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

Good day, everyone. Welcome to Trupanion's Annual Investor Day. I'm Laura Bainbridge, Senior Vice President, Corporate Communications, and it's my pleasure to welcome you here today. We're grateful for everyone who could join us. Those of you who have joined us here in Seattle as well as those of you who are participating online. Your engagement is really what will help make today successful. So we've prepared some remarks and some updates, but it's really your questions and insights that are going to help bring those to life. You'll also see a few furry friends here with us today, pets like [ Inka here, ] and they're a great reminder of why we do, what we do at Trupanion, which is to help make sure pets like Inka get the care that they deserve. So with that, let's get started. It's my pleasure to introduce our CEO and President, Margi Tooth. And as she makes her way up to the stage, I'm going to ask that you please familiarize yourself with our safe harbor statement.

All right. Can everyone read that? Has everyone looked at it? Okay. Excellent. Good morning, everybody. It's lovely to see you here. Thank you for those of you that have made the trip to Seattle. I appreciate, for some its a long way. And thank you for those of us joining online. This is always an event, so I'm going to do my usual pacing up and down. This is always an event that we love to host for you and put on so we can get your questions on so to make sure that this is your time. So we have our wonderful team in front of me here that you're going to hear from over the course of the next few hours. And please, as you go through ask some questions, they're here for you and really encourage you to do so. So Laura mentioned, I don't have a dog as my sidekick unfortunately today, but Laura mentioned that we're going to mix things up a little bit. So those that are more familiar with the concept of the day, is usually it's all Q&A with just a tiny bit of opening remarks. We're going to change that this year to give you a little bit more of a flavor of what the teams have been working on. So I will be your [indiscernible] and then you're going to be joined by MJ Hewitt, who's going to talk about channels. Emily Dreyer is going to talk about pet acquisition. And Simon Wheeler is going to talk about international. Then from there, we'll go to Q&A. So we'll -- if you go through the prepared remarks, think about your questions and note them down, and then we'll go into a full open Q&A with all of the team. From that point, we'll have lunch, so if you're online, we'll be taking a lunch break, and then we'll come back in and we'll have some more prepared remarks from John Gallagher, talking about operations; Jamie Adams on technology and Fawwad Qureshi on financials and then going into another Q&A session. So there's lots of time to go ask questions. You'll have lots of informal time as well with the team. So please make the most of that. So for those of you that I haven't actually had a pleasure of meeting, I don't think there's many of you, but there will be online. My name is Margi with a hard "g" and I'm going to introduce myself the way that our team will. I have been at Trupanion for 12 years. I've been in the United States for 12 years. I came here for Trupanion. And I have 3 pets, I have 2 dogs, a Maltipoo and an English bulldog, [indiscernible] and I have a [indiscernible] called Reggie, he is not technically mine, but he loves me the most, I think, and he's quite small. So without further ado, I'm going to kick off. When we were preparing for today's event, I took a moment to think about how long I've been in the industry, and I'm coming up to the start of my third decade, which totally dates me and ages me. And in that time, we've seen a lot of change. Animal health has shifted massively for the good and in some cases, the bad, there's been a lot of pressure, but there are certain things that have never changed. And for me, that's true of pet insurance, and it's certainly true of Trupanion. And I'm going to -- if you will indulge me, I'm just going to take you through a few of those truths and we're going to mix up with some of this content here. The first and most important thing that we want to talk about is that veterinary teams are our greatest partners. The vets are the heartland of everything that we do as a business. And everything evolves around making sure that the people who are responsible for ultimately the health of our pets are able to do what they're trying to do. That shows up with our product. We removed the financial conversation. It shows up with our payment. We're here 24/7 because we know that they're there 24/7 as well, and we want to be there to support them at the same time. And most recently, we championed for them to increase their prices. They needed to do that, and they did it and we'll cover that shortly. In addition, the power of the pet grows stronger. Pets have been man's best friend for the longest time. We've had decades of that. Today, they are our truest companion. A pet makes a home, they make one person a family, and they get us in the heart every time that we see them. We love them so much. And that's what we're here for. We're here to protect those pets, because the role that they play in society has massively shifted. They're our fearless defenders, they're our strongest advocates and they're the people who love us and are willing to accept us as we are today, which is why they're playing the role they play in today's world. But let's have a bit of fun with that. Here are some random pictures. It meant to be a little tongue in cheek, but they are showing pet owner's ownership through the ages, pet parents. They've all evolved, but they are the center of our society and everything they do, and no presentation today would be complete without that lady in the middle apparently. So what you can see here is that we are showing people that you all know that have had bonds with pets. And this is the proof point that they're accepted in society, and they are really the leading ladies, the leading gents, they are the leading light of everything that we do. And today's pet parents are not prepared to be unprepared. They do their research. They change how they think. They look at their food, they look at the hotels, the holidays they take. And they are the center of their existence, and they want to make sure they get the best care for them. So, when we think about what that means for us, the third truth to cover is less friction means more time for what really matters most. That's a very obvious statement. We know that when there is friction, it wastes energy, you don't get the things that you want at the time that you want. Our role is to remove as much friction as we possibly can from the pet parent's existence. We do that most obviously, through our payment. Our software solution pays our veterinarian directly so the pet parent doesn't have to. A pet parent isn't wondering if they have their needs and the means to be able to pay for that treatment. They don't think about option B or C, they don't delay their payment because they know what -- they don't delay treatment because they know what's going to be paid. The second thing that we've done is remove friction around transparency. We knew that one of the biggest issue pet parents had was when they go to the vet and they don't know what's going to be covered by insurance. We created an adjustment to the product called a medical record summary, which gives people that overview right from the start and helps them go in confident that what's wrong with their pet will be picked up by Trupanion. Pricing. Nobody likes a birthday bump like the birthday bumps that exist in pet insurance. We remove them. We don't allow people to get those horrible surprises because we price for the life of the pet. And we'll talk a lot more about this coming up, and I'm sure there'll be questions on it, but this is what makes us different. We remove the friction of those unexpected moments deliberately because we know you want to be able to focus on your pet. And last but not least, and this is one that we've really been focusing on lately, friction is there if you cannot budget for the unexpected. And when our prices go up, we create friction. And we've seen that. We've seen that over the last few years. It was necessary for us to meet where the cost of goods work, because we are a [ cross-bus ] model. But you can understand that, that also puts some pressure on that friction introduces it. Now the team have done a fantastic job of overcoming that. And you'll see that later as Emily talks about retention and what we've been doing there to be able to move the needle. But I say all these things because they're really important for us as we think about growth and we think about those next stages of the company. And also, so you know that we're still staying true to our roots. So let's mix it up a little bit and give you a track record of growth. Let's talk about where we've been, what we've been doing. So we set off in 2021 with a 60-month plan and we are in month 57 of 60 months, which has gone very quickly. I don't know about anyone else in the room, but it's gone very quickly. And in that track, what we were trying to do there was aspire to 25% growth in intrinsic value. And I want to just give you an update on how we're doing. So for the total business revenue, 5-years revenue CAGR at the midpoint of our guidance, we'll be at 23% for the full 5 years. Pretty good. We were targeting 25%, we got 23%. I think it's pretty good. AOI, the really important number, $512 million. This is the money that we have to reinvest to grow our business, $512 million to spend on pets over a 5-year period. That's a lot of pets that we can enroll. And last but not least, it wouldn't be right for me not to mention how many pets we protected. Over 3 million plus total pets have been protected across this business in our lifetime. That number seems quite big and we'll talk about the addressable market coming up. There is so much more potential and excuse upon, but we're barely scratching that [ cat tree ]. So -- it's a really bad pun, I should not have said that. So let's talk about the subscription business. As we think about the really important business, this is the one that we all talk about and work in all of the time. Our 5-year subscription revenue CAGR is 21%. So above that 20% mark, it's been a little bumpy, and we'll see that as we go through the numbers later with Fawwad, but we are very happy with the 21% at the size of business we are today. And just to put that in perspective, in 2021, our revenue for the subscription business was a little under $500 million. Today, it's a little under $1 billion in that time frame. And there is so much more we can do in this monthly subscription revenue business in such an underpenetrated market. I could not talk about subscription AOI. It is the fuel that drives this business forward. And I want to just show you a couple of numbers of how we've been going year-over-year-over-year. So '21 and '22, we saw some nice increases. $71 million to $79 million, and then it went backwards in 2023, which we all know. And boy, did it go forward in 2024, 54% year-over-year growth in our subscription adjusted operating margin. And in 2025, we expect that number to be around 30%. Now this is a proxy to our intrinsic value. No revenue. And when we think about this number, that is a very strong performance from the team. It gives us massive fuel to put in to reinvest in growth, which Emily will be talking about and it really makes us confident in being able to take a big step forward as a business move in the next few years. Talking about big steps forward. This is -- we don't have a drumroll yet. We should get a drumroll, but we always share with you every year what our veterinary invoices are and how much we've paid. So I don't get slower with age. I realize this. I just continue to gallop along very quickly. The veterinary invoices paid has always been a number we're proud of. Unlike a lot of insurance companies, and you'll hear this a lot. We encourage our members to use their product. We know when they use it, the pet gets the care. We know we have that lifetime value, and we know the veterinarian keeps that client. We, in 2020, crossed $1 billion paid for the first time. It took 20 years. In 3 years, we crossed $2 billion. And it was 22 months later, we crossed the $3 billion. In 18 months after that, we will cross $4 billion. Today, we are at over $3.5 billion of claims paid to our members. That's because of all the work the teams have been doing to make a difference. Imagine how many invoices go into that number. Imagine how many lives have been saved and families have been kept together because of the work that we're doing. And imagine how inspiring this is to the veterinary profession when they know that we pay the bill. We pay the invoice, and we take care of those pets. So to give you a bit more perspective because we're very proud of this number, it's one we want to celebrate. When we first announced $1 billion in 2020, we were paying around 700,000 claims a day. Today, does anyone want to have a guess how many we're paying on a daily basis? Average? Well, I'll tell you, it's 1.7 million. $70,000 a minute, just over 1,100 -- sorry, an hour and just over $1,100 a minute. So by the time, if everyone stays until the end, and please do, hopefully, I won't put you off. We will have spent a little under $500, it will be nearly $0.5 million in one day, in those 6 hours. So every minute that we're standing here, someone is getting their pet taken care of because of the work this team has done and the solution we bring. It's pretty powerful stuff. Well done, team. So when we think about the -- why is this so high? This is a question that we have been going over and over and analyzing. I know you're interested in this number, Michael is going to share later when you ask him the question, what's been happening with your cost of goods. But this is a really important slide because it does show what's been happening from an industry perspective. This is showing you the CPI trends. The green line is CPI, in general, the blue is veterinary services price index and the dotted line, if you can see that in the chart, is showing the 12-month average there. So the percentage change. You can see it got really choppy. You can see there was a ton of pressure and it's when rates started to increase. Now the veterinarian services you can see on the chart, is 65% versus 36% for overall CPI. So it's trending well ahead of CPI in general. Trupanion's, over 3 years, not 10 years, is 50%. And we get asked this question a lot, why is the Trupanion cost of care going up so much? Why is the inflation so high? It's because people use the product, it's because pet parents, when they have Trupanion, do not wait to go to the vet. It's the problem that we are solving. It's the $3.5 billion. We're proud to have a higher rate of inflation than the industry because it means we're solving a problem and what we now need to do is make sure that MJ and Jason and her teams and the Territory Partners are able to articulate that to the veterinarians, because there's not often much of a silver bullet anywhere, but Trupanion is a pretty good one. The need is greater than ever, I think we'll all agree as we see that cost of goods, and that is another truth that I wanted to cover off. But every year, as we think about the industry and we think about what's been going on from a headline perspective, we've all heard these headlines -- have seen these headlines rather. People are skipping going to the vet, they can't afford the cost of care and vets are to closing -- veterinary groups are closing. There is a rising cost and there is immense pressure on this industry. This is the industry that we said at the beginning is our heartland. This is not good. But there are some green shoots. There are some things where we're seeing veterinary medicine leaning into the concept of change. This is an industry that is quite change averse. It's hard to get them to do something different, but they're realizing they need to innovate and they need to adjust. And as their partners, this gives us confidence to do the same thing, to be by their side, a lockstep, just like our Territory Partners are every day. So that gives us confidence to lean into what the vets are doing, but also into the industry in general. Now I covered this slide off in my shareholder letter, but I wanted to make sure that we talk through it today because I often get asked the question, what is the actual addressable market for Trupanion? And while I don't have a crystal ball, I do have some experience in the U.K. market as does several of us in the room. And I know that a 25% penetration, that seems like a very logical place for this category to get to. I haven't seen any reasons for it not to be true. So assuming it is true, and we can assume it's 25%. And on the screen, you've got a diffusion of innovation model, so the typical bell curve of marketing growth. At 25% penetration, that number is 45 million pets out of the 180 million that exists across North America today. And this is only -- and I should stress this, North America. This is not internationally focused. And we are in international, and Simon will talk about the opportunities we have there. So if we're at 45 million today, as an industry, we have around 7 million pets insured. It's a $5 billion industry. That means around 16% into that penetration, which puts us in that purple early majority box. Now why is this exciting? Anyone who has been in any market or marketing experience will know that when you get to early majority, that's when the really cool stuff starts to happen. That's when you start to really talk to the audiences. You start to segment, you start to understand what is this profile versus this profile? We couldn't do that before. Now we're seeing a different type of pet parent. We've gone from seeing this as an audience to this and this. And everybody in the room that has a pet and everybody listening that has a pet, everybody is different. Everybody has different needs, but these are the people that are doing the research that need to understand what good insurance looks like. They need to understand that as that cost of care increases in the vet hospital, they don't have to not go to the vet. They just have to be prepared and do the research, and we have to be in places where they find us, which leads me to our next truth. We are now at a point with nearly $140 million in adjusted operating income, that our approach can broaden and it will. Our route to market will remain true to our tenants, we'll remain true to our heartland and everything that people know us for, but we also have a chance to be able to move into a category in a different way than we have before, and Emily will share some of that as we move forward. So -- forgive me a second, I'm just going to have a drink of water. Speak amongst yourselves. Okay. So I'm going to mix it up a bit and talk about retention. Retention [ includes ] power and talk about our obsession on retention in the shareholder letter. There's a reason for that, and I want to explain why. We are a monthly subscription revenue business, 85-plus percent of our revenue is locked in on January 1. That's why that beautiful chart that you see, I don't want to [ steal Fawwad's ] thunder, but that beautiful chart you see in revenue is always -- is so compelling and retention is the driving force behind that chart. So let's have a look at an illustrative example. Gil made sure that you can see this is an illustrative example. This is not actual data that you're about to be walked through. But I'll walk you from left to right. 2024 is our subscription pet count. And then if we look at our retention rate, which it was in 2024 of [ 98.25% ], we expect it to be more in 2025. We lost 221,000 pets on this example. We added 250,000, which gives us a net pet growth of 2.7%. If we take this model out and extrapolate it, holding a pet count of 250,000 but just moving the needle, 15 basis points every year on retention to 98.4%, 98.55% and 98.7%, which is where we have typically been. Just on that retention rate alone, we get a 5.5% improvement in our pet count. We haven't spent $1 to acquire a pet at this point. This is purely through retention. And this fuels everything we do as a business. And as we know, we have more adjusted operating income, we can talk about powering up our pet count. So this subscription chart, I want to walk you through these two charts on the slide here. So you've got -- the slide on the left is subscription enrolled pets, reflects very similarly the numbers you will see from our retention shape goes up. It's a beautiful chart, we're adding more pets all the time. And then the chart on the right is a little bit more wiggly, it's a little bit more spiky and it's on that net pet chart. So you can see here that this is often leaned into via acquisition. If we spend a lot of money, which we did and during some of these periods, we see the spikes. If retention comes down, it drops down. So it's quite volatile. And you will see that in 2023, when we had that margin compression, those numbers started to drop and drop and drop. We had -- quarter 1 was a nice performance, the first time we saw that go up back up again in Q2. We reported the same thing. And I'm very pleased to tell you today that our Q3 numbers will mark the third quarter of acceleration in pet count, not just in retention and Emily can share a little bit more about how that's happened and how we feel about that, but needed to say, we keep filling the funnel, we feel pretty good. So happy to see that moving in that direction for net pets. But pet count isn't everything and we've talked about this historically. So now I want to walk you through the average revenue per pet, which is in the chart now. And you can see it was fairly steady for a number of years. We've talked a lot about inflation being somewhere between 6% and 7%. And that's what you're seeing here in that chart. We were just gradually increasing our ARPU quarter-over-quarter over quarter. And then we got the margin compression. And you can see what had to happen to the ARPU. And we ended Q2 at a little over $75 in ARPU per pet. It's the highest it's ever been by some margin, and it will continue to get higher as cost of goods go up. But what happened to profit per pet? Very different story. Margin compression is very clear here. So the profit per pet was around $6 at the lowest point. Every pet we're enrolling, we were getting $6 a margin. That means our allowable pack is significantly less. So our retention rate was lower. We were losing pets at a higher rate, which meant that there was churn. That's reversing. I'm very happy to tell you that's reversing and it's reversed quite quickly. And what you can see at the end in that yellow, if you can see that yellow is we are soon to be knocking on the door of the $12 profit per pet margin all while holding our 71% loss ratio. We are not giving less to our members. We are pricing right. And Michael and Alan and the team can share more about how we're thinking about that and how we're doing. The profit per pet here is important for a number of reasons, and there's a reason it says mix impact. It really is different when you're adding pets that have this level of profit today. The pets we're enrolling 2 years ago were $6 per pet. Today, it's $12 per pet. The margin you get from that pet is significantly greater and it allows us to fuel the business. It step changes what we're doing. And it's important that we -- I would love you to ask questions about mix, because if we enroll lots of cats, it's going to be very different to those of dogs. If we enroll in specific geographies, it's going to be very different to another geography. And when we used to be able to tell you that actually, our profit per pet and our mix of business is the same. 10 years ago, we could tell you that the business we're enrolling today was exactly the same profile as the pets we already had in the books. That is not the case today because the market is growing, because we're meeting different consumers and different pet parents. Go back to Taylor Swift and Ed Sheeran and the Queen and everyone else on there. There Is a very different audience. And that means our mix of business will be very different. It also means there will be a huge opportunity for us to take advantage of, and we are in the best position to do that. I promise you I've nearly finished. So MJ, I hope you're getting warmed up. So I just want to -- I couldn't do a presentation without telling you what the growing adjusted operating income look like. And we needed to expand the lens here to show you a 10-year look back. If you were to draw a line from Q2 of 2015 to Q2 of 2025, that's a 51% CAGR. We've really expanded our adjusted operating income, and we've done it because the flywheel of this business is that the money we can take from enrolling a pet will allow us to fuel adding another pet and another pet and that's what we have been doing and what we intend to do moving forward. So growth comes in many forms, as we've talked about in summary, I did touch on this shareholder letter, but I think it's important to reiterate. Retention has been our focus this year. It will always be our focus, but specifically, it's been our #1 point of focus for the entire business. How do we make sure those pet parents who put their trust in us to look after their pet and to make sure it's budgetable? How do we make sure that we're there for them? And the team has done a great job there. Gross pet adds. We need to add pets. We're here to help pets so we're going to add pets. The two combined is net pets. It's important for us to make sure that we don't have a leaky bucket both from a funnel perspective, but also from a -- when we actually have people in our family. So net pets is one form of growth. We've talked about that a lot. ARPU, a new form of growth, one that we've really dived into over the last few years, and you'll know that the majority of our growth in the last two years has been coming through ARPU. That will change, that's going to ebb and flow over time. It will change and start to move back into a balance where we see less ARPU and more through pet count. Margin. I think you got the message on the margin. Margin is a growth story for us, and it comes -- we can see we can realize that. And last but not least, and Fawwad will talk about this, the balance sheet for us as an insurance company, we have capital. We have a lot of capital. We are overcapitalized. But like many insurance companies, we can take benefit from that capitalization and the benefit from the insurance income -- the interest income. So Fawwad will talk about that. That's a new position for us. When you think about that top line growth, you have all these different levers. Some businesses have one or two. We've got four, actually we've got more than that if you take off the net pet count. That's a really powerful position to be in when you're in an underpenetrated market with monthly subscription revenue, higher retention and hey, we can grow. So I have 4 more slides left. Let's talk about the future. We are coming up to the end of our 60-month plan, as I mentioned, which means that we need to have a new strategic plan and we have been working diligently behind the scenes to work out exactly what that's going to be and how it's going to look. We will have 3 pillars on that plan. One is product; the second is channels; and the third is geography. And while I'm not going to go into details, I will just give you a bit of a flavor of how we're thinking about the plan into the future. And again, please ask questions after. So we know that the core Trupanion product is retained. We have pricing power. It supports the veterinarians. It is the best product in the market. We will continue to invest into our core Trupanion product more than we have done before. We also will look at expanding our reach. Now we did this in the 60-month plan. We have got two other products called PHI and Furkin which are out there in the market, and we brought those to market because we recognized five years ago, there is a slightly different consumer coming through. We put them under a different brand umbrella because we felt like that was the right thing to do. We didn't think the Trupanion brand needed to have a different product under it that would potentially weaken the strength of the brand and the tenants of the brand. I will tell you that we've learned from that. I believe today, we have more brand equity in the Trupanion brand than we even realized. And we have the trust of the veterinary consumer and the pet parents who are adding their own pets, and referring their friends to be able to offer them a different style of Trupanion product. It doesn't have to be that we are the ones to judge you if you don't choose our #1 product. You can choose whatever you need as long as you have a product that you can go into the vet and the vet will thank you for choosing us. So I expect more on that to come. I will not reveal anything else. The other product that we talked about in our 60-month plan that I'm very pleased to share with you today is we will continue to move forward with food. We're very excited with the food initiative. It's been a long time coming. I think we're at the 44th iteration of our food is now the iteration. So remember WD40, we exceeded that. So 44th iteration, and we're really pleased to say that all of the work that's been going on into this space is starting to really take some traction. We've been investing in very small amounts up until now, and we will start to increase that investment over the next few years to be able to bring a product to market that is in an industry that's a $60 billion market. Pet insurance is a $5 billion market. Imagine the difference that makes with our share of wallet when Trupanion exists in two forms and the retention rate, when we can give our members back something because they've chosen Landspath and we can see that there's a healthier pet. To put into perspective the size of this food opportunity, and I'm going to get you excited and not give you too much more, for 1 million pets, the equivalent adjusted operating income will come through just 100,000 subscribers of Landspath. It's a pretty big number. So I'm going to move on to the next thing. So channel, fueling the future will be our channels. We again have put our foot into channels over the last five or six years. We've always done a little bit. We haven't invested particularly aggressively. We have some wonderful partners that are willing to support bringing products to market that are aligned to their brand values. We will continue to lean into this more aggressively. We have some exciting news to come in the future that we'll be talking about how we're leaning more into channels. And we've even built up our team to ensure that we can do this in a really meaningful way. So last question is about channels. And we can perhaps dive into what those teams are thinking in terms of partnerships and affiliates and how they all come together for us. But this, again, is really trying to find our pet parent where they are rather than us telling them where they have to go. And last but not least, geography. We made some really good strides and Simon will talk about this when he comes up in the international realm over the last five years. I would say it's actually gone better than we expected it to. First time we moved outside of North America. And we're in a number of geographies today, and we're getting some traction. It's contributing to our pet count. We're excited to continue to do that. I don't anticipate we'll be adding new countries at this point in the next three to five years. Never say never, if an opportunity comes up, but we know that the products we have today and the way we built Trupanion is absolutely ripe for the European markets that we're in. So we're excited about what that will mean. And I expect within the next 5 to 10 years, the international business will be bigger than the North American insurance business. Simon, in case you didn't know that. So last but not least, we can't do any of this without our team. And I wanted to share some pictures with you of just what Trupanion life is all about. If I [ were to ] take your attention to the [ French ] in the top left-hand corner. He's probably my favorite coworker, and he's at the back of the room, Hugo. That is literally the view from my desk when I sit there with him peeping over at me. But this is just a flavor of Trupanion. This is the fun that we have. This is the pride that we have with each other quite literally. There's a picture of a pride. We've got our dogs dressed up. We've got the team with Harper, who's staring there on a picture playing -- watching the team playing table tennis. And we have a bell ringing, which is in celebration of our fourth employee resource group, True Mosaic, which I really encourage you to ask Marcy about because it's something that we're excited about here at Trupanion. And we also are collecting award for how we look after our team members and their wellness. So we care about our people. We care about pets and we care about our people. And that shows up in our 1,200 employees that we have across the world. That hasn't moved in terms of our population deliberately. But that team covers 7 different countries, 13 different time zones. We wrap the globe with Trupanion and we're wrapping it a little thicker and thicker as we go. But we are -- we could -- we're nothing without this team. Half of them -- some of them are here. Many of them will be listening. Thank you, team, for what you've done. Thank you to the canine friends. There's no felines on there, but the canine friends that also support us doing it because they keep it real for us. So I am going to stop talking. I hope I've warmed you up. I know I have a low-pitch voice. I did. I practiced in front of PowerPoint. It told me, "Your tone is really low". I'm like, "It's just -- that's why I have a microphone". So I'm going to introduce this wonderful lady, MJ Hewitt, She's been here for 15 plus years, and she's going to talk to you about our channels. So thank you very much.

