Good day. And welcome to the Trupanion Second Quarter 2023 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Laura Bainbridge with Investor Relations. Please go ahead.

Good afternoon, and welcome to Trupanion's second quarter 2023 financial results conference call. Participating on today's call are Darryl Rawlings, Chief Executive Officer; Margi Tooth, President; and Wei Li, Interim Chief Financial Officer. Before we begin, I would like to remind everyone that during today's conference call, we will make certain forward-looking statements regarding the future operations, opportunities and financial performance of Trupanion within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve a high degree of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed. A detailed discussion of these and other risks and uncertainties are included in our earnings release, which can be found on our Investor Relations website, as well as the company's most recent reports on Forms 10-K and 8-K filed with the Securities and Exchange Commission. Today's presentation contains references to non-GAAP financial measures that management uses to evaluate the company's performance, including without limitation, variable expenses, fixed expenses, adjusted operating income, acquisition costs, internal rate of return, adjusted EBITDA, and free cash flow. When we use the term adjusted operating income or margin, it is intended to refer to our non-GAAP operating income or margin before new pet acquisition and development expense. Unless otherwise noted, margins and expenses will be presented on a non-GAAP basis, which excludes stock-based compensation expense and depreciation expense. These non-GAAP measures are in addition to and not a substitute for measures of financial performance prepared in accordance with the U.S. GAAP. Investors are encouraged to review these reconciliations of these non-GAAP financial measures to the most directly comparable GAAP results, which can be found in today's press release or on Trupanion's Investor Relations website under the Quarterly Earnings tab. Lastly, I would like to remind everyone that today's conference call is also available via webcast on Trupanion's Investor Relations website. A replay will also be available on the site. With that, I'll hand the call over to Darryl.

Thanks, Laura. Two months ago, we hosted our annual shareholder meeting. I'll touch on a few of the highlights today and encourage you to watch our annual meeting highlights video available on our Investor Relations website. Among the highlights shared were three key priorities. First, expansion of our adjusted operating margin, second, deploying capital efficiently, and third, returning to free cash flow positive by Q4 of 2023. In Q2, we saw early signs of progress in each of these areas. I'll elaborate on these now. Adjusted operating income was $16.8 million in the quarter. After an extended period of margin compression, I'm encouraged to see margins not only stabilize, but sequentially expand. Assuming the rate of veterinary inflation remains consistent with our expectations as it did in Q2, we expect further margin expansion in the second half of the year as our pricing actions continue to take hold. In the quarter, we deployed $19 million to acquire over 75,000 gross new pets. I'm thrilled with the team's ability to add 23% more pets year-over-year, while deploying 6% less in acquisition spend, in my opinion, this is a strong result. On a per pet basis, the cost to acquire a pet was 24% lower than the prior year period. Managing acquisition spend in relation to pet lifetime value is a honed skill of the team and one we will continue to refine at extremely granular levels. I'll elaborate on this point momentarily. The combination of early margin expansion and efficiencies in our pet acquisition spend helped drive a $3.9 million sequential improvement in free cash flow in the quarter. Additional actions taken in the quarter to reduce spend are expected to further advance us towards our goal of achieving free cash flow positive in Q4. Overall, I'm encouraged by the progress…

Thanks, Darryl. Good afternoon, everyone. I am pleased to share the ongoing progress that has been made since our annual shareholder meeting just eight weeks ago. The team has remained disciplined in capital allocation, leaning into our most efficient channels during the quarter. This strategy enabled the delivery of yet another solid quarter of deliberate and meaningful growth while preserving our balance sheet. We added over 75,000 gross new pets in the quarter. This is particularly strong growth when considering the intentional reduction of pet acquisition investment, which was down 6% year-over-year. In the quarter, we began adjusting and in places reducing our acquisition spend to ensure we are aligning our investment to areas with the strongest lifetime value. In geographies, where we're able to provide value to our members consistent with our brand and pricing promise. Our estimated internal rate of return was 25% in the quarter. As a reminder, we use IRR to predict the estimated future cash flows from our newly acquired pets. ARPU retention and adjusted operating margin are key inputs into this calculation. In Q2, on trailing 12-month margin was 10%, which is temporarily reduced given current inflationary pressures. As you will soon hear, we've made progress on our pricing actions and are beginning to see early signs of margin expansion, a trend we expect to continue this year and into next. Moving forward, we'll be contemplating an adjustment to our IRR calculation that we believe will more appropriately and conservatively reflect the new pet ARPU, retention and margin contribution from each line of business and aligned to a more decentralized approach. Recall, we talked about this more granular approach to capital allocation in our most recent shareholder letter and also at our shareholder meeting. We'll be providing this updated metric in our Q3 earnings…

