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

All right. We're going to get started. Good afternoon, everyone, and thank you all for joining us today. I'm Maria Ripps, Internet analyst here at Canaccord Genuity. And it's my pleasure to introduce Darryl Rawlings, Trupanion's Founder and CEO; and Margi Tooth, Trupanion's President. Darryl, Margi, thank you so much for joining us today, and I'll turn it over to you for some opening remarks.

Thanks, Maria.

Yes. Thank you so much, Maria. We're very happy to be here today. Before we get started, I just wanted to set the scene and provide a little bit of context for those on the call. So Trupanion is now nearly halfway through our 60-month plan which we released a couple of years ago. So during that time, we've made some very significant progress across some critical areas to build some foundation. And Darryl talks a lot about that in his recent shareholder letter. As we do that and we look to the future, it's now time for us to really get executing on that foundation. And we're looking at how do we move forward as a team to make sure we have the right people in the right seats and also we're structured in the best possible way. The way we're doing that is we're taking what was once a very core decision-making unit of Trupanion and decentralizing a lot of those decisions to other areas of the business. And that's really what was behind the leadership changes that we announced last year, last week, sorry. In terms of where the team is setting, Drew is taking a step back, but he's also very supportive in making sure that his team which is very deep and talented as sort of the success. So he will be around for us to help that transition plan. We also have across the business, some very talented and frankly, excited people to be empowered, to be able to help us move to the next level of the organization. That's exciting for us and the team has staged. The last week, we've also had the opportunity to dig into some data, and we wanted to provide you with an update on business trends. Overall, our revenue is coming in ahead of our expectations, which is great news. When you think about our adjusted operating income, we are seeing some softness there, and we anticipate it will come in a bit below the range we shared in February. This is largely when we think about forecasting that invoices post COVID have -- there's been a lot of inflation. Darryl talks a lot about the changes in the industry in the recent shareholder letter and the context is in there. We'll also be able to provide a lot more context in May. But moving forward, we've got the right team. We think about decentralized structure. We're excited about the fact that we're now on a pathway to execution. We have a very underpenetrated market, which no longer is just in North America. We have the international markets now. We have new products, and we're excited to get going with the team we have in front of us. And for more details on any of those things, we've got our shareholder meeting coming up in June. So excited to be able to share with the full team there in Seattle. Darryl?

I think you said it well. Let's hit Q&A.

Got it. Got it. Well, I appreciate the update. I just wanted to touched on sort of some of your commentary, you said stronger revenue, bit softer adjusted ROI. Is that for Q1? Is that for the year? Can you just maybe provide a little bit commentary on that?

For Q1?

For Q1. Okay. And any additional color you're able to sort of share around sort of your outlook for the quarter? Or is that something that you just sort of share when you report the numbers.

We'll share only report. We're spending our arms that we're getting arms on the data digging in, and we'll be -- we're looking forward to showing that in just I think 5 weeks' time.

Got it. And then maybe one other question around that. I guess what has changed over the past 6 weeks since you provided your guidance? And like anything you can share in terms of what drove stronger revenue and kind of same question in terms of what maybe drove a little bit softer margins?

Yes. I mean I think as we go through the quarter, and again, we'll dig in some details in Q1 earnings. The revenue, we know is a combination of our retention metrics and on [indiscernible] to see that continuing to be ahead of our expectations is great. The markets there, we know that we have the best products there to be able to execute on that value. In terms of the softness and ROI like I said, it's difficult to forecast post COVID. We've seen veterinary inflation, we've see invoices. The changes in the patent within the industry are very different. So I think the best of the summary is in Darryl's shareholder letter, and we'll go into an awful lot more detail after the quarter is closed, and we've got the final numbers in front of us.

Got it. That makes sense. So let's dive into our discussion here, and I wanted to start with management changes that you announced last quarter, so -- sorry, last week. So with Drew stepping down effective June 1st and then Tricia and Gavin sort of departing the company So maybe start off by providing kind of some commentary around maybe circumstances around the resignations. And then maybe why did it make sense for you to announce all these changes simultaneously?

