Greetings, and welcome to the Trupanion, Inc. first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Laura Bainbridge of Investor Relations. Thank you. You may begin. Good afternoon, welcome to Trupanion's First Quarter 2021 Financial Results Conference Call. Participating on today's call are Darryl Rawlings, Chief Executive Officer, and Tricia Plouf and Margi Tooth, Co-Presidents. Similar to prior earnings calls, Margi will be joining Darryl and Tricia for the Q&A portion of today's call. 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 provision 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, fixed expenses, variable 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. 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 an addition to, and not a substitute for, measures of financial performance prepared in accordance with the U.S. GAAP. Investors are encouraged to review the reconciliation 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 call is also available via webcast on Trupanion's Investor Relations website. A replay will also be available on the site. With that, I will hand the call over to Darryl. Thanks, Laura, and good afternoon, everyone. 2021 is off to a flying start. This is apparent in our Q1 results, which I will share momentarily. First, I want to point your attention to my annual shareholder letter, which was published earlier this week. As usual, it includes the key annual metrics that we believe drive Trupanion's intrinsic value. Some of the annual metrics shared in the letter include the number of territory partners, active hospitals, same-store sales, as well as financial highlights, including our year-over-year increases in revenue and adjusted operating income. They show strong internal rates of return and the strengthening of our balance sheet. What is different about this year's letter compared to most is that it also includes a copy of our five year strategic growth plan, or as we at Trupanion call it, our 60 month plan. In the plan, we share the vision of where we are headed and lay out the roadmap for us to deliver meaningful growth in revenue and intrinsic value. I would encourage you all to read it. In doing so, I hope you'll share in our excitement for the future. Ultimately, our ability to deliver against our plan comes down to execution, and execution comes down to people. Tricia and Margi, our Co-Presidents, are leading the teams responsible for the execution of the plan. Our upcoming shareholder meeting on June 16th will be your opportunity to meet and have direct Q&A with the individuals and teams that are directly responsible for the initiatives outlined in the strategic plan. Our annual shareholder meetings are thoughtfully constructed to be the most valuable source of information for shareholders each year, and we hope you'll be able to attend in person or via Zoom. As I noted earlier, but it's worth repeating, the first three months of our 60 month plan are off to a very strong start. Let me jump into our first quarter results. Total revenue increased 39% in the quarter. This was driven by 121% increase in subscription net pet growth, which is exceptionally strong. Adjusted operating income increased 40% to $16.8 million. We were able to deploy 100% of these funds within our subscription business at an estimated internal rate of return of 35%. In total, we added approximately 56,000 new subscription pets in Q1, an increase of 54% year-over-year. Growth benefited from both increased leads and conversions across all channels. We also saw a continued strong retention, which is impressive given our accelerated growth. One additional marker of our accelerated growth can be seen in our expanded brand presence. Over the last six months, the number of people searching for Trupanion has grown by 57% in the United States and 78% in Canada, while the search term pet insurance has been flat to slightly down. In 2020, we estimate that we increased intrinsic value by $1.4 billion, and we shared approximately $55 million of this increase in stock grants with the team, including a $4 million one-time bonus to all team members. Additional details can be found in our annual shareholder letter. Our financial position is strong with cash and assets of over $513 million, and we are well capitalized to afford these accelerated growth rates. With our strong cash position, we have been making longer-term investments in areas like our member experience with the goal of improving retention, as well as in technology that will help strengthen our position as the low-cost provider. While early on, we've already seen some intended benefits manifest in our key metrics. Trutopia, what we used to refer to as Nirvana, which as a reminder, measures the difference between existing pet owners adding pets or referring friends, and those that churn, reached a new record in the quarter at a gap of just 0.3%. Broadly, we're seeing more and more opportunities that have come from over 20 years of industry experience, achieving operating scale, defensible moats, and our brand position in a large and under-penetrated market. With that, I'll hand the call over to Trish to talk about our Q1 results. Thanks, Darryl. Good afternoon, everyone. Today I will discuss our first quarter performance and also provide our outlook for the second quarter and full year of 2021. I echo Darryl's sentiment that it was an exceptionally strong quarter for