Thanks, Margi, and good afternoon, everyone. It's great to speak with you all on my first earnings call as Interim CFO. Today I will share additional details around our second quarter performance, as well as provide our outlook for the third quarter and full year of 2023. Total revenue for the quarter was $270.6 million, up 23% year-over-year and ahead of our expectations. Within our subscription business, revenue was $173.3 million in the quarter, up 19% year-over-year. Total subscription pets increased 23% year-over-year to over 943,000 pets as of June 30, 2023. Calculated on a trailing 12-month basis, our average monthly retention across all of our North America's subscription products was 98.61% compared to 98.74% in the prior year period, equating to an average life of 72 months. Unless otherwise noted, the metrics I'm sharing today are presented on a consolidated basis and it will be influenced by our mix of business, including new products, channels and eventually geographies as Margi discussed. Our European pets are currently underwritten by third-party underwriters and are therefore not included in our per pet metrics today. Monthly average revenue per pet for the quarter was $64.41. This quarter and moving forward, we will also break out to new pet ARPU. Average new pet ARPU for our subscription book of business in North America was $61.49 in the quarter. Breaking down our year-over-year subscription revenue growth of 19% for the quarter, pet growth contributed 19%, pricing increases at a 10%, while mix reduced it by 9%. Lastly, foreign exchange, reduced revenue growth by 1%. Subscription business cost of paying veterinary invoices were $133.4 million in the quarter, resulting in a loss ratio of 77%, a 60 basis point sequential improvement over the last quarter. As a percentage of subscription revenue, variable expenses were 9.7% in…

Thanks, Wei. Before we open it up for questions, I wanted to remind you of our annual shareholder meeting highlight reel available on our IR website. In addition, we will be in attendance at several upcoming investor events. Margi will be attending the Canaccord Genuity Annual Growth Conference in Boston next week, and next month, we will be in attendance at Lake Street's BIG7 Conference in New York and the Jefferies Virtual Pet & Wellness Conference. We hope to speak to many of you there. We'll now open it up for questions.

[Operator Instructions] The first question comes from Maria Ripps from Canaccord. Please go ahead.

Great, thanks so much for taking my questions. First, can you maybe update us on your more recent progress in California with rate increases up to you sort of received the approval there. What's the latest timeline around refiling? And is there anything different that you're doing in terms of how you approach the filing process this time either in terms of the data that you're presenting to the regulators, so anything else? And then I have a quick follow-up?

Hi, Maria. It's Margi. Yes. So overall we are pleased with the progress in California during the quarter, we did get our second approval within eight months. So we've had two in the last eight months, the stacked rate approval is going to approximately 21%. In terms of the 13% rate that was approved in June that was based on data in November 2022. So specifically to answer your question about a different approach, what we're doing now, once we have that second approval through and live in market, which will be effective from next week. We'll then start working with them again on the next filing, which we're really kind of go into the specifics related to the data that we saw coming through in Q1 and Q2 of 2023. So the last six months effectively, we'll be able to bake into this new finding and we'll work with them to dig into the trends we're seeing specific to California and help to better articulate the need for the rate that we have there in the state. But overall, I think it's a big step forward in fixing our loss ratio. We now can increase our addressable market in the State of California, where we have more neighborhoods, which we can reignite growth in and will continue to dig into approach on lifetime pricing in California to speak that additional rate in the near future, but it's a collaborative relationships and looking forward to that next step.

