Good day, and welcome to the Trupanion First Quarter 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Laura Bainbridge, Senior Vice President of Corporate Communications. Please go ahead. Good afternoon, and welcome to Trupanion's First Quarter 2024 Financial Results Conference Call. Participating on today's call are Darryl Rawlings, Chief Executive Officer and Chair of the Board, Margi Tooth, President, and Fawwad Qureshi, Chief Financial Officer. For ease of reference, we've included a slide presentation to accompany today's discussion, which will be made available on our investor relations website under our Quarterly Earnings tab. Before we begin, please be advised that remarks today contain forward-looking statements. All statements other than statements of historical facts are forward-looking statements. These include, but are not limited to, statements regarding our future operations, opportunities, and financial performance, our ability to remediate our material weaknesses, and the company's CEO succession efforts. 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 today's earnings release, 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 expenses. 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 the 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, and good afternoon. I'm honored to speak to you in my final earnings call as CEO. Today, we announced Margi's appointment as CEO, effective August 1st. Speaking on behalf of myself and the board, we could not be more excited about this outcome. Today's announcement is a culmination of an involved multi-year process to identify my successor as CEO. Achieving this milestone ahead of the schedule reflects the board's unanimous support and confidence in Margi's ability to lead Trupanion forward. In the 10 years we've worked together, Margi has shown herself to be a proven leader with an adept ability to manage Trupanion's growth mandate. With her at the helm, I am confident in our continued success in our large underpenetrated market. Margi's track record extends beyond her time at Trupanion. She spent over seven years with U.K.'s largest pet insurance provider, during which time the category saw tremendous growth, reaching approximately 25% penetration. She's leveraged that experience here at Trupanion, starting with specific areas of growth and expanding over time. Over the last 18 months, Margi has assumed oversight of every department at Trupanion, including overhauling key operational areas to drive improved efficiency and performance, and drive a culture of accountability, collaboration, and action. Since joining Trupanion, the category has grown threefold, with Trupanion the largest contributor to the category's growth for three consecutive years. At over $1 billion in revenue today, Trupanion is the largest player in North America. The veterinary community is the heart of our growth model, and our territory partners are an important link to that community. Margi, having wanted to be a veterinarian herself, holds great admiration for this community, and her understanding of our approach to market has strengthened our ties. Through our strong growth, Margi has led the team in deploying increasing amounts of capital at consistently strong internal rates of return. When Margi joined Trupanion, the funds we had to invest in new pet acquisition, what we now call our adjusted operating income, was just about $4 million. Since then, we've grown our adjusted operating income to over $80 million last year. Beyond the numbers, however, and most important to me, is Margi's character. At Trupanion, we are nimble and courageous, curious and caring. We do what we say, we care for one another, and we simply work harder than most. Margi is all of these things. In short, she personifies the culture of Trupanion. Over the past several years, Margi has come to lead our over 1,500 global team members. She has done so with compassion, humility, leads with trust, and is willing to make tough decisions when they need to be made. There is no one I trust more to lead Trupanion into our next phase of growth. It has been my privilege to serve as a resource to her over the past decade. As we've previously communicated, I am committed to continuing to serve as chair on the board for the next 10 years, if agreeable to shareholders. Margi co-authored this year's shareholder letter, which was published just a few weeks ago.... For those that have not done so, we encourage you to read it, as it provides more insights into how we think and act at Trupanion. This letter can be found on our investor relations website. With that, I'll hand it over to Margi to walk through the performance of the business. Thank you, Darryl. Good afternoon, everyone. Let me begin by saying what an honor it is to be appointed CEO of Trupanion. Trupanion's mission to help pet parents budget and care for their pets is one that resonates with me deeply. Since joining Trupanion over 10 years ago, I've seen our mission brought to life through the dedication of our team. It is truly inspiring to work alongside such pet-passionate people in support of our members every hour of the day and every day of the year. Together, in lockstep with the veterinary industry, we're making a meaningful impact by supporting over 1.7 million pets, paying out over $2 million in veterinary invoices daily, and helping tens of thousands of veterinarians practice life-saving veterinary care, and we're just getting started. Despite our long history, we really are just scratching the surface. With less than 5% of pets insured in North America and an equally low number across most of Europe, there is so much more we can do to support pet parents and veterinarians globally to help pets receive the care they need. Today, Trupanion is placed at the forefront of an exciting growth story. I'm honored and humbled to