Trupanion. Our outperformance was driven by an acceleration in pet growth within our subscription business and continued strong performance within our other business. Total revenue for the quarter was $154.7 million, up 39% year-over-year. Within our subscription business, revenue was $113.3 million in the quarter, up 27% year-over-year. Total enrolled subscription pets increased 20% year-over-year to approximately 610,000 pets as of March 31st. Average monthly retention, which is calculated on a trailing 12 month basis, was 98.73%, compared to 98.59% in the prior year period. The improvement in retention extended the average pet's life with Trupanion to 79 months, up from 71 months in the prior 12 month period. As we have discussed in the current and prior shareholder letters, we look at retention in three different buckets, with one being retention in the first year. While we have seen improvement in first-year retention, it still acts as a headwind to overall retention during periods of accelerated growth. Based on our current growth rate, while we do project retention improvements within the various buckets, we don't expect to see the blended trailing 12 month retention rate continue to increase during the remainder of the year. Monthly average revenue per pet for the quarter was $62.97, an increase of 6.8% year-over-year, or 5.5% on a constant currency basis. We continue to focus on pricing initiatives to deliver ARPU increases of between 6%- 7% to position ourselves to hit our target payout ratio of 71%. Our subscription cost of revenue includes the cost of paying veterinary invoices and variable expenses. As a percentage of subscription revenue, the cost of paying veterinary invoices for our subscription business was 72%, and variable expenses increased slightly to 10%, both reflecting continued investment in people, systems, and claims automation capabilities to reduce future frictional costs and deliver a more differentiated member experience. We will continue to invest in these areas in the short to midterm, so long as we continue to see future benefit. Our other business segment is comprised of revenue from other products and services that generally have a B2B component and different margin profiles than that of our subscription business. In total, our other business revenue was $41.4 million for the quarter, an increase of 90% year-over-year, due primarily to an increase in pets enrolled within this segment. Cost of revenue for our other business segment was $38 million, compared to $20 million in the prior year period. The year-over-year increase is consistent with the increase in segment revenue over the same period. Total fixed expenses, which are shared services that support both our subscription and other line of business, were 5% of revenue in the quarter, an improvement from 6% in the prior year period. Adjusted operating income was $16.8 million in the quarter, an increase of 40% over the prior year period, and our net loss was $12.4 million, which I will discuss in more detail momentarily. The vast majority of our adjusted operating income was generated from our subscription business during the quarter at $15.5 million and was 14% of subscription revenue. During the quarter, we were able to deploy 100% of our adjusted operating income of $16.8 million to acquire approximately 56,000 new subscription pets. This resulted in a PAC of $279 in the quarter, an estimated 35% internal rate of return for a single average pet. Given our large market opportunity, adding pets at strong internal rates of return is core to our strategy, and we are well capitalized to do so. Development expenses, or costs that are related to product exploration and development that are pre-revenue, were $0.8 million in the quarter. For more detail on how we calculate internal rate of return and adjusted operating income, please refer to our supplemental financial materials on the investor relations portion of our website. As we just discussed, in the first quarter, we were able to deploy all of our adjusted operating income to acquire new pets at our targeted internal rate of return. When combined with our development initiatives, this resulted in an adjusted EBITDA loss of $1.1 million for the quarter as compared to adjusted EBITDA of $2 million in the prior year period. Depreciation and amortization was $3.1 million during the quarter, an increase of $1.7 million from the prior year period. This increase was primarily due to the amortization of software and intangible assets from our software acquisition in the fourth quarter. Total stock-based compensation expense was $8.4 million during the quarter, up from $1.7 million in the prior year period. This increase reflects our Q1 grant in February, which related to our 2020 intrinsic value growth that Darryl mentioned earlier. The calculation of the overall company performance pool is consistent with our performance compensation plan, which is detailed in our 2016 annual shareholder letter and was approximately 2% of our total diluted share count at year-end. As Darryl mentioned, included in our 2020 performance grants was a one-time grant to our entire team in the amount of $4.3 million, which was fully recognized in our stock compensation expense and net loss for the quarter. We had very strong performance in 2020, and we're happy to share a portion of this value creation, this one-time impact. We expect stock-based compensation