Yes. I mean, at the highest level, this comes down to decentralization. So as we think about the business and how we've been moving and operating, as a fast-growing business, when you're smaller, you have a small team that's maybe 200, 300 people, decisions can be made by a small group of people, and you can execute quickly. The bigger we've got and the more geographies we have, it's really important for us to maintain that growth. We've been very focused on ensuring that the bigger we get, we don't set that growth down. And to do that, we have to have a decentralized unit. So you've got some different P&Ls and Darryl could share how we think about that. For us, that's what this is about. It's about making sure we have the right people in the right seats. So we can move with speed, we can be agile. We're able to take advantage of the opportunities in front of us that we're creating right now. And then ultimately, we can get our on the forecasting because we're really digging in at a granular level. There is nothing more than that. And I think for us, we see in the P&Ls when you have that sort of leader of the company working within their many leaders of other teams, whether it's legal or finance, it just helps us to be more nimble honestly setting some success.

We've been growing this company for 24 years. What it takes to get from $10 million to $100 million or $100 million to $250 million and $500, we'll be passing $1 billion soon. And our goal is to continue to grow to get to $5 billion of revenue over time. You just need to constantly evolve and change, but the one thing that remains constant is that you need to manage this business in a very granular way if you're going to be effective. And these are just constant evolutions and excited about the progress.

That makes sense. So your stock has been under pressure since the announcement, which we suspect reflects several sort of investor concerns. And one of those is the possibility that these departures may be an indication of some issues with companies maybe regulatory or accounting practices. Can you maybe address that for our audience? And just maybe talk about that broadly.

There is no -- this is purely about decentralizing and changing the way that we structure the business. There is nothing more than that.

Got it. That's very quick. Darryl, You've been sort of clear about your succession plan for quite some time. Can you maybe talk about how your involvement with the business has evolved and sort of changed over time?

Yes. Over the 20-plus years, I think how I spend my time changes every 18 to 30 months. As the company grows, it continues to evolve. Over the last several years, I have been more about inspection of the company. You need to inspect in a very granular way, you need to have all that information. Some coaching, some onboarding of new people overseeing the strategy. I have been heavily involved in execution for several years. And I'm committed to stay if shareholders want me until 2035. This company is my passion and super excited to see where we continue to build it. And yes, that's it.

Got it. That makes sense. So some investors may have sort of thought that this management changes may make it more difficult for Trupanion to get price increases approval and implement it within a reasonable time frame to reach your 15% adjusted target towards the end of this year. Maybe just talk about that more broadly. And again, how would you address that for our audience.

Well, that one for me?

So it actually makes it easier and better for us. So we say the work that we've done, we talk about a lot of the investments we've made in all of the different geographies and everything within the teams, we've also made an awful lot of structural changes over the past year really. And I would say the pricing team is better set up than ever before in the decentralized functions. They're working specifically with individual P&L owners to make sure that pricing is right. They're looking at more data than they have done before, and it actually helps us. I will also just say that when we did our Q1 earnings back in February, we talked about our -- what we had coming through. So we were already at 15%. So at the end of this quarter, 15% rates were approved and file. They're out there, they're in the market. We've been enrolling new pets on those new rates now for several weeks, in some instances for several months. And we have another 3% coming through towards the end of the year. So by the end of the year, that will be an 18% rate approval. We haven't stopped there. The team continues to dig into data. We will be monitoring new trends to make sure that, that rate is sufficient. And also going again, Darryl's point at a really granular level. So that team has been set up with that structure in mind to help us get right into the details to make sure we're pricing appropriately. So short answer, we set up well better than ever before from a pricing perspective and makes it easier to make sure we can get those goals across the line.

And I think you said 18% rate approval by the end of the year. Is that what's sort of embedded in your outlook -- previously provided outlook of adjusted ROI?

Yes.

That makes sense. So I wanted to ask you about the broader macro trends and inflation dynamics. And again, could you maybe provide us with an update on how that care cost inflation has been trending more recently here? And then we are seeing some signs of disinflation on the margin here and there. Maybe just talk about that and how that's maybe translated into that translation in 2023.