lead Trupanion on this journey. I'm grateful for the continued support from Darryl and the board and look forward to our partnership moving forward. With that, I'll now discuss our performance overview for the first quarter of the year. Total revenue grew 19% in the quarter. Our subscription revenue grew even faster at 22% year-over-year, and with our core Trupanion brand, the primary driver behind this growth. Our total adjusted operating income or the amount of funds we have available to invest in growth increased 37% year-over-year. Once again, adjusted operating income for our subscription business outpaced this total, increasing over 55% compared to the prior year period. Our PAC spend was highly efficient in the quarter. We reduced our investment in pet acquisition by 23%, and yet our gross pet ads declined just 9% year-over-year. In total, we acquired over 67,000 pets at an estimated internal rate of return of 44%. As expected, our revenue growth for the quarter was largely increased by a revenue contribution from pricing actions taken over the past 18 months. This translated into total ARPU growth of 9.8% across our subscription business, the highest level since we became public 10 years ago. Within our core Trupanion brand, the average monthly increase in ARPU was even higher at 11% year-over-year. Against this backdrop of significant pricing increases flowing through to our members, the team has doubled down on communicating Trupanion's value proposition. To date, our efforts have yielded good outcomes. Over the last 12 months, over 40% of our book has received a pricing increase of 20% or more. Average monthly retention within this group was strong in the quarter and up year-over-year. This is a testament to the value our members place in the service Trupanion provides, along with the team's ability to communicate our value proposition and the why behind our actions. Moving to the second component of our revenue growth, adding new pets, our total enrolled subscription pets increased 11% in the quarter. We expect the balance between ARPU increases and growth in subscription pets to be maintained in the near term as we continue down the path of restoring margins before increasing the pace of growth within our subscription business. The team has been consistently making progress against this mandate, as reflected in our year-over-year results. Compared to our 8-year low in Q1 of last year, our subscription adjusted operating margin expanded 210 basis points in the quarter. As expected, this is down from quarter four of last year, mirroring the behavior of vets, typically raising their prices early in the year. In aggregate, our operating assumption of 15% veterinary inflation proved sufficient in the first quarter. For veterinarians, charging sustainable rates is necessary to provide our pets with the care they deserve, and we stand behind them, offering a product designed to align the needs of pets, pet parents, and veterinarians alike. As the cost of veterinary care continues to rise, outpacing consumers' discretionary income, the need for high quality and dependable pet insurance solutions continues with it. This dynamic underscores the importance of having a lifetime solution that enables pet parents to budget effectively and offers reliable coverage. Trupanion stands out in the industry, offering the only lifetime product, providing pet parents with complete peace of mind and coverage for life, come what may. With this in mind, it's especially important for us to align our growth strategy with accurate pricing, and although our desire is to assist every pet, we must continue to be highly disciplined in our growth approach. To that end, we will not put our foot on the accelerator more aggressively to add more pets until we see greater strength in our margin. We know this creates the best, most consistent, and positive member experience and avoids rates being abruptly increased. We're committed to maintaining this approach and are encouraged by ARPU trends and conversion improvements at this early point in the year and look forward to expanding our pace of growth when margins allow. In terms of pet ads, our core Trupanion brand represented the bulk of the new pet growth in the quarter, as we continue to focus on growth in areas that are most closely aligned to our targeted value proposition. Our newer initiatives, including our powered by suite of products with Chewy and Aflac, our medium and low ARPU products, Furkin and PHI Direct, and our products in Continental Europe, comprised approximately 22% of our gross new pet adds in the quarter, up from quarter four and over 20% for the first time since we launched these products. We will continue to deploy a conservative amount of capital against these opportunities, given these products are early in their life cycle and subscale. However, it should be noted that we've made some encouraging progress in Furkin and PHI Direct, with evidence of scale beginning to manifest. As our margins expand meaningfully into the second half of this year, we will look to adopt a more assertive approach in deploying our capital. In our large, underpenetrated market, this remains our overarching mandate. We will do so prudently, however, gradually scaling up our acquisition spend as margins expand. In summary, I'm pleased with our quarter one results, which aligned with our expectations and were delivered through solid execution. This is a testament to the ongoing discipline and focus of the team. We're committed to maintaining this discipline while fulfilling our mission of supporting more pets and veterinarians. I'm excited about the future and the tremendous opportunities that lie ahead. With that, I'll hand it over to Fawwad to provide a detailed overview of our Q1 results. Thanks, Margi. Today, I will share additional details around our first quarter