to be around $6 million-$7 million per quarter for the remainder of this year. Net loss was $12.4 million, or a loss of $0.31 per basic and diluted share, compared to a net loss of $1.1 million or $0.03 per basic and diluted share in the prior year period. Net loss per basic and diluted share was impacted $0.17 compared to the prior year period, due to increased stock-based compensation expense, and $0.04 compared to the prior year period, due to increased depreciation and amortization. Additionally, our accelerated growth rate and associated acquisition spend impacted EPS by $0.06 compared to the prior year period. As a reminder, we view our revenue growth and profitability and cash flow measures as strategically linked. Historically, operating at or above cash flow breakeven was a guardrail to which we managed the business. As we noted in our prior calls, our financial position is very strong, and we're capitalized in a way which we can afford our accelerated growth and execute on the opportunities in front of us. In addition, we're spending more on capitalized items, mainly in software to support our member experience and new product initiatives. As a result, free cash flow in the quarter was - $4.6 million, compared to free cash flow of $1.4 million in the prior year period. Operating cash flow in the quarter was - $1.7 million, compared to $2.9 million in the prior year period. At quarter end, we held cash and investments of over $224 million and no debt. I'll now turn to the outlook for the full year of 2021, which we are updating to account for our overperformance in Q1. We now expect total revenue in the range of $674 million-$682 million. Subscription revenue for the full year is expected to be in the range of $491 million-$496 million, representing 27% growth at the midpoint. At these revenue levels, we would expect total adjusted operating income of around $75 million, an increase of 31% over the prior year, with over 90% being generated from our subscription business. Of the $75 million, we would expect to invest approximately $66 million in acquiring pets within our subscription business, which at our targeted internal rate of return, results in a PAC of around $280 per pet. We believe the most value is created through the compounding effects of cost-effective pet acquisition while operating within our internal rate of return guardrails of 30%-40%. For the full year 2021, we also expect to spend $3 million-$5 million on development initiatives discussed earlier, as well as our other business. For the second quarter, total revenue is expected to be in the range of $164 million-$166 million. Subscription revenue is expected to be in the range of $119 million-$120 million, representing 29% year-over-year growth at the midpoint. Please keep in mind that our revenue projections are subject to conversion rate fluctuations, most notably between the U.S. and Canadian currencies. For our second quarter and full year guidance, we used a 79% conversion rate in our projections, which was the approximate rate at the end of March. Thank you for your time today, and I will now turn the call back over to Darryl. Thanks, Trish. Before we open it up for questions, I want to remind you of a few upcoming investor relation events. This weekend, Margi, Trish, and myself will be hosting our annual Q&A to immediately precede the Berkshire Hathaway Annual Shareholder Meeting. This event was designed for us to connect with long-term, like-minded shareholders, and we will once again be hosting the event via Zoom. Those interested in participating can register for the event on our investor relations website. As I mentioned earlier, but worth repeating, our annual shareholder meeting will be held on June 16th. With vaccination rates increasing, we're excited to offer limited in-person attendance at our Seattle headquarters. I encourage you to visit in person if you are so able, and to register as soon as possible on our investor relations website to ensure we have enough space. For those who are unable to join us in person, we will offer a live broadcast via a Zoom webinar. We hope to see you at both of these upcoming events. With that, we'll open it up for questions. Our first question comes from the line of Maria Ripps with Canaccord Genuity. Please proceed with your questions. Great. Congrats on strong results, and thank you for the shareholder letter. As always, it's very informative. I just have a couple of questions around your two new subscription products. Can you maybe talk about the level of coverage that you anticipate providing for these two products? Maybe broadly speaking, what are some of the conditions that are currently covered under your core plan that will not be covered under this plan? I guess, how are you positioning these newer plans for consumers? Maybe related to that, just in terms of pricing, where do you anticipate the discount range to be for these two plans compared to your core Trupanion offer for the same pet? Thanks, Maria. We talk about offering kind of a low and a medium ARPU product in my annual shareholder letter that was recently published. Those products are going to be set up in such a way that they are clearly identified to the consumer, the difference between something that has low coverage, medium coverage, and our traditional higher coverage product. We want to make sure there's clear swim lanes so that the consumer can understand how