Q4 2019 Earnings Call
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Greetings and welcome to the Trupanion Inc. fourth quarter and 2019 results call.
At this time, all participants are in listen only mode.
A brief 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 your host Laura Bainbridge head of corporate communications for Trupanion. Thank you you may begin good afternoon, and welcome to Trupanions fourth quarter and full year 2019 financial results conference call participating on today's call, our Darryl Rawlings, Chief Executive Officer, and Tricia plus chief.
Financial Officer before we begin I would like to remind everyone that during today's conference call. We will make certain forward looking statements regarding the future operations opportunities and financial performance of Trupanion within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995. These statements involve.
Hi degree of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed a detailed discussion at 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 cost 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 product position 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.
Investors are encouraged to review the reconciliations of these non-GAAP financial measures to most directly comparable GAAP result, which can be found in today's press release or on Trupanions 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 Trupanions Investor Relations website.
A replay will also be available on the site with that I will hand, the call over to Darryl.
Thanks, Laura Good afternoon, everyone 2020 marks the start to a new decade, our twentyth year at Trupanion and those 20 years, we've delivered consistent growth while scaling our operating expenses today, we have over 650000 total enrolled pets 500000 of which are covered by the Trupanion brand.
The last 20 years, we've helped over 1 million pets, an aggregate and paid out close to 1 billion in veterinary invoices of all of our accomplishments. This is the one I'm most proud of.
At the end of the day Trupanion exists to solve a problem. It is very difficult for pet owners to budget for veterinary care, if and when their pet become sick or injured.
When Trupanion was introduced nearly 20 years ago, we wanted to offer loving responsible pet owners, a product with the broadest coverage highest value proposition and best customer service, we take great pride across the organization in helping solve a large problem for our members while building boats around our business as a reminder, our motor.
Our value proposition.
Mary relationships, our proprietary software our data and now our operating scale. These modes of taken decades for us to dig and by definition are difficult to replicate I'll briefly touch on each.
First our value proposition the measure of how much we pay back to the consumer historically weve target, a 70% value proposition for our subscription business.
I noted in my 2016 annual shareholder letter that we intend to drive this number as high as possible scale in our variable expenses to a consistent 9% of subscription revenue from our previously targeted 10% of revenue allows us to now target a 71% value proposition our second mode, our veterinary relationships.
Today, we are visiting over 22000 of the 25000 veterinary hospitals across North America, and last year, our active hospitals totaled more than 10000.
It took years of effort to earned the trust of these veterinarians and staff a privilege, we do not take lately.
Third our proprietary patented software our software makes trupanion the only brand in the industry that can pay a pet owner invoice directly to the veterinarian at the time of checkout with claims automation, we're processing invoices and about 15 seconds.
Not only does our software improve the customer experience, but it also adds to our data advantage our fourth mode. Our data enables us to price more accurately across a greater number of categories pricing as accurately to our value proposition by sharing risk equally unfairly among like pet groups is our pricing promus and we believe key to continued.
Healthy and sustainable growth and lastly, after 20 years I'm excited to be on the brink of operational scale since our IPO in 2014, we've driven meaningful scale in our fixed expenses ending the year just above 5% of revenue with total enrolled pets at the low end of our range for operating scale.
We're approaching this milestone while returning more back to the customer a benefit of are better than expected scale and variable expenses, we have more work to do and getting veterinary invoice expense in line with or 71% value proposition at the end of the year, we were running about 1% above our target. We are nevertheless, pleased with the progress we've made towards achieving our target March.
And profile in recent years and expect incremental improvement in 2020.
Let me be clear, if we had to choose where it over shoot it would be on returning more back to the pet owner long term, we believe returning a higher percentage back to the pet owner will drive higher retention and higher lifetime value. We designed our product to be used by loving responsible pet owners and built our product in consultation with veterinarians.
And veterinary professionals to facilitate the practice of high quality medical care.
We believe the long term success of this category lies with the veterinary channel and Weve positioned our business model around this belief.
When we entered the United States over 10 years ago veterinary acceptance of insurance was low products with poor covered an extensive fine print had tainted the market and alienated veterinarians.
The industry is revenue with Trupanion included was growing into low double digits building a brand a company and a category against this backdrop was immensely difficult compare this to today revenue growth for the category accelerated in 2018 to approximately 22% year over year, we believe trupanion.