Good morning. So I am MJ Hewitt, and thank you, Margi, for aging me with 15, almost 16 years at Trupanion. I oversee the United States market, along with our North American growth operations team, and these are the teams internally that are focused on growing our core distribution channel. I have two fun furry family members at home, Rex and Winnie. One's a Miniature Schnauzer and he's been grumpy since the day he was born and a Yorkie-Pomeranian mix. Okay. I make sure I pushed the right button. So I'm going to be talking primarily about our core distribution channels. Margi mentioned a lot of exciting things in channels that are coming up. I'm going to be focusing on breeder, veterinary channel and shelter. And you'll hear a little bit more about those exciting channels from Emily and probably in the Q&A when you ask all your curious questions. Across our breeder veterinary and shelter channels, we have a primary tool that we use to introduce Trupanion, and we work with our business partners across these spaces. And it's an introductory offer to Trupanion that allows that pet parent to get immediate coverage with us. It is an easy tool, but it's also a benefit for our partners in these spaces as well as the benefit to their clients. We see that the veterinary channel, obviously, is the lion's share of these offers that we have coming through to us or at least getting in front of pet parents, followed by our breeder and shelter channels. We've taken a deeper approach and a closer look at what we're doing in the breeder and shelter spaces over the last year. You can see some good-looking trends as that trend line is going up into the right with some of the changes that we've made. And we're excited to make more changes and see those -- some of the things that we're thinking about and some of the partnerships that we have coming up play out in those spaces. Across these three channels, we see 118,000 offers get put in front of pet parents every month. That seems like a big number, right? We feel okay about that. We feel pretty good. But we know that 100,000 pets are being added into practice management systems every month. And so we have to take a look at -- wait, sorry, 1 million. That's a -- I missed a zero on that metric. You're like, "wait a minute, you have more offers than you have people". That's 1 million. And so if we're conservative and we say, great, maybe not all of them are going to be great candidates for medical insurance, maybe all of them are not the right pets based off of what their interests are, what they're looking for, what their needs are. There's still a lot of growth opportunity in these spaces. And what we're going to be looking at and working with Emily and her teams is how that pack investments that we're going to be able to start really tapping into is going to help us grow in these spaces and tap into some of that additional potential that we have across these channels. So Margi mentioned that the veterinary channel is our heartland. And it absolutely is. If you think about our Trupanion members, where they experienced Trupanion, where they have the needs that they're -- that they've done their research, they've looked for good quality medical insurance. They've chosen Trupanion. They walk into their vet hospitals when their pets' going through something and they can relax. This is where that experience exists. It is our heartland. And we continue to focus and we continue to partner with this channel, and we continue to align ourselves with what's good for veterinarians and what's good for these pet parents that are going to their veterinarians. And that recommendation from the white coat cannot be tapped. It is an exceptional conversion element because when you go to your veterinarian, when I go to my veterinarian, I'm looking for their recommendations. I'm looking for their advice. I need them to tell me what's going to be good for me as a pet parent, what's going to be good for my pets and with their lifetime. And that conversion rate, we see twofold across the veterinary space. We also know that when we have veterinarians providing that experience, making that recommendation and those pet parents are coming in and they don't have to think about cost. They don't have to think about what they're paying out of pocket. We see that retention. And we see those pet parents not just continue to keep their pet enrolled but enroll future pets. Offers across the veterinary space are not what we would consider a lead. Because an offer gets in front of a pet parent. We know by the measure of our offers that we've got veterinary team members that are engaged, that are talking to their clients about Trupanion and they were making sure that they have that offer. But that doesn't necessarily mean that pet parent is engaged with us. So we have to do a lot of work to figure out how to drive that engagement further down to the funnel to make sure that we're capturing that pet parent interest. But also we have to understand how did that offer get in front of that pet parent? Was it the right way? Was it in a timely manner? Was it to the right pet? So we have to make sure that we take a look at not just how many offers we have going out there and celebrating that success but really honing in on how are we perfecting the way those offers are getting in front of those pet parents. And so you can see, as you look back, that we've taken some strategic approaches and made some strategic changes that have actually impacted the volume of offers that we have going out. We've done this because we know that it's important for the volume, but we know that it's important that, that volume gives us the greatest opportunity to engage with that pet parent. And so we made some decisions. We made it -- took us a strategic approach. And then we built that offer volume back up through a better offer channel and through making sure that it was getting to the pets that we know that would have the greatest experience with Trupanion. Young healthy pets that aren't going to have preexisting conditions, and that are getting coverage for that lifetime so that they understand the value. So I talked about the different ways we know that offers can get in front of pet parents. And what that volume, you can see and how the trends that we've cycled through, and how we've made changes. One of our fastest-growing offer drivers is our automated offer. This is a light touch on the veterinarians part, on the veterinary teams part, and it can -- it's a lever we can turn on, and we can get volume. But it has the lowest pet parent engagement. We know that we want that veterinary team to engage more with that pet parent. So we talked about integrated offers, and we focus on integrated offers. And this is allowing that veterinary team to have a reminder that keeps it top of mind, right? I don't have to think about going to vet portal. I know that I can recognize that this pet is eligible for an offer and have that conversation. But our volume here across the footprint of hospitals is low, but we see greater volume on a per hospital basis, and then we have our tried and true. We have our vet portal offers. Obviously, our greatest volume is coming from that portal. And we do get great engagement from pet parents through that portal, and we know that we're able to drive more offers through our funnel, converting them into leads. And then we have our light version. And light is anything but light on the veterinary team's part. This is the path that they have to do the most engaging. They have to do the most data entry, they have to do the most interaction with that pet parent. So we see a good conversion. We see good engagement with that pet parent through this path, but it's not convenient for the vet team. So we have to balance these things. One might not be the only way, we might have to do a combination of them all. So with all of those options to us, we focus on growth and we focus on growing the right way, and we have to figure out how we grow more because we know that a million potential -- a million is our potential, right? So we have our Territory Partners. They're visiting hospitals every day. They're building relationships. We have our veterinary partners that have footprint across many veterinary hospitals that help us open the door. We can't just focus on growing the same partnerships more. We have to focus on our footprint. We have to get more hospitals using that software. We have to have more pet parents, more Trupanion members experiencing what it means to take their pets to the vet and not have to consider cost. And we also have to make sure that we're meeting hospital teams where they are. How are we making this easier for them? How are we making this something that can be easily implemented into the workflow that already keeps them busy? So our Territory Partner force is where we'll start. We have 170-plus Territory Partners and associates across North America. And they make over 19,000 visits per month. Now that doesn't mean that they visited 19,000 hospitals in a month. Some hospitals need to be visited twice, 3x, 4x, depending on what phase that hospital is in that engagement. Some hospitals need that regular walk-in and face of that Territory Partner to support them because they're doing more volume through software and they need more support. But that 19,000 equates to 70% of North America is being touched of the hospitals across North America are being visited by our Territory Partners every 90 days. We have a considerable field force and a considerable footprint and considerable relationships across the veterinary channel in North America. We also have a very tenured field force. If you look at this chart, 37%, and I had to look [indiscernible], 37% of our field force has been in the field for over 15 years. That's a long time to build relationships, to build trust. The competitor is going to have a very tough time coming in the door and having that same level of trust. If you add in the next bracket, 60% of our field force has been in the field for over 10 years. We've been partnered with Territory Partners, 60% of our partnerships of those 170 people across North America, more than 10 years of experience. But we're just not staying stagnant in this area either. We've got 25% of our field force who is under 3 years. They're able to take and leverage that experience from our more tenured generation. They're also able to bring new insights from the fields that they're coming to us from, and they have also seen that potential that is Trupanion and they are partnering with us today to move forward to what we can take it to in the next few years. So our partnerships and our territory partners are at the hospital level and they continue to build relationships at that ground base walking in the door. But we have partnerships that go above that hospital level. We're partnered with hospitals or we're partnered with large veterinary groups that cover 79% of the hospitals across North America. We have -- Margi talked about our gross pet adds and where we are from a perspective of where we've been and able to invest in pet acquisition. And we're still -- we still see 1.2 enrollments across our active hospitals across North America. That's tough to keep up with, knowing that we've had to pull back on that investment. But these relationships and these partnerships is what keeps it strong. We have 15,500 active hospitals and 11-plus thousand hospitals have our software. This is great, but we have a lot of work still left to do and a lot of potential still left to untap. So when we think about growth, like I said, we can't just grow in 1 partner hospital in places where we have strength. We have to grow our footprint. We have to build more relationships of strength and we have to build more volume from hospitals, right? More engagement, more software utilization, more members experiencing Trupanion from a perspective of not having to think about costs when they take their pets to the vet. And as you can see, that volume of claims submitted through software. This is veterinary hospitals submitting invoices to us through vet portal to make sure those members have greater experiences is growing. We also have a footprint of hospitals, the number of hospitals introducing Trupanion to their clients through our offers. We're growing that as well. I'd like to grow it a lot more. But I also have to make sure that when we grow that, we grow this. And this isn't just about hospitals that are doing that are starting to do something more, but this is about more from the hospitals that are doing something. This is a graph that depicts we're growing footprint, and we're growing same-store sales at the same time when it comes to building that veterinary engagement. And so we have to keep that balance. Some of you have heard me, probably not on this stage, but somewhere in prior years, talk about our engagement and how we engage and how we build that relationship with the veterinary hospital. I think, effective sign-up account managers, all of these different ways that we've done it, champions at the hospital. All of them are great, but it's not a one-size-fits-all approach. We've had to evolve. We have to meet hospital teams where they are. They're busy. They can't always take an hour to come off of what they're doing to help pets to hear about Trupanion. It isn't always just one person that wants to learn about Trupanion. It isn't always during business hours that they want to learn about Trupanion. So we've had to build different tools that can be accessed by all members of the veterinary team that allow them to be educated and understand more about what Trupanion can do for them and what, more importantly, Trupanion can do for pets. And what this has done over time is it's made a significant shift in the engagement level that we've had across the offers that we see coming through. 62% of our offers had veterinary engagement behind them that were higher level engaged with at the veterinary hospital has now moved to 72%. That means that we're able to -- as we continue to invest and we continue to grow in that pet space, we're able to actually push them further down the funnel. But we know that, that means that they're having a conversation and making a recommendation about good medical insurance with those clients. If the veterinary channel is our heartland, this is our heartbeat. These are the team members, and this is just some of the team members of the 170 head count that are visiting hospitals that had been making this growth possible in a time when we've been focused on price. We've been focused on margin. We've pulled back spend, they've continued to invest. They have continued to go and visit hospitals. They've continued to build and grow this channel. And I can speak for them. I'm confidently speaking for them. I hate to speak for anyone, but I will confidently speak for them. that we are very excited about what's possible when we can match this force with the pack investment and growth that we're going to see across this space that Emily is going to talk to you about next. I look forward to your questions.

Hi. I am Emily Dreyer, I'm Chief Revenue Officer at Trupanion. And while I've only been in this role for a couple of months, I've been at Trupanion for almost 13 years. So I've seen and been part of all sorts of growth here. And I'm really excited to talk to you all about that today. I promise I won't take through a full decade and change. I will focus on 2025, and I'll give you a little bit of 2024 and 2026 for context. So you've likely heard us talk about Lead, Convert, Keep before. It is our mantra, our flywheel and the engine behind our pet growth. To give you a quick overview, a pet owner in the Lead category is someone who's aware of pet insurance and is interested in learning more. As you just heard MJ say, veterinarians and our B2B partners are critically important at this stage of the funnel. A pet owner in the Convert stage is someone who's actively learning more about us and ultimately takes action to enroll. At this stage, we focus on educational and sales forward content, making sure that we are top of mind when and where a pet owner is doing their research. A pet owner in the Keep stage is a member that we continue to nurture and sell the value of Trupanion to. We focus on crisp content and exceptional experiences that allow our members to become loyal and turn into advocates. And that's what makes our flywheel fly. So with that foundation, when we say we're stepping up our acquisition spend, our pack investment, an important area where we're doing this is with our brand spend. And brand spend penetrates all aspects of the funnel. For us, brand spend could be posters that a pet owner sees in a hospital. It could be a TV ad that reinforces a vet visit or a friend referral or it could be a tangible item to our members, making our intangible product that much more come to life. So this gives you a slightly different view from the previous slide. As you can see, we're stepping up our spend, most notably and most aggressively in the back half of 2025. And we plan to continue to do so in 2026. As you just heard MJ say, our Lead volume is continuing to grow, thanks to a really strong TP Nation. And this spend allows our TPs to walk through the hospital doors with materials in hand. And it also increases our brand exposure to pet owners who are already in the funnel. A second and critical dynamic to our acquisition spend is the reintroduction of test spend. This category of spend allows us to evolve and to try new things, and that could be in any part of the funnel: Lead, Convert or Keep. As tests optimize and win. They move into our core acquisition spend, allowing us to constantly stair step up our overall acquisition dollars. In 2023 and 2024, we didn't have that. Now that we have more dollars to deploy, this is critical to allow us to evolve to test, learn and to grow. So I'm going to show you a couple of examples of what that looks like, where we're investing. So you can see here that we have in-hospital assets. We have digital assets and TV spots, and we have materials and tangible items to our members. In the absence of all of this, in the absence of brand spend, each part of our funnel has to work that much harder. However, a funnel that has increased exposure, increased brand spend, we know that if somebody moves through the funnel, they get that much more exposure to our brand and tactics that we've had all along perform a little bit better, and every dollar goes further. That delivers more pets and higher engagement. And this slide really shows what opportunity we have. So if you -- these are two of our core channels. So you've got add a pet at the top in the blue line, that's our members who are current or previous adding pets to their policies, and we have a refer a friend in yellow. Unsurprisingly, refer a friend benefits greatly from an increase in brand exposure throughout the funnel. And you can see as that spend decreased in 2023 and 2024, the impact that, that had. However, add a pet is fueled by our experience. Our members know the value that we provide. They see it firsthand. And they know that through our best-in-class experience, we're actually solving the problem. The consistency in our experience, illustrated by our add a pet enrollment on this chart is encouraging and it is also what's driving retention. So as we said at the beginning of the year, as Margi reiterated earlier, this year is all about retention. And we have delivered on that [ and some ]. For those of you who are not close to a screen, to put this chart into perspective, the scale of this, that's all 98% retention. That's industry-leading. However, we obsess over every single basis point. Every basis point of retention is that many more pets who can get access to care. It's that many more veterinarians who can give that care and that many more families who can keep their pets and their best friends by their side. A key dynamic for retention is the volume of each of our members in our three retention cohorts. So as a reminder, we look at retention in three different cohorts. We have our first year retention, which is our new members, members who have just signed up and have not yet received a rate change. We have our members in our under 20% cohort, which is members who are receiving a rate change of 20% -- or sorry, of less than 20%. And we have our tenured members who are receiving rate changes of 20% or more. And you can see in these pie charts, how as we responded to inflation, how much that impacted the distribution of pets in these three cohorts. And as we -- and as more and more members shift into the under 20% cohort, retention will continue to improve. And our first year retention cohort continues to be an opportunity, and it has never been more important. As with our growth ambitions and our current trajectory, we're expecting more and more members to fall into this cohort moving forward. And so while we've seen a decline in first year retention for some of our channels, our core channels have been steady. And while steady is certainly below our standards, steady in this environment is strong. So our core channels are where we're putting most of our investment and most of our resources. So it's not surprising to see that it outperforms others. As we evolve, we're hyper focused on setting our members up for success from the beginning and giving value-added benefits, both tangible and intangible. And we know that as we step up our brand exposure in earlier parts of the funnel, that will have a positive impact on first year retention. So as we expect to see more and more members falling into this cohort as a percent of the book, that's part of the story. It's the only part of the story. And the other part of the story is conversion. From a new pet adds perspective, one of our biggest levers and one of our biggest opportunities is growth in conversion rate. Our phone conversion has remained incredibly strong even in the face of rising rates. Our phone sales team, they're incredible. They have more confidence than ever before in speaking to the value that we provide and having that conversation around price. And that's the key. They can have a conversation, they can build rapport. So with more and more pet owners staying online, it's more important than ever that we create that same experience and environment on our website. And website conversion rate is a big growth lever as well. We're focused on mimicking the experience that our phone sales team provides. We're focused on driving increasingly more personalized experiences and we're tackling the misinformation about price and about birthday pricing head on with succinct and direct messaging. As this chart shows, we still have opportunities in some of our -- we still have opportunities, and it highlights our need to evolve as we speak to a broader audience of pet owners. Those efforts are well underway, and they will also get a boost from the increased brand exposure happening upstream. So as we take a more granular look at our pet acquisition investment, you can see that we're coming off the back of 2 double-digit year-over-year increases in our acquisition spend. Look at that trajectory. You can expect that we'll continue this trajectory in the back half of 2025. And I want to highlight, though, that not all growth is going to be a good growth and you can continue to expect that we will deploy those dollars in a disciplined fashion. Similarly, as Margi alluded to, our mix of pets has shifted, and it will continue to shift as we see a different type of pet parent come into the market. For example, we're currently enrolling more cats than we were a couple of years ago. So as we deploy more and more acquisition dollars, expect that we'll be laser focused on responsible growth and building momentum that sets us up for a really strong 2026. I'm so pleased that we have this level of investment now. And we're starting to see early signs of that growth. So in Q1 and Q2, most of our net pet growth came from retention. Now with our Q3 forecast that you can see in the yellow, we're seeing a step up and more of that growth is coming from new pets adds. I remember back in 2022, when we were spending, when I was supporting and helping us spend those dollars and growing our investment and helping more pets, and I'm so excited to be back here again. We have strong momentum, and we're building for 2026, and I look forward to answering your questions. And with that, I will hand over to Simon.