Do you want to take one?

Sure. every year for the last 20-plus years, veterinary inflation has been trending higher than regular. And veterinarians need to do more, charge more. I think we said a year ago, we expect the -- we would recommend 12% to 15% rate increases for a 5-year consistent basis. Over the last 20 years, when inflation was 0% or 0.5%, veterinary inflation has been 5% to 6%. So we expect it will continue. What we anticipate this year is like most normal years that most veterinarians will take a rate increase in the beginning of the calendar year, sometimes they'll take a mid-increase like in June. Last year, we saw many increases during the year as inflation, it was in the headlines and everyone is reacting to it. So we expect that, that is going to settle. But hopefully, it settles at a higher consistent rate so that the veterinarians can charge and pay their team members the way they need to.

And maybe related to that, so with vet hospitals needing to raise rates and inflation impact in pet owners' ability to afford care, how is that impacting sort of veterinarians in their businesses?

Well, I mean, I think the reason we exist is to be able to help people to budget for the cost of care for their pet. That's not unexpected. So when we think about that and think about the rationalization that someone has in their mind, when they're going to their vet and the best recommending treatment. And they start to have the conversation now about well, your prices have gone up. They have a solution. They've always had the solution. But right now, there's a bigger need for them to talk about the concept of high-quality insurance, and it's not just about the insurance upfront. The key thing here is the fact that we do not require reimbursement. So the solution we bring there is we're paying the veterinarian directly. We're seeing that in our software numbers. We're seeing it in our news numbers, and that's because we're solving a bigger problem today than were yesterday. And that's why we believe it's appropriate to be charging the right amount, and we'll be there to price accordingly to ensure we can support our members and our veterinarians for the long time to come.

Got it. That makes sense. So I want to ask you about your other segment. On your Q4 earnings call, you announced a new agreement with a large partner in your other business that will negatively impact year-over-year revenue growth, but will free up some capital that can be deployed at sort of higher internal rate of return. Maybe for the broader audience, can you refresh us on the moving parts and why this sort of strategic feat is ultimately more beneficial for the business despite sort of this near-term revenue pressure?

Sure, I'll take that one. So in that other revenue, as that business grew, our margins were getting smaller, because often the case with a marketing company, they'll say, I'll pay you a certain margin if I'm $10 million, but I want a leaner margin if you're -- we're at $100 million. Also, as they grow, they consume capital. And they serve a very strong need for us for many, many years to help us get to operating scale. But we don't need that growth in our business and we can reuse that capital more effectively at higher rates of return. So we went to the partner and said, we either need the margins to expand for any new business or we're happy to have it reproduced and the partner agreed after a period of time, and it will make us a stronger company.

And are there any specific initiatives that you plan to invest more aggressively as a result of freeing up this capital?

Well, we've got everything listed in the 60-month plan. So the main changes that we've done in the 60-month plan is to double our addressable market by doubling the total number of veterinary hospitals in our universe that we can go and support and partner with. And that takes a long time to earn trust. So we want to get out ahead of that. The other areas is where you have new products to be sold specifically through new distribution channels. So as the category continues to grow, we'll get access there. And then we have a few other initiatives that are added to our existing members if we can get them right. All of those are the areas that we are investing in and monitoring and measuring and seeing how quickly we can deploy capital, do we need to do this slowly and get it right? Or is it starting to hit our internal rate of return targets that we can put our foot on the gas?

And all of those products that Darryl mentioned, they all have the same guardrails, the internal rate percentage regardless of the geography, the products, the distribution channels. So every team is operating under the same expectations.

Got it. So let's talk about your 60-month plan then. So you recently released your 2022 shareholder letter, which provides a nice overview of the progress to date on your 60-month plan. So as it stands today, how would you say things are progressing relative to your initial expectations? And what would you say are maybe 2 or 3 aspects of the plan that are becoming maybe more important as you developing -- as you working towards our plan.