Got it. That's very helpful. And then you mentioned 16% adjusted OI target towards the end of next year. So assuming inflation sort of remains consistent with your expectations, is this predicated on another round of approvals from a handful of larger states or do you feel like you have enough approvals under your belt?

All right. So we have -- by the end of this year, we'll have about 23% will be flowing close to 24%. Essentially what that means is we will have state approvals to hold that rate at the end of the year. So we're not going to continue to go above that rate and I going in for more approval to expand it. What we are doing though is monitoring that cost of goods and it's true to say that if that 15% inflation holds. We will continue to see that 24% flow through into next year, which will allow us to catch up on the 15. So if we're getting a higher rate in 15, you start to see that margin expansion. This month just gone, we had 16.3% rate flowing through our book, which is why you saw that margin expansion, as you mentioned, if that assumption holds true and we don't see a change in 15. We believe that we will have sufficient rate and plans in place to get us on track by the end of next year. We will keep monitoring it, if things changed and we will adjust our approach, but we feel confident right now that we have the right plan in place to get that.

Got it. That's very helpful. Thank you so much, Margi.

Thank you.

The next question comes from Shweta Khajuria from Evercore ISI. Please go ahead.

Thank you for taking my questions. So if the California rate filing, if it does not get approved or if the approval is once again lower than what you are -- what you expect to file for. Could you talk about what the alternative is at that point and then or -- and/or the impact on the overall book of business. And then I have a follow-up, please?

Yes. Hi, Shweta. So we - for the California rate filing right now, what the latest filing the site rate has allowed us to do as I just mentioned is really go a little bit further into California than we have been. So we very deliberately pulled back our, spend. We're looking at where we have strong margin and in areas where we didn't have to our margin and we weren't hitting our target value proposition. We were giving greater that our target value proposition, we really started to pull back that growth. So we've been able to dig in further into California and get a little bit about growth in moving in other areas. If we do see an extended delay on the next rate approval, we'll continue to monitor where we are effective and where we have the strong margin and we will adjust our operating approach in terms of growth strategy depending on where that rate is. This is something that we - as we look at this in a more granular level as we started to really look about decentralized approach to management, this is something that we should be expecting to do more and more as we really kind of kick into our decentralized approach just in terms of distribution strategies, different products, different geographies. So while California is one part of our business, it's not the biggest part of our business and that's very deliberate as we thought about distribution moving forward to the long-term. So we will calibrate, we'll keep checking the data and making sure that we have the right value proposition and we'll adjust as necessary. But right now, as I mentioned, we feel very positive about the relationship with the regulator and we're encouraged by the dialog and we'll continue to work with them to do what's right for our members in the State of California.

Okay, thank you. And then you mentioned that you pulled back on some of the initiatives that were maybe for the mid to long-term or you weren't seeing the returns as expected as part of your cost savings or cost cutting? Could you talk about which one specifically those were?

Yes, it's really across the board. So there are some things that we do that ultimately will help us unlock a few tests, so whenever we look at deploying capital, we try and learn new ways of doing things, new avenues, new test, new tactics, as well as, I would say, for some channels, so building things out for the future. So that related to whether it's a bet, whether it's breeder, social media, that things that we're doing in partnership with people and also having teams that are testing new things. So it's about leveraging as much as we can within the existing team set that we have today and ensuring that the things we're doing deliver return today rather than a tactic that is a test, that's not necessarily proven or maybe even driving the results we wanted. We've been a little bit more stringent in the quarter around that and pulling back, so we can be very deliberate with the deployment of capital. It doesn't harm our core channels, we stayed very true to the vet channel, vet channel we're holding very strong in the quarter, which is testament to the impact of the product that we have. And it just allows us really to focus and double down on things that we know will drive immediate results and how this being more discipline with our capital deployment. Overall, as Darryl mentioned in his opening remarks, we got 23% more pets with 6% less investments. So, I think in terms of deployments, we're still being very disciplined and will continue to be as it things a distribution and growth moving forward.