Good morning, everybody. I'm Simon Wheeler. I am the Executive Vice President for Trupanion's International businesses. Just a bit of background about me. I have one Border Terrier, a little girl who's four years old, who is the love of my life and gets incredibly angry when I travel and I travel a lot in the job that I've got. I've also got two horses there, both old and very [indiscernible] they are pets. They're not ridden very much. They're to all to be ridden. But that's my broader family. I'm here to talk to you about the progress we've made in our international business this year, some of the successes we've had, and I also want to share some of the challenges and how we've faced into those. But I think let's start with something that's tangible, and that's probably have we managed to grow this year. I'm really pleased to say that we've had some strong and steady growth this year. When you look in aggregate at all five territories that we're live in, we've had something like 22% growth in enrollments year-over-year. And that's in the context of putting in new products, putting in new rating, putting in the Trupanion brand in Germany and Switzerland. It's in the context of putting in new IT systems. It's looking at trying to introduce the value proposition, trying to show people our core mission. So a lot of moving parts in international yet we still managed to grow. Let's break it down and look at some of the territories individually. If we look at Germany and Switzerland, we put the new brand, we put the Trupanion brand in place. We also put the Trupanion product in place. Both went down really well. The brand, we bought a small company called Smart Paws, probably 3, 4 years ago, and we replaced the Smart Paws brand this time last year with Trupanion. Accepted very well. On the product side, we put the Trupanion product in place and especially liked by veterinarians for the broader cover. We've one task this year still to do with the Smart Paws product, and that's to migrate the legacy portfolio over to our Trupanion product. Now we'll do this by canceling down individual policies, start them on a new policy. But if our customers that are claiming on their Smart Paws policy, we'll still honor those claims. And those conditions will still be covered on the Trupanion policy, and we'll commit to offer cover to those policy holders, obviously for the life of their pet. We'll start that in November this year. So by the end of 2026, our whole portfolio will be Trupanion products, Trupanion cover, Trupanion customer service, the value proposition. So we'll have some real efficiencies in the German and Swiss business. I mentioned technology. We've also put a new technology stack into the Swiss and German business. So we have a veterinary portal, where you can pay vets directly. Vets can submit claims through the portal. They can submit medical records, certain customers. So we're starting to deliver that value proposition for our Swiss and German clients. So the next stage is integrations. If you look at the European landscape for veterinary software platforms, in 5 territories that we're in, there are 24. 24 have a meaningful footprint. We've got our first integration in Switzerland in quarter 2 this year. That gave us -- or that gave 40% of Swiss vets the opportunity to be able to issue exam day offers. We're working with 2 partners in Germany and hopefully by the end of this year, we'll have exactly the same capability in Germany as well. And we're going in quarter 1 and quarter 2 to get the claims integration live and the medical record summaries live. So we have a full value proposition with 40% of German vets. When you're working with software vendors, their priorities aren't always yours. So aligning our technical development team with their technical development resources and the availability means it doesn't always go as fast as we want it to. It also means that taking our value proposition out to vets and hospitals in the territories, it's much more powerful when we pay that full integration. So I think by the end of this year, with 40% of the 11,000 German hospitals enabled, you have to issue EDOs through the software, we submit claims to the software, to be paid directly. That starts to really empower our business development teams, our Territory Partners who are out working with those hospitals. Let's look at Czechia, Slovakia and Belgium. They are the territories that we're trading in -- under the PetExpert by Trupanion brand. And we facing some different opportunities and challenges in those territories. So for example, in Czechia, we have been integrated in all 7 software platforms for the last 6 or 7 years. We have that as a pre-requisite, you had to submit claims right from the start of our operations in Czechia. So we have some fantastic relationships, and we have that trust built already with the Czech hospitals. What we didn't do necessarily was connect the dots. So with that fantastic technology, with a relationship, with the trust, we didn't go that one step further and enable vets to introduce their customers to us, to generate leads, to generate sales. We started that at the midyear point. So now as we are just about to end the third quarter of 2025, 80% of Czech vets have the ability to issue exam day offers through their software. So we've got that full integration in Czechia now, and we're building on that. We have a team of 6 Territory Partners or vets who are all starting to really move forward with that. With a similar situation on the breeder side. We'd always work with breeders, but in Czech, we focus very much on ensuring the breeders own animals. So we're out working with professional breeders, the small nucleus of breeders, not the general breeders who provider all the puppies and kittens. That had limited what we were doing. From the first of September, we now have a new breeder portal and breeders can offer go-home day offers. So that's broadened out so that they can offer go-home day offers to the puppies and kittens to the new owners who are buying puppies from those breeders. So a really important step forward. Now this is really early days. We launched it two weeks ago. We've quite a lot of activations already because we had a breeder database. And of those activations we've had, we've already -- and we're not even through the first month yet. So those free covers are still in place. We already had a 35% conversion rate. So that's looking really, really strong for Czech. When you look at the PetExpert business, the growth was predicated on online activity, aggressive online paid media. That's still really important. We still get a lot of enrollment through that. And we're looking at how we've done things. So we're optimizing that strategy. We're seeing real growth now in paid media. It was fairly static before. That's moving forward. We expanded our activity to include awareness, brand awareness and we've expanded it to include support for our channel partners to support for vets and support for breeders, so that awareness is getting much greater. And that's had a really important benefit. We put a fairly comprehensive price of view in place in quarter 2 this year. We still managed to maintain retention rates over 99%. So that's been really, really strong. The awareness, the normalization of pet insurance from some of the activity we're doing into the broader social media is really starting to cement those policies into the business. Breeder, veterinary online distribution, really strong, really starting to drive the PetExpert business forward, but we've also got some other channels that we're working with. So from September, we started to work the largest aggregator site in the Czech Republic. We expect that to perform quite well. It's not -- doesn't have other pet insurance on there. The market isn't that big and there aren't many competitive aggregator sites in the market. We also started to work with our underwriter, CSOB, to market our product to their 3.3 million banking clients. So starting to broaden that distribution in the Czech Republic and the business is starting to really move forward. We've also got some longer-term projects in place, strategic projects that will enable efficiency and growth. So the harmonization of the technical systems that we have with the German and Swiss business. So to enable that single tech and IT provision makes the servicing of that much more efficient, makes the support, the development and the maintenance much more efficient with one team concentrating on one technology stack. It also enables us to harmonize the processes, the operational processes in the business to harmonize them with the rest of the European territories. So if you start to move those forward, we start to look at some real efficiencies that we have from those businesses. If I had to summarize, I would say that the territories in Europe are quite well established now to actually really start to grow and starting to standardize in terms of what they're doing. If you look at the technology, we mentioned the harmonization there. We currently trade in 7 languages. So the base language is English, and we've got some very sophisticated AI software within our technology stack. That means that the right communication goes to the right customer in the right location and the right language. So technology doing all the heavy lifting on that front means that our distribution strategy is starting to become aligned very much we're veterinary centric, pulling the veterinary strategy that we have in North America very much into those territories. So we're moving away from the -- from online dependencies into those core pet sector distribution channels of veterinary and breeder. On the veterinary side, we've standardized all our veteran tools, we've standardizes our veterinary training materials, and we've standardize all our point to sale collateral. We also have a single IT system and our teams and Territory Partners in each territory now have a standardized proposition that you'd recognize in North America into those territories, which is starting to really bite. Operational harmonization enables the teams to really focus on growing the business and managing the clients. And I think what we've seen in Germany and Switzerland and what we'll see over the next year or two in our other territories, is that centralization of similar support services like legal, compliance, finance, people ops is coming centrally from Trupanion here. So it's enabling, it's deep, it's uncluttering the teams to enable them to focus on growth, to focus on recruiting more pets and to focus them on managing those pets when we have them. When we look at the brand, product and pricing, Germany and Switzerland are there. The other territories aren't yet. They will be over the next two or three years. So we'll introduce a brand, we'll introduce the products. And most importantly, and we'll advance the pricing and the sophistication we have about pricing with the knowledge and the experience in pricing will put us at the cutting edge of view -- it has put us the cutting edge of European pricing. I look at what the competitors do and the best digital inventory. And lastly, integrations. We talked about the 24 software platforms supporting the industry across the 5 territories that we operate in. We'll continue to push for more integrations with those. If I look at Czechia, we're integrated with all 7. If I look at Belgium, we have the largest, which was 60% of the market, which were integrated with for claims. We'll have EDOs going into Slovakia and into Belgium in the first and second quarter next year. I look at Germany with 40% of that's already enabled with integrated software. I look at Germany by the end of this year with 40% of the 11,100 vets. And that's a great foundation for us to build on -- a great foundation to ensure that we have a strong, sustainable, efficient growth for the future. As we enter our next strategic plan period. Good. Thank you. I think we're going to a break now.

Yes. Thank you, Simon. As he mentioned, we're going to go into a break before regrouping here for our first Q&A session. So we're going to regroup a little bit before 11:00 a.m. Pacific Time. As we head to break, we want to take a moment and just introduce you all to a few of our office pets. [Break]

Okay, everyone. Welcome back. We're going to go ahead and get started here as everyone makes their way to the stage. We're going to play just a quick video, and then we'll get started in Q&A. [Presentation]

Okay. Let's kick this off. As I mentioned at the start, your participation interaction is really key to making this event successful. So we're going to run this first Q&A session for about -- up until about lunch time, then we'll take another break. If you have a question, go ahead, just raise your hand. Gil over there has a microphone. If you don't mind just waiting to get a microphone in hand that will ensure that everybody, including our online audience can hear your question as well. And I think to kick things off, we're going to do some introductions from folks you haven't heard from yet.

So obviously, you've heard from me. So I'm going to go straight to John. Can you tell everybody who you are, how long you've been here, what you do here, not your job title, but what you actually do and your pet?

Yes, sure. John Gallagher. I've been with Trupanion for 9.5 years, and I help Jason and MJ lead our field sales team alongside Brian and Jackie in our contact center and claims. We have 3 dogs, my wife and I. We have Willow, Milo and our newest addition, Winnie.

Good morning. I'm Jason Wasdin. I oversee Canadian growth. I have -- I've been with the company for almost 16 years, and I have 2 fur babies, Tilly and a toy Aussie. She's about 12 pounds, but all the fun of a full-size Aussie. And I have an Australian cattle dog mix named [ Dibo ].

Hi, my name is Jim Doran. I've been a territory partner in the Philadelphia region for just over 7 years. I literally love what I do every day, walking in the doors. Becoming a territory partner is probably the greatest decision, one of them that I ever made for myself and my family. We have an 11-year-old -- 10- or 11-year-old rescue beagle named Harper, we're not sure because she's a rescue.

Good morning. My name is [ Erin Lundell ]. I am a territory partner in our Phoenix market. I've been with Trupanion for just over 7 years. I did start as a Territory Partner associate in our Boston markets and then move to Phoenix to become a territory partner. I have 3 dogs and 2 tortoises.

Welcome, everyone. I'm Dr. Steve Weinrauch, Chief Veterinarian Product Officer. I've been with Trupanion for 12 years now. So I've had the pleasure of seeing a bunch of you a bunch of times. Thanks for coming back. I have 2 dogs, 12 chickens, 4 roosters, 2 guinea pigs and a bunny called Harry, typical veterinarian.

My name is Kelly Nealson. I've been with Trupanion for a little bit over 5 years now. I lead our customer marketing team, so supporting member experience, our refer friend and add a pet channels and TruTopia. I have 2 mixed breed pups at home, Olly and Teddy.

Good morning. Last but not least, I'm Brian Daley. I oversee the contact center teams, including phone sales, retention and customer care. I've been with Trupanion just about 4 years, and I've got Hudson Stripes, the Rottweiler and Daisy, the Golden Retriever.

So we don't just have team members sitting on the stage here. We also have them in the seats in front. So Aaron, would you like to kick off?

Hi, everyone. My name is Aaron Konichek. I'm Head of Growth Insights and Business Operations at Trupanion. I've been at Trupanion for about 5 years, and I have a 1-year-old labrador named Moose.

Hey, everyone. [ Doug Britton ]. I have been at Trupanion for almost 8 months now. Prior to that, I was at VCA and Mars Vet Health working with VCA Banfield and BluePearl for 7 years. I am sliding into a strategic initiatives role here where I will be working cross-functionally with several departments and helping drive major growth initiatives. I currently have 0 pets. I have 2 young children and 2-year and 4-year old. I've seen many heads pop off of stuff to animals, and I'm just waiting to make sure I have a safe home for those...

Hi, everyone. My name is [ Don Larkin ]. I oversee our commercial partnerships like Aflac and State Farm and Chewy. I've been here whopping 30 days. So very happy to be here. Let's see, I have 5 wonderful children, a 5-year-old Havanese named Princess Leia, who, yes, we are a Star Wars family. And Princess Leia is pretty much the only thing in my house, I feel like loves me unconditionally, and I have an amazing wife that helps us keep it all together. And 3 guppies and an algae eater, which I didn't realize how big they get. So we're going to have to solve that one pretty soon. Thank you.

Good morning, everyone. For those that I haven't met, my name is Jeff Brooks. I look like a veteran, I guess, compared to Don because I've been here for 100 days. But I am currently an adviser to Margi, Emily and the commercial function. Margi reached out to me on LinkedIn, and it was a conversation that was incredibly insightful and exciting. And as the former Chief Marketing Officer of Lemonade, among other brands and a huge believer in animal welfare and just pet wellness overall, this seemed like too good an opportunity to pass up. So ask me tons of questions in the break, please, in the sort of more quiet times about why I'm here, what I'm up to. Maybe Margi or Emily will quarter back a few other questions my way. But in my other time when I'm not supporting this crew, I'm an operating partner with Goldman Sachs in their growth equity and private equity divisions. And all I do are help companies focus on scaling growth.

Hi, everyone. I'm [ Alex Boto ]. I oversee our B2B channel marketing efforts. I've been here about 4.5 years, and I currently co-own a beta fish with my 4-year-old.

I forgot my [ cat ].

It's a good thing he's not watching because he sleeps 22 hours a day. Gus is an 11-year-old rescue cat who is twice his age and weight. So he's a big boy. We call him the Notorius GUS, named after the Notorius BIG, and he's absolutely awesome. And my 2 daughters are grown, so he's my only dependent and roommate at the moment. Okay. Sorry about that.

I'm [ Jordan Johns Budkey ]. I oversee our data science and data analytics and data engineering groups. And I have a dog named Lupin, who's 14 and a cat named Lucy, who's 15.

Yes. Hello, everyone. I'm Peter. Actually, I'm going to beat that with 30 days. I'm starting in 2 weeks. Yes. So actually, no pets as of today, but I'm fairly sure that working for Trupanion will get me into getting a dog. And also my daughter has been nagging on me for years. So we'll be there.

Peter, what are you going to do?

There was a very good question. So I will be taking over from Michael as Head of Actuarial and coming in from Europe with -- it makes me look old, but I've been working with pet insurance for about 12 years, heading up pricing departments, actuarial departments and really looking forward to sort of combine this European experience with the insane growth opportunity in the U.S.

Peter, we'll send you a box of puppies as a welcome.

Hello. I'm [ Alan Schramberg ] and this is Harper. I'm on the actuarial team, do all sorts of pricing and analytics, and I've been with Trupanion for about 8.5 years.

Hello, hello. Sarah Hillman Sparks, Vice President of our Financial Planning and Analysis team, so consolidated forecast. I am the proud pet parent of 3 cats, 2 kittens, Phil and Frankie and our kitten at heart, Sophie, who's 18 years old.

Good morning, everyone. I'm Wei Li and Senior Vice President of Finance and Corporate Controller here. I've been with Trupanion for almost 7 years, and I always say that I bring some diversity to the group. I currently don't have a pet, but I enjoy to be in the office to hang out with many furry friends here. So it's been an exciting journey to be with Trupanion, and it's great to see you all here today.

So, Wei, you're getting a box of kittens.

Good morning. I'm [ Devolt ]. I lead our recruitment and learning function here at Trupanion. So I get to every day go and find some pet mission-driven team members who love what we do here and then get to train them and educate them and get them ready for our workforce. I'm a pet sitter, so I don't have pets at the moment. I've got a kitchen under the way. So I'm going to have my team members pets sit for me. So I'm going to go on record here today because they've got a cat countdown calculator by my desk so they can countdown their pet sitting days because I'm like Simon, I love traveling. So Marcy.

Hi, everyone. I'm Marcy Akiyama. I lead the People business partners here at Trupanion, who support all of our internal team members. And I also lead the DEI efforts for the company. I've been with Trupanion approaching 1.5 years, and I am a proud pet parent of 2 mixed breed dogs, Mika and Ren.

So we got an early jump on all of the introductions or most of the introductions, I guess, I would say. As Margi mentioned in the beginning. So our intention with this Q&A session is to really to focus it on the presentations and the content you heard earlier. It's really all around growth. So the teams here are ready to ask -- answer your questions on those topics. And then after lunch, we'll have another round of presentations that are focused on operations, technology and financial. And then we'll have an additional Q&A session there. Of course, we know that sometimes questions go where they go. So the team is here and ready to answer your questions. Okay. Who wants to kick us off with the first question? Okay. [ Andrea ]?

Andrea from Italy, Family Office Investor. My question is about the quality of the book and what metrics you look to make sure if the book is still nicely in balance or maybe after a few years of repeated price increases, low growth and higher churn, if something has changed and yes, maybe the business is not as balanced as it was before.

Thank you for kicking us off. Now one person who didn't get a chance or one of the few people who didn't get a chance to introduce himself is [ Michael Gray ] at the back. I think, Michael, you're probably best placed to answer this question from an actuarial perspective. And then, Aaron, perhaps you can talk a little bit about mix from what you see in growth insights.

