we're very much seeing the trajectory of group benefits changing. It is and could be a massive opportunity. What we're seeing in this extremely competitive employment landscape is that employers are really looking to differentiate themselves in terms of the benefits that they offer and thus are looking to voluntary benefits as one of the ways that they can do that. So it's the entire landscape of voluntary benefits that's being lifted not just medical insurance for pets but credit restoration, ID, theft protection, the entire landscape of what we currently consider to be voluntary benefits is being lifted. The ultimate long-term goal, as you mentioned, penetration rates towards the end of your question, is can medical insurance for pets as a voluntary benefit move from where it is to where vision insurance or anything that's no longer considered voluntary move to, if you think back to 2 decades ago where most employers didn't offer vision. That is the long-term goal. We still think that that's definitely a possibility. And we see that in our group benefit employers now that begin by purely offering us as a voluntary benefit and not contributing at all, using a year or 2 to collect data and then becoming contributing members to the premium for the policies of those pet owners.

Has there been any -- and I guess maybe specific to COVID, have the conversations got on pause or anything like that? And has there been any sort of discussions around that, where somebody was saying, "Hey, this is something we were looking to roll out. And now we're thinking we just need to worry about how many people we need to furlough, and this isn't -- this is maybe going to be pushed out a little while longer?" Is that a noticeable setback?

Yes, definitely. It was definitely a noticeable setback. And you're right on. The conversations we were -- we had record numbers of leads, record numbers of corporate group signed up in the first 2 months of the year. And we hit a very noticeable pause for quite a period of time. Conversely, in the last 30 days, we had a record number of leads come in. So it is beginning to pick back up again. What we're believing will happen is that employers will turn their focus to all things employee-related, not having to do with voluntary benefits. But if you think of the way that we get leads in, either we source them directly, they come to us inbound by just googling us or they're brought to us by their health and benefit insurance broker, as revenues to health and benefit insurance brokers have slowed because they can't get new business, their consulting rates and fees are down, they'll be looking to create new revenue streams. One of the ways that they can do that is to sell voluntary benefits to their clients. And so we will be the beneficiary to that, and we expect that to happen probably the fourth quarter of this year and throughout next year when they look to get those revenues back up.

Great. And then a question from [ Andrew Palin ] of [ Roth and Associates ]. Can you please touch on reselling claims automation?

Yes, absolutely. I'll just briefly mention here that Dave Jaw's group has done a lot of work in this area and not only just in the -- in what you heard in the earlier sessions but also in expanding the capabilities of claims automation beyond being tied to our software. So that opens up, I think, even more opportunity for us to resell our claims automation technology particularly where we can help companies that aren't directly competitive with us. But Randy, would you like to speak to that a little bit more?

Sure. Thanks, Asher. As Asher noted, it's a technology that we've developed that is very unique to the industry and very specific to pet and something that we're learning to leverage and, as David said earlier in his talk, how we've even gone from where we were last year to where we are presently and we're going to continue to improve on that. So we're very early days as far as looking to sell something externally. And to Asher's point, it's not just North America, but we're going to look globally. But as I said, very early days, and hopefully, we'll have something to report next year at this time.

Fundamentally though, if we think -- if we can provide an automated experience that reduces the claims cost for another insurer and they can pay us a fraction -- or a portion of that debt, it's a win-win. So we think there's opportunity here. That being said, we don't necessarily think this is -- it's not going to be a massive channel for us in the near term. As Randy said, this is going to be a slow one most likely.

Thanks. Back on the topic of regulatory, is there a danger that having pet insurance as a separate regulatory category to cause competitors to sign up Trupanion less and incentivize them to divert business away from Trupanion?

Gavin?

Yes. Good question. I mean what I didn't say earlier, in the model law, one of the key components that we have proposed and the industry has proposed is that when I was talking earlier about veterinarians having greater freedom to have conversations about pet health insurance, one of the proposed provisions would be a prohibition of any compensation tied to any enrollments from those conversations. And so I think that's really a critical differentiator of this proposal as compared to, for example, travel insurance. And if you speak to the veterinary community, veterinarians don't want to get paid for selling insurance. They're not insurance salespeople. They want to have conversations. And so we're hopeful that, that is the way the law will be enacted and there would be no incentivizing veterinarians for their customers enrolling.