performance, as well as provide our outlook for the second quarter and full year 2024. At a high level, I'll echo Margi's comments that it was a solid start to the year. Total revenue for the quarter was $306.1 million, up 19% year-over-year. Within our subscription business, revenue was $201.1 million, up 22% year-over-year. Total subscription pets increased 11% year-over-year to over 1,006,000 pets as of March 31st. This includes approximately 43,000 pets in Europe, which are currently underwritten by third-party underwriters. Total monthly average revenue per pet for the quarter was $69.79, up 9.8% over the prior year period. The subscription business cost of paying veterinary invoices was $151.5 million, resulting in a value proposition of 75.3% and reflects a 225 basis point improvement over the prior year period. This improvement provides a clear representation of the actions we have taken to repair our margins, and we are pleased with this progress. Due to the seasonality of that pricing we highlighted earlier and last quarter, the cost of veterinary invoices as a percent of revenue increased 260 basis points from Q4. Our target value proposition for our subscription business remains 71%, and we expect to close the gap to our target by year-end. As a percentage of subscription revenue, variable expenses were 9.6%, down from 10.1% a year ago. Fixed expenses as a percentage of revenue were 5.3%, up from 4.7% in the prior year period, due to increases in our technology and G&A expenses, including additional expenses incurred related to the remediation of our material weaknesses. After the cost of paying veterinary invoices, variable expenses, and fixed expenses, we calculate our adjusted operating income. Our subscription business delivered adjusted operating income of $19.6 million, an increase of 55% from last year. Subscription adjusted operating margin was 9.7% of subscription revenue. This is up from 7.6% in the prior year quarter and represents approximately 210 basis points of year-over-year margin expansion. Now I'll turn to our other business segment, which is comprised of revenue from our other products and services that generally have a B2B component and a different margin profile than our subscription business. Our other business revenue was $105 million for the quarter, an increase of 15% year-over-year. Adjusted Operating Income for this segment was $1.7 million, a decrease of 41% from last year. The decrease was driven by the previously mentioned increase in fixed expenses and a lower gross margin. In total, Adjusted Operating Income was $21.3 million in Q1, in line with our expectations. This was up 37% from Q1 last year, but down 22% from Q4. In Q1, our higher value subscription business comprised approximately 92% of our Adjusted Operating Income in the quarter. This is up from 84% for the full year in 2023. We expect this trend to continue as one of our partners in our other business, Pets Best, continues to enroll pets with their new underwriter. During the quarter, we deployed $15 million to acquire approximately 67,200 new subscription pets, excluding the approximate 3,900 new European pets that are underwritten by a third party. This translated into an average pet acquisition cost of $207 per pet in the quarter, down from $247 in the prior year period and $217 in Q4. We also invested $1.2 million in the quarter in development costs. Stock-based compensation expense was $7.4 million during the quarter. As a result, net loss was $6.9 million, or a loss of $0.16 per basic and diluted share, compared to a loss of $24.8 million, or a loss of $0.60 per basic and diluted share in the prior year period. In terms of cash flow, operating cash flow was $2.4 million in the quarter, compared to a -$6.9 million in the prior year period. Capital expenditures totaled $3.1 million. As a result, free cash flow was a -$0.6 million, an $11.4 million improvement from the prior year's first quarter. Similar to our AOI, our free cash flow is impacted by the seasonal fluctuations we have discussed. It is for this reason we have set an annual free cash flow target at 2.5% of revenue. We believe this is a prudent amount, given the strength of our capital position and our desire to grow in such a large, underpenetrated global market. Turning to the balance sheet, we ended the quarter with $275.2 million in cash and short-term investments. Outside of our insurance entities, we held $38.1 million in cash and short-term investments, with an additional $15 million available under our credit facility.... At the end of the quarter, we maintained $256.7 million of capital surplus at our insurance subsidiaries, which was $103.4 million more than the estimated risk-based capital requirement of $153.3 million. This is down from our year-end requirements, as growth in our other business slows and the capital intensity of our business is lowered. Last quarter, we reported two material weaknesses as a result of the 2023 audits. In response to this, we have made investments in internal controls, technology, and SOX compliance. We have also hired PwC to assist us in the remediation of these material weaknesses, and we're making progress in addressing these deficiencies. We will look to regain more efficiency in our fixed expenses throughout the year, while balancing our continued remediation efforts in earnest. I'll now turn to our outlook. We're updating our full-year revenue guidance, which is now expected to be in the range of $1.244 billion-$1.276 billion, or 14% growth at the midpoint. This takes into account our slight overperformance in Q1. We continue to expect to grow subscription revenue in the range of $842 million-$862 million, representing 20% year-over-year growth at the midpoint. We also continue to expect total adjusted operating income to be in the range of $100 million-$120 million, or 32% year-over-year