Okay, thanks, Margi.

Thank you.

The next question comes from Josh Shanker from Bank of America. Please go ahead.

Yes, thank you very much. Good afternoon. In terms of thinking about maybe taking California out of the picture for a second, what percentage of your business is rate adequate, where you've gotten enough approvals are the states did not require approval such that you feel very comfortable going forward in?

Hi, Josh. This is Darryl. It's a very good question. When we look at our total new pets that have come in, we're really breaking the business down into multiple P&Ls. I kind of our historic subscription business, if you took North America, we break it into about three different markets. Two of those markets, the average new ARPU is about $74, $75 and the other two markets, the average ARPU is about $56. So you could see that there is a dramatic difference. The area where we have the lower ARPU, about $56 is priced adequately to our value proposition today and is actually the areas with the higher ARPU that we have had more margin compression over the last six to nine months. In addition to that, when you look at the new products that we have, which represented about 17% of our total new pets in the quarter. Most of those are pretty adequately priced for. So the biggest challenge for us is in some of our core subscription products in some of the more expensive areas in the country and that's where Margin and the team have slowed the growth there. And as we've had the approvals, like, we've been receiving the opening remarks, we've had 30 state approvals in the last quarter. Now we're able to put our foot back more on the gas, because we're adequately priced. So it's something you always have to monitor, but you need to monitor in a very granular way across products, distribution channels, not just by the state, but they're doing neighborhood level. And for the team to be able to take your average pet acquisition cost of $309 and lower it down to $230 in a single year. I think it's a testament to the team and pointing those the, spend in the right direction feel really good about the progress.

Thanks for that answer. And I don't need specific numbers, I don't think you had given them anyway, but when I look at the retention dipping a little bit, obviously, it should be expected as you raise prices. Is the movement coming into the first years, is it coming in those receiving 20% or greater rate increases or is it in the majority of the bulk. I guess that 80% of book that's neither first year nor getting a 20% rate increase.

Well, it's interesting, because that slight in retention, which as a reminder still well over 70 months and of double what we think the industry average. That includes our new initiatives, so it includes the new products that have lower coverage, distribution channel, if you pull those loans out. I think the retention rate would be very similar to what our average has been in the last couple of years. So it remains very strong. And it's pretty consistent and there three buckets that we talked about in our shareholder letters between first year average rate increases and those that have higher. So nothing dramatic change their. Margi, you did - you have anything to add there.

I mean, I think you're right, we did see - we saw a very strong start in Q2 retention as we get more and more rate, frankly, the book of business. It is our expectation that we see a little bit of a softness coming through. We saw a little bit about the end of the quarter, but generally, we feel like the retention has been very strong. I think the team has done a very good job in terms of execution and making sure that value proposition as well understood and they have a very robust upon in place for the remainder of the year, acknowledging that that rate increase will continue to tick up through the rest of 2023 and into 2024. So far, we feel confident in the way managing that process and will keep monitoring in those buckets. It's are elevated and there's a lot more granular detail behind the scene and their retention metrics that way you said in terms of the 72 months with the overall book of business. What you have in there is a real mixture as Darryl mentioned of products. We see a very different retention experience for the newer products and very different retention experienced and different geographies as well as those we see that starting to take out about 17% that we mentioned earlier, you're going to see a difference in that retention profile too, but so far so good and we feel like it's in a good place.

Thank you very much for the answers.

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

Great, thanks guys. Good afternoon. First question, can you just talk about the path back for the subscriber MLR. I think it came down 60 bps Q-over-Q, which was good to see. But it's still pretty darn elevated at 77%. You've got some of the Southern California and New York. How should we think about that trend line, call it, into the back half of 2H 2023 - sorry, the back part of 2023 and even into 2024. Do you want to give a little bit more specifics on when you think you can get back to that 71% target.