Across all our lines of business was the largest contributor of that growth sentiment is shifting for example, I recently returned from BMX, the largest east coast Veterinary trade show, where relative to prior years, there was more excitement around the category and interest in Trupanion and lastly opportunities are being created from the growing.
Spotlight on the category after years of conversations I'm optimistic that medical insurance for cats, and dogs will get its own line of business in the not too distant future channels are opening up that we too are able to invest and we expect these will be able to add to the growth in awareness of trupanion and the overall category today's environment when coupled with the moats around.
Our business increase my conviction around our ability to be successful.
Trupanion, we measure our success based on the number of pets, we help and the dollars we paid towards veterinary invoices and the more of the better our key measures which include things like revenue and retention adjusted operating income and internal rates of return help us diagnose the health of our business, our moats and our culture give us the confidence.
To consistently deliver I'll touch on our 2019 financial performance of these key measures.
Revenue grew 26% year over year to 384 million adjusted operating income or the profit we make before new pet acquisition or incremental investments was 44 million 42 million of which was driven from our subscription business in total we invested 33 million of our adjusted operating.
In pet acquisition initiatives related to our subscription business, where are calculated internal rate of return for an average Pat was 40% for the year Tricia will provide more details into our segment and margin profiles in her remarks.
The internal rate of return was at the high end of our targeted 30% to 40% range and we accomplish this while making investments in newer unproven initiatives, including continued growth of our inside sales force accelerated deployment of our patented software building out our conversion and content teams piloting our state farm partner.
A ship expanded direct to consumer spend and efforts focused on reducing 90 day churn.
40% internal rate of return there is room to be more aggressive in the deployment of our acquisition spend at the consolidated level, we operate a multichannel multi product strategy. Our other business, which operates at a lower margin adds to our data advantage provides us insights into alternative products and channels.
Allows us to share in the success of the broader category and helped US hit our operating scale sooner than we otherwise would have we also spend very little to acquire pets within this segment.
Continued growth in the adjusted operating income provides us opportunities to reinvest an increasing amount to our discretionary income at high internal rates of return in addition to testing and acquiring pets and our subscription business. This discretionary income could fund longer term strategic initiatives. In summary, we are pleased with our progress in.
2019, and are well positioned headed into 2020, but our success is not predicated on one year and certainly not one quarter. Our success has been built over the past two decades by providing pet owners with high quality medical insurance by investing in and deepening the competitive moat around our business and by attracting the talent.
To advance our initiatives every year, we get incrementally better our moats, a little deeper and our conviction a little stronger.
Much of my conviction lies in the strength of our team I invite you to come to Seattle and meet the team at EUR 2020 annual shareholder meeting to be held on June 11th. This once a year event represents the best opportunity to meet the people behind Trupanion and gain access and insights from our key business leaders.
Specific updates on our five key strategic initiatives will be discussed as well as our lengthy acuity with the team.
Additional details will be forthcoming on our Investor Relations web site with that I'll hand, the call over to Trish.
Thanks, Darryl and good afternoon.
Zero covered many of our 2019 financial highlights I'll focus my commentary, primarily on our fourth quarter performance as well as provide our outlook for the first quarter and full year of 2020.
Total revenue for the fourth quarter was 105.5 million up 28% year over year and led by strong patent enrollment in both our subscription and other business segments.
Total enrolled pets increased 24% year over year to nearly 650000 pets as of December 31st subscription revenue was 86.6 million in the quarter up 22% year over year.
Total enrolled subscription pets increased 15% year over year to over 494000 pets as of December 31st Pet growth within our subscription business, primarily reflects the benefit of increase leads at our core veterinary channel.
Monthly average revenue per pet for the quarter was $58.58 an increase at 6% year over year.
Average monthly retention was 98.58% I do want to highlight that our product is sold as a monthly subscription and in any given month, we will have some payments that fail in the fourth quarter. We updated the process related to failed payments shortening the collection period from approximately.
60 days to 30 days as we believe there are benefits to this being streamlined.
This change resulted in the acceleration of 700 cancellations during the quarter.
Outside of this process change retention was consistent across all categories.
Our other business revenue, which is comprised of revenue from other product offerings that generally have a b to b component totaled 18.9 million for the quarter, an increase of 61% year over year.
Year over year growth in our other business segment reflects an increase in the number of pets enrolled.
Subscription gross margin was 19% in the quarter within our annual target of 18% to 21% total gross margin was 17%, including our other business segment, which has lower margins.