Well, I can certainly start off and Darryl can add further. I think overall, we're doing well. We put that plan out there with an expectation of that these are all of the things that we could do in order to get to 25% year-over-year average growth rate. So it didn't mean that every single thing there had to work. And I think we've done an incredibly good job actually of getting everything kind of institute and actually progressing and working nicely. So I think for us, when we look at the opportunity, the exciting thing is, as Darryl mentioned, we've been able to double the addressable market, and we are making very good strides towards that, both within Europe and also further afield in Japan, Australia, we're already live in, for us is critical as we think about the long term. And we think about -- we've got the North American market working very well. The teams are now -- they are decentralized. They're working really, really well with their counterparts, both within the organization, but externally with the veterinary partners. And I would say that progress is probably better than we anticipated honestly going into it. We had COVID hit right at the beginning of the 60-month plan. And as the world was not really sure where we're going, I think in terms of the areas that we are excited about, North America continues to be a huge focus for us. It is -- the teams are very well. They're very familiar with what they're doing. They understand the guardrails and they're executing solidly. I think in terms of international, very excited there, and we also have other initiatives that are in there. But the 2 -- the 2 biggest ones are the North American market and seeing other international team is kind of really coming together to execute, to provide the foundation for growth there too. Darryl?

I'm excited about almost everything in the 60-month plan, to be honest. Some are growing faster than I would have expected. International has really been, I mean, rolled out extremely well, nearly already doubling our addressable market, which is just mind blowing. It's going to take a long time to earn the trust of those veterinarians, but the foundation work there is great. Some of our partners that we're working with and new distribution channels have proven to be just great partners, always takes longer than the outside things to get these trains moving out of station. I've been doing this for a long time. I like the progress that I'm seeing. So yes, excited about all the progress that we're making in the team. It's important that we measure it, and we're deploying capital in proper ways and we'll continue to monitor that, and that's a big part of what I'm looking at.

Got it. That makes sense. So one thing that you noted in your shareholder letter was that you intend to be cautious with the acquisition spend until you see year-over-year margin expansion? Can you talk about that a little bit? And what are some of the maybe specific channels, regions or products that you maybe may reduce sort of exposure to in 2023?

Yes. So what we mean by that is really making sure that, historically, we've talked about doing every different channel and the different tests and tactics to be able to get that blended 30% to 40% IRR. Now internally, we look at the details that we expect and the teams do expect to, we have IRR by channel and by product at a much granular level. And there are pockets there that are towards the lower end. So as we're thinking about, is it worth testing in this particular initiative at this point in time, we're choosing not to do that, but really focusing on the benchmark, focusing on areas that we now deliver the highest rates of return, that have very strong retention and have very strong member referral and really provide the best possible experience for them. So it's being -- it's tightening the lens, but we've always been very disciplined. The team is used to having that discipline around acquisition spend. We have more areas that we can spend in today, which is great. That's purpose of what we're building in foundation. And it's about just pushing into that muscle a little bit more to make sure that we have that control and the discipline around every channel and every partnership that we're working with.

So let's touch on international expansion and talk about some of your partnerships. So last year, you -- as you pointed out, you continue to do international investments. You acquired 2 companies in Europe, roughly for $16 million. That was great to see. Given how low penetration remains here in North America, can you maybe talk about why it makes sense to invest in international opportunity instead of allocating more capital to grow in North America first?