Yes. So fair when we think about the - we're happy to see that margin expansion. I think it's back to a little bit more about predictability that we have known and loved over the last 20 plus years. In terms of the rate that we have flowing through at this 16% by the end of Q2. We've got by continuing to increase through this year. So you can expect without rate margin thoughts to expand even further and brings us closer to our value proposition still confident with that in mind, we continue to see the 15% increase of inflation across the book of business. If that continues, then by the end of next year, we expect to be back towards, target if it changes and obviously, that will change. We'll adjust accordingly. But we feel confident with the plans we have in place and the rates we have flowing through Combined with our retention that we will see that happen in the back end of 2024.

Okay. Maybe just ask it differently. Is there a certain trend line that you need into the back part of this year more in order to hit your free cash flow positive target.

Yes. Sorry for our free cash flow positive, as we mentioned, we've seen some good improvement sequentially quarter-over-quarter. So I think $3.9 million benefit in terms of where we all right now in terms of cash. I think in terms of the expectation for the quarter - year-end. Sorry. We still fully expect with the rate we have flowing that we're making good progress in Q3 and Q4 is still very much on track in terms of our goal.

Okay, thanks for that. And maybe the second question I might have a couple of parts, but the first is from an employee perspective, I thought we mentioned some one-time expenses. I don't know if we 700,K or 900k intra-K was that severance and I guess if it was or if it wasn't Darryl, can you talk about the employee count at Trupanion if that's being curtailed. And if so where the company is making some of those changes sort of the follow-up on a different topic, it's just more of a clarification, I think, Darryl, you said, hey, retention is getting hit a little bit from some of those lower-end plans, if you normalize for that retention would be largely unchanged, but just to be clear, your PAC is also benefiting from that, right. You're saying how - you've done a great job on pet. But those lower-end plans I believe have a lower pet acquisition costs. I just want to make sure that would be showing up in both places right to be hitting your retention but benefiting your PAC arguably. Thanks, guys.

Yes. Margi can answer probably, sorry, we got a echo there. The question on - sorry, that was me on my end. I'm sorry. There was 3% reduction in headcount across the company during Q2. There was some severance expense. Margi, you alluded that in her opening remarks. And the second part of it is, yes, just as a reminder, our pet cost was reduced by 6% and yet we had 23% more pets that we enrolled. During the quarter, but all pets are not created equally. So some of these pets have low ARPU and lower retention other ones have higher ARPU and higher retention. So it's very important that we look at it in a decentralized way in spend the corresponding amount when you see that pet acquisition cost drop is dramatically you did from, it's an evidence that we're doing that.

Next question comes from Wilma Burdis from Raymond James. Please go ahead.

Good evening. Maybe you could give us a little bit of color on the time period for the other business to roll off, I know you have a little bit shorter retention, then the portion opinion business - from what I'm looking at it seems like maybe starting in 2024 that would roll off over a period of three to five years. Maybe just take some time.

This is Wei. So I counsel for this question. So basically it's in the prepared remarks, I gave the new guidance of the Q4 - Q3 and the full-year guidance for total revenue and the subscription revenue implies also for Q3 and Q4 other business. We have been seeing the growth has been decelerating, but still the pace of rolling off of our book. Let's see slower than we had expected. So we're still expecting growth from versus last year in the second half of this year and looking at 2024, there's a lot of uncertainty, but we believe start to decline, but our model right now single digits of revenue, revenue declined for other business. And as a reminder, other this margin is usually between 2% and 3%. We do things, given the new arrangement with that it will be about 3% going forward. But it's still much smaller than our subscription business. The revenue projection I would say, wouldn't impact too much of our bottom line performance. And I would say in terms of out years after 2024, I would say it's going to be a pretty long tail based our experienced before. And also as a reminder, if they were off quicker than we expected. There will be more capital effective to our TARP capital position.

Thank you. So I guess maybe single-digit revenue declines, but continue for 2025 and beyond. Is that how should, how I should interpret what done.

That's for the 2024. I'll be honest we haven't really started 2025 for this other business. I do not have too much clarity on that. But I would say it's going to be fairly slow decline over the next three to five years.