Fixed expenses in the quarter represented 5% of total revenue down from 6% in the prior year period and inline with our target at operational scale I Echo Daryl sentiment that we're very pleased to be nearing operational scale in fixed expenses at the low end of our target of 650.
To 750000 pets.
We generated 12.4 million of total adjusted operating income during the quarter, an increase of 35% over the prior year period net income in the quarter was point Sixmillion.
Turning to each segment, we generated 11.5 million or 93% of our adjusted operating income from our subscription business during the quarter.
When calculating adjusted operating income note that we allocate fixed expenses pro rata based on revenues. We believe this is appropriate as our fixed expenses support bolt segments.
As a reminder, our target margin profile for our subscription business is to generate 15% adjusted operating margin before our new pet acquisition spend in the fourth quarter, we generated 13% adjusted operating margin in our subscription business and expansion of about one.
Percent compared to the prior year.
Our longstanding 15% target margin profile for subscription business consisted of spending approximately 70% paying veterinary invoices, 10% on variable expenses and 5% on fixed expenses.
In the fourth quarter, we spent 72% paying veterinary invoices, 9% on variable expenses and 5% on fixed expenses.
Achieving our target margin profile will require an approximate 1% improvement in cost of goods as a percentage of revenue as well as a small amount of incremental scale in fixed expenses.
We expect to drive incremental scale in fixed expenses in 2020, and we continue to work towards more accurately pricing to our 71% value proposition in order to achieve our target margin profile in future periods.
It's worth, noting however that about 1% variability in the cost of paying veterinary invoices on an annual basis is considered normal when looking at our margin profile adjusted operating income within our other business segment total point 9 million during the quarter compared to <unk> point Fourmillion in.
The prior year period.
As Joe noted, we spend very little to acquire pets within this segment about $200000 in the quarter and believe there are multiple strategic benefits related to this segment, both near term and longer term.
During the quarter, we deployed 8.5 million of our adjusted operating income to acquire over 35000, new subscription pets, resulting in a pack up $222 in the quarter of the 8.5 million approximately 2.8 million was spent on newer and unproven initiatives.
This compared to 6.6 million in the prior year period to acquire over 31000, new subscription pets, resulting in a pack of $186 with approximately 1.8 million spent on newer and unproven initiatives.
Inclusive of this spend we estimate our internal rate of return for a single average subscription business pet at 40% for the quarter at the top end of our 30% to 40% target range.
Note that we are now updating our calculation to isolate our subscription business unit economics. Since this is the focus of our acquisition spend.
The unit economics for our average subscription pets are also inclusive of fixed expenses and we have updated our calculation of lifetime value to reflect this we believe this results in a more fulsome metric when estimating the payback period and it isn't important consideration to measure the effectiveness of.
Since then and it's for the same reason that we also include an estimate at surplus capital charge in our calculation of internal rate of return.
It is important to note that our lifetime value and internal rate of return calculations assume that an acquired pet behaves like the average pet in our current book of business when estimating future returns.
Additional details behind these calculations and the margin profiles for our two business segments can be found in our supplemental materials on our Investor Relations website.
Free cash flow was 2.7 million in the quarter and operating cash flow was 4.5 million compared to 3.7 million in the prior year period.
Adjusted EBITDA was 3.7 million for the quarter up from 2.5 million in the prior year period net income was point sixmillion or two cents per basic and diluted share compared to a net loss of point Threemillion oral one cent loss per basic and diluted share in the prior year period.
At December 31st we had 98.9 million in cash cash equivalents and short term investments and 26.1 million of long term debt.
Now turn to our outlook for the first quarter and full year of Twentytwenty for the first quarter of 20, Tony revenue is expected to be in the range of 110 to 111 million, representing 27% year over year growth at the midpoint revenue for the full year Twentytwenty is expected.
To be in the range of 476 million to 482 million, representing 25% year over year growth at the midpoint embedded in our revenue guidance for 2020 is ARPU growth in line with historical average of 5% to 6%.
We expect revenue in our other business segment to be around 93 million for the year at these forecasted revenue levels. We expect total adjusted operating income for the year to be around 57 million with approximately 95% coming from our subscription business.
At the midpoint of our targeted internal rate of return range for the subscription business, our allowable acquisition spend would be around 45 million.
Also please keep in mind that our revenue projections are subject to conversion rate fluctuations between the U.S. and Canadian currencies.