So yes, you phrased the question differently than we typically look at it. Just looking at the book in total, and it does change over time. Every book does. I think in pet insurance, if you're a pet insurer in the U.S., you're growing your book from scratch. And so when you start to grow your book from scratch, you end up with a lot of young pets to start with. And then as it ages and matures, it changes. Our book overall has changed a bit over the last few years, but we don't look at our book overall, the way we manage it as we manage it by sectors. We file rates by state, so we look at geographies very heavily. And geographies differ from each other all the time. So I feel like our skill set is based on how to look at what's going on in a specific geography if it's growing fast. A few years ago, Ontario was growing very fast. It looked very different than Alberta, which was growing very slow at the time. And we have different ways to price that and to make it financially functional in both cases. So we have basically 65 different jurisdictions that we are setting rates for. And so we look at all of them, and they all have their different mechanics of what's controlling the look of that book for those 65 different books. So you're looking at the big summary book, we're looking at the 65 smaller books. And yes, it changes and it changes all the time, and we expect it to continue to change, but it is always manageable.

If I may, a little follow-up. But now that you look at it on a granular level, can you sort of share a bit with us on this more granular level, what kind of metrics you take comfort from to know or to conclude that the business in each of these geographies and ZIP codes is nicely in balance. I'm thinking maybe I know there must be metrics like the average age of a pet or the frequency or other stuff that could lead you to conclude if -- yes, if it's still healthy or if there is some dynamic that might be worrying going on?

Yes. So our top metrics are premium claims, right? I mean we generate margin because we have the ratio of claims to premium just right. We call it medical loss ratio. So that medical loss ratio really guides everything else. And when our medical loss ratios start to look off, they're not growing the way we thought they would grow. We didn't price right for it. We'll dive deeper into those other metrics that you're talking about, age of the pet, duration of the pet, the channel that the pet came from. We will look at every aspect of the pets to try to understand, is there something different happening in our book today than what was happening in our prior periods to make sure we're up with it. And that's a constant -- it's a mental churn. You're looking at what metrics is really guiding you at any given time other than the [ MLR, ] it could be a lot of different things. But I guess what I want to leave you with is the confidence that we're looking at all those metrics. We're not the only team also that looks at those metrics. We're responsible for the pricing, but we work with our growth teams and other teams to look at other aspects of the business to see that we're working well together as well.

And just to sort of pass the baton to Aaron, when we think about analytics, we've always created data sets that will allow us to kind of dig deep into the analysis of what's happening where. And to your point, when you go through changes in any business model, you want to be able to have your fingers on what's actually happening. And is there a need for us to stop a retention decline in one area? Or do we need to enroll more puppies or kittens in another? Or do we need to enroll more puppies and not kittens and another would be another example. All the time, while we've had an analytics team in this company, they've always had actuarial experience, and that's critical because everything we do comes through that pricing lens of is our loss ratio right? Are we giving people the value proposition they're signing up for? Aaron is the newest person to take their role over to oversee our insights team with a background in pricing moving in to be able to connect the dots. So do you want to speak about the things you're seeing in the way that you inspect the business, Aaron?

Absolutely. It feels only natural to take the microphone from Michael. We started around the same time about 5 years ago, and I spent 3.5 years of that on the actuary team. I see Monica and Mary in the audience, also actuaries who became Growth Insights leaders. And so I've had the pleasure to take over the Growth Insights team in Q2 of this year. And we have a slide at the end of the slide deck.

Slide 91, please.

And so many of you might remember my presentation last year, you were talking about how we can get even more granular than the 65 pricing categories that -- well, 65 states and provinces that Michael had mentioned earlier. And we can really zoom in and get really granular about our growth strategy and making sure we're growing in the right places and not in other places that we might not want growth. Not all growth is good growth, and we want to make sure what matters most is that we're growing the right way. And so I'm not going to go into great detail on this map in the neighborhood Insights pricing tool as I did last year with a video and all sorts of stuff related to this. But I can give confidence to everyone that as I work with the super talented Growth Insights team now, I have lots of great people that are building different tools that we can apply in different growth areas around the business. So it's not just geography that we're looking at. As she mentioned, we're looking at species, we're looking at age. We're looking at all sorts of different things that we can use as levers to drive maximum lifetime value and build a durable and sustainable book into the future.

Katie Sakys from Autonomous Research. I wanted to circle back to some of the pie charts that you guys had up on the screen earlier, just looking at the different cohorts of customers and sort of where they fall in terms of annual rate increases. How much longer do you guys think it will take before that 20% plus rate cohort will get back down to 1/4 or less of the book similar to what we saw perhaps a few years ago? And how are you guys approaching messaging those 20% rate increases now when those customers are probably not being hit with it for the first time, but more so experiencing that second or maybe even third monster rate increase. Just trying to get a bigger -- better picture of the retention on that specific part of the book.

Well, I think I can answer the first part of that question. Maybe Brian or John can handle the second part. Yes, a few years ago, our retention rates are really high. And I was concerned about it. So I told John, to hold my beer, I can get those rate flows so high that can really challenge that retention. And unbelievably, with all the additional 20% rate increases, we still kept those metrics as Emily walked us through today, which was incredible. But we don't really want to keep rate increases that high. I mean, Margi talked earlier about how disruptive that is to a family and to our customers, and we don't like to see that. Our current projection in Canada is that we will be down below that level across the country. For the U.S., we're coming down a little more gently. It is hard to predict time lines when it comes to rates because it takes a surprisingly long time for rates to take full effect. And so -- two years ago, when we were in the middle of our margin compression, we had already had a lot of rate increases approved and ready to implement. And you can see from these graphs that it was 2 years later that we really saw the results of that. So I would say within the next 2 years, you'll see a steady decline in the slice of that pie. And hopefully, it gets back to a small level. I don't know that there's -- I have a prediction of how small that slice of pie could be, but it would be great if it was nothing.

And one thing that governs that as well is the granularity, the more data we're going to get on a specific cohort. If we -- as we're now getting back to being so granular, we may end up needing to put people in that bucket because we've been mispriced for a while, which has always been the case. We've always had a low percentage, but definitely see that flipping. It's moving very nicely. I can't see you, but it's moving very nicely in that direction. I'd like to hand off to Kelly to kind of talk a little bit more about the messaging because you're right, there is absolutely a compounding impact that's hitting these members and how you've been thinking about that and the things you've been doing as a team to drive that forward.

Yes, absolutely. So at this point, we have, I'd say, 2 to 3 years of testing under our belts, and we've invested a lot of time on the team into messaging and into getting really, really granular with how we talk about different rate change experiences and not just the rate change experience, but the experience that the members had with Trupanion over the last year plus of their tenure. So is it their first rate change, subsequent rate change? Have they claimed in the last year, have they not? And I think you brought up compounding over 20% rate changes. So we have specific messaging to that effect. And we're launching multiple tests a month in our renewal communications category. And then also we consider the time leading up to the renewal and immediately after the renewal as kind of that critical period where we've been able to really hone in our messaging. And the exciting thing is that we've seen a lot of success year-to-date, year-over-year, we're actually trending 19 basis points better in our retention for rate change over 20%. So we've really seen that pay off and happy to be able to report that. Obviously, our under 20% retention segment has better retention, and we are seeing a shift as we see more of a shift back to that under 20%, we can also expect overall retention to get better. But happy to report that we've seen strong growth in retention in that category specifically.

It's [ Andrew O'Neill with Helmshore Capital ]. I had a question about first year retention. I don't know if this is the right moment for that question. I guess that the experience in the first year, what are some of the things that drive that ultimate retention experience? Has that been relatively stable over time? Has it been trending in one direction or another? What are some of the ways that you approach that? And how do you think you compare versus your competitors in that first year, which seems to be when most of the churn activity takes place independent of some of these unusual price increases?

Yes, absolutely. It's a great question. So yes, Emily called out, we have an opportunity with first year retention. We've seen steady retention in our core channels. And specifically, we're referencing the vet channel as our kind of key core channel and also referral friend channel. So we know that when someone comes to us at the recommendation of somebody that they trust. So first and foremost, they're a veterinarian, also it could be a friend or family member that's had experience with Trupanion. They're already coming to us with that trust, and we see stronger overall retention. And then when we don't come with maybe that same level of recommendation, it's a little bit more of a hill to climb to earn their trust, help them understand why our product is valuable. As Emily mentioned, we also -- like the more we invest in our brand overall, we can expect to see better recognition and strength within the first 90 days. But we do really think about the journey in terms of how long they've been enrolled, what they probably know about us coming in. So how much education do we need to do? How much do they already know about our product? And can we meet them where they're at and really celebrate their pets. So if they have a new puppy, we have puppy-specific content, and we're also looking to bring in more tangible elements to that journey. So things like welcome kits, surprise and delights, value-added benefits programs. So yes, I would say, overall, we have industry-leading retention that we're really proud of. And like Emily said, we obsess over every single basis point. So we are putting a lot of focus on first year retention to maintain and get back to historically high levels there.

If you look at this beyond the entire first year, is there a period of time when your new customers are most vulnerable? And you think if we get past the first 90 days, we pretty much know where we stand?

Yes, you nailed that exactly. It's the first 90 days is that period that we're looking at. So effectively, the closer they are to enrollment, the more vulnerable they are. So the first 30 days is a milestone, 60 days and 90 days. And so that's where we're most focused in terms of messaging journey and just overall nurturing that new member.

And then looking at the chart for the core channel, it looks like prior to, let's say, mid-'24, it was around 97.5% and then it's been nearer 97%. With the right kind of support for the brand, would you expect it to revert back to a historical relationship probably?

Yes, we would. Absolutely. I think as we continue to increase our investment, we can expect in brand overall and upper funnel, we can absolutely expect first year to have the greatest overall impact and lift from a retention perspective from that investment.

What's not probably as obvious is that our PAC spend is inclusive of first year retention spend. So because we know that attrition comes in that first 90-day window. So when we talk about lowering the investment we make to acquire pets, we're including programs that Kelly was mentioning that we will turn back on again, they were turned off. So we would expect first year retention to weaken when we're not investing to really reestablish that connection route. And that comes through not only the tangibles, only the welcome kits, but also through having people in our contact center who we've already said are absolutely world-class calling them and saying, how are you checking in on fluffy today? How is everything going? That brand milestone, that step of we're here for you, every step of the way goes a long way to that first year retention and stabilizing it. So that's another area we'll be investing heavily in.

Andy from TDM Growth Partners. I'm interested in hearing from the Territory Partners. Would just love to hear the kind of conversations you're having with the hospitals. Do you -- like what are some of the things that they say? Are they generally receptive? Do you get pushback? If you get pushback, why do you get pushback? And just love any insights into what your day jobs are like.

Well, I can start on that. We were just actually talking during the break about it. For us as Territory Partners, some of the hardest stuff is just getting to decision-makers in hospitals. There's those CSRs that we like to call gatekeepers sometimes. Once we get to the decision-makers within hospitals and show them what we can do with the data that we have out of Tableau and now we have an impact calculator that we have that we can really show them this is how we can help you grow revenue within a hospital. And this is what an insured pet can do for you compared to an uninsured pet. And once we get in front of those decision-makers, we win the majority of the times. So for us as Territory Partners, it's being creative, working with Seattle. And the corporate groups that we now have is helping us not only swim upstream as Territory Partners walking in, but also downstream getting to leadership to push it down to, hey, this is -- Jim or Aaron, this is somebody you should be meeting with. We're just -- we're not just another sales rep walking in your door, we're advocates. We don't sell you anything, we're here to help you grow your insured client base, which in turn is going to help everyone.

Yes. And to kind of add to that, too, and I think M.J. in her presentation mentioned that the veterinary teams are a little adverse to change. So at the end of the day, we are walking in and asking them to change behaviors, which is difficult and it takes a long time. So you're building a relationship and rapport with the individual working the front desk all the way back to the technicians, the DVMs and the chemical assistants. It has to be a team effort and to kind of inspire everyone and get kind of their piece of the puzzle and speak to what drives them, it takes time. But at the end of the day, we are trying to change a mindset and trying to change behaviors, and that's very -- it can be challenging in this field as a veterinary technician of over 20 years. I'm not a huge fan of change, but we walk in knowing we have a product of value and we have something that's going to be a solution to many of their issues. So once you get to that point of relationship building, like Jim says, and you get to the right person and you actually paint a picture of what you can do for them and their clients and their pets, that's when the relationship really takes off and the work really starts.

And if I may, I think the challenge that our Territory Partners are up against is understated. It is far easier to sell something that's tangible to a veterinary hospital than something that's conceptual. Fortunately, we have our offers. So it does give it some tangibility, but it is -- the sales cycle can be lengthy. And once we get a hospital to where we want them or need them, something can change in that hospital. That champion of that hospital might move on. And so it's often repetitive where walking into that hospital on a frequent basis is so important because we identify what has changed and we -- now it's on to plan B, C or D to get them back to where we need them to be. So it's an endless cycle and it's often understated. These guys have it far more -- it's more difficult for them than their Zoetis or Merck counterparts because, again, they don't have that tangible asset to walk in with.

Got it. And just a follow-up there. Do you have a sense of the 15,500 hospitals today, how many are exclusively recommending Trupanion?

I think that I don't -- we don't track necessarily if they're exclusively offering Trupanion. I think that we can see from the volume of offers that we're coming out, that chart that I showed that showed the number of offers going -- coming from the number of hospitals that we're issuing. I think that is indicative of how many of the conversations are happening about Trupanion to the clients that are being added into that practice management software, right? I think there's plenty more opportunity there. But we can see where we have that relationship, we have that buy-in and we've been able to engage with the team members that are having those conversations that we can see the volume of what we would expect to have access to from a puppy and kitten perspective and the offers going out. We can see that volume and kind of indicates to us we're -- the conversation about Trupanion is primarily what's happening at these hospitals.

And typically, I think from a corporate group perspective, that's where you get the decision made at head office. Like we've done our homework, we've sat down. They've had the time to sit down with the teams of all the different providers, and they will move forward with selecting one. How that ends up trickling through is anybody's guess sometimes. It's not always coming from headquarters and actually getting executed at the hospital level. But the corporate groups, which you saw, we've got close to 80% of those working with us. The vast majority of those corporate groups are exclusively Trupanions.

Margi, maybe you can target quarterback this question to whoever you think would be best. But can you just talk about how the growth playbook is the same or different now than in the past when you had PAC money to spend? Where the areas for greater conversion are or tailwinds or headwinds? How the industry is different, better or the same? Just maybe at a higher level, why you're confident that you can get the growth back up?

I'll quarterback you. You go.

Yes. There was a lot in that question. So keep me honest, and let me make sure that I answer all of that. I think in terms of getting back to growth, investing more, where are we doing that versus a couple of years ago, I'd say we're leaning into a lot of what has been proven before and what we know will be successful. And we're also opening up -- always looking for new channels, new ideas, and that's where that test spend comes -- becomes so critical, because it allows us to say, I'm not sure exactly what we're going to get as a result of this. But if it lands within a certain overall PAC, then we can optimize it and that -- we know that it will become effective. So I'd say the core areas where we're spending, I mean, we will continue to spend really heavily in vet, like we've talked about before and like M.J. was talking about. We know that that's effective. We know that that's effective from a brand exposure perspective and the impact that, that has all the way through the funnel. There's other channels that we're also spending in to make sure that when pet owners are doing their research, we're showing up, a lot of those are online. And I'm forgetting the second part of your question. And how is it different? Yes. I'd say for those online channels, that's obviously where we see maybe more of our competition spending. That really hasn't changed that much in terms of the level of competitiveness online, but it is something that we're monitoring constantly.

And just to kind of wrap up on what Emily was saying, the brand -- when we look at the brand recognition that we have across the market because of the work that Territory Partners have been doing for the last 18 months, really kind of, as M.J. said, off their own back, the brand recognition in the hospital space is significantly higher than it used to be. In the Canadian market, it's dominant. And so for us to put some dollars into that funnel, we know what it will do when it used to be lower. So we feel very confident going in there now and reinvesting throughout the funnel will help drive that flywheel forward.

A related question from Brandon Vazquez of William Blair. If you have 118 monthly leads, it implies the core business is closing on roughly 15% of these each quarter. If that math is correct, how does that conversion compare to historical levels to help contextualize what conversion rates can do? And then the second part of the question is, do you need products like PHI and Furkin to meaningfully improve these conversion rates, especially given vet inflation and its impact on higher ARPUs?

Yes. So I think there's a couple of different ways that we will answer that question. I'll lean on Alex to talk about specific vet conversion as well as Jeff to talk about conversion overall. From a vet conversion perspective, when we look at the number of issued offers that M.J. shared on screen, we do have a big opportunity. And it's exciting because we have a lot of volume now that we can really test and we can learn from. It gives Alex's team a lot of opportunity to test and learn and to do that really quickly. So do you want to share a little bit about what your team has been up to?

Absolutely. So M.J. shared in her presentation, we have 118,000 issued offers going out every month. And those pet parents are coming to us at different points in the funnel and with different levels of education. And it's our job in the digital journey to help fill those education gaps and complement those points of entry. Now we don't have the luxury of the phone sales team and having these very robust conversations on the phone, guiding pet parents to the decision that pet medical insurance or Trupanion rather, is right for them. So what do we do? Well, we test. We know a fair amount about the pet. We know everything from location to breed, to species, and we're able to utilize some of these factors in addition to other factors in our testing. Recently, we've started to actually test in a more strategic and data-driven way in partnership with Aaron's team. You heard from Aaron earlier, and we're very excited with the direction that our testing is headed.

And then I think from an overall web perspective, we know that we have a happy path, and we will get people who go straight from the conversation with the vet, they activate their offer. They'll call Brian's team and they will enroll. But that's not the path for everybody. So we also have to -- we're also putting a lot of investment into our website. I think where the biggest opportunity that we have online to increase conversion rate is really in how we talk about price and how we tackle the differences with birthday pricing versus non-birthday pricing. We price for life, our competitors don't. So if someone is doing their research, it can appear that we are more expensive. And while that might be true initially, if you look for the life of that pet, we're actually cheaper overall. So that's where we've really been partnering with Jeff to talk -- to really refine that messaging. We've been doing a lot of testing. And do you want to talk a little bit more about some of that testing as well as our approach to messaging overall?

Yes, happy to. It's a great question. And I think there's going to be a few unlocks that happen over the coming quarters as a result of the work that Emily and Alex have just talked about. But a couple of key challenges, right? One is about in a category where there's generally lack of education and oftentimes commoditized products, the average consumer will default to price. And so for us, we have to reframe that conversation to total cost of ownership. Which ironically is how you think about a pet when you're bringing it into your home anyway that you like this family member to be with you for 10, 15, 20 years. So when you look at the total calculus around our pricing model, lifetime pricing model relative to the competition, to Emily's point, by the time a pet reaches its midlife, premiums are roughly about the same. And when it gets older and theoretically needs more treatment, more critical care, more costly care, we are at a competitive advantage versus most of the other brands in the space. So part of this really gets to education and messaging, so people understand that for the lifetime of your pet, our model is actually advantageous. Another thing is putting price into context during these quote flows. So to get to the specific question about how are you getting additional basis points of conversion, we're running a number of tests now, whether it's through e-mail marketing on issues that are offered through the vet channel to organic traffic coming to the site or through paid, where when you artfully explain why a quote is the way that it is, what's included in it in terms of no caps and 90% coverage and medical emergencies don't keep business hours, so neither do we, and we're there for you and the amount of claims that we approve off hours and all these things in emergency centers and clinics, it starts to paint a different picture, and it's a value conversation versus just a pure low price conversation. So that's another thing that we're really looking to advance, and I'm excited to Alex's point, we've got a few green shoots that are happening already. And then I will defer back to Margi on the PHI, Furkin question and whether we think we need potentially more irons in the fire beyond just messaging narrative context to improve incremental conversion.