growth at the midpoint. As we think about the shape of the year, we expect that the first half of the year will start from a lower margin standpoint within our subscription business and build back to a 15% adjusted operating margin by Q4 of this year. Second, for the second quarter of 2024, total revenues are expected to be in the range of $306 million-$311 million, representing 14% year-over-year growth at the midpoint. Subscription revenue is expected to be in the range of $206 million-$208 million, or 20% year-over-year growth at the midpoint. Total adjusted operating income is expected to be in the range of $21 million-$23 million. As a reminder, our revenue projections are subject to conversion rate movements, predominantly between the U.S. and Canadian currencies. For the second quarter and full year of 2024, we used a 74% conversion rate in our projections, which was the approximate rate at the end of March. With that, I'll hand it back to Margi. Thank you, Fawwad. This weekend, Darryl and I will be joined by Fawwad in Omaha for our annual Q&A to follow Berkshire Hathaway's annual shareholder meeting. This is an event I personally look forward to every year, and one that presents a unique opportunity to meet with long-term-minded investors. We hope to see many of you there. Now, before we open for questions, I'd like to take a moment to pay tribute to Darryl. Since the development of the Trupanion idea nearly 40 years ago, Darryl has been an exceptional visionary, entrepreneur, and leader. He has also been a brilliant coach to many, not least to me. I am deeply humbled to be appointed as his successor and to follow in his footsteps. I'm proud to lead a company and a team that has such a profound significance for so many. Looking ahead, as we continue to grow and expand our reach and products in support of pet parents globally, Darryl has agreed to further develop the early work around our food initiative. On behalf of the Trupanion community everywhere, thank you, Darryl, for your mentorship, support, and the impact you've made across the world of animal health. With that, we'll open it up to questions. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Jian Li with Evercore ISI. Please go ahead. Great. Thank you for taking the question. And Margi, congratulations on your appointment. Darryl, we'll certainly miss you. So Margi, first, maybe just on a high level, you've been with Trupanion for quite a while now. In this new capacity, like, how would you... How does your focus and priorities evolve? Like, if you can talk about a key area that you'd be focused on in the next 6-12 months. It sounds like profitability is a big focus for you, so if you can kind of talk through that a little bit. And then the second question for Fawwad on the macro environment. Anything you're seeing in the macro environment that's impacting your retention, impacting the pricing flow through? And if you can... What kind of assumption is baked into your full year guide, and also the trajectory, the linearity of your margin? Thank you. Hi, thank you. Thanks for the congratulations, and I appreciate that. So just to pick up on the focus on priorities, I think during my time at Trupanion, I came in really very heavily focused on the growth side of things, and initially kind of started very closely to both the website and also the territory partners. So working with our core foundational pillar of what makes Trupanion unique. That really has been where I continue to focus, and I think over the long haul, that will always be kind of the mainstay for the company in such a highly underpenetrated market. That said, to your point, really kind of where we're at now, the size of the company, it's about ensuring that we are operating within our core guardrails for every element of our P&L, ensuring that we can get scale and maintain that scale for years to come. So, you know, I'm very excited by what the team has been able to create so far and look forward to being able to move the business forward in that direction. Fawwad? Yeah, thank you for the question. So the way we think about the annual plan and what's baked into the guidance is really three key components that we're focused on as a leadership team. The first is pricing, as you mentioned. The second is, of course, expense management, as we think about- ... higher costs related to some of the remediation work that we've invested in, and then retention. So, yeah, I would say at a macro level, what we baked into our forecast was 15% inflation, and at least from a Q1 perspective, that assumption was validated. So when we look at our expectation for where we were gonna end up on subscription cost of paying invoices, we came in pretty much on target. So that gives us a data point or a proof point to then model out the rest of the year. If I think about the guidance, the endpoint of the guidance is Q4, and so the objective, sort of the North Star for us, is to get it to our target margin from a subscription cost of revenue at 71%, and then, of course, our adjusted operating income subscription at 15%. So what we have assumed is a gradual build back to that over the course of the year, and very similar to what we saw in the first half of last year, there was modest margin improvement from Q1 to Q2. Typically, in Q1, vets will put in price increases, so those then flow through. And then we see acceleration of margin expansion in second half. That's effectively what we're modeling into our guidance, both for Q2 and then for full year. Obviously, we're vigilant when it comes to thinking about macro, and one of the beneficiaries of the company having a lot of data is we're able to use that to try and be as predictive as possible. And so when we think about pricing and the efficacy of our pricing efforts, it's very much grounded in the data that we're seeing. So I would say, so far, so