and what they should choose. All the products will have a high level of transparency and have the same value proposition. We are planning on launching those products later this year. We believe that it's a good time to do it now because the company is now set up where we can leverage our operating scale as well as our technology and data to do that. We're excited to see how they perform in the market. Got it. That's very helpful. Maybe a quick follow-up. Can you talk about sort of your marketing strategy, primarily around direct subscriber acquisition efforts for these two plans? Are you planning to invest in brand behind these two newer products? I'll hand that one over to Margi. Thanks, Darryl. Hi, Maria. In terms of marketing strategy, the difference with these two products will be entirely sold direct to consumer, so playing in the online space predominantly. When we think about the investments in the brand, we're going to be continuing to adhere to our guardrails of the internal rates of return between 30%-40%. That won't change and won't shift. We'll continue to do what we can do within those parameters to see what growth we can get with those products when they enter the market. Got it. That's very helpful. Thank you very much. Thank you. Our next question comes from the line of Shweta Khajuria with Evercore ISI. Please proceed with your question. Okay, thank you. Two questions, please. First one's on growth additions. Could you please talk to what really worked in terms of driving this acceleration that you saw in the quarter in subscription pets? The second question is, in your letter, you have a table that talks to the active hospitals and the visits. I wonder, the clinic visits every 60- 90 days, that decreased last year, primarily because of the curbside care. Do you think that it can get back to 2019 levels sometime this year, or maybe exceed that sometime this year? You shared the five year goal for software penetration levels. I wonder if you could give us some sort of a range for maybe where you think you will be exiting this year or maybe next year in terms of software penetration too. Thank you. Hi, Shweta, it's Margi. I will take as much as I can of those questions and share with you. In terms of growth additions, what went well, overall, we saw a really strong uptick in both leads, so people that are finding insurance for the first time. Conversion rates are very strong, and in retention rates overall. As we've talked about historically, we've really been looking at that member experience, which does help to drive our referral channel. When we think about referrals there, we know if we give people great member experience, something that we can absolutely directly control, that helps. The vet foundation we have is seeing good growth. The more that people are thinking about pets as part of their family and continuing to do the best they can for them, we're seeing that continuing in the quarter as well, which I think all kind of rounding up leads to having a much stronger brand presence as we start to put all of our channels together and see them stacking up to perform very strongly for us. In terms of active hospitals and visits, you're right. We did see a decrease in hospital visits last year due to COVID. We are seeing still around 20%, 25% of those visits historically, that we're starting to get back a little bit more now. Where possible, the field are going back in and meeting with their hospitals, continuing with those relationships. What I will say is the benefit of having built relationships over the last 10- 15 years as we have in many of those markets, we've really been able to have them picking up the phone, still communicating with us, still adding value in ways that we can build on while we can't get in the hospital. Of course, our plan is to go back to face-to-face visits as soon as we can, as long as we can do it safely, both for our field team and the hospitals themselves. We're pleased it's picking up. It's picking up slowly, and we'll keep working on that through the rest of the year. In terms of our five year goal for software and penetration, it depends a lot on COVID. The teams are continuing to pick up software penetration nicely, and we'll be talking more about that at the shareholder meeting, and can kind of give you more of the insights into the tactics and what our expectations are for the rest of the year. Okay. Thank you. Can I please try one more follow-up? If you were to include virtual visits, so phone calls and, call it video calls, would you say that the 60-90-day would be comparable to 2019 levels. Yeah. Physical and virtual? Yes, absolutely. We've got not only territory partners there, you still have the account management team. The breadth of support we give to the hospital, I would say, has probably increased there over the last 12 months as we look at making sure we can do whatever's possible to support remotely. It's not as good as being in person, but it definitely is good to build that relationship and still be there for them. Okay. Thanks a lot. Thank you. Thank you. Our next questions come from the line of David Westenberg with Guggenheim Securities. Please proceed with your questions. Hi. Thank you for taking the questions, and congrats on the really strong growth. Let's actually start with the growth in ARPU. I know you are targeting above 6% or above historical trend. You did seem to get there with the 