Q3 2021 Trupanion Inc Earnings Call
Greetings and welcome to Chew Penguin Inc's third 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.
I would now like to turn the conference over to your host Laura Bainbridge of Investor Relations.
Good afternoon, and welcome to true opinions third quarter 2021 financial results conference call participating on today's call are Darryl Rawlings, Chief Executive Officer, Andrew Wolf, Chief Financial Officer, Mark you choose and Tricia plus our co presidents will be joining Carol and drew 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 two opinion 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 Companys. Most recent annual report on Form 10-K, and subsequent filings with the securities and <unk>.
Change 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.
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.
Non-GAAP measures are in addition to and not a substitute for measures of financial performance prepared in accordance with 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 Orange opinions Investor Relations website under the quarterly earnings tab.
Lastly, I would like to remind everyone that today's call is also available via webcast onto your opinions 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, I'm excited to share with you our key financial measures for the quarter total revenue increased 40% over the prior year period.
Adjusted operating income increased 44% year over year and in total the team was able to deploy 42% more capital year over year at an estimated internal rate of return of 36%.
As a reminder, adjusted operating income represents the cash generated from our existing pets in a given period typically we will invest the majority of these dollars growing our portfolio of new pets growing adjusted operating income and deploying compounding thumbs at high internal rates of return are the driver.
As of intrinsic value in our business.
Adjusted operating income is the primary input of our discounted cash flow model, we view it as a proxy for value creation.
A large underpenetrated market, we aim to grow intrinsic value per share 25% per year year to date growth in adjusted operating income of 39% for the first nine months of our 16 month plan means we are currently tracking well ahead in the quarter performance benefited from <unk>.
Spanning margins and sustained high levels of retention.
Compared to the prior year period average monthly retention increased to $98 seven 2% on a trailing 12 month basis. The average pet stays with true Pan Yearn for 78 months up from 76 months in the prior year period.
In times of accelerated growth I believe this performance is exceptional and very hard to do well done team.
The impact of the sustained high levels of retention is reflected in our progress towards fruitopia, our defined state of self sustaining growth into Topeka members, adding pets or referring friends offsets pets churning off in the quarter, we narrowed the gap to two trophy.
Two a mere zero point to 8% sure Tropea is also a leading indicator of net pet growth, which increased 41% over the prior year period over the long term, we believe companies most likely to be successful are those who can invest in innovation and expand their addressable market achieve.
<unk> operating scale compounding adjusted operating income and our team's growing ability to put greater sums of capital to work in a disciplined manner position us to do so we.
We highlighted the ways, we are growing and investing in our business and our 60 month plan, which can be found in this year's annual shareholder letter I'll focus my remarks on a few areas in.
In the quarter, we launched our low and medium <unk> products Firkin and pet health insurance direct both in Canada, We will operate both brands within the same capital allocation parameters and over time, we'll aim to grow our addressable market, while offering greater transparency to the industry our ability to operate.
At scale means that we were also able to support the launch of new markets by the end of 'twenty 'twenty five we aim to grow our addressable market by 40% we intend on doing this by adding 10000 international hospitals. This will increase our overall market from 25000 in North America to 35000.
Globally.
While doing so we also expect to expand our active hospital base nine months into our 60 month plan active hospitals totaled over 15000.
For more information on the growth interactive hospitals over the years. Please see our prior shareholder letters as we grow and scale new products distribution channels and international markets. Our mix of business should continue to evolve our metrics will reflect that progression what won't change other drivers of that.
[noise] creation for our business, our adjusted operating income the amount of capital, we can deploy and the return on our invested capital.
Before I hand, it over to Trish I want to take a moment to welcome drew formally to the call and congratulate him on his promotion to CFO drew joined US in May and has quickly showed himself to be a strong leader and a great. All around team member drew it's a pleasure to have you onboard I.
I continue to be humbled by the talent, we are attracting to the team to me it speaks to our culture and our mission driven organization with that I'll hand, it over to Trish.
Thanks Darryl.
I want to take a moment to echo <unk> sentiment and congratulate drew on his promotion to CFO. We were hopeful when he joins Japan yen as E V. P of finance that this would be the outcome I'm thrilled that drew is quick transition and strong leadership provided a pathway to do so on a timeline that has felt.
Natural and seamless.
I look forward to focusing my responsibilities on our long term strategy and in coordination with Mardi the execution of our 60 month plan.