good. We're not seeing anything surprising, but obviously more to come as the year progresses. Thank you very much. The next question comes from Josh Shanker with Bank of America. Please go ahead. Yes, thank you for taking my question. A few items on medical loss ratio. You talked about the seasonality of the medical loss ratio in the first quarter. Can you tell me what, when you think about the annual seasonality patterns, how much do you think in a normal year, the first quarter loss ratio should be elevated versus the remainder of the year? Yeah, this is Fawwad. I, I'll take that question. I think the, you know, the assumption that we've baked in, as you can see, is, from the actuals, is about 2.6% sequential increase from Q4 to Q1. I think if you go back and look historically, that's not dissimilar to what we've, what we've seen in terms of patterns. The other thing that I would ground it, or that we grounded in, is free cash flow. So when we look at free cash flow projection, we talked about it back in Q4, generally, second half is higher than first half. So, you know, our expectation is that loss ratio will peak, as it typically does in Q1, and then gradually reduce down to the 71% model PNL. Generally, though, you see flat Q1 to Q2, from a margin perspective, we see, you know, modest improvement, and then really the bulk of it happens in second half. I can, Josh, it's Margi. I can add to that as well. Just as we think about that flow of rate, and it comes through, the reason for that slightly delayed margin expansion typically in the year is because the rates, the prices go up in the first quarter of the year at the veterinary level. And then what happens is the visit patterns, so people actually going to the vets and starting to see those invoices and realizing those invoices, that takes a little bit of time to flow through the year. So by the time you get to Q2, you're really kind of seeing that peak visit pattern as well. So there's a little bit of a slope up until the half of the year, and then you start to see the loss ratio start to come in as it matches with the prices that we're getting from invoices. In 1Q 2022, the subscription medical loss ratio was 71.1, and now it's 75.3. So it's expanded by about 400 basis points over the past two years through a lot of inflation and followed by a lot of price. Can you talk about whether that squares with what you look at as the loss cost trend increases over the past two years and how much price action you've taken? Yeah, I think that's a good thing to anchor to. So, you know, if we look at, to the extent we get to call it a normal year, I think calendar year 2022, so I think you're right to cite that. We look at the same data, and to your point, hitting target margin by Q4. This is obviously a little bit different situation in that we're coming off of a higher peak and then, a more accelerated drop to that level in second half. I would expect that, you know, eventually, you know, the model would get us... If we achieve the model on an annual basis, it's gonna look more like 2022. The thing we don't know, to the earlier point, is inflation. So it's gonna take time for us to determine, is 15% the new normal, or more from a historical context, back in 2022, might have been mid-single digits. Ultimately, we'll get into equilibrium because our price, if we're successful with the increases, will just index to the rate of inflation, but obviously, right now, we're playing catch up. Just, just a quick, kind of, we go back in time, Josh, to that Q1 of 2022. So that was where everything in our, in everyone's eyes was normal. We saw our usual Q1 entry into the, into the year with a pricing increase of between 6%-7% coming from vets. What we didn't anticipate was then seeing it again in Q2 and Q3 and Q4. So what that culminated through the year was a 12%, total increase year-over-year by the time we got to the December 31st. We started to put those prices through in the midpoint of 2022, but by the end of the year, we were playing nice catch up. So we didn't see a huge shift. By Q1 of 2023, we assumed 12% inflation, which again, at that point, was double the average. It went to 15%. We then started to price again to get that 15% through, playing catch up off the back of the prior year and now the new year. And now we've seen consistency again. So the really good thing about consistency is it doesn't create any volatility in the pricing patterns and the behaviors and cadence of our pricing and rates that we're asking for. So now we've got the consistency. We're in a place where if it holds at 15%, to Jun's point, ... then the overall loss ratio starts to come down over time, as there's less of a jump from one to the other. You still have a jump from Q4 to Q1 by 400 basis points, so that's what we're taking into account in that first quarter shift. But we expect our loss ratio to come through, and as Paul mentioned, by the end of the year, in Q4, we expect to be at our 15%. Just to underscore that, and thanks for indulging me. So 12% and 15% on top of each other, that's about 28%-29% compounded over two years. Is it wrong to say that earned price increases have been about 24%-25% over the last 24 months? No, that's about right. Yeah. I mean, in terms of the way that the pricing is flowing through the book of business, yeah. Okay. Thank you very much. Thank you. The next question comes from Maria Ripps with Canaccord Genuity. Please go ahead. Great. Thanks for taking my questions. And, Margi, congrats on your new role, and Darryl, best of luck with your next chapter. First, I just wanted to sort of follow up on your adjusted operating income in the quarter. So it seems like with a slightly higher subscription revenue in the quarter, adjusted OI was sort of marginally below the midpoint of your guidance. I mean, it's not a big delta, but given that investors are