Thanks, Gavin. And we will take another question from Shweta. Shweta, go ahead.

Can I ask a quick question, please, on -- from one of your slides. It's a slide on progress to Nirvana. It's the May 2019 to May 2020, you say net add growth was 29%. Is that the net adds growth for total pets and not just subscription pets?

It's subscription pets.

So subscription pets net adds grew 29% in May?

Yes.

And how does that compare to your expectations?

About 14 points higher than we would otherwise expect. So if you put that in pet terms, what that means if you look at the number of pets that we enrolled and -- the other pets, that gap that we're looking at, the net pet adds for cancellations, we're around 2,500 pets higher, May over May. So it significantly surpassed the expectations and it's all down to the improvement in cancellation rates and kind of how you look at -- well it's not just that. It's all of the experience we talked about from Refer a Friend and Add a Pet perspective that we can hold on to the people that we're expecting but significantly higher than we would typically see. And certainly, when you think about May as it is today, it's not like May before COVID. So to be able to put that against the pre-COVID and see such a massive growth year-over-year, we were very excited about it.

And if I can ask a follow-up on that, please. So if you compare that growth on net adds to any of your prior months, where would this be, the 29%?

So typically -- and I can just pull this up very quickly so I don't give you the wrong information, you would be looking at -- I mean if we just compare it typically to net pet adds, yes, it's about a 15% change. So we're looking at 15% to -- sorry, 8% to 29% net pet adds. So that's just a May to May. That's '18 to '19, May to May. And then May '19 to '20, was 29%. So it's a huge difference. And then it's just taking one snapshot. I do just want to make sure that people don't -- we're not talking about the entire year so far. But in terms of giving us buoyancy and things that we've changed and the improvements we've made as a business, taking that learning and moving that into the year ahead when we can control the revenue because that net pet growth when you look at that cohort chart that you're all familiar with, that's really where we make the difference when we can add that, we can hold on to that net pet growth rather than just adding pets regardless of how many we lose at the back end. That's what really makes it...

Right. But then you -- right. And I'm sorry, this is my last question. So the retention is improving as well though, right? So these net adds grew but the expectation would be that you will hopefully retain and -- at a rate that's improving.

Absolutely. You're spot on. I mean the big thing for us that we get really excited about is the fact that we've been able to make such a massive difference in a relatively short period of time. And even if you kind of look at retention rates through the first quarter of the year -- I mean March is a difficult one to look at but January, February, we've really made a marked improvement. And that's given momentum to really, I think, demonstrate to the business what a difference it makes just to have the exceptional customer experience that we've talked about. And John mentioned constraints before on the call -- on a call where before, we may have had time constraints and we realized that a sales call actually is not necessarily something that would be an impact to the -- if you have a 2-minute call or you have a 20-minute call, it doesn't matter. The main thing is that you get that conversation right. It's exactly the same from a member experience perspective that we understand that maybe we need to spend a little bit more to get significantly more. So the discussions we're having internally -- or I'm having with my team, so with John and Emily specifically, is we're used to looking at PAC and we're used to looking at that variability of PAC and how much it's costing. And we're always looking at the IRR and how do we bring that back in line to make sure we're super-efficient. It's now a case of using that same mindset that's kind of like ingrained in my brain and certainly many of the team. It's well, what could we actually spend in variable that would allow us to get an even bigger return than we're used to. So -- whereas before, we were probably looking at efficiencies and head count and saying we only need X number of people because eventually, we'll answer the phone. I'm exaggerating. But now we know if we pick up the phone in 5 seconds -- yes, John, that's the target, then that's a proper -- that's a conversation, yes, with someone on the phone. I feel like I'm phoning my friend and they're going to answer the phone. And you instantly diffuse any heat in a conversation if they're looking to cancel. And it's the same from a claims perspective, making sure that, that automation -- if we don't have to add head count, the automation is there. It's easy. You get paid quickly. And if you don't have the automation there, making sure that we have enough resources in those spaces. So I think it's really unlocked a real find for us to appreciate that when you have -- and it seems so obvious, that when you actually have that wonderful member experience, people don't want to leave it. You don't walk away from something good. You walk away for something that's disappointed you. And I don't think we've disappointed. I think sometimes, we may have confused people, and now we've understood that. And yes, the retention rate is very exciting.