Yes. And if I can just add as well. It's Margi. Just to echo as what you were saying, we're expecting to be single-digit growth, if we want to be good partners, I want to make sure that from another business perspective that we're able to support the businesses is upon and came to us support them anyway in the first place. So the roll off, obviously, it's dependent on their funds and we'll be here to support them. But the main thing for us is ensuring that we have sufficient benefit from that partnership in terms of the margin, which is Wei alluded is certainly increase. So we look forward to seeing that be part of our business for little longer than we anticipated. It has upside for everybody and we will continue to share changes as and when they happen.

Okay. And then one quick one. We noticed that you broke out a new line item over the last few quarters. Pet acquisition expense for commission-based policy that was about $900 million this quarter. Could you just give a little bit of clarity on what that is and is that netted out of the pet acquisition cost of 236 or how should we think about that figure?

Yes, good question. As a reminder, we acquired pet expert and smart the second half of last year. So since then, when we report our quarterly results in the key metrics. The total pet count and the subscription business pet count, they do include those test load in Europe. But as a reminder, they are currently under a commission-based insurance agent business model, we did not underwrite those policies underwritten by a third party policies. So their revenue are commissioned. So that's why, if you look at the report we provide every quarter since then the per pet metrics, especially. Those do not do not include the European pets underwritten by third parties. So that's the reason when we do the reconciliation to calculate the pet acquisition cost for every average single pack, the $236 per pet this quarter that has to be excluded, because it doesn't make sense. The revenue profile totally different our underwriting model. I hope that's helpful.

Thank you.

The next question comes from Katie Sakys from Autonomous Research. Please go ahead.

Hi, thank you. It looks like quite a bit more cash moved into the insurance subsidiaries this quarter. And two months ago at the shareholder meeting, it sounded like you guys felt that the subs were more than adequately capitalized. So I'm kind of curious why the move - why the increase well above minimum RBC requirements.

Hi Katie, This is Wei, again or yeah. I'm happy to answer this question let Darryl, Margi chime in. So basically, we wanted to provide more - a little bit more clarity about our cash position. I wanted to reiterate what I mentioned before is that we're very happy about our cash position. I'm increasingly confident about the trajectory. The free cash flow has been improving $4 million-ish better than Q1 and we expect to be continuing to improve sequentially in the second half of the year and I'm confident about our free cash flow being positive in Q4. And we do provide a little bit more color on the cash position between the insurance company and the holding company just for being more transparent and as you can see we have $25 million in cash at the outside of the insurance entity and we also have $40 million credit facility and plus we have $57 million more than the required capital requirement at the insurance company. So that gives us over $120 million that we believe is we're appropriately capitalized in the near future.

Yes. And if I can add a little bit there as well. Hi, Katie, it's Margi. In terms of why there is additional, you're right, we are ever capitalized and we are actively working on adjusting that to ensure that that - the good news is that we don't need to continue to put money in when we've already our capitalization at the level that we have. So historically, we would have to continue to support that. Hopefully you can hear me, there are some blue angels flying over our heads right now. So I apologize for the background noise. But the hope is over the next few months, we will work through our plans in terms of what that capital allocation that explain, so we can ensure that we're as efficient as possible. We're just happy that at this stage we are obviously well above that RBC level, which means that we're not continuing to have to put money in at the levels we were when we had that combined growth of both for Trupanion our other business segment growing at much higher levels than before.

Okay. And then as a quick follow-up question. How much of your marketing expense in 2Q, would you characterize as cuttable, I know you guys talked about doing some experimental things on the marketing side? How much of that could potentially be cut if need be in the back half of the year to get margins where you'd like them to be?