Purview will remain all of operations finance included and I will continue to work closely with as well as be a resource to drew and his team to ensure a smooth transition.
With that I will turn the call over to drew to discuss our third quarter results in further detail.
Thank you Tricia and Darrel and good afternoon, everyone.
I'm honored to be speaking with you today is Japan, and its chief financial Officer I've been on a steep learning curve over the past several months and I'm thankful that Tricia and the rest of the team for their guidance and counsel during this time.
The talent passion and humility of the team brings to their work every day is inspiring and I'm excited to be a part of where true Permian is headed.
Japan is a mission driven organization with a massive total addressable market and a business model that not only drives value creation for shareholders, but does so well targeting the highest value proposition for our members and aligning the interests of all stakeholders I've been especially impressed with the compounding engine of our business or our ability to reinvest our adjusted operating income.
At high rates of return all of that starts with Trapan ins exceptional retention, which means more of our investment is going into growth not churn, which allows us to target the highest sustainable lifetime value in the industry. We're delivering these results with a fundamentally different approach one that focuses on aligning the needs of pets pet owners and.
Veterinarians. Unlike other retail pricing approaches I've experienced in my career true pantheon is truly a cost plus model. This approach means and we arent pricing as a point of maximum elasticity. This is evidenced by our ability to adjust pricing to keep veterinary invoices expenses at our 71% value proposition, while increasing growth in short.
It's a great business and one that I'm excited to be a part of with that I'll turn to our results for the quarter.
Total revenue for the quarter was 181.7 million up 40% year over year. Our performance was led by sustained high levels of monthly retention and solid gross additions in our subscription business and continued strong growth in our other business within our subscription business revenue was 127.1 million up 28% over <unk>.
Last year or 26% on a constant currency basis total enrolled subscription pets increased 22% year over year to approximately 676000 pets as of September 30th.
Average monthly retention, which is calculated on a trailing 12 month basis was $98 seven 2% compared to $98 six 9% in the prior year period.
Reiterate that our strong monthly retention means we spend less energy standing still than many consumer subscription businesses and the fact that we're able to do so while accelerating our growth is especially impressive.
Monthly average revenue per pet was $63.60, an increase of 4.5% year over year or an increase of three 2% on a constant currency basis growth in ARPA as reflected a mix of business in the quarter across products and geographies. It's for this reason I'll reemphasize Chapin units unique cost plus approach to pricing.
If we do our job well our pool will be the output of pricing accurately to our value proposition.
On our P&L of that value proposition is represented in the cost of paying veterinary invoices for the third quarter the cost of paying veterinary invoices for our subscription business was 71% in line with our annual target. This shows that our pricing in aggregate is aligned with our cost plus model and emphasizes our commitment and ability to deliver for our customer.
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As a percentage of subscription revenue variable expenses increased slightly over last year to 10% and fixed expenses were consistent with last year at 5% future scale in these areas paves the way for us to continue to drive our positive flywheel reinvesting or value proposition driving even higher retention and lifetime value, while staying true to our adjusted op.
Operating margin target across our expanding pet base. This means even more funds to invest in the growth of the business are compounding high rates of return.
After the cost of paying veterinary invoices variable expenses and fixed expenses, we calculate our adjusted operating income of these adjusted operating income is the most important contributor to our conversion retention and long term growth with this in mind. We're pleased with our continued progress and delivering an adjusted operating margin for subscription business near.
Our target of 15% in the quarter adjusted operating margin was 14.6%, marking the third quarter over the last eight that we were within 100 basis points of our target.
In dollars our subscription business delivered adjusted operating income of $18 6 million, an increase of 35% over the prior year period.
Turning briefly to our other business segment, which is comprised of revenue from other products and services that generally have a b to b component and different margin profiles in our subscription business total revenue was $54.6 million compared to the prior year quarter. This is an increase of 78% year over year, reflecting an increase in pets enrolled within this segment.
<unk> operating income for the segment was approximately 2.2 million, while low margin or other business provides scale and data and fixed expenses. In addition, we incur virtually no acquisition spend within the segment provided a small profit. We can then reinvest in the growth of our core business as a result, our total adjusted operating income was 20.8.
8 million, which is up 44% over the prior year quarter. Our net loss was $6 8 million, which I will discuss in more detail momentarily.
