Trupanion, Inc. Price & Performance (TRUP)

And welcome to the Trupanion Fourth Quarter twenty twenty four Earnings Call. Over to Gil Melchier, Director of Investor Relations. Please go ahead.

Good afternoon. And welcome to DuPannion's fourth quarter and full year 2024 financial results conference call. Participating on today's call are Margie Toof, Chief Executive Officer and President and Farad Khurasi, Chief Financial Officer. For ease of reference, we've included a slide presentation to accompany today's discussion. Will be made available on our Investor Relations website under our quarterly earnings tab. Before we begin, please be advised that remarks today will 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, key operating metrics, opportunities and financial performance, pricing and veterinary industry inflation, and our ability to immediate our material weaknesses. 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, including Form 10 ks, Thank you.

And eight ks 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, cost of paying veterinary invoices 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, is intended to refer to our non GAAP operating income or margin before New Pet acquisition and development Unless otherwise noted, all margins and expenses will be presented on a non GAAP basis. And excluding stock based compensation expense and depreciation expense, These non GAAP measures are in addition to another 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. 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. I will now hand over the call to Margie.

Thank you, Gil, and hello, everyone. 2024 was a significant year for Trupanion Trupanion, marked by strong operational and financial execution. We started the year with ambitious goals, to repair and expand our margins and fortify our balance sheet, while simultaneously continuing to enroll pets with less PAC spend. Against these guiding mandates, I'm pleased to report we delivered Here are some of our 2024 highlights. Subscription revenue grew 20% year over year, and we drove meaningful margin expansion in the subscription business achieving our industry leading 71% value proposition for the second consecutive quarter. In the fourth quarter, we achieved the highest quarterly subscription adjusted operating margin in our history, more than doubling our margin from a quarterly low point in early twenty twenty three. For the full year of 2024, adjusted operating income grew nearly 40 a record $114,000,000 We also generated $39,000,000 in free cash flow, an all time high with the vast majority of the improvement being driven by higher adjusted operating income. In our large underpenetrated market, our focus is on growing adjusted operating income and strategically reinvesting at high estimated internal rates of return, to help more pets receive the care they need. Time and again, our team has demonstrated their ability to deliver on this objective and 2024 was no exception.

In line with our mission, we reached a major milestone early in the year, protecting more than 1,000,000 cats and dogs of which approximately 257,000 were added over the last twelve months. The vast majority of these coming from our flagship Trupanion branded products. Our consistent and proven ability to grow pet count in spite of our purpose for decision to reduce acquisition spend for five consecutive quarters directly illustrates the growing demand and need for our product in support of pet parents today. Trupanion's commitment to our members is at the heart of our business. And upholding our value proposition has been and will continue to be the driving force of our In 2024, we continue to invest meaningfully to improve our best in class member experience, including advancements in our software that eliminates the need for reimbursement. In doing so, we made significant progress across our claims experience, with record levels of direct payment and speed of traditional claims payment, resulting in a claims inventory near to all time lows. Just three months ago, we hit another milestone. Surpassing $3,000,000,000 in paid veterinary invoices, the last billion dollars being achieved in less than twenty four months This unmatched level of veterinary invoice support directly demonstrates the growing role Japanion plays in solving the new normal in veterinary care.

As we extend our support to an increasing number of pet parents, we remained focused on ensuring members feel confident in the value Trupanion provides. While there is still work to be done refining our pricing across every cohort, such as making necessary rate adjustments where needed and maintaining rates where costs have stabilized we have reached a solid foundation on which to build. We're pleased to now be largely in a phase of refinement leading to lower average increases that make budgeting easier for our members. Of course, the real proof of our product is in our member retention. And as we close the year, we saw continued strengthening across all retention cohorts, especially with members receiving a rate increase of over 20% where most of our business sits today.

In fact, fourth quarter retention for this cohort was among the highest rate of retention for over two years. With rate flow normalizing, we've been adjusting our retention effort to span across our entire member base. Including those in their first year and with rate changes of less than 20%.

And we're encouraged by the early improvements this focus is making. Thanks to our strong ARPU growth and margin expansion, we saw a 45% increase in our per pet profit even with the anticipated pullback in retention. This expansion is what increases our allowable per pet acquisition costs. Ultimately setting the stage for greater investment in pet growth. With regards to hospital performance, we ended 2024 with strong veterinary lead volume, an all time high in veterinary hospital using our direct payment solution and over 15,000 active hospitals. Building on this foundation, we took a significant stride forward during the year with the launch of our Veterinary First strategy in international markets. With the introduction of the Trupanion brand in Europe. Pet parents in Germany and Switzerland, which is home to approximately 12,000 veterinary hospitals, will now have access to Trupanion's high value product, [indiscernible] We have also continued our minor investment into newer products and channels, with the purpose of reaching pet parents where they are, in partnership with household brands to connect with those with differing consumer needs. In our large underpenetrated market, these opportunities enhance our long term growth potential and with it, our intrinsic value.