I'll touch that. So when the company started in Canada years ago, we were working on adding stores in the same-store sales. That's how we think about the businesses. It's the core foundation of how we go. It's make relationship with the veterinarian and then they start to feel comfortable about it. And then the penetration rate around that hospital starts to increase. Well, in the early years and really for the first 6 or 7 years as a company, we were able to add hospitals, but we were having more challenges on adding same-store sales. And we made a decision wisely back in 2005 that the one thing that we could do to get ahead of it and have consistent growth rates, not just relying on improving same-store sales only having 1 lever, but keeping 2 levers is to increase the number of stores that you can go to. So we went from about 3,000 size in Canada, and we added about 25,000 in the United States. And over the next 10 years, we've been building relationships with those. We now have about 16,000 active hospitals out of 25,000. And if we keep going at the rate that we will, in several years, 3, 4 years from now, we will run up to the end of what we can potentially grow just by adding stores. And we know that in our field, it takes a long time to organize and get everything done. So you want to be laying the tracks of the train well ahead. So what the international team has done, they've done a marvelous job, has really set us up so that we have almost the next 25,000 hospitals. So we can continue that one growth lever consistently while we work on same-store sales. Now same-store sales since we've entered the United States have gone up about 35%. We have a lot of initiatives that we'll try to drive that more, and we'll keep trying to apply that. And then we have the distribution channels and products, et cetera. So we've got a lot of growth levers and it gives the team, the opportunity to make sure we're deploying capital in the right places at the right rates of return, and we're not reliant on any one area. If you want to grow from $1 billion to $5 billion at a consistent growth rate, Margi talked, we always want to have the opportunity to grow 25% a year. I don't expect 25% a year. I'm happy if it grows 20%, 25%. But if you don't give yourself an opportunity, then one misstep, you fall short. So we've got lots of opportunity in the plan we'll take advantage of.

Got it. No, it's great to see some progress on international. So congrats on all your success there. So -- another question I had for you was around Aflac. And last November, you officially announced your joint venture with Aflac to provide pet insurance in Japan. And I think at the time, you said that, that offering was expected to start in the second half of this year. Is that time line still on track? And could you maybe provide a little bit more color on your go-to-market plan there?

Yes, it is still on track. In terms of the go-to-market plan, the teams are working through that today. Aflac is in 1 in 4 households in Japan. So it's a very well-recognized name, and they have an awful lot of information and discipline they can share with us. So it's work in progress, and we'll be able to share more probably at the shareholder meeting in June.

So let's talk about Trupanion Express. So the number of partnered hospitals with your software install grew about 24% to nearly 8,000 hospitals in 2022. That was up from about 6,400 in 2021. Would you like to attribute this acceleration to sort of Territory Partners being able to return to in-person visits? Are there any dynamics that investors should be aware of?

Yes. There's a couple of things. Territory Partners definitely played an impact, but not fully until the back half of 2022. So there was a lot of COVID hangover through Canada certainly and in parts of the United States. So the Territory Partners, we're working their way back in the field from March and then throughout the year, they've done a very good job of getting back in front of the hospitals, the decision-makers and able to really kind of explain and educate the benefit of insurance. Keep in mind, at the same time, the vet practices in our hospitals were increasing their prices. So that becomes much more of a use case for our systems, our support. So it's coupled with both having the presence in the field as well as acknowledging the fact that if you're going to be increasing your prices, you're going to need to have conversations about financial situations and how are you budgeting for the care and the best way to do that is in advance before you get the invoice and making sure you've got insurance. So really, that's kind of the combination of what we're seeing in terms of the patents. And again, it speaks to the purpose of we need people to be pricing appropriately and charging appropriately within hospitals to be able to help solve that problem. But really, that's kind of the crux behind it.

And do you see a higher level of new pet referrals from hospitals with your software installed than from hospitals without it? An if the answer is yes, any metrics or any quantification you are able to share?

The answer is yes, definitely. That's absolutely why we do it. And we're not able to share specific metrics on the lift that we get. We do usually give some color at our shareholder meeting, where we can kind of go through the differences by market, but it's a dual purpose for us is making sure we can solve a problem to help may be invoice at the time of checkout, but we also see people at that point in time when they're checking out see someone next that doesn't have insurance saying, why can you do that and I can't, and then you actually see the lead generation developed. So it's to Darryl's point, as we look at same-store sales, it's a key metric for us. We measure it before and after and it's definitely a positive.

Got it. That makes sense. Going back to your partnerships. Anything you can share with us in terms of your true partnership, how that's progressing? Where we are in that evolution maybe?