During the quarter, we invested $17 5 million or 42% more year over year to acquire approximately 58000, new subscription pets. This resulted in a pet acquisition cost of $280 at an estimated 36% internal rate of return for a single average pet give.
Given our strong balance sheet and scale. We're also investing in new product development and international expansion long term, we expect these investments to deepen our moats and expand our addressable market.
These initiatives are included in development expenses. They are pre revenue and were 0.9 million in the quarter and $2 9 million in the first nine months of the year.
This resulted in an adjusted EBITDA of $2 2 million compared to 1.8 million in the prior year quarter Dupree.
Depreciation and amortization was 2.9 million an increase of $1.3 million year over year. This increase was primarily due to the amortization of assets from our software acquisition in the fourth quarter of 2020 total.
Total stock based compensation was $6 4 million in line with our projection of six to 7 million in stock based compensation per quarter. As a result, net loss was $6 8 million or a loss of 17 cents per basic and diluted share compared to a net loss of 2.6 million or a loss of seven cents per basic and diluted share in the prior year period.
On a year over year basis, the increase stock based compensation impacted net loss by 10 cents and the increased depreciation and amortization impacted net loss by three cents I'll now turn to cash flow operating cash flow was $6 2 million compared to $9 8 million in the prior year quarter the year over year decrease in operating cash flow reflects our.
<unk> pet growth in investment and development initiatives I discussed earlier, we have also increased our investment in capital expenditures by 1.5 million compared to the prior year period totaling 2.8 million during the quarter. The increased capital expenditures primarily related to software driving our member experience and new product initiatives as a result free cash.
In the quarter was $3 5 million.
At quarter end, we held cash and investments of over 221 million and no debt.
I'll now turn to our outlook for the full year 2021 which were updated to account for our year to date performance. We are increasing our total revenue range to 696 million to 698 million, representing 39% year over year growth at the midpoint.
Subscription revenue for the full year is expected to be in the range of 495 million to 496 million, representing 28% year over year growth at the midpoint.
Turning next to our most important metric adjusted operating income we are increasing our expectations to 77 million, which is growth of 35% over the prior year.
Of the 77 million, we expect to invest approximately $69 million or 56% more capital year over year in acquiring pets within our subscription business and.
At our targeted internal rates of return this results in a pet acquisition cost of around $280 for the full year 'twenty 'twenty. One we continue to expect to spend 3 million to $5 million on development initiatives discussed earlier.
Also please keep in mind that our revenue projections are subject to conversion rate fluctuations between the U S and Canadian currencies for our full year guidance, we used an 80% conversion rate in our projections, which was the approximate rate at the end of October.
Thank you for your time today, it's been great speaking on my first earnings call with true Banyan and I look forward to many more of you at upcoming conferences with that in mind, Daryl and I will be at the Guggenheim Animal Health Summit on December six I hope to speak to many of you there with that I'll hand, it back over to Darryl.
Thanks drew well open the call up for questions momentarily before we do so I'll remind you that marquee and Trish are also available on today's call and can answer questions on the execution of our 60 month plan.
Under Markieff purview are all areas of growth, including product distribution pet acquisition international and our new product and channel offerings.
Tricia has purview includes all areas of operations, including I T Finance people operations legal and regulatory claims contact center and actuarial I'll reinforce that our 60 month plan is off to a flying start year to date adjusted operating income is up 39%.
Sent year over year with the 25% target we laid out in our 60 month plan every quarter doesn't need to be as strong as the one we just reported for me to be happy with our performance with Tricia and Marquis at the wheel I am confident in our direction and execution as CEO I will continue to focus on our culture.
Our long term vision and strategy beyond 2025.
With that well now open the call up for questions.
Okay.
Thank you.
We will now be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate that your line is in the queue. You May press star two to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question is from Maria reps with Canaccord. Please proceed.
Great and that thanks for taking my questions and that Joe Congrats on your new role.
So it sounds like you had another quarter with really strong retention can you just talk about sort of how various lead channels performed during the quarter and is there anything you can share with us about your newer elite program are you seeing any sort of contribution from this initiative or is it still early there and.
And then I have a quick follow up.
Hi, Matt its talking here just to start off with a strong retention, we've been investing in retention really doubling down on that.
The last 18 months and I think where the the team is really kicked into high gear with with having a very strong retention rate map.