so focused on this metric right now, sort of any color you can share on what kind of drove that delta versus your guidance, especially given that it seems like inflation was sort of in line with your expectations? Yeah, thanks for the question. There was really one principal driver, and that had to do with higher technology costs. So when we were forecasting, the quarter from, from a technology perspective, there's more work that was needed on sustaining, for our, our digital transformation, our vision platform. So technology cost was the principal driver, so it was higher OpEx. It was the same from a cash perspective, lower CapEx. As you, as you think about the rest of the year, the, the bigger factor will be from a fixed expense perspective, the cost of remediation. In my, in my prepared remarks, I mentioned that we have brought on PwC. So that is something that obviously we're taking extremely seriously and putting significant investment behind, which is driving our fixed expenses higher. It didn't have as big an impact on Q1. It will have bigger impacts as we roll through the year. As we mentioned at the onset, our objective is to get to our target margin across the entirety of the P&L, and obviously inclusive of AOM. So we're gonna have to find productivity, and efficiency within our fixed spend. The good news is the company has done that, many times before, and we're trying to be very surgical about where we drive those efficiencies. But from a Q1 perspective, it was largely the additional expense in technology. Got it. That makes sense. Got it. And then, sort of a bigger picture question. In your shareholder letter, you are drawing sort of parallels with auto insurance. Could you maybe expand a little bit on sort of key differences and similarities between pet and auto insurance as it relates to sort of this recent inflation dynamics? And, with Progressive and Allstate share prices sort of trading at all-time highs, sort of while your share price is not factoring a lot of recovery, what do you think is driving sort of this gap in investor perception or investor expectations? You know, from my opinion, the auto insurance companies, which have been around for a long time, have credit, and their investor base understands that if their cost goes up, that with a period of time, they'll recoup their margins. It happens in all lines of insurance. In fact, regulatory bodies require it. I think we are in a newer category, and the investor base thought that our margins may continue to go down. I'd also... You know, when the inflation hit for auto insurance, it was a combination of their cost of materials, the cost of a bumper, as well as the labor costs coming out of COVID. For the veterinary world, it is primarily driven by cost of labor, and that is why we expect our inflation to remain at heightened levels, at 15%, for multiple years. And it kind of goes back to some of, you know, the earlier questions. When, you know, historically, vet inflation's been 5%-6%, and the difference between our Q1 and Q4 is about 100 to maximum 200 basis point swings. But when you have 15% inflation, and most of that hits in Q1, the difference between Q1 and Q4 is gonna be about 500-600 basis points, and that should be the natural shape of the year or the seasonality as long as vet inflation stays at 15%. If you look at the fact that our subscription margin went up 55% year-over-year, if you look at the fact that our ARPU is up on our Trupanion subscription 11%, we're starting to see the impact of all those rates flowing through, and it's just a matter of time until the margins fully expand and the investor base gains that confidence. Got it. Thank you very much for the call. The next question comes from Jon Block with Stifel. Please go ahead. Thanks, guys. Good afternoon. Just to start, the 1Q 2024 gross adds, I think you said down 9% year-over-year. I don't think there's been any growth now on an LTM basis, and I get it. Greater scrutiny on the PAC deployment until the MLR improves. So, what are the plans for the MLR? I thought I heard close the gap on 71% by year-end. I thought that used to be that you would get there by year-end 2024. So did that change? And then if it did, when will you recapture, you know, the main goal, which is the 71%? And importantly, in the interim, do we just think about a company that, you know, is gonna lose, call it, significant market share during that time? And then I'll ask my follow-up. Thank you. Sure. Thanks for the question. I can't speak about market share. I'll let others chime in on that. But just to clarify, no, nothing has changed. Our expectation is to hit 71% by Q4. Obviously, we're not satisfied with that because everything we've talked about, first half versus second half in a typical year, but that's our objective. It hasn't changed. Hi, John, it's Margi. Just to touch on the growth of the market share side of things. So as we look at our growth year-over-year, you know, to your point, yes, it has gone down 9%. The PAC has come down 23%, so significant efficiencies there. But in terms of the category overall, the reports have come out from NAPHIA recently, which have indicated a total category growth of just under 22%. Of that growth, Trupanion was 26.5%. So I think in terms of market share, you know, ultimately, there's a huge market out there. We're at just over 3% penetration. We crossed $4 billion as a category for the first time, which is great. Purely demonstrates there's a massive opportunity out there for us. As we start to see our margins expand, we will put the foot on the accelerator in terms of our overall pet acquisition, and we'll start to see that number moving in the right direction. At this point, everything's exactly where we'd expect it to be at this time of the year. Okay. Look, I, I get it. I just... Again, Fawwad, I heard, "Close the gap," not 71%. You