Thank you, Jeff. Thank you, Alex. Thank you, Emily. Yes. So -- and also to directly answer the question, where is the 15% conversion rate, I think, was the beginning compared to historical levels. If you take it, as Emily said, channel by channel, some channels are higher, some channels are the same and some channels are lower. So if we look at it blended, it doesn't tell the full story. So we're making some good progress in some areas that the team has mentioned. There is absolutely still work to do here. And I imagine that we can, over time, get that number to similar levels that Simon and I saw in the U.K. market at 25% from web conversion. I think that's where we should be aiming for. How long it takes us to get there is something that we will be working on diligently. Now the question of Furkin and PHI is a great one. And we launched these plans now 4.5 years ago. They are still in the Canadian market. And they have a good space in the Canadian market. One of the things that I alluded to before, though, is the intention with those plans. For those of you that have been around for long enough will remember that we were looking at creating swim lanes of products that would allow us to better articulate what birthday pricing was as well as some of the benefits. Now they actually do that really well. They are very clear with their messaging. They're on point with what they are and what they are not, but they're not seen by most of the people that are getting a quote from Trupanion. And so we've learned that over the years because we have Trupanion, and we don't cross-sell. There's no cross reference, and we've done that deliberately because we wanted to keep the Trupanion brand away from Furkin and PHI, which were lower quality products, lower in the sense of lower value, lower coverage -- not lower value, same value, lower coverage. So what we're trying to do now is think about how do we leverage the pillars of the Trupanion brand that we know are trusted. We know we have loyalty, and we can give people a very high-quality experience with a similar product but maybe it has birthday pricing. So you can see the difference, and it's much easier to sell it when they're sitting side by side in a website, and you've got a birthday price and a non-birthday price product. So thinking about the ways that we can do that, we believe that will unlock a huge amount of understanding when you literally have that difference, and we'll be looking to test that over time to understand how far does the Trupanion brand help to articulate it. And when you don't have to rely on going to another website to be educated, we think it's going to be more immediate and help with growth.

Well, look, my question, I think, is a bit of a follow-up to this topic, and it was partly answered. But my sort of -- my experience on sort of trying to compare some offerings online is that it's quite frustrating to see that they look, I would say, pretty much identical. Everyone now offers the same thing that sort of Trupanion offered maybe at the beginning, the 90%, the $500 to $1,000 deductible and the congenital diseases. And the birthday pricing is not clear at all and doesn't come across very strongly. Actually, I even try to interact a bit with the call center. But until birthday pricing came out, I had to prompt them to that. Maybe it was just one anecdote of a conversation, but it didn't come out very strongly. So I wondered if sort of having almost like a toggle, which you can play with and without birthday pricing on the same Trupanion website, it's something that you've sort of thought about, it seems that you did not think about. Do you want to say something more? I mean, is the idea that it could be an additional feature one could play with on the Trupanion website to highlight also as a marketing tool, the difference in the pricing that this leads to?

Yes. I mean I've said as much as I'll say today for competitive reasons. We think that there is absolutely some benefit to be had to actually manually allow someone to get their brain into it. We know when people engage with something they take more and they learn more. And when you can -- same thing with deductible, you can move the deductible on the website, you can see the impact it has. There's no reason why there are not other elements within our product set that you could do that with. It doesn't just have to be birthday pricing, there's a lot. As Jeff said, that isn't really understood in general about the category, even congenital hereditary conditions. If you ask 90% of people -- if you ask 100 people who actually understands that, very few of them would get it right. So that's not due to ignorance, that's due to lack of education from our side as a category and really kind of being the leader in that space and championing that and making sure people understand what they're getting. There is enough out there for every competitor to do well. What we hope is that everybody raises the standard and actually does what they say, which will allow us to continue to grow the market. And the only way you can do that is through education. So there are many tactics that the teams are working on, on the website, on the phones, Territory Partners being part of that. They'll all build up to what we believe will be a nice pathway to get momentum with conversion.

I'm Monica, and this question is for the Territory Partners. There was a great slide earlier that showed market penetration over time. And I'm curious compared to -- you both have been here for a while, how has that awareness shifted your conversations over time?

Conversations in general with the pet insurance or with -- sorry?

Yes, with veterinarians or veterinary staff about pet insurance.

Yes. I think someone mentioned earlier that you have to meet them where they're at. And I think every veterinary team is kind of on a spectrum of if they've had a great experience with pet insurance, had a paid claim, had something covered on one of our exam day offers. So in the field, we're still building those relationships one time -- one hospital at a time, one veterinary technician at a time. But we're just kind of waiting for them to get that warm and fuzzy because it's coming. In the interim, we're just supporting them to continue to have that proactive conversation and show them that over time, if you're consistent and you build your book of insured pets, not only are you going to be able to practice best medicine, but that pet parent that has a great experience is going to remember that you suggested to look into medical insurance for your pet and come back and thank them. So I think it depends on territory and how long they've been worked and how familiar they are with the product and I think the experiences that they've had with it.

I mean, again, I've been with Trupanion for about 7 years now, just over 7 years in July. And I'm now a team of four people in the Philadelphia region. And what I always say to my team on our weekly calls is, don't forget, it's -- our main job is to help educate hospitals on how to do a better job of educating their clients. Because they tell us time and again, we ask them, are you a proactive hospital about pet insurance or reactive? And they'll kind of look at you, not sure. Proactive is it's a part of your workflow talking about pet insurance. Well, no, we're more reactive. Okay. Well, what does that look like? If I'm a client and I ask you, "Hey, doc, I'm thinking about getting pet insurance for my new puppy." What's the conversation then, and we hear a lot. I had it from a veterinary technician recently. She said, "I always feel so guilty because I just tell them, yes, do your own research." And that's an opportunity for us to say, to teach them more about pet insurance, certainly introduce the exam-day offer. They might say, we recommend a couple of different companies. Well, that's great. But we have this exam-day offer that off of their wellness visit, they can get -- they can activate that offer and have immediate coverage for 1 month. Whether they're deciding whether they want pet insurance because they've just heard about it for the first time or if they're looking at different companies, well, here's an offer to get yourself covered immediately. And I'm always telling -- my team is always saying, again, call, activate your offer because we're trying to drive them to the phones because that's where the education starts from the sales team, where they can -- someone might not have even realized they had a question. And then all of a sudden, they're talking to someone live and they start asking those questions. So the exam-day offer, introducing that to them and teaching them the messaging of how to have that quick conversation about pet insurance where they don't feel like they're selling it. We just want them to be advocates about the cost of care, having that conversation because we always say to them, if you have that cost of care conversation and they become a Trupanion member, you're never going to have to talk to that client about money again. And their face is light up. They love that. And again, I can tell you just when I first started my first 2 years, I had proactive hospitals that were already talking about pet insurance and making it part of their workflow. They wanted insured clients. 7 years later, I can tell you those hospitals, they want Trupanion insured clients. They've become that much more educated that they know what's going on and they want Trupanion insured clients. We're seeing more and more of that.

And I would just add, 15, 16 years ago, if you said the word insurance, you would be politely escorted out of the practice. It's become almost -- now at least across practices, it's neutral. Now the next step, the next evolution is for us to build in the expectation the culture of the practice that clients are coming to us insured. That is -- that's the next level and we had pockets in Canada where that is the expectation where everyone has a role throughout that patient journey and talking about the importance of pet health insurance. So, I would say we've made a lot of headway. We're -- again, 15 years ago, we'd day Trupanion and people would look at us, well what is a Trupanion and we'd have to explain that. Now there's more of that brand recognition and acceptance. But still, a lot of -- we've made a lot of progress, but still lot of opportunity remains.

I can also say, when I started at Trupanion, I worked in the data entry team that data entry invoices that we were receiving. And I often made many, many, many, many calls to hospitals. And to the same point, it was -- first few minutes of the call was explaining who was Trupanion. And now we walk into hospitals and they not only know about insurance, but they love Trupanion. But one step up from that hospital, when we think about penetration and how I can see things have changed in my experience is, I showed a slide earlier that talked about the penetration that we have across software integrations. We've talked about this number in the 80%, and that's where it's been for several years. And we live in a technology age, right? New practice management systems are coming on the scene all the time. And now those companies know about Trupanion and are reaching out to us because they recognize that part of the value of their practice management system is that they have an integration with Trupanion because their hospitals, when they want to switch practice management systems, that's important to them that they are able to maintain that connection with that portal. And that's been a significant shift over the last couple of years as far as penetration.

And I would just go so far as to say that, that also happens in Europe. So our brand has now become -- we have a long way to go, but our brand is now well recognized across the world that when Simon and I turn up to London Vet Show in our Trupanion hoodies and Trupanion attires, people are coming up to us and saying, when are you coming here? Are you coming to the U.K.? When are you coming to U.K., can we integrate? And the conversation is people are reaching out to you and your teams to see how we can integrate within those markets that we're in because there's a demand for us because people know that we're actually solving their problem.

If I can squeeze one more question in. This is Katie Sakys from Autonomous Research. I just wanted to follow up on some of the discussion of the online marketing strategy. It sounds like you guys are leaning a lot on the playbook that worked in the past. I think the industry has also changed enough over the last 5 years that would warrant some adjustments to your marketing strategy, especially online. So I'm just kind of curious, how much gross pet ad growth do you guys think you can unlock with the current digital marketing strategy, thinking about shifting the narrative on pricing and increasing Trupanion's brand awareness before it really becomes necessary to start to participate to some extent in those more traditional marketing channels that your peers tend to be very competitive in and that Trupanion has traditionally shied away from competing in?

Yes. So thinking about the funnel and kind of what is the role of that digital marketing, what role does it play in our funnel, we really think about it as a conversion tactic for us because everything will start with our B2B partners, predominantly vets. So we leverage paid media to come into play largely after the conversation has already been had in -- with the vet. And so it's really a supportive role. It's not necessarily -- we don't think of it as generating new leads or anything like that. So for us, it's really more about like how can we reach more of those pet parents who maybe didn't activate an offer or who have activated an offer, but they're still thinking about it, and they need more of that repeat brand exposure. And that's really the beauty of what John and M.J. and Jason are doing is that they're introducing the brand before everybody else, all of the competition gets introduced because they're introducing at a vet level. And then all of our competitors are really playing in that online space, but we have a leg up because they've already heard about Trupanion.

I would also say that we are evolving the thinking. I mean that's one of the reasons that Jeff is here to help understand and tap into some things that we haven't been able to do before. And that doesn't just come through messaging. That does come through some more sort of AI tools that will help us improve conversion. We don't know where it can get to, but we know it can absolutely add to gross per ads. We have a lot of lead volume coming through. Some of it, to Emily's point before, isn't as well qualified as others. I've always said if someone is getting a quote, they're interested in pet insurance. You don't get a quote for fun. I don't think -- even though the category has grown, I still don't think you get your kicks and giggles from quoting for your pet. So I think how we lean into that has got to be continuously tailored and modified. The other thing I'll say is with the margin that we get per pet, the allowable PAC is significantly higher today than it was before. So as we think about the means and resources we have, we didn't play in some of these spaces because, frankly, it would have busted our IRR calculation. It wasn't a sensible business because we knew we'd be adding pets at a pack that just wasn't justifiable. That's not the case today. As we look at the margins and we look at the cohorts as we use Aaron's team to understand, okay, what are the insights that will drive a pet that we can actually pay a $700 PAC for because the lifetime value is over $2,000. They exist and more and more of them are existing. So as we look at that increased margin, that increased adjusted operating income, the fuel to drive the growth of the business, it gives us the opportunity to play in spaces that our competition has been, but still doing it diligently.

Related question from John Barnidge of Piper Sandler. It's a two-part question. First is, how has JAB's consolidation of the pet insurance landscape impacted the competitive environment? And then with Lemonade's pet insurance product being the most bundled product, how does Trupanion go about maintaining market share?

Doug, do you want to speak to the first part and then Don, the second?

Yes, I can speak to JAB. I haven't seen too much of a shift in the competitive landscape. Obviously, these things take time when you're acquiring horizontally within the space. We have seen, obviously, very well-funded companies, increased exposure to pet insurance in general, which should be a benefit to the industry as a whole.

Regarding Lemonade bundling and market share. Look, I look at this, U.S. is, what, 4% penetration into pets have insurance. So there is a ton of white space to be had within the U.S. market here. And then when you look at what we bring to the table, we bring best-in-class value. Our member experience, our lifetime commitments, our coverage, the way we create predictable expenses, and we're there to take care of that pet family in the time of need, that speaks volumes, and that is our value prop and our differentiator. And as long as we continue to make sure we refine our messaging out to the consumer base, we talked a little bit here about pet owners and that education and why that differentiation and that total cost of ownership, there's a ton of white space we have. And I have no concern about losing market share. There's only the opportunity to gain a ton of market share as we lean into that.

And I would just add, one of the things that I mentioned earlier where one of our channel -- one of our approaches to growth in the next strategic plan is absolutely leaning into the channel component. Don is here. He's joined us to build out that partnership side of things and really go deep into things like bundling. So we have partners today that absolutely we could do that with. How do we think about the next step and next phase of those relationships? How do we think about making sure that we're reaching pet parents in a means that makes sense for them and their family and their household. So there is a lot of opportunity, and it's something that we are actively exploring to ensure that we don't leave any stone unturned when it comes to the partners we have today.

Just to add to that, to kill the uncomfortable silence here. Echoing kind of what Emily was alluding to earlier, the 118,000 offers that we're getting each month, these are -- the overwhelming majority are young and healthy pets. And so we are gaining exposure. We're the first name that comes into the equation when pet health insurance is considered. So when you think about some of these products that are being bundled with other products, other insurances, that's probably a rather diverse demographic when you think about age. You can enroll with us up until the age of 14. But really, a lot of our introduction is happening much, much, much younger. And that's the beauty of thriving in some of these growth channels that we do.

[indiscernible] Trupanion shareholder. I have a question regarding the fact that almost 30 years ago, a veterinarian changed my life by recommending pet insurance. And that was really early days. It was in Canada. She was a baby vet. She had just come out of school. She really understood me as a human being and where I was at in terms of my finances and how this would help care for my pet. What -- are you working on any programs to get to the business schools and the veterinarians early on, just like the food industry has done with vet schools? Are you doing anything like that to get into the brains and the business minds of veterinarians early?

Yes. I'll kick off and hand over to a number of team members here that may want to say something about this. One of the ways that we're thinking -- without giving too much away, one of the things that, as Emily mentioned, we're looking at investing heavily into the vet space. And that means not only supporting TPs with different collateral and various bits and pieces, it also means looking at that kind of really high-level grassroots brand. So where can we -- what makes sense for us to do today, we can't do it all at once, but where are the places where we can help with education. We've already started to do that with the MightyVet concept, our 501(3)(c), which is designed to help teach veterinarians things they don't learn in vet school. How do you handle the stress of the economic conversation, having to put a pet to sleep that you could have saved. There's a lot that we can do there. We've started to do that, and we will continue to build that investment over time. That will be gradual because it's going to be far more of a brand play. But to your point, it gets to the baby vets. It gives some confidence. And we know there is a shortage of sponsorship and investment going into that space, and we would like to fill some of that void if we can.

So we actually did a few years ago when we were able to -- when we had a little bit more acquisition spend that we could put into this space, started a program that was going across some of these veterinary universities. We were able to kind of meet with those younger vets coming into the space, educate them on the value of insurance, what it means to a practice. I know I've heard Dr. Steve talk many, many times, but there's not a lot of education in vet school about business management, revenue and the pieces that keep you as a veterinary and practicing the way you want to practice. It's one of the things that we pulled back when we knew that we had to kind of focus and be more disciplined with our spend as far as growing, but it's definitely something that we're passionate about. As Territory Partners, too, when we're walking into hospitals, we also meet those veterinarians that are coming right out of vet school that have that -- the eyes are wide open. And oftentimes, those are the ones most interested in having conversations with us because they know that this is a part of the future. And this is a future and they've come up in this pet space where insurance has always been a part of it. And so we have those conversations at the hospital level, and we've been able to continue that over time, but definitely looking forward to the investment that we can put in spaces like that.

Our teaching hospitals in a lot of communities is another option for advanced care, as you would expect. And we have a number of those that are utilizing our vet portal, which has opened the door for our territory partners to get into that arena and to have these types of conversations with second or third, fourth year vet students. So although we might not have a formal plan that's nice and boxed up that we can present, we do have some airtime with that community.

Mary Rothlisberger here, also a shareholder. You shared an update on retention in the opening slides, which is one happened to TruTopia. But I'm curious if you could share an update on Refer a Friend and Add a Pet.

Yes. I can maybe share a broader view on TruTopia and then, Kelly, if you want to jump in. So we knew that over the past couple of years, we were going to take a bit of a step away from our progress towards TruTopia just as we had the additional rate flowing through. But we've started to make a bit of a comeback, which is really exciting. In July, we had one of our Canadian markets -- sorry, territories, one of our Canadian territories was back in TruTopia. And we've had a handful of territories in and out of retention over the past year, which is really exciting to see. We're starting to make progress back on that again. And Kelly, do you want to talk a little bit about what your team has been up to with Refer a Friend and Add a Pet?

Yes, absolutely. Yes. So as you can see on the slide here, Add a Pet has remained really steady, which is exciting to see. And I think that overall just speaks to the strength of our product and member experience. And the more we invest in our member experience and the better retention is we can expect to see Add a Pet continue to grow. As Emily mentioned, we did take a step back in spending as well for Refer a Friend. When we knew that we had higher rate going through the book and it didn't make quite as much sense, we weren't going to see as much return on investment there. But we're starting to see that turn around. We're able to invest quite a bit more in Refer a Friend this year, and we're starting to see really nice early signs of growth there. We have really strong quarterly campaigns that we're looking to increase and scale up our marketing campaigns and efforts in Refer a Friend next year. So we hope to -- and plan to really start to see some solid growth there in Q4 and going into next year. And the benefit there, too, to take it back to retention is there's a halo effect. The more people we can bring in via Refer a Friend, that is a strong retaining channel because they come via trusted recommendation of a friend or family member. So that impacts both sides of TruTopia.

Related question from Wilma Burdis of Raymond James. Do you think there will be a point at which retention improvement hits a peak? And would that provide an opportunity to lean in more heavily on to new pet acquisition?

There's a certain percent of our members. The unfortunate side of being a pet owner is that our pets never live as long. So there will -- we will always lose pets to -- pets passing away, and that's obviously sad. But retention is continuing to rebound. We're expecting strong retention performance. Like Margi said earlier, pieces of retention are included in our overall acquisition spend. So it's also an area that we are starting to invest a lot more in. We do it in terms of like would we ever shift back and say we're not going to focus on retention, we're going to just focus on acquiring pets. It's always a balance. One of the strongest ways that we can improve retention is before they even become a member and setting expectations and introducing them to the brand in specific ways. So I don't -- it will never be this or that. We will always, always focus on retention, but you also shouldn't expect us to hit 100% because there are pets who are passing away, unfortunately.

Yes. I'll just add to that as well. When we think about what that retention can look like, I've mentioned this before, but there's no reason that we've seen that we couldn't get that back to the levels for the core Trupanion business that has been at before. Now as we discussed before, when you've had compounding increases year-over-year, it's not going to happen overnight realistically. But as we get a larger book of business, you saw what happens in that chart where you hold that retention, you keep building and you keep building and you keep building. Now our acquisition spend is going to go -- we're not going to stop looking to add pets, we're looking to continuously do that because we have to fill the funnel. We are here to protect those pets. So it's not ever just going to be a retention focus. And frankly, if we just -- as much as we talk about retention dollars and acquisition dollars, they do end up blending. You can't stop a pet parent from seeing something that's intended for a new pet parent. Likewise, you can't stop someone who's not a member seeing something that could end up being four members only. So there is absolutely a halo effect. That's why we talk about brand halo, and that's why brand spend is such a critical driver of growth that we will end up becoming more efficient. There will be a tipping point when that brand spend starts to pull everything through the funnel and the advocacy lever gets even stronger.

Follow-up question to earlier conversation from Brandon Vazquez of William Blair. Any more details that can be shared on the channel partner plans? What do they look like? And what is the time line for some of the partnerships to more meaningfully develop?

Don?