Much like many of our areas of our business that segmenting and targeting specific initiatives based on where the membrane and that journey, let's say from the first day perspective, when we're thinking about the rate I think of the renewal and making sure we're adding value throughout the cycle and ultimately then walking with Tricia and the operations team in the contact center to give a first rate membrane.
All of this comes down to the fact that if we can pay the veterinarian directly at the time of checkout that member experience allows them to then refer to their friends, which then kind of create that flywheel of towards about and that kind of dovetails into the channels and how they're performing we do look at retention by channel April all channels are performing particularly well and as the teams get more sophisticated.
And the way that they approach it better.
Better flying more tactics to help us the range is continuing to meet the needle from a retention perspective at this stage with the retention rates as high as they are it's really hard to make incremental changes and to continue to do that the way. We are I think a testament to the team.
In terms of needs <unk> to take today. This is still where developing at some tests night takes it a while to get it right on top of we're making progress all the time and it's too early to say speak of any impacts at the moment, that's that will be able to give you an update in the in the coming quarters.
Got it that's very helpful. And then secondly can you maybe just talk about what's driving this continued strength within your other segment.
We know there are several businesses in there and in the past you talked about pets best allocating setup, new a book of business to Japan yen is that still set up the main growth driver here and that sort of how long do you anticipate elevated growth in other revenues sustaining.
Well the other business as you pointed out it's Andrew mentioned in his opening remarks is where it's kind of a b to b instead of a direct to consumer approach.
In aggregate it is much lower margin business last year. It contributed about five 3% of our adjusted operating income.
<unk> this year old contributed about $9 one.
We do have the addition of our software acquisition last year in the.
Revenue and profits that go into that is also into this group now.
So we're really pleased with the progress and well just see how it ramps up next year and the year after but hopefully continues to grow nicely.
Yeah.
Got it thank you so much.
Our next question comes from John Barnidge with Piper Sandler. Please proceed.
Yes.
Thank you and congrats on the quarter with the Aflac true pinion Hawaiian.
In the broker channel for benefits being heavily weighted towards fourth quarters, given open enrollment how should we be thinking about that channel really near term and longer term.
Hi, John I E. The I'll kick off and and and I apologize for my colleagues in a second to think more about this too.
As a reminder, the Aflac Japan Airlines.
Really really well aligned strategic partner we've.
We've been working with them for the past year on developing our entry point, which let's say the worksite benefits channel, we didn't anticipate any progress there and that's in terms of going to market in 2020, one we anticipate going to market and try to say.
So there won't be an impact this year from any revenue perspective, and when we think about the rollout you would expect to see something hit in Q4 of 22.
So the channel in terms of the progress is going well working really well with that team there and excited to be launching next year.
Anyone can add.
I think that.
And then a follow up question rather.
Subscription revenue in the quarter 127.1 still within the range, but towards the lower end was there anything that developed over the quarter.
That drove it to that.
Hi, John This is Chris Schott.
And overall strong quarter for us in terms of our enrollments.
Enrollment.
One thing I would point out is.
As you know our people is coming in a little more this quarter than private prior quarters. So that's driving it as well as about a 200000 impact from foreign currency.
High level, when we think about our two increases overall in this quarter and in the future. The one thing I would highlight it.
As a reminder, we're we're a cost plus model and so we're always looking at the cost of our veterinary invoices, adding our margin on top and pricing to our 71% value proposition not only on a consolidated basis. What you can see we've been doing well, but also at a granular level.
Bye bye regions breed and fell on a when we look big picture for the full year, just some numbers for context.
Cost of veterinary invoices on a per pet basis in 2021 and our book of business, that's been going up about four 9% for the full year and our ARP, who increase says we're projecting to call out for the full year at 5.31st that cause that 40 basis points at our RV.
It's going up and ahead of our cost of good so at a high level. We felt good about pricing now we are always trying to be as granular as possible.
As you know a behind the scenes, we have certain regions like a particular region.
There costs are going up closer to 15% and we're raising our appeal a little ahead of that.
And we have other regions, where we actually worse slightly overpriced and trigger our value proposition or D. Crazy now its prices. So we're always endeavoring to be as granular as possible no.
So on a macro level when we look at our our data overall.
And on a frequency basis or how often are our customers visiting the veterinarian, we've been seeing that pretty normal with outside of you know the small blip last year I'm sure to pretty normal levels, we're not seeing dramatic differences and how our insured client base is is visiting the veteran.