6.8% growth in that, but you also combined that with strong new pet adds. Can you tell us about the sustainability of those two metrics combined? I know that you say as the cost of veterinary care goes up, it drives the demand for insurance, but I wouldn't necessarily think that would be the case always short-term. If you can maybe run us through kind of the assumptions in the year, with those two metrics, kind of thinking about them combined. Thank you. Hi, Dave. It's Tricia. I'll start and just sort of talk about the thought process that went into our outlook, and then let Margi or Darryl add more color from their perspective. Yeah, as you saw, we did have strong ARPU. It was benefited by a little over a 1% in our FX rate for the quarter. We still feel our progress overall is strong. As you know, our ARPU and our pricing is a factor of what the vet invoice expenses are that we see come in and adding that 30 points on top to hit our pricing and our target margin for that vet invoice expense is 71. We did make solid progress year-over-year. A year ago, it was 72.6, and this quarter it's 71.9. Overall, we're very happy with how ARPU is trending, and we would expect, in the guidance, what we put in is similar level to what you saw in Q1. We feel like that is reasonable. Similarly, in our outlook when it comes to our pet growth, and what we're experiencing, as you mentioned, we're very happy with our results in Q1. The results in Q1 definitely exceeded our expectations, particularly around pet growth and the acceleration. Margi and her team did an amazing job of deploying capital at that 35% internal rate of return. To the extent we can continue to do that going forward, we'll do so. We have good confidence in sustaining sort of that Q1 level as we go through the year. We're not getting ahead of ourselves or being overly aggressive in the guidance beyond that. One other thing I will mention on ARPU, overall, as we look to introduce new products, and we do have accelerated growth, ARPU can be impacted by the mix of business overall. There can be some variability. We are most focused on hitting that 71% value proposition overall. Got it. That mix thing is actually a good reminder as you maybe go into those different product categories, I guess. All right. One other question on the search term up 57%. Can you talk about the correlation from buying? Kind of what I'm getting at right now is that your new subscription pets actually increased, I believe, it was more than 100%. I would tend to think the way that you purchase it or you go to the veterinarian, the veterinarian recommends Trupanion. You come home, at least I do, I never search in or put trupanion.com. I would always just go Trupanion. What I'm getting at here is, and maybe you already said this, but did conversions actually go up in the quarter? How meaningful was that conversion in there? I'll take the rest of the questions offline. Well, we mentioned in the opening remarks that our accelerated growth occurred from increased leads as well as increased conversions, and those were spread across all of our distribution channels. Our year-over-year growth, you have total pets. You're also looking at net pets, which is reflected in the improvements in retention, and our Trutopia stat, which I mentioned was historically the smallest gap at 0.3. The aggregate of that is what drove the 122% year-over-year net subscription growth. You are right. For veterinarians or referrals, and people say, "Go take a look at Trupanion," people type in Trupanion, and that's what we're referencing there. Our brand awareness has been increasing, and increasing at a much higher rate than people searching the term pet insurance. Got it. Yeah. Thank you very much. Oh, go ahead. Sorry. Sorry, Dave. Hi, it's Margi. I would just add to that as well, just to kind of reinforce the point that Darryl was making. When we think about distribution channels and we think about the way that search traffic has worked and the digital channels as well, we're just reinforcing that brand. If you go from a vet to Google, that's a brand play that we have there, and we're always trying to drive that efficiency. When you think about other distribution channels that we've mentioned, we're really starting to get some strength there. We're opening up to new pet centers. When they then go to the vet, the vet starts to play a role as a conversion piece as opposed to just a lead generator, which again, is really where we're saying that brand presence is being maximized because you are touching a pet owner at different places, which we weren't able to do before. Got it. Thank you. Thank you. Our next questions come from the line of John Block with Stifel. Please proceed with your question. Hey, guys. Good afternoon. Maybe the first one, I'll actually start with the shareholder letter specific to the pet food initiative, which I believe is Landspath. I think you mentioned in the letter, Darryl, it's going to be sold through the veterinary channel. It's early, any color on that with pricing and margins? The fact that you mentioned it's going to be sold through the veterinary channel, how do we think of that? In other words, can it still be bundled with a Trupanion policy holder? If so, would it be bundled in terms of offering a discount because you have greater conviction on the pet's health longer term? I'll pivot more to questions on the quarter. Sure. Well, the