For our first quarter and full year guidance, we used a 76% conversion rate in our projections, which was the approximate rate at the end of January.
Thank you for your time today, and I will now turn the call back over to Darryl.
Thanks, Tresh before we'd open it up for Q in a I'd like to highlight our participation at the upcoming Raymond James Conference to be held in March. In addition, we are quickly approaching two important events for the year first our open kinase session to follow the Berkshire Hathaway annual meeting in Omaha on May 2nd and.
Secondly, our annual shareholder meeting to be held in Seattle on June 11th we received great feedback from last year shareholder meeting and expect this year to be even better more details can be found on our investor Relations Web site, we hope to see many of you there with that we'll open it up for questions operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad a confirmation tunnel indicate your line is in a question to you May Press Star too. If you would like to remove your question from the Q4 participants using speaker equipment, it may be necessary to pick up your handset.
For pressing your Starkey.
Our first question comes from the line of Sweater Cajori with RBC capital markets. Please proceed with your question.
Great. Thank you a few quick ones. Please first on the retention rate could you. Please talk about what the change in the process what are the pros and cons of the decision that you made.
From 60 days to 30 days and second is on other revenue growth that came in stronger than expected anything to anything to call out.
The guidance seems good for full year 2020, and third leads grew in double digit growth rate last quarter Q3, as any updates on just general trends on lead than conversion that you're seeing based on the initiatives that you've been making over the past several months or quarters. Thank you.
Sure sweater. Thanks for the questions I'll handle the first two and then there'll can take the third one.
In general what.
We believed was in having a longer failed payment process before a cancellation occurred and that we likely weren't saving as many customers as we could add if we start the process.
And were able to recover them with only.
Basically one outstanding month of payment rather than to.
And we're seeing positive trends.
The then all very incrementally small, but moving into right direction sense, making that change, but it did.
Accelerate a few of them in the current quarter absent that move forward of about 700 cancellations our retention what it then.
Consistent and it's one of the initiatives among many that we have been looking at to improve our 90 data retention in the long term.
I made that change during the quarter.
As of other revenue growth as you recall there are.
For different items in that segment, it's a b to B segment with a little less visibility and it's been growing nicely and consistently amongst all products within the segment. So nothing specific to call out there.
No.
I was just a general trends on lever conversion.
I would say that.
For the year, we had both leave them conversions.
Drive the growth in 2019 for Q4 in particular, it was mainly driven by lead conversion.
A little bit flatter softer than they were in Q3, so we have really strongly growth.
Thanks, Sara Thanks Trish.
Our next question comes from the line of Maria reps with Canaccord. Please proceed with your question.
Thanks, So just wanted to ask about your updated targeted payout of 71%.
How does that impact to your long term margin outlook and do you see that 71% go in high over time and also do you expect it to improve retention longer term.
Great question, then Archer so we're trying to operate.
As I said at 15% margin before acquiring new Pat.
The change from 70 to 71 as a target has not changed your goal of hitting 15%. So that remains what we would like to do over the next five or 10 years, it's at a 15% margin and be able to pay 70 to 70 374 cents on the dollar in the way of Hey, veterinary invoices.
The aggregate we believe.
Continued to date, the most Roger business, a little deeper and better value proposition with long term, we believe helped conversion and retention rate.
But we are still looking to hit that 15% target and we're excited that are variable expenses in our fixed expenses over the last five years of really driven ourselves into that get us to that point.
Thank you.
Our next question comes from the line of Jon Block with Stifel. Please proceed with your question.
Thanks, guys good afternoon.
Chris I mean for you just the guidance a 93 million for other.
Revenue in 2020 implies about 386 386 million for subscriber business, which is slightly below where we were 390 million. So I guess a couple of questions here first of the other.
There are good long term growth rate to think about because now you're coming off big back to back 50% give or take works in that division and then the other part of the question will just be anymore details on that subscriber business somewhere around 386, if you can detail what you're thinking about in terms of sub growth or pet growth. Thanks.
Sure, yes, the in terms of the other business.
You know, we're coming off of Q4 and really.
That current run rate and modeling consistency there as we have a little less.
Visibility given.
Partnerships in that area.
Longer term you know as book of business is grow churn growth and things may move around in terms of growth rates in that segment when you're modeling out a DCF in the cash flows that come from that we what we would suggest you no longer and longer term as you get out in the model to think more about industry growth rate.