And we when we look at the average dollar amount of those invoices. This year, that's going up 6%. So this year so far at least our client base, it's been going up pretty normal. It's wow. So that really gets back to you know kind of what we're seeing in our data and Howard we're staying up.
In line with the pricing.
Obviously, we will stay on top of that continue to monitor it and update as needed, but that's kind of my my long answer to the point that we are seeing a little bit I've, I've neck, and and other things going on within that or if it was not the main driver.
Yeah.
Very helpful. Thank you.
Yeah.
Okay.
Our next question is from Josh Shanker with Bank of America. Please proceed.
Thank you very much.
Can you talk a little about the strategies that pets best is using to attract customers honestly. The growth. There is you know on a unit basis is very impressive.
I should say the other category, which is mostly pet best I guess.
What what what learnings can you take from their marketing approach, obviously, there's something quite different than yours, but as you launch Bergen.
It's going to have some similar economics to it.
And also may compete with that pets best business.
Is there a cannibalization risk and and and how would that transition sort of play out.
Well we know.
Get into too much details of our partners.
On live calls but.
There's a lot of ways that are differentiated on where people are getting their leads and how they're able to convert them.
I think the growth we're seeing in our other businesses.
Shows you the.
Macro which is veterinarians are needing to.
Charge more and peoples disposable or discretionary income means are.
At a runway one right level I suppose.
Here's a question on an elevated spend on development or elevated spend on acquiring pets.
I mean, I I guess I'm interested in both it does seem like variable expenses for ramped up a little bit compared to the trajectory and I'm wondering if they might convert with the norm now and.
Yep, Yeah got it so Ah no our variable NR fix expensive, we're up combined about 10 basis points.
And in generally we would expect to see a little bit of scale.
Show up over the next couple of years, we have been investing more in our customer experience in working on retention and that is priority number one before margin expansion.
But as my trash.
Trish mentioned earlier, we had a 40 basis points increase in our margin expansion on our adjusted operating income based on our pricing.
And we're pleased with that.
And I cannot as well to that show and just in terms of investments definitely great debates nothing in independent Underpenetrated market. That's a lot of greenfields faith, but to start growing and continue to get the animation, we've seen say I'm from a great perspective as long as we await tasting within a uncle advance a 30 to 40 per cent are all will continue to spend as much as we can and not even.
You can just lay down anytime soon.
Okay. Thank you for all the answers.
Our next question.
<unk> is from Ryan Tunis with Autonomous research. Please proceed.
Hey.
Just a follow up on the the the Orange who.
Coming in a little bit at a lower green. So I mean, what we've seen and you mentioned that had to do with mix. She's hoping maybe you could drawn to that a little bit more is that.
Others few fewer like purebreds or something like that or I, just want to make sure.
You haven't changed.
Kind of the rate of inflation, you think breed by breed is that is that the right way to interpret it.
Yeah, I mean in general there's a lot of different things that can go and kill neck and depending on you know distribution channels regions.
You know the the name next for US has to do more.
With a regional level I mean, our footprint Anthony continued to grow and all the key metrics that you've seen and proves our footprint and bigger and with that Hum different next and at different periods of time that that can evolve and we are we are seeing that a little of that as well as just.
Needed needed rate increases in some of that is regional as well there are certain places like I've mentioned, we're we're seeing needed rate increases due to the.
Cost of it invoices, you know over 10% and some actually based on our data is is lower and so there's really a lot of different things that go into play success for us it's really.
How does that manifest itself in aggregate it in detail as to hitting a 71% loss ratio.
And Ryan.
Just as I get to know the business I'm I'm seeing that.
We grow the fastest in areas, where we've priced closest to R. 71% value proposition that have good lifetime values and.
Irr's and so.
Where we don't have to move price as much as where we grow the fastest and that contributes to a mix.
Got it and.
There've been some concerns broadly obviously that inflation, but I think also in terms of how that might be affecting just general.
<unk> voice I guess, Darryl when you see those headlines about inflation things like that.
Yeah.
To what extent does that bother you like going to places, where where you think that could be packing. You are is impacting your currently.
Well I think there's there's two things to talk about their one is sometimes headlines talk about total spend in the category.
Where when we're pricing we're looking at what's the spend for 1000, Pat what's the average frequency an average invoice for a thousand.
And.