Yes. So when we're thinking about marketing, so if we're talking about the core business specifically here. There have been some reductions already in Q2 that really will take us to the point where they came our core channels. We can continue to go further into our PAC, we're always looking at the internal rates of return. And the key thing here is as we leave it in the opening remarks, we really trying to get granular and decentralized in the way we're reporting our internal rates of return to allow us to understand what do we need to be spending for a specific area or geography or product versus what have we just historically got on the books. So for example, when we talk about cutting expense that would imply that we're not going to be - and there are things that we're doing not going to drive return at any point in time. So we've already reduced - we go to things like contract spend, we've made sure that the teams are clear on the value being driven and driven from the activities are producing. We could take that PAC down probably somewhere between 25% to 30% further than we have done. It's important day for us. If we've got margins where they need to be. So we're not looking at that blanket approach. Looking at a granular level approach. We can see there are lots of areas within our addressable market across North America that we can very healthily grow and that's a lot of the growth that you've seen in the quarter has come from areas where we have strong margin, we are hitting our value proposition. And we have confidence in the internal rates of return to continue to grow that. We didn't act as…

Yes, I'll just add one last thing, this is about the smart disciplined growth and being free cash flow positive in Q4. Those are our goals. That's what we're executing towards.

Got it. Thank you.

The next question comes from John Barnidge from Piper Sandler. Please go ahead.

Thank you very much and good afternoon. My question and congrats on the approvals on the rate filings. Is with ARPU becoming a changing dynamic how should we think about the significant 20% pricing and individual receiving it and then toggle and with the deductible to keep their subscription payment unchanged. Is that an increase in frequency at all.

No, it's not actually, It's been consistent. It's something that we watch and we expected to see that come up. Since we've been putting these rates through, we haven't seen that change. It's been consistent for the last 10 or so years. What is changing though is as we've mentioned over the last few quarters, we are seeing a different mix of businesses we - where we're acquiring pets. And when we talk about mix, we're talking about geography, we're talking about age of pets, we're talking about breed, even species. So that's driving some of the shift in terms of the ARPU that we ultimately end up netting. But in terms of the rate increases and how we should think about the impact on the members, often what's happening is there is a - there may be a phone call into the team, but the team we speak to all our members, if they are looking to cancel, they're able to really explain the value proposition that experience hasn't changed either. So, we're seeing strong retention. We're seeing no increase in the number of people at all or what we call by down that deductible around. And ultimately where we're trying to get you now is making sure that we have proactively reaching out to members to help them understand what's happening with vet industry, so that they can understand why these prices moving. And I think over ARPU like I mentioned is really largely coming through that mix of business. So as Darryl mentioned earlier in the call, we have such a difference across North America with ARPU, you've got two areas in North America that have ARPU in excess of $74 that equated to 40% up on new business. And then you've got 50% of our new business coming from areas where we have a $55 ARPU. So when you look at those two together, you really do have a blend. So it doesn't - that blended ARPU doesn't tell the full story, which is really why we won't see go to next page, next quarter to be able to break that down and give us far more granular approach to how we're thinking about growth and how ARPU is one component of that internal rates of return. So I think in terms of the pricing, the good thing is we have got our margin expansion, which is what we were looking for and we'll continue to see that come through assuming that cost of goods which will then show up in those numbers from the ARPU growth, we're expecting by year-end. Does that answer your question, John?

Yes, it does. Thank you very much. And then can you talk maybe about considering semi-annual renewals at your Investor Day that's still under consideration.

Absolutely. I think we're always open to adjusting to make sure we can give our members the best experience. And that was - that's what - that's in regard to. So ensuring that there is a way for our members to accurately budget for the cost of care. Now that budgeting, often for the 97% of the population that's uninsured comes through really leaning into the credit card savings, friends, whatever they can do to afford the cost of care. Those 3% that are insured and those are insured Trupanion, up until recently have been able to budget, because they've had a monthly payment that's pretty consistent year-over-year. This year is a little different. It's different for every insurance provider. It's different for the industry, where we are seeing bigger increases and we feel it's more appropriate and fair to be able to slowly move into those increases rather than giving people a 20% plus increase. Adjustments to our product to always front of mind. We believe we have the best product in the industry, which is why our retention rates are the strongest that they are, less coverage, lower retention. We have very, very high coverage and higher retention. And I think adjustments such as renewal dates and making tweaks to that process through the period of renewal is important to us. So we'll continue looking at that. There is nothing right now in market that we're doing towards that goal, but that will be something that we'll plan over the next year.

Great, thank you very much.

Thank you.

Due to the time, this concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.