In that you know low 20% range.
This kind of how we think about.
Participating really through other business segment, and other products and the markets longer term for the advantages that Darryl mentioned.
In terms of our subscription business.
If you are looking at the midpoint roughly 386 387 million, it's really modeling out with the visibility we have going into the year.
That we're going to be growing pets pretty consistently in terms of total enrolled pets with the prior year.
And then the ARPU well, we were at kind of the high end of our range in terms of 6% year over year growth in ARPU.
Starting the year, we're modeling the midpoint here based on the visibility that we have closer to 5%.
To arrive at the midpoint number obviously as the year goes on and we.
And have more visibility, particularly in the back half there and we will we will update though but that's.
Kind of the detailed that drove that guidance.
Okay very helpful on Daryl the second one for you I think you mentioned roughly.
Third of the pack spend give or take what into experimental and I'm. Just curious how we should think about that long term. Another words is that the right way to think about it that there's a lot of levers to draw down upon an experiment that that's really somewhat into perpetuity or does part of the third graduated into the underlying pack.
Span and that sort of diminishes over time as a percent of the overall Pat thanks guys.
Well when we think about our pack spend we first go care most about our allowable packs bed. So based on stream of cash flow that has generated which is a combination of that adjusted operating income margin for the subscription business.
By by that by the number of months and that gives us a stream of cash flow.
We're targeting to have internal rates of return between.
30, and 40% for the year, that's probably a balance between somewhere of APAC spend somewhere from 240 to $280 in that range well, we think about and we think about the business over the next 510 15 years as having higher level packs spending increases the likelihood of us.
To be able to consistently grow year after year end, five and 10 year growth and the fact that we are able to deploy a third of our span and had 40% internal rate of return in 2019 tells me that we can be a little bit more aggressive in 2020.
The fact that we're able to do it in more casting a more building out differently.
Higher degree of confidence or being able to continually execute not only in quarters, but in years decade.
Hi, guys picture Tony.
Our next question comes from the line of David Westenberg with Guggenheim Securities. Please proceed with your question.
Hi, Thanks for taking my question. So on the subscription gross margin Misty by a bit I think you've got kind of gave a little bit of color on that on the gross margin I mean on the prepared remarks, but I didn't I didn't totally get it it was down.
Sequentially and a tad year over year was there was there anything different in this quarter or is it just kind of the.
Quarterly cadence or just.
General Ebbs and flows this kind of business.
Yeah, I mean I mentioned this briefly in my prepared remarks, but I think that's a worthy topic to expand upon.
Gross margin the one item that does move around based on the nature of our business and the timing of when premium increases come through versus.
The cost of paying that Mary envoy says you know, we're now targeting that being a 71% and its you know was 72% in the quarter and variability of plus or minus 2% on a quarterly basis, 1% on an annual basis.
It's considered very normal and very accurate no there are many things.
That we are doing to try and always be as accurate as possible to this value proposition.
Well there. Although there are you know a few a few headwinds as as we've talked about before when we.
Rollout more software and see a bit higher claims come through and we are trying to update neighborhood pricing that we've talked about at the last shareholder meeting to be more accurate, particularly when we're going to locations, where we don't have good data yet.
And to accurately price those in advance.
And then as we roll out more and more claims automation, which we've made very good progress on this here.
You know the making sure that that is as accurate as possible as well. So a lot of the things that we're doing that deepen our most can cause a bit of that variability near term, but it's very positive trade off in terms of customer experience.
Longer longer term they when I think about our subscription margin the ones that I am focused on is.
How much to deliver back to the consumer and what's hitting our bottom line for cash and over the last three years, we've had consecutive increases and not only a year over year increase in the bottom line margin.
We're also guiding to that for the next year, although being our target would be 50%. We're targeting 14, so a little bit behind where we would otherwise like to be but.
That progress we've made from 17 to 18 and 18 to 19 I'm pleased with.
And then youve.
Mentioned that you feel like you're getting the scale right now.
I know, you're not giving like long term opex I mean, you kind of do get bomb started opex in the sense that you had that 15% margin, but you know as we're looking for.
Kind of percentage growth of of Opex now, we should be expecting a little bit of a a de Sal Ah right now relative to two.
Yes.
Revenue growth right.