All right. Great question. So when I think through our partnership landscape and what we need to accomplish, right, we believe in having a balanced ecosystem. And so let me start again and start over here in a little bit. We want to make sure that we partner with folks who are aligned to our core values and are as invested in helping pets and pet parents and families as we are, right? And so that's one of the ethos of what we're going to look for in partnerships. Then when you look at that balanced ecosystem, you can think of it in a couple of different ways or different channels. So first, think through an affiliated relationship or an affiliate. And really, there's that traditional affiliate marketing network where you go out and you find partners through an affiliate network that go and market on your behalf, and it's a pay for performance. So that's part of the ecosystem there and services from a breadth of brand awareness and some performance of quality leads and enrollments. Then you look at what we're dubbing kind of value-add partnerships or advocacies. And those are relationships we develop with like-minded brands and businesses that offer the opportunity for either 1-way or 2-way branding awareness to drive value to the Trupanion members to keep them sticky with us and/or value into exposure into that partnership's consumer base as well that's reciprocal. That may or may not have a B2B financial outcome to that, but that's just like-minded awareness. And then you go into the traditional partnerships of Aflac, a Chewy, a State Farm and so forth. And those are really important as well and how like-minded is. And when I look through how we grow that existing base, I think we really have an opportunity here to, first, make sure that we strengthen and broaden our relationships within those partnership organizations. Second, we align on the total addressable market within those relationships and those member base that we have there. And that when we do that, we're speaking in terms that make sense for the partner, not just for us, but resonates with the partner there. And from there, once we've aligned on that opportunity, and it should be aggressive, aggressive but realistic, then we put together an agreed-upon plan in place with those growth initiatives that we're going to get after and we get after in a certain time period. We're going to define what success looks like before we go into it, and we're going to hold ourselves jointly accountable for those outcomes. If we find something that doesn't work well, we're going to fail fast at it, we're going to move over to the next thing. And so that's how we really mine and farm those existing relationships. And then I've been here 30 days, but I'm getting multiple requests a week of partnership requests across that ecosystem I just talked about and a lot of really exciting things. And so I think we're in a point here where we're going to be very thoughtful, as I said, going back to our ethos and making sure we're partnering with those that make sense. We have those same values, but the sky is the limit with the available market share here in the U.S.

Yes. I would just say in terms of are we able to give any more color or make any announcements, we would have made those announcements in the presentations earlier. So not today, but hold your horses, there will be things coming. I'll also say that we know from past experiences and even kind of going back to my U.K. experience, partnerships do not -- they're not the silver bullet. They have to be worked hard. They have to be supported and nurtured. And we've seen that here in the U.S. market as well. I think there is an absolute need to put more partnerships in place that will help normalize the concept. Those brands have an alignment with the consumer. And when you get that brand who has an alignment with that consumer with a specific brand talking about pet insurance, it just helps slowly to feed that funnel, feed the awareness and help overall category growth. So we don't expect anything to overnight kind of be a magical unlock of pets, but we are very excited by the conversations we've been having. And to Don's point, suddenly, when you have someone who is focused with partnerships, you realize quite how many partnership opportunities you have. There are a lot that come through the doors every day, and we're excited to be very selective, but it's nice to be -- have a dance card or I forget the American expression, but we have a dance card and it's very full.

Okay. Maybe we'll take one more question before lunch. Shifting gears a little bit. A question from John Barnidge of Piper Sandler. Do you anticipate the food product will be margin accretive to the 15% margin of the core subscription product?

Yes. Absolutely, we do. I mentioned earlier that the margin that we get from 100,000 Landspath subscribers, which is the food brand, is the same margin we get from 1 million insurance members. It's definitely accretive.

Any final questions for this group before we break for lunch? Okay. Well, with that, thank you, everyone, up on stage for participating. Thank you for all the questions. We are going to take about an hour break for lunch. So for those of you joining us online, we'll be back here about 1:30 p.m. Pacific Time to get started with the second half of our presentations, again, really focused on our technology, our operations and our finances. And for those of you who are joining us here in the room, we're going to play a quick video of some of the techniques from our furry office mates on their favorite day of the week, Pup Cup Wednesdays, and then we'll take a break. [Break]

Okay, everyone. Hope you enjoyed lunch and your conversations. For those of you who are joining us online, welcome back. We're going to get started with the next section of presentations followed by an additional round of Q&A. To kick things off, we're going to share just a quick video as people are settling back in, on our Veterinary Appreciation Day, which is a holiday that Trupanion recognized several years ago in support of the veterinary community. [Presentation]

Okay. With that, I'm going to introduce John Gallagher, Chief Operating Officer.

Awesome. Hey, everybody. Hopefully, everybody had a good lunch. It's good to be back here a year later. This time last year, I had just started in my role as Chief Operating Officer. And what a journey it has been in the past 12 months. We've made a lot of progress, so we'll share a lot of those updates as we go through the presentation. But first off, as I kind of stepped into the role last year, I kind of noticed that we were disciplined in a lot of areas and maybe not so disciplined in other areas. And so trying to find a balance of striking where more discipline is needed and coming up with a Vision statement for our operations. And ultimately, for me, it is to deliver operations that set the standard of excellence, combining personalized, high-touch service with disciplined efficiency. So every interaction creates value. This is important as we go through the slide presentation because not all conversations, not all transactions are created equal, and it's something that we need to look at as we increase our scale. So over the past 12 months, we've reached -- we've made some -- we've made a lot of updates in terms of what we're working on to increase our scale, increase our efficiency and increase our reach. First and foremost is an effort that's been ongoing now for multiple, multiple years. Everyone would know it as Vision, our platform, our system of record. We've completed our transition to Vision claims, which is half of the puzzle. And we've already seen immediate benefits from that transition, whether that be decreasing the time to bring on new hires, increasing confidence of our agents using the UI and increasing outputs via automation, increases that we knew were going to come, but it's great to see them actually come through. As we get to the second part of that Vision platform, which is the policy side, I expect further automation and other benefits to come with that as we proceed through it. Secondly, we've made a lot of progress in enhancing our ecosystem of technology. So when I think about this, I think about that as Vision is internal facing, all of everything else is external facing. So when I think about that, we think about Veterinary Portal, MJ talked about it, 11,000 clinics have our software throughout North America, 15,500 of them being active hospitals. How can we increase our PIMS integration? You'll notice that percentage on her slide was about 76%. How can we deepen that and get that even higher to give us more reach of our software but also creating more engagement within that software on the day-to-day to increase the issued activity and also the activation activity. Automation historically for us has been claims automation. We've talked about it for years and years and years. Claims automation, claim bot, whatever other words we've used for it. That is still going and going strong, and we've made actually pretty significant progress when we think about these recent years in the claim's automation process. But more importantly, we're now automating other things throughout the business to increase efficiencies, increase throughput and increase team members' productivity. And last but not least, we've implemented an enhanced QA system across a few teams, most notably in our Contact Center, where we're actually able to understand each and every conversation, what's resonating with members and what's not resonating with members and being able to feedback that to other teams within the company. As Emily mentioned earlier, having that conversation and building the report is key to driving web conversion rate. And now we have the learnings and insights of all of our interactions to be able to do that. And there's no place more prominent where education and talking to people comes up than our Contact Center. And I am proud to say it's where I started here 9.5 years ago that we're now winning awards, which is great to see. Greater than 4.8 agent satisfaction score, each and every day, these team members come to work and bring the brand to life. I listen to calls every single week. And ultimately, we always have room for improvement. But ultimately, they hit it out of the park no matter the time, day or night. And an interesting fact that's not on this slide, this team with the work of Brian and his leaders is the most engaged team in the entire company with our Peakon survey source, which is abnormal because contact centers typically are the lowest. So the biggest brand representation and the voice of our company each and every day is the highest, most engaged piece of the company, which is great. Could also say that it's great because they've handled over 1 million contacts in the year so far. These are interactions anywhere in between from I have a simple billing question, I just got a puppy, super excited about wanting to enroll or learning about our coverage, to unfortunately, if their pet passes away or anything in between, including rates. And so really looking at that, you can just see from just the call types that I mentioned, not all call types are created equal. And over the past 12 months, we've been working on how to get the right calls to us and getting more self-service where need be. But there's no place probably greater need than ever is this one, and this one gives my heart a good feeling. We helped over 40,000 members in the middle of the night. So think about this. You're at the veterinarian office, 10:00 p.m. at night on a Friday night, Thursday night, pick whatever day of the week. We're the only insurance provider you can call. Most of those calls are around claims and claims situations. This is making a difference. This is what creates a member for life. As I mentioned before on the prior slide, contacts per 1,000 is trending nicely over time. And this is a combination of a lot of efforts across multiple teams. When we think about this, this is giving us the flexibility to increase our scale with our current headcount and also create flexibility to surprise and delight our team -- our members with more proactive outreach and education, which will only help first year retention. I'm excited to see where this goes. This number is not just because we're better at having conversations over the phone. This is a collective effort. This is directly intertwined to not only the messaging that the marketing team does, but also the claims team. The largest driver for these decreases is actually the claims team and the speed in which we are processing claims, which is already industry leading, but we've taken a major step forward and excited because we're just getting started. And also, when we think about having time to have conversations, having time to do more for our members, there is no more apparent situation than over the past 24 months when it comes to the rate flow that we talked about and retention we talked about earlier and the save rate that we've had to go with it. You'll notice that in January of '24, when rate flow really started to go through, save rate went up right with it. This is because the team gained their confidence in the conversations we were having, explaining the value of Trupanion and explaining why someone should keep it. If there was price sensitive, this would be going in the opposite direction. Our members truly understand why we are here for them, and our team members understand how to communicate that to them. This is also -- they call out for the Contact Center team and the retention team, the job that they do each and every day and the consistency that they bring to work is key to this. And ultimately, that bump up is right around 27%, which is an all-time high, which if we're putting that into a pet count perspective, means thousands of more pets in a year are staying with Trupanion. As I mentioned earlier, another piece that drives retention is our claims experience. We will click into this one. And if you'll see on this chart here on the left, you just look at the yellow line. The industry average to process a claim is somewhere around 20 days, 20 days until somebody gets their money back in their pocket. That yellow line represents sub-2 days. That's for all of their claims. That's for our initial claim, the very first claim that they get with us. Our average to close the claim now is 25 hours, almost under a day. But it gets better. Over 1/3 of our invoices now, our members don't even know they have a claim. It is getting paid directly to their vet in under 5 minutes. This is the largest single increase year-over-year in VetDirect Pay that we have ever seen. This speaks to the momentum that TP Nation is having with the veterinary clinics and the momentum that we see on a continual basis of knocking on doors and getting the buy-in from them about the insurance. And again, it's another tieback. This is where we make members for life. 22,000-plus times over the past year, in the middle of the night, we have been there in an emergency situation to be there by our member's side and their pet's side to give them a preapproval to say treat your pet with whatever you need to get done, we've got your back. That is up year-over-year by 18%, again, increasing the demand of our product. This is all made possible, as I alluded to earlier, because of automation. You'll see it rise rapidly, kind of plateaued, and then rose again. You'll see that there's two distinct lines, the blue and the yellow. The yellow line is Vet Portal, claims coming through our software, the blue line, everything else. That delta between the 2 represents around 15%. That's the power of the software just in this aspect, let alone everything else that comes with it. You'll also notice that in January of '24, we see a step up. That's when Vision claims -- that's when we started going into Vision claims and the migration. These benefits that we realized right off the bat were built because we built with Vision in mind. And getting those benefits just out of the gate is something we expected. Again, good to see, but now we're actually building to become better. And now Vet Portal has surpassed 70%. And last but not least, when we think about this, this all culminates into how are we managing effectively our budgets within the space. When we think about it on the chart on the left in claims processing as a percent of revenue, you can see these are two charts I actually like to see going down into the right, not up into the right. So this one, we could ultimately see we've made tremendous progress over the last 12 months, and I expect this to continue as we continue to evolve our technologies to better situate ourselves to expand our scale. And lastly, variable expenses are controlled by our increase in scale and headcount, as I mentioned earlier, through the throughput of additional steps of automation, streamlined efficiencies and ultimately different technologies that are worked with Vision in mind first, most notably being our member portal that as we expect to -- or we do expect that as we transition into our migration of Vision policy, members will get the additional benefits, which will help that line continue on a downward trend. And so with that, I will pass it off to Jamie.

Well, good afternoon, everyone. Thank you for sticking around after lunch. I'm Jamie Adams, Chief Information Officer. I've been with the company for 9 months and my goal is to ensure that technology not only supports but amplifies Trupanion's broader vision. And so I've identified four key areas that define our technology mission, as well as four core strategies to help bring that Vision and mission to life. And so today, I'll highlight the initiatives driving meaningful progress in some of these areas. So our technology investments are designed to fuel growth across both our business-to-business and direct-to-consumer channels while elevating the member experience. Our most -- one of our most impactful systems you've heard a lot about today is Vet Portal. It is a platform built for veterinarian hospitals. It integrates directly with their practice management systems and Trupanion's policy administration platform called Vision. And this enables real-time claim payments at the point of care, a capability that strengthens our competitive edge and delivers a seamless experience for our members. We're also expanding reach through key partners like State Farm and Aflac. And investments in our Vision platform will allow us to onboard new partners faster and more efficiently. On the direct-to-consumer side, we continue to optimize our website. Some recent enhancements this year have improved website reliability by 55% and improved overall performance. And additionally, we're releasing a new member portal designed to reduce latency and lay the foundation for more robust self-service capabilities that will, in turn, reduce call center volume and reduce operating expenses. And while growth remains critical, operational excellence is just as essential to sustaining success. Our back-office systems and processes are the backbone of daily operations, and modernizing them ensures stability, efficiency and long-term scalability. And so historically, our rapid expansion led to siloed teams, a patchwork of tools that were effective in the short term, but very challenging in the long run. And so we're now consolidating, streamlining and simplifying our systems to create a more cohesive and resilient technology environment. Part of this transformation is powered by Vision, which supports three key areas of our business: policy administration, claims processing and underwriting. And earlier this year, as John had mentioned, we successfully migrated all of our claims to this new system, and we're yielding significant improvements from that. We're seeing automation rates over 55%, and that is up from 44% from our legacy platform. We have higher efficiency and productivity across our teams. The new system is easier to use. It's frictionless compared to our legacy platform. And we have over 80 enhancements that have improved speed and accuracy. And so our next major milestone is policy migration scheduled to continue into next year. We're making great progress this year. And once this is complete, this full platform will enable quicker product launches, faster onboarding for partners, retirement of a suite of legacy applications that we've been wanting to get rid of for many, many years. And it will free up our teams to innovate in other areas of our business and allow us to work on other really great things for the company. So in closing, our technology strategy is about more than just systems and platforms. It is about empowering our people, enabling our partners and delivering exceptional value to our members. So thank you for your time. And I'll turn it over to our CFO.

Okay. Well, first of all, thank you, everybody, for being here and spending the day with us. And thank you for those of you who have been following online. So I wanted to start with this slide. Many of you have seen this slide, if you're familiar with the company. Typically, during our quarterly earnings, we update this. As a company, we are very, very proud of what this data represents. What this data represents is 62 straight quarters of revenue growth in a variety of economic environments, so for over 1.5 decades. You've heard from all the teams today, this is the result of all the work from all of those teams to focus on pet count, pricing, retention. When we think about this period of time, 1.5 decades, a lot has happened in the world around us. So it would take a very long time for me to give you a full laundry list of everything, but just some examples, 2010 to 2012, Eurozone debt crisis; 2014, oil prices collapsed; 2019, the beginning of the pandemic; 2021, inflation, which hit our business particularly hard. And then more recently, in 2023, another banking crisis with Silicon Valley Bank. During all these events, what we focused on was steadily growing the business by focusing on our members. Nothing is certain in business. But what gives us confidence as we think about the years ahead is the nature of our business model, a recurring revenue model in an underpenetrated market. That's what gives us confidence, along with the team that you have heard from today to look forward to, hopefully, what will be the next 15 years of growth. So along with revenue growth, you saw this slide earlier. It's important for us to focus on this, delivering returns, delivering returns on investment. So if you think about the period prior to 2023, our return on investment from an AOI standpoint, adjusted operating income, adjusted operating margin was about 13% to 14%. And then you could see it dipped because of the onset of inflation. For a business that prides itself on being the low-cost provider, for margins to be cut in half, significant. So of course, because of the work of the team you've heard today, we were able to navigate through that, and now we're setting records when it comes to total margin dollars. We reported in Q2, our adjusted operating margin for our subscription business was 13.8%, and it was a little over 13% in the first half of the year. We've talked in the past about the moats of our business. Today, you've heard a lot about the vet channel. That is an absolutely essential foundational moat that we have including the software. The other is pricing. So when you think about what's happened with pricing over the last 24 months, Emily did a great job showing you the different cohorts, where our largest cohort is now those getting greater than 20% price increases. It's true. We obsess every basis point of retention. To put that kind of pricing through and to land that with members, to be able to convey the value proposition on why we're doing that, why we need to do that, I think, from my experience, is a remarkable achievement. And so when we think about testing or stress testing a moat, you couldn't design a better scenario to stress test pricing than the last year. So we feel very good about our ability to take price when it's necessary. We always want to stay within our target margin. We always want to pass excess above that margin back to our members. That's what we're here for. But our ability to be adept, to pull the levers, including those on pricing, is another strength of the company. So let's turn to expenses. When you look at the left, it's G&A as a percent of revenue. So we typically think about budgets as a percent of revenue. G&A has gone up. It went up in 2024 as a result of our investments in controls. Those of you who have followed our story know that we had an adverse finding from an accounting standpoint in 2023. There were two material weaknesses. We reported previously that we remediated both of those. And our audit this year was favorable. In 2025, we again had to increase spending. That was because of a temporary step-up in our Canada underwriting. So we have a strategy to have our own insurance entity in Canada, and that's well underway. That has tremendous advantage for us. It allows us greater degrees of freedom, more flexibility and ultimately, a better unit economics. There is a temporary step-up in our underwriting costs as we sunset that agreement. That was planned and negotiated. So you can see that step up. Without that, we were generally flat. So I think we're doing a relatively good job of controlling our expenses. And then Jamie did an amazing job talking about technology. We are so fortunate to have somebody of Jamie's experience here at the company to lead technology into the next decade of growth. Technology spend as a percent of revenue has come down. There're two reasons for this. One is we're post the Vision claims implementation. So we expected those -- we expected a decline in expenses. But we're also doing policy. The reason why it's coming down is because we're driving efficiency and productivity within the technology infrastructure, rationalization of our applications, getting more favorable terms on cloud spending. Our cloud spending, which we don't disclose, is becoming more and more significant as the company grows. That entitles us to have more proactive conversations with providers. We have more choices given our scale. So I'm happy to see this coming down. Also remember that because we set budgets as a percent of revenue, in dollar terms, budgets will go up as revenue goes up. So that's exciting because it gives us optionality, it gives us choices. We can invest in things like John was talking with respect to AI, and that unlocks the next level of capability for the company. So turning to free cash flow. Free cash flow is extremely important. I don't need to tell all of you that. So in 2023, free cash flow for the company was about breakeven. That was important because 2023 was the apex of inflation. And so to drive breakeven free cash flow took a great deal of work. In 2024, free cash flow increased. I've said this previously, but it's worth emphasizing that 2/3 -- approximately 2/3 of that free cash flow came from higher AOI. About 1/3 of it came from lower spending, including lower marketing spending. It's different in 2025. In 2025 -- and I'm showing you the first half, the majority of that is coming through AOI, so self-generated. There's a little bit of it that's working capital, but we're not driving free cash flow by cutting spending. Some companies will cut spending in order to increase free cash flow. We're not doing that. In fact, marketing spend is up 17% in first half. Free cash flow gives us the fuel. It gives us the financial capital to be able to make the investments that you've heard about today. So today, we have about 1 million pets. So the work we have been doing over the last 2 years has been to build the financial foundation that enables us to get the next million pets. You can see starting with the free cash flow, $61 million of positive free cash flow in the last four quarters. The second thing is excess capital. So I've talked about our surplus. So our surplus relative to the minimum requirements that we have to hold in order to operate the business. We have been over capitalized, as Margi mentioned earlier. So the strategy to monetize that surplus has two components to it, one of which is dividends. In the last 2 years, we've taken $38 million out of our insurance entity and freed that up to be deployed in growth. We also, as part of that $38 million, got $26 million in an extraordinary dividend last quarter. This is very, very significant for the company. To get an extraordinary dividend, it's a onetime extraction of capital. Achieving that, obviously, with the permission of regulators is a strong testament to the financial strength of the company. And we look forward to having continuing conversations to unlock more of that surplus. The third thing is just efficiency in how we operate our insurance entity structure. So this building, which some of you are sitting in now, we own this building. So in 2023 and 2024, we moved more of the building ownership into our insurance entity and withdrew cash. And then there was also some entities that we were not using. So just in the spirit of efficiency, we were able to unlock capital that was within those entities. That gave us $27 million. So in the last 2 years, we've taken $65 million. That is a significant amount of money for this company, out of our insurance entity and freed that up to drive growth, to drive investments in the technology, to drive investments in our people. We are very happy about this. The last thing I'll mention is just strength of the balance sheet. I'm in finance, so the balance sheet can never be strong enough for me, but our balance sheet is strong. One measure of that is debt equity. So you can see our debt equity ratio coming down over time. Part of that is because we paid $15 million out of that extraordinary dividend to pay down some of our debt. So when I think about all four of these components, these are the things that create the financial foundation that's going to drive the next decade, the next 1.5 decades of growth. So I wanted to take a minute and just reiterate our guidance. So we provided this during our Q2 earnings. The important takeaway is based on the performance, the strong performance in the first half and in Q2, we raised our guidance on revenue. We raised our guidance on subscription revenue, and we raised our guidance on adjusted operating income. So based on the raise, total revenue at the midpoint at 10.9% year-over-year, subscription revenue at 15.3% after a $15 million raise and then adjusted operating income at 27.5%, a $16 million increase. These are significant numbers, and we're very, very proud of the first half performance that gave us the confidence to be able to raise on all three of the metrics that we guide. And then finally, one of the questions we were thinking about as we were preparing for today is what is the investment thesis for this company? Why should you invest? So there are five things. There's really a sixth thing, which is, of course, the people in this room. Beyond that, these are the five things that we think are important to consider as an investor. I talked about the recurring revenue and the nature of the business model of a subscription business. It gives us a tremendous advantage. It gives us a measure of predictability to be able to navigate uncertainty. The second is best-in-class retention. We're very, very proud of retention. One basis point is significant for us. We focus on every single member. We don't want to lose a single member. The ability to keep retention at the levels that it has been in the midst of pricing increases, strong testament to our capability to convey a value proposition to a member. The market is vast. So global underpenetrated market. You've heard the statistics on, there's more households in the United States with children -- with pets than children. It's so hard to believe that I get them reversed. And only 4% market penetration. So generally, there is a massive opportunity in terms of making people aware that these products exist. We achieved our target margin. So we're back to approximately where we want to be from a margin profile standpoint. That's what gives us the confidence along with the financial strength to start making investments. A year ago, someone asked me a question about accelerating growth in PAC. And we said we've made a difficult choice to hold back on investment until we felt that margins were attractive. That is not an easy thing to do, especially a growth-orientated company, a mission-driven company to hold back deliberately on growth because margins are not favorable, because we're here for the long term. We don't want short-term market share. We want long-term value creation. And then finally, I've emphasized that we feel very good about our capital position. We have the ability to make choices. Emily is super excited about not having to choose option A or option B, or investment A and investment B, we can do them both now. So we feel very optimistic about our ability to finance growth going forward. And with that, I think we'll start the Q&A.