hypothesis we have around food, this is something we've held for well over 10 years, is that if a pet eats high-quality food in the right quantity, it is going to have a better health outcome. Well, at this point, that's a hypothesis. We've been investing in this area for a while to figure out how we could prove or test this hypothesis. We do know, and there is significant data saying that if a pet eats the right amount of calories, that they're going to have a better health outcome. We'll be able to come out of the gate early on by saying, "If you're eating the right amount of calories recommended by your veterinarian, we should expect some reduced veterinary invoice expense." We would pass it on to a consumer. It is going to take us years of actuarial data to be able to determine if there is big health improvements. The goal is if there was a 27% increase in health improvements based on a pet eating a certain diet, that we would offer that discount on the insurance. The two would reinforce each other. They'd both be monthly subscription. It would not have to be limited to just a brand of food. This could be anywhere we're able to measure it. Our goal with Landspath is really just to kind of test the hypothesis and get this moving. Got it. Perfect. Just to pivot more on the quarter, some quick math, which is always dangerous, but I think you mentioned deploying $66 million in spend at a 280 PAC implies about 235,000 gross adds for 2021, or call it 58K per quarter. You just did 56,000 in the first quarter, right? You got a lot of momentum. You got increased brand identity. Search terms are up. Can you talk about why, to be clear, 1Q was impressive, but why call it a leveling off of gross adds expectations, which seems to be implied in the guidance for the balance of the year? Yeah, John. Overall, I mentioned briefly, while we're really excited about the pet growth in the quarter, and we have a lot of good confidence about how that level of sustaining that capital deployment and hitting the internal rates of return at that level can flow through the year. We also don't want to get overly aggressive or too far ahead of ourselves at this point, particularly in our outlook. This is an area we're comfortable with at this time. Okay. Last one from me, again, specific to the quarter. A lot of things to like and some accelerations notably around the gross adds, pricing fell below our expectations on the subscription business. You mentioned to compare it year-over-year, to be fair, it worsened versus the last three quarters in 2020. Looking at the shareholder letter, it would also seem to imply that the express deployment might have been curtailed under a COVID environment, sometimes express is responsible for accelerated claims. That seems a little bit counterintuitive. Why weren't you able to price better with 6.8% ARPU deployment on express not accelerated, it just seems to matter when at the end of the day every 100 basis points on the massive top line is obviously a big swing factor when we think about trying to ramp EBITDA. Thanks for your time, guys. Yeah, I can start, and Darryl can add as well. The one thing that I didn't mention to your prior question that I'll just throw in here quickly is, to the extent that we can deploy more capital and a dd more pets than we've put in our current guidance. That's obviously our goal and something that we're working towards. When it comes to ARPU and the $71.9 that you mentioned, which did tick up slightly. When we talk about investing in our member experience and that can lead to strong referrals, it can lead to strong retention. One of those investments was within the $71.9 and investing more in our claims experience, and the processing and efficiencies there. That was about 0.5% increase from the prior quarter. Absent that, we would've continued to see strong progress. We haven't seen anything unusual within the vet invoice expense related to our software specifically. What we are doing is deploying a little bit more capital into the claims processing side to elevate that member experience. Okay. Darryl, do you want to add anything? No, go ahead, John. Sorry, I'm trying to slip one more in there. I just want to make sure I understand it. The development costs that you guys alluded to, I think it was $300,000 last quarter, it might've been maybe around $1 million. I think I missed the exact number this quarter. Just so I have this correct, that's excluded from the PAC? Is that correct, that it's excluded from the PAC calc? It's excluded from the PAC. These are areas when you read the shareholder letter, it talks about international expansion and some new product initiatives that are pre-revenue. That's where those development costs are associated with. Going back to your ARPU question, I think we've made good improvement to hitting our price target. Year-over-year ARPU is affected by blend of business. It'll be more affected in these accelerated growth rates and offering new products in different distribution channels. I'd be a little less sensitive to looking at the year-over-year changes and more laser focused at looking at the veterinary invoice expense. If we're close to the 71% target, we're operating it as a highly efficient business that's good at pricing. Okay. Darryl, I'm sorry, I will drop and follow up. I guess I don't understand excluding the development expense. In other words, you want to acquire pets, right? If