Great. We have another question from John of Lake Street. At a high level, are there any other potential partnerships or opportunities out there that significantly scale up lead generation and, in turn, market penetration over the long term similar to the State Farm deal?

Yes. I mean in the interest of time, I guess I'll address this one briefly to say that we have no shortage of opportunities, but obviously, especially in the B2B world, these things take a long time. And we're not going to be announcing anything now, but we have no shortage of leads.

Okay. Great. And we're bumping up here against the end of our time, and we have one final question left. So we'll go ahead and take this question from Maria Ripps. Can you discuss what are some other new geographies that may make sense for Trupanion to pursue next? And what are some market characteristics that you're looking for? What would make an attractive market for you to explore?

Yes. Great question. I guess -- I think I'll take a first crack at this, and then maybe I'll turn it over to Darryl to add any color you want and then maybe close us. At a high level, our product exists to help pet owners budget for their pet. So when we're looking at other geographies, and as a reminder from Margi's earlier session, at a high level, our goal would be to expand our market opportunity from 25,000 hospitals to 50,000. Where we would look would be areas where pets are treated as family members and there's a high-quality veterinary care in the area that's hard to budget for. So there are lots of countries like that. The work we've done in Australia, I think, is setting the groundwork for us to start to expand more. It's we're not there yet. So I think, one, on operations side, we still need to get that piece of it dialed to make sure that we're providing a great experience for the partner that we have. And then also, the demographics in that country need to be right. And most of the time, we're going to be looking to partner with a group there in that country that has expertise with that country's culture that we may not have. So those are sort of the -- I think the 3 kind of pillars that come to mind when we think about what are the types of areas we would go. But at a high level, Asia, South America and Europe are all places that we've investigated and we'll continue to investigate. Darryl, would you like to add anything there?

No, I think you did that on the geography. Laura, are we ready -- do we need to wrap up and move to happy hour?

Yes. We are at time. So thank you, everyone, for participating. Darryl, before you close us out, I wanted to make just a couple of quick notes. Those of you who have registered for this webinar should have received links to the Zoom rooms that are going to be hosted by several members of the management team and leadership team that you heard from today. So we hope that you can join us. I just resent them again for your convenience. We'll reconvene here in about 10 minutes just to let this team take a quick break, and then they will go ahead and join those Zoom rooms. And hopefully, we'll present a good opportunity for you all to connect in a more casual setting. And you are encouraged to bounce between a couple of the rooms. So we hope to see you there. And with that, I'll hand it back over to Darryl.

Well I appreciate everybody's effort to be sitting in front of their computer screen for so long. I know we've all had training for the last 3 months, but it's a long day. I hope you've had a couple of key takeaways. One is that in recessionary times, our product is going to be needed more than ever to help people budget and care for their pet. And the other one I think we really need to key on, which was brought up in this -- particularly in the Nirvana session and other ones, is we've -- we kind of made lemon into lemonade with COVID. We doubled down and reinforced and focused on our customer experience. We paid claims faster. We'd answered the phones quicker. And what we've seen coming out of it is improved retention rates, which, net, is having our -- an acceleration in our subscription growth at least for the month of May. We'll have to see if we can continue to have higher levels of customer experience if we're able to maintain it. But it's part of the formula of the things that we're trying to learn, and we're super excited about it. And I hope that a lot of you can join us in 10 minutes in the breakout rooms and get to know the team a little bit better. So with that, thank you.

Thank you, everyone.