She mentioned earlier, we're seeing the average invoice dollar amounts growing up about 6%. So that's the amount that veterinarians are charging more on average across all of our category.
And the frequency is is normal it's up 0.17% over two <unk> two years ago. So basically flat I mean pets don't suddenly become more sick or more injured.
But if you think about that.
On a on a macro basis.
We think veterinarian need to charge more Ah.
No. The average veterinarian, graduating from University has a lot of that.
We know that it is a very hard and demanding job as a technician people working on the in the front of the house of the back of the house.
And we.
We think it's really important that veterinarians.
Charge more for their services.
From our standpoint that is not scary it actually increases the demand or need for our product.
And our challenge with it is and it's the same challenge we've been running for 20 years. It is we need to monitor the underlying cost and we need to in a timely quickly in a in a very accurate.
Update our pricing and we do that in a very granular way and this has been under trisha's per view now for several years and.
She's.
Making good progress in the margin expansion that we described earlier as proof of it.
Thanks.
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Our next question is from generally with Peppercorn sauce. Please proceed.
Hi, Thanks for the question and I apologize to kind of been labor at this point again, but like to your point you know if you think of it that kind of cost could should go up into more like healthy pace [noise] over the longer term do you think that you'll be able to maintain this level of like pass through to the right.
Increase and over the next several years, what would be the implication to your like retention and gross adds or if they would it would impact my attention at all thanks.
So I can I can kick up with her attention perspective, I think it's a dollar coin a second ago. When you see the demand increase to that service isn't that caryn, especially the the way that that that industry has been heavily and demanded the last few months, that's more of a need for a product since they were solving.
A problem and that it felt more and none will stay them with the member directly and we look at retention rates and to the point of the candidates for the granular level the cost of the monthly invoice to remember as long as the value proposition is right at opposite of attention has not impacted until we had to see the best retention rates were priced appropriately a price of private ebay.
And the cost of goods in that specific area for that specific pet so as long as we continue to slice and dice Sunday, So I'm really get into the details of what age. They are members should be paying we're very confident and retention rates remaining as strongly as they are especially with a level of granularity where they can't it today in terms of the the Costco up unhealthy paced again, it's the same.
And when you think about cable data in general across the board. It's one thing, but as we started to get really detailed you know we would expect it wasted I can't cost of goods, making sure that we're pricing appropriately and I'm really helping to reinforce the value proposition. So we don't see any issues and when we look at a market today, we look at it by market by geography by state by region by neighborhood.
We don't see that changing the consistent pattern. There is when you when you priced appropriate their attention and great it's consistent and very strong.
Yeah. We're just re emphasize one thing that Martin sandwiches. He is we need to stay on top of that and the team. We then increase the size of the team to really focus you know through our 16 month plan on staying on top of the trends are increasing the.
Quincy and granularity that we're monitoring and filing for these adjustments as they're needed. If we do that Wow and we've done this well historically as you can see from our results. We can always do better and we're working you know on continuing to do so if we do that as well we shouldn't see.
Dramatic impact to retention when you see dramatic impact says when your web customers around because you don't get their attention right or or you're delayed and you don't get the pricing right under a delay than living it as opposed to being on top of it. So that that is the key to that said and if we do it while we shouldn't have issues.
And on the retention side.
Great. Thank you for the first sorry I'm sure.
Our next question is from David Westenburg with Guggenheim Securities. Please proceed.
Hi, This is John on for do Thanks for taking my question, we saw a private equity firm who owns the second largest and it'll help hospital group require a pet insurance company recently do you think this is one off or part of a trend and would you say that consolidators owning pet insurance is good for the industry.
Okay.
[noise].
[laughter].
You know we would expect over the next 10 to 20 years to see.
The same level or even greater number of new entrants. So over the last 20 years. We've competed against 60 plus brands.
And today, there was about 22 brand in the marketplace twenty-four brands.
<unk>.
The ownership groups they tend to be either owned by a marketing company is or underwriters.
In some cases, you can have partnerships with that I have some agreement with some type of channel I think all those business models makes sense.
From our perspective, if we're offering the best value proposition with the best customer experience.
We've got a national Salesforce, calling on the veterinarians, which not only helps on leads but retention and conversion rate I think we're well positioned and it's hard to predict you know who's going to be the new entrants in the marketplace or not doesn't really better to us too much.
Great. Thank you.
Our next question is from John Block with Stifel. Please proceed.