To summarize, 2024 was a very strong financial year and a turning point for the company. We made meaningful progress and achieved what we set out to do. We've developed a solid and scalable foundation, financially and operationally. So now we'll turn our attention to the year ahead, the final year of our sixty month plan. In 2025, we anticipate steady sustainable growth in our subscription We expect margins to continue to expand and rate changes to normalize. Driving increased profit per pet and improved retention. We'll step up our pet acquisition investment in tandem gradually increasing spend as the year progresses. Our confidence in our margin trajectory is reinforced by recent trends in veterinary inflation which continue to align with our expectations. Veterinarians typically raise prices at the start of the year, contributing to a seasonal step up in costs that drives stronger margin performance in the second half of the year. While early into 2025, we're seeing this pattern play out and anticipate a similar yet improved margin journey throughout the next twelve months. At the same time, the progress made over the last quarter, increasing active hospitals and veterinary needs has reinforced our confidence in our team's ability to accelerate pet growth as we ramp up acquisition investments Our approach to this acquisition spend is designed to reinforce creating a brand halo effect that benefits not just the veterinary channel, [indiscernible] This investment also plays a key role in improving retention.

Particularly among first year members, reinforcing the value of Trupanion post enrollment. Having scaled back in this area over the past year, beginning to rebuild momentum and brand awareness. Similar to prior years, majority of our Pet acquisition dollars will be reinvested into growing our core Trupanion brand in North America. This remains the foundation of our business and our primary growth engine. Underpinning our anticipated growth is our commitment ongoing investment in our systems and infrastructure, In 2025, we expect to build on the use of new technology designed to elevate the member experience retire legacy platforms, strengthen our control framework to ensure long term scalability and effectiveness. Along these lines, I'm pleased to share that as part of our 2024 audit, we are on track to remediate the two previously identified material weaknesses. This progress towards a successful resolution highlights the diligent efforts of our team in strengthening internal controls and implementing sustainable processes. I want to take a moment to recognize the tremendous work and dedication from everyone involved. In total, if we achieve the growth goal shared today, by the end of our sixty month plan, we would expect our compound annual revenue growth rate to be 23% robust and just shy of our 25% goal.

Growth in adjusted operating income would be near to 20%.

This last metric, if delivered, will be a significant achievement given the margin erosion caused by veterinary inflation following the pandemic. Exiting 2025, we expect strong fundamental performance across key metrics, including retention, ARPU and margin, with a gradual step up impact growth. Growth in these metrics along with the expansion in our active hospital base and same store sales is central to our business model and long term value creation. By continuing to drive these core metrics, we aim to create even greater value in the year ahead. Setting the stage for sustained momentum in 2026. [indiscernible] While we still have time to run on our current strategic journey, I go into this final year with tremendous gratitude to the team that has made these results possible. Time and again, this team has demonstrated their commitment to our members, and those in our ecosystem. And with it, built a strong track record of success. With that, I'll hand the call over to Fawad.

Thanks, Margie, and good afternoon, everyone. Today, I will share additional details around our fourth quarter performance as well as provide our outlook for the first quarter and full year 2025. Total revenue for the quarter was $337,300,000 up 14% year over year. Within our subscription business, revenue was $227,800,000 up 19% year over year and up 20% on a constant currency basis. Total monthly average revenue per pet for the quarter was $76.02 up 13% over the prior year period. Within our core Trepanion brand, ARPU expanded even faster at 14% year over year and 15% on a constant currency basis, marking our highest rate of growth in the company's history. Total subscription pets increased 5% year over year to over 1,041,000 pets as of December 31. This includes over 51,000 pets in Europe a majority of which are currently underwritten by third parties. Average monthly retention for the trailing twelve months was 98.25 down versus last year, which was 98.49%. On a trailing three month basis, retention was up sequentially from Q3. The subscription business cost of paying veterinary invoices was $159,500,000 resulting in a value proposition of 70% an improvement from 72.7% in the prior year period.