Yes. So we're nearly close to a year that we've been live, I will kind of say that just as Darryl mentioned, these partnerships and the establishment of kind of them getting into their rhythm, they're communicating to new members about new products. They do take a long time to go off the ground. Chewy has been a good partner. I think we've got some good traction there. We've talked a lot about the fact that we're seeing that build over time. We're still not live in all states at this point in time, but we're seeing some nice numbers come through, and we'll be able to share more color in our Q1 earnings.

Got it. And then maybe sort of another question related to your product. Anything you can talk about as it relates to your lower-priced plans, again, where we are in that evolution and how you're thinking about sort of that part of the business?

Yes. So they're still in Canada, so this is referring to PHI and Furkin. So there are low-cost and medium-cost products. They're still in Canada. As we mentioned in the shareholder letter, there is a section specific that talks about what are the things that we look for before we trigger and say, okay, now we're kind of good to market. I think we've got a little bit more work to do there in terms of conversion rates and making sure we're living within those guardrails because we have these products now for 18 months. So they're doing well. They're learning all the time. We're constantly monitoring and again, it's an inspection to make sure that we can help with the needle there. But until we get to within those guardrails, we're not going to put the foot on the gas.

Got it. Well, I like to ask you a question that I asked in multiple, multiple times, and that is around pet insurance penetration, which is still around, I believe, 2%. That's what you have in your shareholder letter. Can you talk about like what are some key drivers of growing that here in North America over the next, let's say, 5 or 10 years?

Yes. The core is really about earning the trust of veterinarians. They are the gatekeepers. They are the ones that make sure that the customer experience is exceptional, in our case, being able to pay the hospital directly. And we really need them to just feel good in trusting. To do that, you need a really simple product, to have a simple product that works very well, you need to price very accurately by neighborhood so that you can adequately price appropriately. And we have -- historically, over time, it takes 1 to 3 years to build a certain level of trust. And then after a while, they see the pattern of some of those members starting to use it. And the more members that they have, it creates a snowball effect, right? When you have 1% of the pets in your clinic or your hospitals that are getting paid directly, that's 1 in 100x that you're seeing the delight on their face and saying, thank you for this. When it gets to be 5%, it starts to become part of the regular working flow. It starts to become that when they're checking in, who's your insurance with. That's when it becomes normalized. I'm not sure I have these numbers exactly right. But penetration rate when I started this business was about 0.1 of 1% in North America. I think it took almost 15 years to get to 1% penetration. And then it took about 5 years to get to 2% penetration, and we'll be at 3% penetration soon. So we are getting the ripple effect of veterinarians trusting us and then existing pet owners being able to tell their friends and say that it creates good value. So that's at the core of what we do. It's at the core of all of our strategies. It's same in anywhere that we go, and that's kind of sticking to our knitting. The other channels are, as the category gets bigger, people will start to look at other trusted brands and say, "Hey, do you have an offering? Are you able to validate something?"

It normalizes it.

And is there anything you can share with us in terms of the competitive environment today? And any dynamics that are worth highlighting given the elevated cost of care across the space?

We always compete. The competitive dynamics haven't shifted certainly since I've been in the company, say, for the last decade. We've always competed with 20 to 23 brands as we underwrite 3 of them. So actually, more than that now. So we -- there isn't a difference. I think what you'll notice is that people will come and go either online, offline for us. We're really focused on the vet relationship, which, as Darryl did, that's the foundation of everything we do. So you don't tend to see a huge amount of noise at that level. There hasn't really been a shift. I think what we will see over the coming months is pricing is hard when there's sort of inflation, as we've talked about. And we have the benefit of years, decades of data to be able to start to check our pricing. We have good relationships across animal health to help us again kind of verify that. We know that if we are in the position of catching up with the pricing through this year, I can only imagine our competitors were not able to react as quickly and may not be in such good shape. So I think that's sort of the biggest shift in the competitive landscape for us really. But in terms of consumer facing, there is -- there hasn't been a lot of noise or movement.