you have an initiative today that you're spending on that results in a pet coming in in a subsequent quarter, why is the expense excluded from the numerator and the pet comes in in a subsequent quarter at a sort of a free rate in the denominator? That's what I'm just trying to reconcile in my mind. When we're spending in a period of time and measuring our internal rates of return, we're saying, we do it on a monthly basis. We also report on it a quarterly basis. If I'm doing an initiative to enter Japan with a partner in two years from now, I'm not going to put my $400,000 of legal expenses and divide it by number of pets that I'm acquiring this month. It would distort the internal rates of return, for the pets that we are doing. We want to separate it so that it's very clear. We are ramping that spend up a little bit, we're doing it separately so that our shareholders can have a clear viewpoint in what we're investing into long-term, without it being distorted in year-over-year comparisons. Perfect. Yeah, John, I would expand on that a little bit because I think this is a good question to make sure makes sense. Development costs are far more than sales and marketing initiatives. Frankly, they're not any other than training up a team. A lot of it is, for example, our low and medium ARPU product initiative, the product owner getting all of that up and running, the teams getting it priced and filed and ready for launch. It encompasses many parts of our P&L, and as soon as the product launches, all of those expenses will go to the respective lines on the P&L and be measured based on a 35% internal rate of return, once we have a pet and revenue to associate it with. If that's helpful. Understood. Thanks, guys, appreciate it. Thank you. Our next questions come from the line of Ryan Tunis with Autonomous Research. Please proceed with your questions. Hey, thanks. Good evening, guys. Just saying, I do want to just on the thinking about the lower ARPU products, Darryl, and that I thought something about your last group plan is there's a template to it and a focus on that one subscription product. No matter what, that product seems as good as it's ever been. I guess my question is, when you think out over the next years and now you're introducing these lower ARPU products, what are you afraid that Trupanion would be missing out on if you just continued to push this product? I think on top of any balance sheet risks of, you've always said that educating folks on insurance is kind of the most important thing. I can see how educating people about cheaper products could potentially count as a higher value product. What's kind of the emphasis behind this? What are you afraid you're going to miss out if you don't do it? Ryan, your cell phone connection was choppy, but I think I got the gist of your question. I think your question was related to, we're launching a low ARPU product. Why would you do such a thing? You've had a stance for years that having a high-quality product and educating people is how to build the category. All of that remains true. We're not scared of anything. We're very confident with the strategy we have had and what we have in our five year plan moving forward. I would say there's two things to focus on. One is, if you have lower coverage and you educate the consumer that it has lower coverage and corresponding lower ARPU, that is better off than what is currently happening in the marketplace. We currently compete against about 20 brands, and people learn about Trupanion, and then we don't convert 100% of the leads. Some of those people convert with lower medium ARPU products, which present themselves as being equivalent to Trupanion. We want to level the playing field, and we can do so by offering a higher underlying value proposition, by targeting $0.71 a dollar in the low and medium products, but being very transparent to the consumer on how it is differentiated. These will be unique brands that will need to stand on their own. Another part that I think everyone needs to understand is these products will not likely have nearly as high lifetime values. Our allowable PAC spend, while maintaining our 30%-40% internal rate of return guardrails, will mean that we are only able to deploy much smaller capital to acquire these pets. Ultimately, this is a test for us. We think as the category has been accelerating over the last two or three years, it makes sense. As we talk about our brand presence, our revenue grew about 30%. Our brand value is going up by 55%-70%. That implies that there is some slippage. We're driving leads. We're not converting all of them. This strategy may allow us to convert some that we are not. The consumer that would be buying these would be learning about the product in a transparent way, which is better for the category, and it would have a better underlying value proposition as long as we maintain the guardrails of our internal rates of return. If it's successful, great. If it's not successful, that means that nobody else is able to do it in the market. Got it. Just following up to just trying to reconcile, again, the growth momentum. Yeah, you said you're not scared. There's nothing to fence here. I thought that makes sense. Yeah, in light of the guides higher invoice rate is 72%. I guess that's the time I normally used to see if, again, products weren't selling as easily as they are. Can you just help me understand that extra