The drivers of this improvement were margin expansion from our ongoing pricing actions, and continued efficiency in our cost of processing invoices. These improvements more than offset adverse development from prior periods in the quarter totaling $700,000 or approximately 30 basis points of revenue. As a percentage of subscription revenue, variable expenses were 9.2%, down from 9.6% a year ago. We have made significant investments in technology and are now realizing efficiencies in our contact center on top of the cost improvements in invoice processing I just mentioned. Fixed expenses as a percentage of revenue were 5.5% up from 4.7% in the prior year period in line with our expectations. This is the result of significant additional investments in internal controls, technology, and SOX Compliance. In that regard, we have made substantial progress in remediating the two material weaknesses identified in the 2023 audit. While the final outcome will be determined upon completion of the 2024 audit, we remain on track to remediate these two items and we expect to file our 10 ks on I would like to extend my gratitude to everyone at Trupanion for their dedication and hard work throughout this process. 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 $35,000,000 an increase of 40% from last year. Subscription adjusted operating margin was 15.3% of [indiscernible] This is up from 13% in the prior year and represents approximately two thirty basis points of margin expansion. This represents the highest subscription adjusted operating margin in our company's history. Now I'll turn to our other business segment, which is comprised of revenue from other products and services that generally have a B2B component and a lower margin profile than our subscription business. Our other business revenue was $109,500,000 for the quarter, an increase of 5% year over year. We expect growth for this segment to continue to decelerate to decelerate as one of our partners Pets Best has completed its transition to a new underwriter in the majority of U. S. States we are no longer enrolling new pets in those geographies. Adjusted operating income for this segment was $800,000 Adjusted operating margin for this segment was 0.8% down from 2.4% last year. Margin for the quarter was inclusive of a $900,000 accounts receivable write down.

If we were to exclude this one off expense, adjusted operating margin would have been approximately in line with the first three quarters of twenty twenty four.

In total, 200 new subscription pets in the quarter, and deployed $16,900,000 to do so. Excluding the pets that are underwritten by a third party, this translated into an average pet acquisition cost of $261 per pet in the quarter up from $217 in the prior year period. The estimated internal rate of return on this spend was 32% in the quarter in line with our target of 30% to 40%. We also invested $1,300,000 in the quarter in development costs. Non cash expenses in the quarter included $8,000,000 in stock based compensation compensation as well as a $5,300,000 goodwill impairment charge related to our year [indiscernible] This impairment was taken after completing a detailed business review in which medium term profit and cash forecasts were lower than previously assumed. We remain excited about our long term prospects in Europe. As a result, we reported net income for the quarter of $1,700,000 or $0.04 per basic and diluted share compared to a net loss of $2,200,000 or $0.05 per basic and diluted share in the prior year period. In terms of cash flow, operating cash flow was $23,700,000 in the quarter compared to $17,500,000 in the prior year period. $1800000.08300000.0 dollars improvement from the prior year's fourth quarter.

On our third quarter twenty twenty three earnings call, we introduced an annual free cash flow target at 2.5% of revenue. We exceeded this goal in 2024 by generating free cash flow of $38,600,000 a margin of 3%. This represents an improvement of $38,200,000 over the prior year and puts us in a very strong position to further increase our investments into pet acquisition. Turning to the balance sheet. We ended the quarter with $307,400,000 in cash and short term investments. At the end of the quarter, we maintained $288,000,000 of capital surplus at our insurance subsidiaries. Our largest insurance entity, APIC, maintained $245,500,000 of [indiscernible] which was $140,200,000 above the company action level risk based capital requirement. This excess capital has increased by $78,200,000 since year end twenty twenty three due to changes in underwriting risk factors used in the calculation of risk based capital requirements by the NAIC the retained earnings within APIC and the slowing growth in our other business. Now I'll turn to our outlook. For the full year of 2025, we expect revenue in the range of $1,379,000,000 to $1,414,000,000 We expect subscription revenue in the range of $961,000,000 to $984,000,000 representing approximately 14% year over year growth at the midpoint and approximately 15% on a constant currency basis.

We expect total adjusted operating income to be in the range $120,000,000 to $140,000,000 or 14% year over year growth at the midpoint. We expect fixed expenses to increase as a percentage of revenue in 2025 due to higher underwriting fees in Canada, and continued investments in technology and compliance but remain committed to our model P and L over the medium and long term. As in 2024, we expect to generate higher margin in our subscription business in the second half versus the first half and our deployment of pet acquisition dollars should mirror this seasonality. With that as context, I'll move to our Q1 outlook. Total revenue is expected to be in the range of $334,000,000 to $340,000,000 Subscription revenue is expected to be in the range of $230,000,000 to $233,000,000 This represents 15% year over year growth at the midpoint and 17% on a constant currency basis. Total adjusted operating income is expected to be in the range of $26,000,000 to 29,000,000 This represents nearly 29% growth. Year over year at the midpoint. As a reminder, our revenue projections are subject to conversion rate movements predominantly between The U. S. And Canadian currencies. For our first quarter and full year guidance, we used a 69% conversion rate in our projections which was the approximate rate at the January.

Let me now pass it back to Marty.

Thank you, Fawad.

Before we move to questions, I'd like to underscore a comment Fawad made earlier. The last quarter of twenty twenty four marked the highest subscription adjusted operating margin in the history of Trupanion.