[noise] great. Thanks. This is Tom stepping on for John Thanks for the questions just to start off on a few tried direct infecund any early learnings in Canada that you'd be willing to share and then what's the latest on the timing of the U S launch.
Yeah say P. A signed all right since I can basically once back in and throw in the middle of the quarter is still really on a day to them I think that I'm very happy with the way they've been adopted in the market. We're seeing some good league right, which is good. It's positive sign is definitely a need for products like them. As a reminder, the reason we've introduced them to the market.
It is to really create class twin lane and clarity of points of difference between the three different types of products available. They three being ph I did the right thing cause like half the time value proposition. So I came back in the midst caused my body appropriate they shouldn't entry opinion being the best coverage with the highest value prop.
We've seen as I said strongly volume we're already working on conversion rate when we get conversion rates to the point, where we feel that it's ready to go ahead, and we're bringing to the U S market and are unhappy with with what we've seen so I thought I think the biggest thing I see that sort of isn't necessarily and she was safe.
Hi, Infecundity products that we the first few products about 16 months upon the way balloons and one of the things that we've really focused on is how can we maintain the growth and performance at the cool business without disrupting it by launching these two products cause I'm really pleased to say the teamster fantastic job across the board launching these two products to market without any disruption of tool, which.
Just for us to real fine of of positivity as we move into the next phase of US 18 months plan.
And let me that brought up.
Great. That's helpful. And then maybe just a two parter quickly on the Apple I O S changes any impacts to Leeds or conversion you guys, maybe or maybe not.
Experiencing and then.
Just the.
The subscription gross adds you know they've been I guess, increasing sequentially throughout 2021, but kind of at a fairly modest piece can you talk to your conviction sort of need and the ability to to grow those.
I hadn't accelerating read into 2022, and you know while still staying within the 30% to 40% IRR guardrails. Thanks.
Yeah. They Apple we aren't she didn't see anything major change when I mean, we were anticipating the changes everybody was so the teams already rallied and come up with ways that we could solve any potential issues. There in terms of lead volume.
We have a number of different tunnels that we've been able to tap into as we've gone through the last 18 months and we'd go bachelorette deploying unconscious, though which meant that we could fill in the gap.
So I'll need volume is continuing to rise course favorite cool testing very strongly right as well as conversion rate conversion rates across the board from web to thing.
The new changes that and and anticipate there shouldn't be anything and further down the line intensive subscription gray sides and I think we've we've been increasing quite dramatically over the last few quarters and I'm I'm happy really happy with the way. The team is deploying more capital when we think about the the fact that we're always though pricing within a guardrail stay within that 30 to 40 per.
And I saw a target to spend as much as we possibly can to grow in the market.
We are very encouraged by what we see not just within a cool channels, but as we add new channels into the mix and as we start to get more granular with growth in the team and focus on the team with the data points to see what K, who can we grew at what rate can we great. How quickly can we grow with him as long as we you know we keep finding new.
Ways that we can expand whether it's lead related conversion at 18 and know if they're retention, which is it's helpful for a friend and other pet you know we feel very very positive about like going into 2020, and say we have already strong momentum across the board and I'm looking forward to seeing that growth continue.
I think I would like to kind of just level set from my perspective, I mentioned early opening remarks, but if.
If in.
In 2022 are net growth is flat from 2021 will see our revenue and adjusted operating income grow by 25 plus percent year over year, which to me is phenomenal growth.
I know, we have a lot of things in our plan will want to be more ambitious than that but we've got a lot of momentum going into 2022.
I think the teams, but doing an incredible job executing.
Very helpful. Thank you.
Yeah.
Our next question is from Elliott Wilbur with Raymond James. Please proceed.
Hi, guys. Thanks for taking my questions. This is actually Michael corollary on for Elliot. So I guess, we talked a little bit about inflation in the business earlier, but can you just kinda talk about some of the other T items that are driving the higher but tickets and if these calls are seen as like more of a permanent step up or or a temporary and then also.
So with the vet capacity problems, you know like that's getting overwork and.
The shortage of technicians, just talk about any sort of impact that that might have on your costs are your business model. Please I appreciate it.
Sure Michael I can start and others others can can chime in I mean overall cost that we're seeing ticket wise on the vet invoice has you know like we mentioned earlier right now we're seeing those costs increase on average that's here about.