cleaned that up. And Margi, I get you on the 3%, but clearly, there's a TAM and there's a SAM, and I don't think the SAM is, is 3%. But, you know, maybe just shift to the second question, and, and I'll apologize in advance for the next question, but I do think it's important. Margi, since taking over as sole president, the stock's down over 70%, the market's up 12%. And to be fair, inflation has taken off during that time. I get it. It's been a big headwind. There are no other pure plays to compare it to, but this has really been a painful time for shareholders. You're losing share, as I just mentioned, the MLR is stubbornly high, new products under that 60-month plan are just taking much longer to launch. So can we just get pretty granular? You know, as CEO, congratulations, what are the top two or three things, let's just isolate the top two or three priorities that you have in front of you that investors should focus on when we think about turning things around over the next 12 months? Thank you. Yeah. Yeah, yeah, I know. Sure. Thanks, John. So I think, you know, first and foremost, it's really continuing the work the teams have been doing for the last year, which has been doubling down on the margin focus. So, you know, Q1 year-over-year, we've talked about a 55% subscription AOI growth, and I'm really pleased to see that come through at that level. And I think, you know, that's testament to the fact that we're focusing, and we will continue to focus our top priority on how do you continue that expansion of margin, which is making sure we're priced effectively, which is making sure that we're helping our members understand that value proposition, which pushes into retention. Member experience is always absolutely sacrosanct to us, and that goes hand in hand with that margin expansion. So we'll continue that focus. In terms of growth, at that point, it comes down to where do we most effectively deploy the capital that we have. As that starts to grow, the pool and distribution channels that were part of that 60-month plan really are expanding, which allow us to dip into more opportunities than we could have done before. Doing that diligently, we're not just gonna suddenly turn everything on at once. We'll make sure that we eke that margin out to ensure that we get the best internal rates of return. That may be in North America, it might be on a new product, it might also be in Europe. We didn't have those opportunities before, and pleased that we have those now. Really then just ensuring that from an overall margins across the business, operating within our guardrails that we set, not just for our growth metrics, but also our loss ratio, our fixed expenses, our operational expenses, each one of those have to be in the right spot to be able to scale. So it's about getting us ready for the long-term growth. But I think the ultimate priority for us moving forward is making sure that margin is where we need it to be and expect it to be, as we continue through the rest of the year. Hopefully, that answers your question. The next question comes from John Barnidge with Piper Sandler. Please go ahead. Good afternoon. Thank you for the opportunity. My first question, can you talk about the opportunity for the food initiatives that you'll be involved in, Darryl? What do you view as a TAM there? Is Trupanion gonna retain 100% control? And will those expenses flow through the other business? Thank you. Well, we first talked about our food initiative in our 60-month plan. It's still very early days. We believe it is a very large TAM. You know, if we get to 25% market penetration on insurance, 100% of pets are eating food. And we think we're in a unique position to understand the health outcomes. That's what we're focused on, but we don't have any promises on how it—when it's gonna hit the P&L or where it will be flowing through. So it's early days. Okay, and then my follow-up question: Can you talk about the growth in capital in excess of the minimums during the quarter? It looked like it went to $103.4 from $64.1. With growth slowing, should this continue to build as the year progresses? Thank you. Yeah, thanks for the question. Yeah, so the way we look at it, the excess capital or the overcapitalization with the insurance entities, it's driven by two things, as I think you know. One is, as the business continues to grow from a subscription perspective, we contribute to that pool of capital. And then the other is the dynamic of Pets Best rolling off. So Pets Best, and it's been talked about in the past, the capital intensity of that business is higher. And so as that business, as that growth rate begins to diminish, and then ultimately it goes into secular decline, it frees up capital. So a good portion of the $24 million increase in capital, again, above the minimum requirement was due to that dynamic. We look at it as a positive for a couple of reasons. I think, one, it gives us the capital to add more policies. So we now have the financial wherewithal to grow the subscription business, where we see opportunities that meet our guardrails. The second is, obviously, it contributes to the RBC requirement. You know, those requirements are the things that we pay close attention to. We've had very, I'd say, productive conversations with New York DFS. And then the third is a dynamic that I think we've all seen over the last year, and that's just that interest rates continue to remain elevated, at least where they were from a historical perspective. So now that is a, that is now generating cash, and as you saw in Q4, we took an ordinary dividend that was interest accrued on that cash. So there's utility in us having that. We've continued to discuss with New York DFS. I think they're open to the idea of us continuing to take ordinary dividends. So, certainly I would expect that to grow in proportion to the growth