Got it. That makes sense. I want to go back to our initial a discussion in the beginning of this call around management changes. And just wanted to ask you how are you thinking about filling those leadership roles in place of Tricia and Gavin? So how are you thinking about maybe restructuring or forming broader management team?

So it's still very early days. So we made the announcement last week. So we're working with the team to establish how do we best set ourselves up with that decentralized structure. I think the key part of your question for me that I kind of picked up on is, we don't want to have a management level person in there. We want to have a coach as important as we think about decentralization, what are the leaders of each of those departments and teams look like and how do they help empower and really help grow the individuals within that group to be able to go forward and execute with speed. So we're really looking at a different skill set for that realm. And early days, we'll be making announcements as and when likely again at the shareholder meeting. I don't mean to keep plugging it, but it is a source of a lot of information. And we have a very, very rich and talented group within both the legal and the pricing teams. A lot of tenure in those groups. So we're excited to get to know them better and see what we do know.

Yes. There's a lot of technical skills across this company and how we organize, manage and communicate is a separate issue, but we've got a lot of horsepower of the skills.

Got it. And going back to price increases, I believe there were still a couple of different markets, where they were not the right priced yet, like California, I think. Can you just talk about your ability to raise prices there to just what's going on in some of those markets? And how is that factored in your full year outlook?

Yes. So the full year outlook, we talked about the 18% that's taking into account like I said, the things that have been filed and approved so that does include California. So we have got approval across the board, across all states. We are -- there are some states where we don't have enough rate strength to your point where we're going back and we are going to continue to alter more as we need it. So a lot of states will be difficult and for different reasons. It's usually just a longer-term process. And so for us, it's about planning in advance and making sure that we're being very specific to a region, again, it comes to being decentralized and focused to you take the necessary steps in advance of requiring that rate, you're building that connection, you're making sure we can move it very quickly. I would say that as we look forward, we have our arms around it. We have confidence in getting those rates well in advance where we have been forecasting them. So we feel good about that. But I think in general, there are a lot of states that you can file and go, and we think about every state in every neighborhood, this is the way that we think about the business. That's how we're thinking about our pricing so that we don't have just one big issue in one area, and we can make sure that we're managing that across the board. So I'd say we're set up well for success, like I mentioned, the new structure of the group and the team is well defined to be able to make sure we can manage those appropriately.

I'd just add, let's take a state like California. It's bigger than Canada, right? You cut Canada into a lot of ways when you think about how to manage that business. We -- you may be in aggregate in the large area on average underpriced right now. But there'll be pockets, maybe 50% of it where you are adequately priced. And you need to know that you're spending the money in the areas where you can and pulling back in areas until you get it done. You need the flexibility, and you don't want to be reliant on something for growth. You need to have the choice to say, if we need to wait 30 or 60 or 100 days or something, that's okay, let's get it right. Take the pressure off the team, and we've got a lot of growth channels. And the 60-month plan has really helped us diversify in that area. And the team just -- you need to manage it in a very granular way to execute it, and those are the opportunities. It's not just a black and white thing.

Yes. That makes sense. I think we have just a few minutes left here, but maybe I want to -- maybe I can ask you another maybe question or two. Margi, going back to the Q1 outlook that you updated and I know you're not sharing a lot of color around that. But are you able to maybe provide some more granularity in terms of whether that's coming from your core subscription business, where the upside is coming from your core subscription business or from your other business?

I can't provide any more color than I have already unfortunately at this point. But I think at the end of the day, like we said, it's good that it's coming off our forecast. I think from a softening from a ROI, it's really down to post COVID and really getting our arms around the forecasting and the details and the granularity is really in the shareholder letter we just published.

Got it. Fair enough. Well, as we open our discussion, so I'm sure it's been a pretty busy week for you. So anything you want to leave investors with before we wrap up.

Growing business and growing one that can be multibillion dollars and in fact, tens of thousands of veterinarians is a journey. We have been a part of our journey. We continue to go and learn and look forward to hands-down executing.

I agree.

All right. Well, that's great. We'll leave it there. Darryl, Margi, thank you so much for joining us.

Thank you.

Thank you.