Thanks, Fawwad. If I could invite the Trupanion team up to the stage, we'll get started. Okay. I know we got an early jump on some of the introductions for the team members sitting here. But perhaps we can just do a quick round for anybody who has yet to introduce themselves?

Yes. Let's -- why don't we start with Mikel because Mikel -- it's actually a special day for Mikel. Would you like to share -- introduce yourself and also share...

Well, I always look forward to every Investor Day and I'm retiring. So this is my last full day of -- at Trupanion. And I'm Mike Gray, Head of the Actuarial Department.

How do I follow that? I'm Brenna McGibney, Chief Administration Officer. I've been with Trupanion for 3 years now, and I now introduce our pets, a miniature poodle named Angus.

Still Dr. Steve.

My name is Jacquie Mero. I lead our claims teams at Trupanion. I've been here almost 14 years and have a dog who just turned 1 whose name is Walter.

It's Brian again. Contact center, sales, retention, customer care, I've been here 4 years. Hudson Stripes, Rottweiler. Daisy, golden retriever.

Mr. Bearman?

Asher Bearman, Legal Corp Dev. Been at Trupanion since 2013, full-time. And I have a 1-year-old pomchi.

Yes. Is there anyone that didn't get to introduce themselves is here to answer questions? No. Okay.

Okay. Thank you, all. Who would like to start us off with a question?

I'm going to guess Fawwad is going to get a lot of these. The free cash flow margin target of 2.5%, is that still running with your thinking as you grow the business with PAC investment again, firstly? And then secondly, could you speak a little bit to the conversations with the New York regulator around APIC and the risk-based capital stepping down so dramatically in 2024, which allowed some of these capital releases? And just -- they clearly seem to be anticipating a 10:1 premium to surplus ratio being the norm and have gone with it already. Is that the right interpretation?

Yes, a couple of things. So on the free cash flow, we did in Q3 of '23 put forward a free cash flow target upon an annual basis of at least 2.5% as a percent of revenue. We've been exceeding that. And part of that has to do with the outsized performance that we've had. So we're super happy about that. And then part of it has to do with the rate at which we deploy investment as we deploy PAC. So as we talked about 17% increase in first half, our expectation is as we see opportunities in the market, we will pursue those. And so the guardrail is, like any guardrail, it's a guidepost for us. But really, what we're excited about is having that free cash flow generation, having margins where we want them to be and gives us array of opportunity and we have the cash to go after them. And I guess on the New York conversation, maybe I'll start, and I can ask Margi to give her perspective. I think anything is a continuum of conversation. And so we have had conversations with New York that have been very, very productive. I think as they have learned more about our business and as I would say, regulators, in general, have learned more about the unique characteristics of pet insurance, ultimately, they're trying to understand the level of risk. And the more that we've been able to share with them on the nature of the business, it's relatively low risk, at least versus some of the categories that we're compared to. I think that's helped to unlock some of the understanding of -- this is a recurring revenue model. There's revenue coming in every day. From a surplus capital standpoint, there's been a pretty significant increase in that surplus capital over time. The last report that I gave was at the end of last year, and I said we were at least 2x overcapitalized relative to the minimum threshold. So I think it's a combination of strong capital position. Our capital position is a function of our other business declining in its growth rate, our core business growing. And then the third is the realization that NAIC as, for instance, has had that there's a different risk profile that should be associated with this business. That's been in conjunction with some productive conversations. The extraordinary dividend was a significant step. That's not something that is an easy thing to achieve. And so if there's a litmus test or if there's an indication of the types of conversations we've been having, that's probably a strong endorsement.

Yes. I mean, I echo everything you said. I think from a relationship perspective, we -- that gets ever stronger with not just in New York, but across the board for regulators. We put a lot of effort into it, and we'll continue to do that over the coming years. We have a plan where we're trying to build that awareness and education. It also comes back to the role we're taking as a category leader, trying to ensure that people understand the risk profile is so different to other P&C lines of business, what that should be in terms of the surplus they continue to want to lean into or how is it different. Tell me about growth rates. Help me understand the different competitions, different products because they are not afraid with them. I think the most telling thing for us is, as we see more and more revenue coming into this category, there is significantly more willingness to accept our goals, to have the conversations to open doors. And we're in a very strong position to help lead that education drive, which is part of the reason why the NAIC did what they did after frankly, years of Trupanion campaigning to start to get recognized. So we feel like we're in a leadership position to help carry that forward, and we'll keep you posted as things evolve there.

Can I just ask one more question, which is around the right sort of debt level that you're thinking for the business. It's been quite expensive debt. You paid some down. You mentioned it's quite expensive in the past. What's sort of the right kind of sweet spot, possibly there will be an opportunity to sort of refinance that at a better term at some stage?

As we think about capital strategy, ultimately, it comes down to cost of capital and what's the most efficient way to finance the growth of the company, provided the free cash flow continues at present levels. I don't anticipate having to do anything different than what we've done historically. So we have about $116 million of debt, slightly over that. It is at a higher interest rate than we would like. The first tranche is due in Q1 or first part of 2027. So given our strong capital position, we've been having internal conversations, Wei and myself and Wei, you should chime in as well. Just thinking ahead to how we position the company from an overall capital structure standpoint, the litmus test for the underlying determinant is cost of capital. And so that's going to be our North Star. Wei, anything you want to add.

Yes. I echo what Fawwad just mentioned. I would say if you think about our balance sheet and the free cash flow profile today versus 4 -- 3 or 4 years ago when we had existing debt is dramatically improved. Right now, as Fawwad shared, the debt-to-equity ratio is like 30%, we're continue to be getting down to that. And also, the -- look at our adjusted EBITDA level, I believe, is over $60 million for the trailing 12 months. And you're talking about less than $120 million of debt. That is less than 2x multiple. It's a very strong position for us to explore other options in terms of refinancing the debt in the next -- in the near future. So yes, I wanted to just highlight that.

I wanted to kind of circle back to the discussion of all of the investments you guys have made in your technology over the last couple of years. It was a great run through. The fixed expense ratio is also still higher than it has been historically given all of the improvements that you've made in wrapping up the Vision platform and getting started on policy migration and automation initiatives. Can you quantify the benefit you expect that to eventually have on the fixed expense ratio or where we can expect that to trend over the next 12 months?

Yes. Let me answer it in two parts. So in terms of the trend, our expectation is that our fixed expense as a percent of revenue comes down. So we see leverage in the second half. So as far as near term, that's baked into the guidance that we provided. In terms of the benefits, the benefits are not in just the next 6 months. It's -- if you look over the horizon, maybe the best indicator is automation. So the investments we're making in automation. We were at a plateau, and I think John did a great job of describing that with our legacy technology. It just could not scale. And so the levels of automation that we've been able to achieve recently is the direct result of the investment that we made in the Vision platform. The good news is now that we do policy, certainly from the chair I sit in, I would expect us to deliver on that sooner and at lower cost because they're ought to be learnings, it's largely the same team, we've built the base foundational technology. So we expect actually more benefits to accrue with policy just because it's -- I don't want to say it's a derivative technology, but it's an ancillary technology, and there's a lot of learnings that we can get from the experience of claims. I don't know, Jamie, if you want to...

Yes, I mean, I agree with everything you said. Yes.

Maybe if I can ask a follow-up. Going back to the take rate on pet hospitals that are currently integrated into Trupanion's payment platform, can you remind us of where that percentage was at the start of the 60-month operating plan? And what's keeping that 76-ish percent from going materially higher?

Are you talking about the PIMS integration?

Yes.

It's putting in the work and the time and focusing there, right? A lot of things have come up over the past 60 months that have taken priority over that. And again, working with PIMS integrations, there's two sides to getting that work done and ultimately aligned on doing so. And I think I'm optimistic that over the coming months, we have some stuff in the works right now that I'm optimistic that it will open up some of the remaining 24%.

Just going back to where it was at the start, it was pretty close to where it is today. The PIMS integration, I think it was actually 75%, so perhaps a little bit higher, one point. But the PIMs that were managed at that time were really held on to by two different companies. And MJ alluded to earlier, we're seeing a lot more of the smaller practice management cloud-based software companies coming into us and saying, can we have that integration? So they're being started up as individual businesses rather than being part of the IDEXXs and Covetrus' of the world. So they were the two that really owned most of the practice management system. So we're seeing a shift in the industry anyway in how technology is working, which actually is working in our favor to allow us to get those integrations in sooner, which Jamie and MJ have been partnering on to help drive that up too much higher than 76%.

Margi, can I say one thing about that, too, while you're -- while we're going to the next question. It's important to have the PIMS in the hospitals, but also for it to be used. And 5 years ago, we were seeing less than 1 in 5 claims coming through our Vet Portal, regardless of how many hospitals had it. And now we're seeing about 45% of our claims come through that source. So even if we're not necessarily getting more PIMS, really important that we are seeing hospitals actually use it and see the value.

Two questions for me. First one, the obligatory AI question. How are you using AI, if at all, internally? I mean you talked a lot about automation, that driving leverage, but how are you using AI internally, whether that's for improving the business or for your end customer engagement? That's the first question. Second question is, Fawwad, you mentioned that if you have any excess profits above your target margin, you'll give back to the customer. Can you just talk about what that actually looks like? Could that be actually lower prices? Or are there other ways to give back to the customer as well?

John, do you want to kick off with AI?

Yes. I mean, yes, I mean, outside of claims automation, we've integrated a few other places where we've used it. We're also testing a few newer areas of trying to bring some conversational stuff to life. But ultimately, that's early days. But ultimately, right now, we look at AI as not AI at all costs. It's using it where it still elevates our brand and elevates our people. Because ultimately, the human connection that we have with our members drives the retention. So ultimately, it's where do we see the best use cases and taking it step by step. But ultimately, it is a constant conversation internally around my teams about AI and where can we leverage the capabilities that it will give us to just further our scale and more updates to come over time. And more on the technology side, I'd probably pass that to Jamie.

Yes. So we have many team members testing different areas of AI. We use Copilot, we use ChatGPT. We're seeing a lot of productivity gains from those tools internally. And so we'll probably continue down that path. And then just specifically in the tech space, we're also looking at increasing -- using AI to increase software engineer velocity so that we can reduce contract labor. That is -- that would be a big win for us if we can figure that out and get that going.

And then a question on the target margin. So the way we think about it is the last 2 years has been a journey to restore margins. But we don't want our margins to fall too far outside of our expected range. So we've committed that our goal is 15% adjusted operating margin for the full year. There's natural seasonality in the business, which is why we've set it at the full year. In terms of levers that we would use in order to pass more back to members, I mean, certainly, pricing is arguably the largest lever. We're continuously driving efficiencies in the business. You saw some of the progress we've made on variable expense. That's actually paid for some of the fixed expense as well. But the dominant lever that has gotten us through this period of margin compression has been pricing. And so I had said publicly that in Q4 of last year, ARPU year-over-year increase would peak, and it would come down from that point. That happened in Q1. That happened again in Q2. So we expect pricing to contribute less over time or certainly come closer to historical levels. And our goal, as you've heard today, is for pet count to resume its position as the more dominant driver of our revenue growth. But in terms of passing back value to members, pricing is one way we've been doing.

Yes. I'll just add a couple of things actually for AI as well. But when we think about the way that, that would work, in our 60-month plan, we stated that if we could find a way to get our efficiency, drive our operational efficiencies earlier, we would give back to our members by increasing our value proposition from $0.71 on the dollar to $0.72. That's essentially what we mean by that. We know that people are incredibly price -- value sensitive. And we've got data to prove that if our value proposition goes below our target, it has as much of an impact on retention as it hurts us as a business when it goes above it. So it's a very fine balance in our pricing actuarial teams have to work within all the time to ensure that they're constantly coming through that. So we know that having a $0.71 as the highest sustainable in the market helps retention. It helps refer a friend. It helps other pet. It helps that flywheel. So it's important to adhere to that at all costs. And then just in terms of AI, one of the most practical things that we're doing is we've talked so much about our Contact Center, how good they are, the learnings we've got. We have such tenure in that Contact Center. They perfected the art of conversation when it comes to Trupanion and why Trupanion. And we haven't ever used large language models until today to be able to say, okay, what is that conversation? How do we then modify our web pages? How do we modify that journey, which we think is something that we need to be unlocking, and AI is helping us do that in a much bigger scale, and we expect that to continue over time. And that's ultimately going to drive up that conversion rate.

Great. And just one follow-up on the pricing. I mean we talked a lot about the cohort that are getting the 20% plus increases. But are there any examples? I mean, as you've gotten better at pricing and more granular, are there any examples of customers actually getting price reductions and that would ultimately be the best retention tool?

I can kick that off. Alan, did you want to speak to that? So we have done that in the past. So you may have noticed when we're looking at -- I think it was the ARPU, there was like a little tiny dip in a period in one of the charts I was showing earlier, one of the many charts I was showing earlier, but it's -- that was because we took some, probably 16% of our book in 2021 got a reduction, in Q4 of '21, if I remember correctly. That actually does not help retention. That has a negative effect on retention. And as much data as we have to be able to demonstrate that probably because people feel like we haven't -- we've been overcharging them. So when you take the price down, it doesn't help the trust. But Alan, in terms of kind of where we are now, what would you -- how would you answer that?

Yes. I mean I think the general trend is inflation is usually an upward thing, but there are places in which we continue to get more information. And whether it's geographies or, say, specific breeds or other categories, we get more information, better information as our pet count grows. There's certainly going to be instances where cohorts of people will get decreases. It's just not necessarily or hasn't historically been super widespread in terms of kind of whole states at a time.

Similar line of questioning comes from John Barnidge of Piper Sandler, who asks, again, kind of a two-part question. How much of the consistent inflation in the broader economy is leading to persistent increases in costs in the medical field? And then how much of the consolidation of the vet and pet hospital landscape has led to severity in pricing?

Well, I'll start with the first one. I think that he's probably referring to the vet CPI. And it has been -- it jumped to its highest point over a year ago, but it has stayed relatively high. And it is a good indicator of direction of what's going on with our trends. But I do want to point out that CPI in this last month, August CPI for U.S. was 6.4% for the vet space, 6.4% is quite a bit below the trends that we're seeing. And I think that's always going to be the case. And I worked in human health care for a long time, and it was always the case in human health care, too. And people are always surprised to see that delta between CPI and medical trend. But it's a pretty easy explanation. CPI is a very cool and very effective metric. But they do it by taking a fixed market basket of goods, and they measure prices over time. Same exact market basket over time, and it's a really efficient way to get an idea of what's going on with inflation. Our customers, we actually let them submit different claims this year than we did last year. I can't get Steve to change the policy, but if we did the exact same thing every year, CPI would be very helpful. But they don't do that. In fact, we saw a lot of graphs early on about -- there it is, about taking the friction away from allowing vets to practice the way they really want to practice, allowing pet owners to get those services done that they wouldn't have gotten done if they weren't insured. And so we tend to have our insured pets using more services, possibly higher end services. And that mix of services that they use is different than CPI and pretty generally always over and will always be the case. Until I get Steve to say develop this other plan that nobody would buy.

Yes, we're not going to do that. Our -- just to seal this up, our product is built for utilization. Our job is to shut up and pay the bill. That's how we support the veterinary ecosystem. That's not going to change.

Was the second part around consolidation? Yes. Yes. So I mean consolidation hasn't been -- it's been around -- well, it's has been around in the global markets for a long time. I would say in the U.S.; it really starts to kick in well before we started to see these high levels of inflation. Now obviously, did it contribute? Yes, you've got consolidated companies who are looking at making sure they can drive revenue in the right direction. It absolutely would have had an impact. I think the only -- if you think about certain halo effects of having groups where they got access to -- a lot of these consolidated clinics have got access to a lot of medication. They can do an awful lot of diagnostic testing; they can do an awful lot of more than the average one doctor practice can do. So because of that and back to that point, we have a product that will cover these things. You're going to see how utilization as a result of it. So the use of the product is going to be greater. In areas where you've got like consolidated practice that is now part of a bigger group. It enables better care and again, it's our job to ensure that we're priced appropriately to be able to cover that. It's good for the animal, it's good for the pet parent, it's good for the hospital. But we haven't seen a massive shift in that for the last several years, because the industry has ultimately been carrying that, not just consolidation.

I guess I'll just ask about where you feel you are in terms of the rate earnings -- of the historical rate increases earnings into the book such that you're sort of mostly reflecting what's typically passing through. How long will it take for us to be at that point. And where do you feel the competitors are relative to you. Do you feel like they're behind. In which case as you enter the market a bit more aggressively to grow here, maybe, are they more reticent.

I'll take the first part. We are getting very close to the point where we will be passing -- our rate increases will look a lot more like our trend rates, which I think is my interpretation of the question was we're just passing through the costs that we're seeing. We're there in Canada. We're not quite there in the U.S. And -- but we're close. I think that's going to happen soon. I'm sure Peter is going to get us there, but I want to get the credit anyway. The -- but there's always some challenges that are going to hit you, unexpected cost increases. And again, we talk here in this room about the overall big picture book of business. But something weird can happen in a state or something weird can happen in a province, and so we'll be reacting to it. I'm going to piggyback back to a couple of questions ago. Japan is a great place to work. I love it. I really do. And I get to talk to TPs a lot. And TPs remind you not to go too far. So I'm not too worried about that 17% margin year. There's a lot of downward pressure that we get because we want to serve the most members that we can. So I think we're always going to be just right at that number. If we do a great job, get right at that margin number and try to stay up with it. And I don't want to say in 6 months, we'll be there. But within the next year, I think we will be in the next 12 months. That was the first half. I do not remember your last half.

The question is about competitors.

Yes. The competitors, I mean, as much as we -- Alan, I don't know if you want to speak to a little bit of this from the analysis you've done on competitor pricing. You have the microphone.