rate of our business, but the capital intensity of it, because of the Pets Best roll-off, will diminish. Thank you. The next question comes from Katie Sakys with Autonomous Research. Please go ahead. Hi, good evening, and thank you, Margi and Darryl, and both congratulations on your respective new roles. I want to clarify some things on the invoice ratio first, across both subscription and other pet. I think about a year ago, we were talking about somewhere in the field of, like, one point of adverse development on that invoice ratio, and I just wanted to check in with you guys to see, you know, if there's any similar degree of, you know, revision included in this quarter's invoice ratio. You know, more broadly, if you could give us some color as to, you know, how you're feeling about the past year's loss picks holding in, that would be much appreciated. Sure. I just wanna make sure that we got the question right, so we can answer it. I think you're talking about loss ratio and the trend. I think one of the things... I would refer back to what we said on subscription. I think one of the things we didn't talk about is loss ratio was elevated in Q1 related to the other business, related to Pets Best. And that's due to the same phenomenon that we've been seeing within our subscription business, where rates are now being pushed through, and that's now manifesting in a higher loss ratio from Pets Best perspective. The nature of our agreement is that it's less sensitive, so from a Trupanion perspective, we're less concerned about that. I would say that increase in loss ratio that they're seeing is effectively the same thing that we saw, and we're putting pricing through as a result, and in response to that. Katie, just in terms of our reserves and our IBNR, we did release a little reserve in the quarter, just related to the much older claims that we've been holding back reserves for. The beauty of having the Vet Direct Pay model, where we pay those invoices directly, is that we see a lot less development in those over time, and we're able to re-release that reserve, which I think could be where your question was aiming. Yeah, and if it's helpful, I can give you a little bit more context specific on the reserve. So if you look at reserve as a% of revenue across the total book, it was down. It was down sequentially from 21.4- 20.3. But if you look at it year-over-year, a year ago, it was 18.8. So there were some elevated claims that were paid from elevated claims in Q4 that were paid in Q1, so we felt comfortable bringing the reserve down. But if you index that 18.8 versus 20.3, with a 5.6% increase in pet count, so we feel relatively good that reserve and revisions to reserve are unchanged. Okay. Yeah, thank you. That, that's a helpful clarification. And then, you know, maybe turning to growth metrics, you know, I think the deceleration in other pet enrolled is to be expected in the context of the Pets Best business agreement changes. But I was just wondering, you know, are there any positive growth trends in that segment that are being masked by the Pets Best shift? I think the only thing I would refer to there is probably ARPU. I mean, back to my earlier comments that you know, they're seeing increased ARPU and the ability to pass on price to consumers. So I would say very similar to what we're seeing. If you're asking about the overall adjusted operating margin change and why it went down, there's two reasons for that. One is, we're now under the new agreement, and that new agreement has different revenue tiers, and so as the business is declining, we're no longer kicking in those revenue tiers. And the other, as I mentioned earlier, was higher fixed expenses related in part to remediation and some of the technology costs. If you look at those in conjunction, that's the driver, so to the 1.6% that we saw in Q1, I would expect, if you were thinking about it going forward, that that is the new normal for... in terms of profitability of that business. Somewhere between 1.5% and 1.7% is what we're thinking is forecast for balance of year. If that's helpful. The next question comes from Wilma Burdis with Raymond James. Please go ahead. Hey, good evening, and congratulations to Margi and also to Darryl. A couple quick questions for you guys. First, could you talk about the trajectory of adjusted operating income throughout 2024? Trupanion appears on track for $43 million in the first half of the year, which implies about $70 million of adjusted operating income in the second half of the year to hit the guidance of $100 million-$120 million for 2024. Can you just talk about the pieces to get there to that higher level in the second half of the year? Thank you. Sure. The primary driver is pricing and pricing flowing through the book. So if you compare and just look at adjusted operating margin, it's up about, you know, in the range of 200-450. And that is entirely driven by margin expansion through pricing. I would expect sequential improvement. I think to my earlier comment, Q1 to Q2 are largely flat from a margin perspective, and then acceleration on back half of the year. Okay, thank you. And then second question: could you talk about the ARPU, the higher ARPU and the other business? Should we expect a similar growth rate in pricing going forward? Yeah, if you look at contribution to revenue, so the 15.2% year-over-year increase in the other business, almost all of it was ARPU. I think about 14, 13.9% was ARPU-related. So, we're getting a very small amount through pet months because these are annual contracts. Total enrollments are down, but we'll see that trail off. So I would say that's largely driven by, by ARPU. This concludes our question and answer session and the Trupanion First Quarter 2024 Earnings Conference Call. It is now concluded. Thank you for attending today's presentation. You may now disconnect.