Well I would say again it depends on that particular opex that are looking out we would expect the variable expenses to say consistent at 9% and grow in line with revenue and we are targeting the scale of 5% on the fixed expenses the GM.
And technology and we would expect once we hit that that that would remain consistent if we do as Daryl mentioned seem more efficiencies in either of those areas and longer term future years, we would return that to the customer for benefits ideally to conversion and retention.
Referrals and longer term in terms of the sales and marketing expense for pet acquisition.
That will be dependent on how many pets are added because we monitor it on a per pad basis, and then within our targeted internal rate of return range.
And as I have killed couple more but I'll hop back in Q.
Our next question comes on line of Andrew Cooper from Raymond James Please.
Please proceed with your question Hey, Thanks for the question excuse me thanks for the questions I.
I guess, just kind of thinking kind a high level in terms of.
Expectations and what the next steps are as you started to really realize the operational scale that to your point you've been striving for for.
A number of years now Daryl I think you mentioned opportunities in new channels, what's the willingness for you guys to sort of step a little bit outside what's been your bread and butter in the vet channel and start to do a little bit more and look at partnerships or things like that kind of how do you approach those opportunities and and just thinking about them from a strategic perspective.
What you may be willing to do or how aggressive you may be willing to get on things like that.
Well, we think as the category is accelerating we're seeing a number of opportunities both in partnership different distribution.
May be participating in products, a different ARPU levels as well as geographic expansion.
We think what we've gained over the last 20 years in our operating scale and mid teens and the systems in the data, but has a very well positioned when we look at it I would say.
We view, where we care about deployment of capital and getting those 30% to 40% internal rates of return. So that is one of our barriers that we would want to go into.
He basically we want to make sure that what we're doing.
It's helping the aggregate category growth not hurting it.
And within those guardrails that we care about we have the right team and execution to do something at a given period of time I would expect over the next.
510, 15 years that.
You will see us have bigger percentages of our new business coming from what our today noncore channel.
But I think that part of the opportunity.
Okay. That's helpful. Just to kind of have the view on and then I think yesterday or the day before you put out a news release about a higher and kind of mentioned.
Centrally digging deeper into the underwriting side in Canada is there any context, you could add around kind of what what the thinking is there is there.
Pull from existing.
Non subscription customers in the U.S. that are looking to have a trupanion.
Available or an American pet insurance company available to them.
In Canada in North America, and is it a little bit more of a pool and to the degree that you do that does it provide a margin opportunity within the subscription business as well if you get any context around that.
But the timing might be.
If you decide to pursue that that'd be great.
Yes, it's pretty simple.
We're always trying to remove frictional costs up so that we can offer better value back to the consumer.
The efforts were making in Canada is to give us greater flexibility and lower frictional costs.
Something we've been working on for a number of years.
Okay. That's helpful I'll leave it there and circle up after I appreciate it.
Thank you.
Our next question comes on the line of Greg give us with Northland Capital. Please proceed with your question.
Good afternoon, and thanks for taking the questions first just to clarify within the pack spend in 2019, you said roughly one third was allocated to new unproven initiatives did you guide to what that range would be in 2020 models that 45 million or so of acquisitions.
Probably be a similar amount might even be able to be a little bit more on that because as I said in 2019, we calculated or internal rate of return at 40% and we think we can be a little bit more aggressive than that so.
So.
In that range, maybe a little higher.
Okay good enough.
And then as you get pretty close to penetrating the vast majority of that 25000, or so vet clinics just in North America.
I guess, how are you thinking about those international up opportunities that you've talked a little bit about in the past and when will those initiatives starting.
Yes.
In terms of your growth initiatives.
Well we're now.
Calling on about 20 to 25000 veterinary hospitals in North America.
But as I mentioned in my opening remarks, we only have well we have about 10000 active which has taken US 20 years together I'm really proud of that achievement, but we've got a lot of opportunity from that 10000 to grow too.
15, 18 20000 over the next five to 10 years. So we think we've got a lot of growth.
There in addition to that we've been working on lot of initiatives to improve same store sale will be sharing some of that information at the shareholder meeting excited to talk about that.
An area that we've been working on some lot of our investments.
But I would say when we get to the point that we are now calling on closer to 25000 Hospital Thats why we start to think about adding international markets, Australia was the first one.
Trillion numbers are not currently showing up in our PML, it's just kind of a balance sheet items today.
And it's not meaningful.
But if you think over the next five or 10 years.
We would expect we want to increase the universe.