Six per cent. So in line with what we would expect you know in general are are a business model is created so that you know that's veterinarians and pet owners can take advantage of you know any procedures that are designed to help the pet him and so we encourage.
You know that like girls that we encourage you know higher higher salaries Hill veterinarians and there's thousand higher levels of Madison and our job is to monitor those costs and price appropriately you know we've done that pretty well and will continue continue to do so so so we encourage that.
I don't know if others want to comment on the staff or just to kind of give US. An example on this I mean.
We we have many many markets and regions across North America.
You know, we have a a city where.
Year over year, the in veterinary inflation has begun up 15%.
We were price accurately the previous year and rates went up approximately 15% keeping to our value proposition and our growth rate is greater than 30% year over year or conversion rates in Leeds and retention are up all across the board in that market. So if we have.
Have a greater rates of inflation.
Will be on it and it's good for our business and we have many cohorts in many points of history to say that that's good for our business, but as Chris mentioned before it's we have to monitor very closely and very Granularly and that's what we do and I would just add a small from a failed perspective, we do have the capacity.
The problems, we understand that there is a shortage on just the technicians, but across the board and in many ways and the problem, we're solving as to help us get the cat they need when they need it and in order for them to get the cat they need when they need it they need to have that that can support them and not technicians. That's fun desktop it's worth it's everybody.
And the conversations we're having with our partners spectrum of territory. Upon it for spite say if the people that have got those deep relationships in the field is the way that you support the business no matter, what and that seemed to do the right thing by that that team by themselves into that business to be able to treat the pets. They went into practice to treat their pets and to get him the care. They need so we're solving that problem with him when he was thinking.
That growth continue and stylus point in areas, where that we've kept up our value proposition, we're seeing that they the less of a demand on the on the hospital directly because they remain that maintaining that pace I as much as we can encourage and support the industry wildey and in our businesses is here to support them for that purpose.
Got it that's helpful. Thanks, guys.
Uh-huh.
Our next question is from Greg give us with Northland Securities. Please proceed.
Great. Good afternoon, thanks for taking the questions and congrats on the promotion group.
With a good follow up on the low medium argue products, where do you see the blended our boots for ending maybe once those new products have seen increased adoption, perhaps relative to the traditional 5% to 6% year over year increases.
Hi, Greg Yeah, I mean, it's it's hard to have a crystal ball in terms of you know the the next of business overall the main thing that we're looking to do it's always make sure that we're pricing to that 71% value proposition.
And and Crazy high exhausted operating income as rather new increases as well so that we can deploy that capital.
Oh do you have anything to add on that those products.
No I mean, I think it's too early for us to know exactly what the impact is going to be but the key thing is just trash mentioned the high profile and they they are just about pricing and comments is consistent with them. So you know we're gonna see mixed opinions changed naturally it changes actually with the cost of scripture and business as we have more products through the Max whether it's parents I'm fucking anything else with it.
But to see that are just as the market great make fun and we're reaching new pasadena's, we're reaching a new distribution channels.
We'll see it makes are coming true.
Okay, Great and nice progress made towards to Tokyo as well this quarter wanted to ask if you had any updated thoughts or <unk>.
Estimations on when you can finally reach Utopia.
I wish I knew the answer to that Greg I think honesty. The team has done a fantastic trajectory were saying the the mixture of two type here again, just to remind remind you. It when we see all of her for a friend and out of pet a ping off that upsetting to chat do we send out today, we've seen tremendous progress to ta from her attention point of view and in.
Doing that and having the best possible member experienced 15 hour for a friend right not to any inquiry. There's a lot of time. It takes the way a rolling outs I think we all we were very close to it we keep making up ground I think when we can do that in a market where we're growing it quickly asked me off from her attention perspective, that's particularly impressive.
And we kind of like giving us tell somebody in headwind, sometimes but I think that the teams are kind of they they keep going through it we're happy and and much science ratios I haven't yet got a crystal ball, but it's not too far away I'm sure.
And Greg if you if you'd like a two year basis, it's almost half from where it was even just two years ago and.
When I look at the book the bigger book gets the more valuable that refer a friend and out of pet business becomes so it's just a powerful part of the flywheel.
Great I appreciate it.
Uh-huh.
Ladies and gentlemen, we have reached the end of the question and answer session and this will conclude today's conference. You may disconnect. Your lines at this time. Thank you very much for your prescription and have a great day.
Yeah.