point? What does that really give you the power to do, and how do you think? Is there really that much elasticity in the market where that type of thing is going to really improve your growth materially? Ryan, your cellphone is really choppy, so I'm going to try to read braille and do my best. I think you're saying. Okay. Sorry. That's okay. That's all right. I think you're saying, can a consumer easily identify the difference between a 72% and a 71% target? No. Over long periods of time and doing it consistently, yes. We believe every one basis point we can give back to the consumer ultimately gets felt, and our job as a company is to lower frictional costs as much as possible while having the best customer experience and to be offered the broadest coverage to be recommended through the veterinarian channel. For some of these other channels, we might have lower price or lower coverage products that are kind of designed for those channels. All of them will have the highest value proposition. Think of it like going into Costco. They have three bottles of wine, one for $10, one for $30, and one for $100. In each case, the consumer knows that they're getting the best value proposition. That's our point of view as well. I hope I answered your question reasonably well, but it was difficult to hear it. You did, and I might cut out, but just one last follow-up. Why not invest that extra 1% in sales and marketing? As a retention and growth tool, how do you balance that? That would be an option, too, I would think. Yeah, we're not holding back. Right now, with the strength of our balance sheet and the rates of return at 35%, Margi's team is not being held back on how much can be deployed. We're okay to run cash flow negative and deploy greater sums of capital, as long as we're getting those strong rates of return because we do have the strength today. That extra 1%, our philosophy is we want the best value proposition for the consumer, period. Every year, if we can make it stronger, we will. It's a philosophy like Costco. A lot of people go into Costco and say, "Why are you selling that peanut butter for $3? You could sell it for $3.50." It's still the cheapest in the market. It's just not our philosophy. We want our brand to be associated with the best value proposition, and we want veterinarians and consumers to understand it, and it's just kind of what our point of view is. Understood. Thanks for the answers. Sorry for the connection. Yep. Thank you. Our next question comes from the line of Elliot Wilbur with Raymond James. Please proceed with your question. Thanks. Good afternoon. Second-time listener, first time caller. Appreciate you taking the questions. Question is for Darryl, just going to the shareholder letter. How can we think about growth and margin expansion of the other segment within the context of the overall corporate long-term top-line growth target of 25%? Second question, want to ask about the current cancellation policy. I know during the course of the pandemic, it was extended to 60 days. I don't know if it's reverted to historical levels or not, but just wanted to see if that, in fact, 60-day period is still in place. I guess last question for Tricia. With respect to free cash flow, sounds like we will continue to see negative free cash flow over the balance of the year, but anything you could say about trends relative to what we saw in the first quarter? Thanks. Well, I'll go over your first question is in our other revenue, which is lower margin business, do we expect that to change over the next five years? The answer is no, not really. I will tell you that most of the initiatives we're driving in our 60 month plan will all be running and be reported in our subscription business. It's all going to be targeting a long-term 15% margin, and we'll all be targeting a 35% internal rate of return. The other business segment is really where we're doing B2B. It's not a B2C business. We don't really expect any margin improvements over the next four or five years in that business. Second part of the question had to do with the cancellation period. We historically had a 60-day. Just prior to COVID, we moved it to 30. We moved it back to 60, and we plan on keeping it at 60 in the future. With regards to free cash flow, as we trend through the year, big picture, we would always be striving to deploy as much of our adjusted operating income as possible to add pets. With the guidance that we do have currently, you would see slight improvements of free cash flow as we go through the year. To the extent that we can redeploy that and accelerate growth, that is what we would desire to do. Additionally, I'll just give more context because free cash flow does include capital expenditures. We have increased our investment there, particularly around technology that was fundamental in our acquisition of Aquarium software. That technology is core to sort of building the foundation of our 60 month plan and ensuring we can go to market with product launches as well as improve our member experience and claims automation services as we expand within our 60 month plan. That's important to us as well in that run rate on CapEx, we would expect to continue through the quarter of this year. Thank you. There are no further questions at this time. With that, this call will come to an end. We do appreciate your participation. You may disconnect your lines at this time. Have a great day.