Addressable market and we think about that and addressable number of hospital, so where we're working on that and over the next five to 10 years, you should expect that we will.
Additional international geographies added.
Very helpful. Thanks Darryl.
Our next question comes from the line of Mark Argento with Lake Street Capital markets. Please proceed with your question.
Hi, Darryl interest should just a couple of quick ones, Yeah, I noticed it seems like a lot more activity in terms of additional [noise].
Competition in the space I know there because the banana for quite awhile, but.
From a pricing perspective or things that you see when you get new entrance into the markets Fracing rational behavior rational at this point, maybe to talk a little bit about where you stand on the competitive front.
Sure well I mean, the aggregate business today kind of falls into three buckets in North America, you have the area that we are focused on and we think we dominate which is.
Veterinarian business.
We've got a unique product and the sales force and data customer experience and value proposition that is all derived around there when we talk about increased competition and you know at any given time. We've competed about 20 brands most of the well all of the increased competition, it's either in the kind of online direct to consumer space.
Dave or it's showing up in kind of the corporate employee benefits.
I will tell you that I my belief is the corporate employee benefit.
If it accelerates its going to be due to low unemployment rates.
And anything that happens there should be incremental to the growth of the category.
We're doing more and more things in that area and we may benefit if that section of the.
Rental rate growth.
When people are in the direct to consumer side and online I would say most of additional brands, it's really a market shift amongst the competitor competing in there. So it doesn't have a material impact on our business.
But it's good to see that there are.
That category continues to grow get the appropriate attention.
That's helpful just pivoting to the clinics and hospitals.
Any updates Trupanion express.
It is to be I talked about taking friction out I'm, assuming that continues to to.
Keep competitive advantage of yours, any any updates on kind of penetration rates.
Or any other kind of partnerships on the data side and provide many other tools to the to the vet clinics.
Well 2019 was.
Continued year on expanding that and we expect the same in 2020.
We have the additional lever in the last year. So it is becoming more meaningful is not only are we getting the software which is in much better customer experience. When you layer on claims automation, which adds up customer experience makes is more efficient reduces the number of inbound phone calls.
Those are things, we're really excited about so we're going to keep our foot on the pedal and keep moving those four.
Outside of that out to stand back and let's say at 30000, fretting 30000 feet going to be the same as the last couple years, we just want to get more software out there improving customer experience.
Really make it so that when pet owners walk into a veterinary hospital to any hospital anywhere in North America Theyre asking of the front desk is their insurance web and being able to pay directly gives them. The reason that question.
Great. Thanks, guys.
We do a follow up question from the line of David Westenberger with Guggenheim Securities. Please proceed with your question.
Hi, Thank you for taking that follow up here. So can you remind us about your your deal with IDEXX and is that contributing to enrollments.
No we don't try to talk about our partners in any detail we mentioned.
I believe on the last call that we.
Had long term agreements with.
Two companies that provide most of that practice management software globally, and we continue to work with them and they've been good partners. We've got good alignment.
And then.
What what at one more follow up on there is.
A company, that's doing insurance and partner and packaging at West side drugs in diagnostics is that kind of a strategy that worries you or is that just you've been competing in this kind of category for so many years that you've kind of see everything.
Well.
Yes.
Added.
We've competed against many brands over many years in the most we have are that they are mode.
We don't think any one company entering the space is going to have any material impact on our business.
That being said, we believe that any wellness components, meaning.
Things.
That a consumer doesn't need help budgeting, but may want to get a discount to moving into monthly payments.
That approach should be supplied by the veterinary hospitals and so.
They are the best ones to be providing wellness packages for the consumer and a wellness plus an accident illness. Together is a great combination and we worked very hard and diligent to make sure that the consumer they understand the difference, but also that we can work with the hospitals, providing wellness packages and we're making.
Good progress there.
Sorry, and then just a follow up on that last question I had the I'm sorry, just for clarification purpose. Just you said, you're you about two to partner share shifts and in campuses.
Fly the that you have partnerships into maybe 80% of tens and market if that.
I know thats, a metric that you might be able to give or not but if not the right.
Yeah, we but we believe that.
The the software that we have is 80 plus percent of the hospitals were currently compatible with and over the next number of years, we hope to drive that number closer to 90% and that's kind of process kind of a global global number.
Thank you so much.
Okay.
It does include our culinary session. This does conclude today's conference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.