I got the microphone. It's hard to say exactly how the competitors want to run the business, but I think there's certainly instances in which we can look at our own book, and we feel good about where our prices are at. I would not personally feel as comfortable if I was running a monoline insurance company and I was the competitor. That's the most polite way I'll put it.

We were quick to react, and we will continue to react as Mikel said, as we refine prices. So the main thing for us, I think you just said it perfectly. We're not looking at what the competitor set is doing from a pricing point of view. We know we are very granular with how we do it, and we're pricing for the life of the pet. So we'll continue to keep focusing on that and building those relationships.

Question -- follow-up question from Brandon Vazquez of William Blair, really on Vision. And looking for some more details on the rollout of Vision, including when it was rolled out specifically and what benefits we expect to still realize as it scales?

Yes. So I mean on the Vision claims side, we completed it towards the Q3 of last year is when it finished up. But Vision policy is just getting started and some of the benefits that we'll see is some of this, the UI efficiencies that we've seen on the claims side, we'll realize on the Contact Center policy side. Along with that, a lot of the platforms, the one that I mentioned most prominently was the member portal. It was built with Vision first in mind. And so as people migrate on to Vision, they will get the benefits, the added benefits of that within their new member portal, which increases self-service, like Jamie mentioned earlier. So really looking at cost reductions, but also better self-service, better educational content that we could put into that member portal, which will drive the overall experience.

Jamie, anything you'd add?

Yes. Just lower latency, just some other key benefits around improving the performance of those platforms.

I think another efficiency that we talk about a lot internally is our teams are having to use like multiple, multiple systems to service our members and our vet partners. So being able to take that out of their daily life and actually allow them to just have one system, one system of record, one data lake, it's just going to make their life so much easier as well, which naturally is going to show up as they give the brand cuddle to everyone they speak to.

Everyone is excited to get rid of the legacy platforms.

Yes. As we've already touched on, we see increased automation, increased team member productivity. And I'm not sure I've heard anyway mention the decreased time to train for onboarding new people. So I would expect that will also translate into policy, but we save several days on each new hire because it is a simpler system and only one system to use.

I've got one more sort of maybe bigger picture question around capital in the business. Are we at this point now, I guess, in North America, let's say, basically self-funding for growth?

I think simple answer is yes. When we look at the growth in the business and where we are from an overall capitalization relative to our excess capital and then the free cash flow in terms of just aggregate cash generation, the combination of those two things, we're not in a constrained position, whereas previously we were. So we don't have a constraint in terms of our ability to make investments. I mean, the analogy I gave before was previously, we had to make choices. We could only do one or two things. And today, if we have two great investments, we can pursue both.

And then maybe if I just add, let's include Europe as well. Are we still basically self-funding even with the added growth in Europe?

Yes, Europe is in the early stages. So it's still nascent. So from a capitalization perspective, it doesn't -- I don't want to say it's insignificant, but it's not -- it's certainly not a major contributor in terms of our capital requirements. So no, we look at it in totality, obviously, as a business. But whether it's capitalization relative to the requirements, that, by the way, allows us to enroll more pets. We also get significant interest income from our cash. Our cash is almost $320 million now. And then the free cash flow generation, that's what powers the -- all the investments that we've talked about today.

Yes. I mean the percentage that we spend on international today is tiny. Less than 10% of our PAC investment goes into international teams, and Simon shared how that's been moving in the trajectory. If you think about the 30% growth that we're going to get through subscription AOI that we can then redeploy, we haven't had more than $82 million ever to spend. And now we're talking at upwards of $120 million, $130 million. That's a significant step-up that we will then be able to not only test in the North American markets, but also make sure that we're testing in our international spaces, too. So that number in the next 3 years will be over $200 million. The team has to work out how to spend that and spend that within our guardrails. And we will put pressure on those guardrails. I mentioned that in the shareholder letter. We need -- as we see that margin go up, we should be pushing hard on the lower end of those guardrails to be able to really kickstart that momentum. But I would anticipate that between Simon, Emily, MJ, we're going to have people going for that money, but it's there and it's self-funded. And with the margins we have today, we would fully expect that to continue.

Perhaps while we get the microphone back to Katie, I'll ask a follow-up question from Wilma Burdis of Raymond James. And she's specifically asking for some more color on the outlook for growth in Europe, specifically. And are inflation trends similar there within veterinary medicine?

Yes. Maybe Simon can start and then perhaps, Peter, with your experiences in the European markets, you can speak to what you're seeing after Simon, please?

So let me just talk about the European footprint that we have and the broader European context. So if you look at the territories that comprise the EU, the 27 and the U.K., Norway and Switzerland, there are about 165 million pets there. Within our territories that we have a footprint in, there are 37 million, 15,500 veterinary hospitals and probably a 4% penetration, just slightly above or below that across those territories. That's a huge catchment area for us. But I think in terms of where our focus is and where we're going to put investment effort and focus, it's very much Germany in the short run. That has a real potential. Out of those 37 million pets in our footprint, something like 72% of them are in Germany. Of the 15,500 veterinary hospitals in our footprint, about 71% are in Germany. So Germany has huge potential there in terms of where we're going. I will leave Peter to speak a little bit more about veterinary trends across Europe, but certainly in the territories where we are, we haven't seen the extreme levels that we have in North America over the last few years. Indeed, if you look at Germany, there's quite a lot of pressure to reduce prices in the veterinary sector, so much so that the veterinary chambers will set minimum thresholds for prices with, again, banding above that. And I think that's one of the real opportunities in the territory because whenever -- it's called the GOT, and whenever the chambers increase those thresholds, the veterinary sector despairs because they've got to put prices up and they're already in competition with the guy at the end of the high street, the pet owner despairs because veterinary prices are going up. And actually, the obvious answer is insurance. So if the pet is insured, if the owner is insured, the vet can give the treatment they've been trained to give for that recourse to the owner's ability to pay and the owner has got that financial protection so they can afford that treatment. So I think some things conspiring to work well. But if I look back at the U.K., Margi and my time in the U.K., we had almost double-digit veterinary inflation year-on-year for 10, 12 years. So we saw that the pet insurance market still grew within that inflation level. Peter, do you want to add anything on top of that?

Absolutely. Thank you. Well, thank you so much. Thank you, Simon. So just a short background on me. I spent about 12 years working in pet insurance, been working for one of the largest pet insurers in Europe, known Simon since 12 years back. So the marketplace where I live in Sweden has the highest penetration rates in the world on pet insurance. We are at 90% penetration rate. The market leader has 50% of the market share. It's a very special market. And then when we look at the rest of Europe, we would have the whole spread of penetration going all the way down to similar levels as we would see in the U.S. So inflation levels as well, as Simon mentioned, I would say those are likely highly dependent on how -- well, the marketplace. In Sweden, 9 out of the 10 dogs are insured when it comes to the veterinarian. When the inflation hit, we saw the highest inflation rates in the whole marketplace in all categories being at veterinarian services. So we -- I think we peaked out at 18%, 20% inflation rate. So yes, we absolutely saw high inflation rates. It was a challenge for many insurance companies, a lot of insurance companies lagged behind, had, well, to say the least, very bad loss ratios. What I've seen in Trupanion and the team I'm taking over in 2 weeks, I mean, I am impressed. The swiftness of actually getting all those rates through. So compared to Europe, well, U.S. versus Europe, Europe has a slight benefit of we don't have to file. So we would have those -- that extra 3 to 6 months, so we could actually work quicker. But what I've seen here is the U.S. team, this team actually kept up with Europe. So I'm impressed. I don't know. Did that answer your question?

I think it did. I think the point you're making there is if there is -- the biggest point is that if there are price changes in the European market, you can go like that and you can put the new price, maybe not quite that quickly, but it's not going to have the lag having to go through regulator, having to get approval, having to get a pass-through, which means that the response rate, the proactivity there is -- or reactivity is much quicker.

Absolutely. Yes. So legislation-wise, you could do it in all territories, I want to say, I'm looking at Simon. You can put the price in the day after you realize that you will need to increase the rates. So it's a very different situation. And also a lot of respect for -- the marketplace is very different. So I'm speaking about Swedish markets. What we experienced in other parts of Europe will vary because we have different market dynamics.

Fawwad, I wanted to circle back to the last time you gave us data points on Trupanion's capital surplus levels. Any chance you could update us on that? And is 2x over-capitalization still the right number to keep in mind?

You're right. I gave an update in Q4 earnings, and I said at the time that we were 2x the threshold. We've chosen not to continue to update that. I think the best way to track that is just look at the dividends and the extraordinary dividend is a great indicator of that. Look, as long as the business continues to grow, we contribute capital naturally through that process. As Pets Best is rolling off, the growth rate is diminishing. That gives us additional capital, frees up capital. And then obviously, we hope that the long-term trajectory is a greater and greater understanding of the unique risk dynamics of the category. And so I can't predict -- no one can predict the direction of that. But if you look at the trend line, I think the more understanding, the more dimensionality that we can provide on the risk profile, the more favorable the response. So we've chosen not to continue to update that. But we feel very good about our ability to have the capital to take on more pets. That's first and foremost. Actually, I should say, first and foremost is our ability to pay the existing members. So obviously, always to be there. Second is to grow, and we feel good about both.

All right. Fair enough. And then a question for John. You had that slide showing the save rates in your prepared remarks. What changes to the retention team strategy drove the most recent year's improvement? And should we expect that trend to continue as you guys kind of think about the next phase of retention improvement?

Yes. I mean, obviously, Brian, help me out here if I miss anything. But I think ultimately, what it came down to is we understood that the rate flow was going to go up, right? And historically, we've had a pretty consistent save rate. But ultimately, we turned our attention to just looking at the 20% or greater bucket and understanding how to have those conversations. Doubling down on the quality assurance aspect that I spoke about earlier, having the insights about what resonates with our members, what are they calling about their rate change and about understanding what they're talking about and what we're missing and being able to have the proactive conversations with our members actually, with our team members drove the performance increase there. There obviously is a certain piece of this, too, of we've aligned compensation models to align to driving this behavior, too. And I think we've hit it out of the park on this spot. I do also think that this save rate should become better as rate flow normalizes because we've become so confident in our conversations at the higher levels, I would expect that it would continue as kind of things normalize through.

I guess could you give us an example of some of the messaging that's been resonating?

It goes back into the value. It goes back into the value and the cost of care. It's the one distinct advantage we have in the contact center versus digital paths is we're able to have that conversation and meet that member where they're at and have that conversation about their pet specifically, whether cat, dog, Rottweiler, Mini Schnauzer and understand what their pet may experience and bring them full circle into why Trupanion and why we're the right choice versus others.

So it also starts with -- I love you asked that question. It's a question that we often talk about how high could this actually go because this also comes back to referring for another pet because they've got that connection with us. When a -- we're a product, we've always said we're a product that has to be sold. So on the nature of that, if it's harder to sell, it's easier, forgive me for saying that, to retain because someone has had that -- they've had to go through that process of I have to figure out how I can budget for this every month, I have to think about why Trupanion versus another provider. Most of the people who sign up for Trupanion have an understanding of why they've done that. They could tell you, I've done it because of these reasons. They thought about it, considered, they are so confident they tell their friends, they add their pets. So when it comes to the point when they end up talking to someone on the phone, it's a conversation they're open to having because they already made the decision. And that's a -- it's a key difference between Trupanion and another provider where it potentially is an easier sell, but it's also easier to walk away from it.

I was just thinking about the staffing in the call center now that you've pivoted from -- I shouldn't say pivoted, more focused on growth. How do you think about staffing the call center now that you're going after growth? Is it more time consuming for operators to focus on growth versus retention? How do you think about that? How do you manage that? How do you use technology to improve productivity?

Yes. So I mean, I think in the contact center, we have three distinct teams. So everyone is specialized in something different. So we have a sales team, a customer care team and a retention team. And so going after those different pockets of staffing or workforce to handle our members' conversations is actually quite easy. Attracting talent has been pretty easy. And I mean, I'd look to Brian. I mean, I would have to venture a guess that we have probably the record retention rate for employees in the contact center. And our tenure of team members inside the contact center is actually quite impressive. And that comes with years of experience and being able to have not only just the conversations that they're having every day, but also the growth conversations. And then as we think about AI or artificial intelligence and where it can play a part, I think the quality assurance piece is one aspect. But I think there's other areas of the business that are lower level transactional pieces that we could look at integrating things to increase throughput by these agents and also giving them more time to have conversations with our members. One thing that we don't do, which a lot of people do, is put average handle time targets on conversations. If a conversation needs to take 1 minute, great, if it needs to take 20 minutes, fantastic. The retention conversations for that save rate, they're the longest conversations we have. And to me, that's a good sign. That means members are calling in, wanting to cancel, but ultimately, we're keeping them on the phone and having that conversation and opening them up to the dialogue of the value of Trupanion.

Brian, could you speak a little bit to how you're thinking about staffing? So as we expect that core volume to pick up in the sales team, what would that look like?

Yes. So first, I'll just say Trupanion does a great job of attracting pet passionate, genuine people. And so I think -- and that goes everywhere, right, not just the contact center. When you start with that base, so much easier, right? If you've ever tried to train care or empathy, it's very difficult to do. So I'll just shout out to everyone that works here. Everyone is very pet passionate and that makes it a lot easier. Kind of what John said, Margi, when you think about the three different teams in the contact center, we want to grow one, the sales team because that's a high converting team for us. We want to shrink the other two. If you think of retention, that one is obvious. But customer care is a -- it's a defect pool for our entire team. And so when you think about like fewer defects, and I say that because not many people here, if I ask you to raise your hand, if you like calling into a customer care team, not many hands are going to come up, right? So we think about those as defects, and we're trying to shrink that. I think John had a chart up at one point where you saw a decreasing contact rate. And that's an indicator for us. If you think of how many calls we get per 1,000 members per month, that's an indicator of our experience in that customer care team. The fewer the calls, the better. And so the answer in short is it depends. We want to shrink a couple of teams and grow one of the teams. And to John's point, the more that we can do from a self-service standpoint transactionally, especially the simple transactional pieces, the better, and that saves time and people to work on the more complex things.

I think it kind of talks to the flow. I mean you've heard there are a number of people in the team today who've come up through the contact center. Our contact center team is an entry point for a number of roles across the business and our sales team, we often see people moving from care into sales. And we think about it's really where do you redeploy those people, where do you make sure that you've kind of where have you got the greatest need. And John mentioned earlier, thinking about the ways that we can help drive that first year retention. We have people in our sales team who haven't had much core volume earlier this year, doing things that help enable retention and conversion and care and hospitals. So they're always working as a unit to ensure that we're able to provide support where it's needed. The nice thing is we don't have to necessarily add to that team, but we can make sure that people put where their strengths are.

Follow-up question back on the topic of free cash flow from Raymond James. Does higher excess cash flow allow Trupanion to become more interested in M&A opportunities? Or is the company most focused on investing in organic growth? What types of targets could be attractive?

Yes, it's an interesting question. I've always thought of M&A as part of the execution of a strategy. It is not a strategy in and of itself. So if we felt that within the strategy that we have today, there are certain assets, there are certain capabilities that we need, we can either build them ourselves, we can license them, we can partner with someone or we could buy them. We would obviously look at the most optimal path. So it's not to say M&A we have a predisposition for or one of the others we do, it's all at the behest of a strategy. We feel very good about the strategy that we have today. We have shown you today clearly that we have a tremendous growth opportunity ahead of us. We feel we have products that serve the needs of members. We're going to continue to invest in technologies that help unlock some of the efficiencies that John is talking about. All of that improves the member experience. So yes, I think sometimes companies make a mistake of thinking that M&A is a strategy. M&A is a series of steps you can take. It's at the behest of a strategy. So it would have to fall within that framework for us to consider it. But we would consider everything, whatever is best in the achievement of the strategy.

Additional questions? Perhaps then I'll pivot back to just a couple of follow-up questions. These are slightly outside of the topics for the panelists on stage, but we can take them as we have time. Really, again, two-part question coming from William Blair, and then I'll just tag along a Raymond James question to it. So what is the latest on employee benefit partners? Any thoughts on when we might see Trupanion offered as part of broader employee benefit plans is the first part of that question. The second part of the question is, what are some other avenues to increase penetration in the U.S. besides Trupanion education efforts.

Emily or John? John? Would you like a microphone?

Yes. When you think of worksite benefits, right now, we're partnered with Aflac. And I think we was having this conversation in one of the breaks earlier, so you could hear a repeat of the same message. But I think growth there and what we focus on '25 is making sure we're removing some low-hanging fruit and creating efficiencies and moving hurdles. So we made some investments into making it more efficient for employee members of worksite benefits, HR benefit teams and the brokers themselves to be able to administer the policies. And some of those are done. Some of those will continue to be done with technology improvements going into early next year. With that hurdle removed, that really makes it so that those partners at Aflac can scale at a much greater pace. And where we will play another important role for all of our partnerships is making sure that we're continuing to arm all of our partners with our value prop, that 30-second elevator pitch, the 2-minute more deeper dive into the why us, so they can be successful in rolling out those programs. Anything beyond that, I'd kick it over to Emily. Thank you.

What was the other question? Distribution?

What opportunities to grow outside of education opportunities here in the U.S.? Any other distribution channels?

There are a lot of distribution channels that we already have. So MJ touched on many of them. So breeder, shelter as well as vet, we'll continue to build all of them. None of them are exhausted. I think if we were at that point, then we would be looking to introduce new. We've talked in the past about social media. We've talked about paid search. We have our members referring their friends. We have partners, so Aflac, State Farm, Chewy, we have hospital groups, distribution channels. As we think about the bigger brand spend and where we're moving in terms of the direction of sort of where do you meet pet parents where they're at, there are a number of different avenues you could go down when you think about target partners. For us, as John said earlier, it's really about making sure we find a partner that is suited to us as a brand to what we're trying to do that fits within our ecosystem, that helps to build and deepen the moats rather than create new ones necessarily. So I would -- without being too specific, we talk to a number of different partners and different channels to see whether it makes sense for us to open the door there. And as we said before, we have a lot of opportunities. So we'll continue to dive into that with the increased investment we have to start to build additional routes to market, but nothing that's suddenly going to be switched on overnight. We've got a lot of channels to work and perfect the art of really pushing those through. So I think we have our hands full for now.

Final questions from the audience. Okay. Well, if there are no more questions for the audience, we'll close on one final one from Raymond James, who asks, what is Margi most excited about.

Very cheeky. I see what you did there. I'm so excited about having this adjusted operating income. I sat down on a boat with Darryl probably, I don't know, 12 years, 10 years ago, probably was 10 years ago, and we talked about the concept of how do you spend $100 million. Well, he said to me, can you spend $100 million? I'm like, no, not effectively. At the time, we were spending $6 million. The idea of having that was just ludicrous. Here we are looking at an adjusted operating income that's going to be $130 million 10 years later. Can we spend that? We can spend that, and we will spend that. And I'm so excited for the team to have the tools to finally actually do some of the things that we've always wanted to do, to get our arms around making sure that we own the spaces we're in. We truly own the spaces we're in. We have a brand to be proud of, a product that story is yet to be told, and we are -- so I stole that from Jeff, by the way. I'm so excited about where this team and the technology and the financial strength of the businesses. We are immeasurably stronger today than we were a year ago. And with that strength, with the market opportunity untapped in so many ways globally, we are poised to enter that with the money that we've never had before. So I'm excited about everything, but I'm especially excited about AOI.

Okay. Great. Well, that concludes the final Q&A session. Thank you so much for the questions. Thank you so much for the participation. I think before we close out, I'll just turn it back to you one more time, Margi, and say any final thoughts.

Well, you just asked me kind of, I think, a nice summary. I should just point out when we -- I talked about the 60-month plan and intrinsic value growth and what we're aiming for. If we look at where the AOI is, I just want to reiterate that I said it would be up 30% at the end of this year. That's our greatest proxy to intrinsic value growth. This team is adding to the value of this business with everything they're doing. And I couldn't be prouder of the team that we've amassed here. You've met lots of -- you've seen lots of tenured faces. You've seen lots of new faces. It continues to build. The people you can't see here are hard at work supporting our members day in, day out, whether they're in the field, in the contact center, in the claims team, in finance, in legal. They're across the company. And we're doing great things, and I look forward to updating you on -- the whole team looks forward to updating you on where we take it. But thank you for your questions. Thank you for your time today. Thank you for your support, and we're excited for the future.