While as a growth business, we're always focused on achieving new highs, This one comes with some significant pride and a return to normalized rate flow for our member base. I fully expect this improvement will benefit our member experience. But in turn will enhance our retention rates and member referrals, which along with increased ARPU and margin expansion will increase our perP profit throughout the year.

This gives me confidence that as a business and a team, we will exit 2025 with the highest per pet profit and expanding allowable pack we have ever seen giving us the opportunity to return to our historical growth rates in our underpenetrated market. Over 95% of pet parents have yet to make a choice about insurance. The opportunity is enormous and we will be very well placed for growth. With that, I'll turn it over for questions.

We will now begin the question and answer session. The first question comes from Brandon Vasquez with William Blair.

Please go ahead.

Hi, everyone. Thanks for taking the question. Maybe if I can start first on guidance. [indiscernible] I know we've talked in the past about how PAC spend needs to pick up and then there's a little bit of a delay behind that. So just a little more context on the rest of the three quarters there that we didn't get if I could, just to make sure we have the models kind of lined up?

Yes. Thanks for the question. Let me give you a couple of dimensions in terms of guidance and kind of the thinking behind it. Obviously, it's grounded in the 24 results, which gives us a lot of confidence in terms of being able to continue to grow margin, expand margin as we get into 2025. I think as you pointed out, the thing that we're really excited about is all of the work we did in 2024 increase financial capacity through free cash flow. It now gives us the ability to invest those dollars years in a row, the company has reduced total PAC dollars obviously out of necessity. That's been really unusual. If you look at the company's history, I think over the last ten years, there was only one year where it was flat, as Margi said, and we say constantly, we're a growth company. So we're going to deploy PAC investment at increasing rates as we go through the year. Our objective or our goal is to try to approach the level of investment that we hit in 2022. On a total dollar basis, that was about $80,000,000 and that would be a significant step up in investment.

So it'll be gradual It'll always be within the guardrails. We want to be prudent as we deploy that capital, but having the financial capacity, having generated the free cash flow, that's given us choices and we're in a position where when we see great opportunities for investment and obviously we're seeing those, we can invest. So it will be a progression through the year. Think if you look at mix in terms of how much pricing has contributed, how much pet count has contributed, Coming out of last year in Q4, it was about 60% pricing, about 40% related to pet count. So we have been increasing pets even over the last two years. Gross adds have been north of 500,000. We have a standard that we've set where we want to continuously grow And so we're looking for more so in the second half of next year for headcount to contribute more than it would in first half.

And that's as a result of deploying those dollars Great. Maybe on on a similar but slightly different angle on that topic of growth through the year. Margie, you made a comment about being in record number of hospitals now. Sometimes they use that as kind of a gauge accounts that are bought in on the Trupanion kind of model here. What does that mean? What are you guys seeing in terms of vet leads given that kind of your your leading indicator of as you put more money towards PAC, you kind of go to those vet leads to close more. So talk to us a little bit about vet leads, anything would be very helpful. Thanks.

Yes. Thanks for the question, Brandon. You're obviously right. As we see the hospital activity increasing and really our goal is to continue to expand on that quarter over quarter. We that does is it means that we're really getting to more of those pet parents as they go for their wellness visits. They meet the vet for the first time and they have that introduction of Trupanion. We're seeing is in Q4, our vet leads overall were up 30% year over year. So really strong lead generation from that moat, which is our territory partners, those people that are going into hospitals and having that conversation. We're now focused on and to lean into forward's point there is to deploying those pet acquisition dollars to really reinforce the conversion element of Trupanion Trupanion. So why is Pet Insurance important to start with? In a a very underpenetrated market today, we're still focusing on that edge We're still helping people to understand what the cost of care is for their pet And then from there, reinforcing from a brand perspective. So the increase in acquisition dollars will allow us to really dip into that bigger brand effect, which we expect will help to pull those leads through the funnel.

The great news is for us, our VAT volume has always lead volume has always been high throughout the year where we saw a get at the end of Q4 and again kind of looking good and healthy in January.

Is really a case now for us to take that opportunity, redeploy those PACT dollars to help to step up that growth curve.

And the next question comes from John Block with Stifel.

Please go ahead. Thanks guys. Good afternoon. Just the first one, the 4Q twenty four gross adds were quite honestly pretty far well below us and they've been modest for an extended period of time now. So what do you think this is? Is this like a lead problem, a conversion problem?

Maybe if you could just give a little bit more detail and then more specifically when you expect that to really pick up in in 2025?

Yes. Hi, John. Thanks for the question. So for 2024, our big focus, we really had three goals going into the year. The first was margin Trupanion. Second free cash flow and third balance sheet strength and really kind of reinforcing that financial strength of the company. We achieved all three of those goals.

And our margin expansion was absolutely at the top of that list. We think about what that means for us, it allows us now to pivot to our twenty twenty five goals, which are really very clear for us as a business. One is improving conversion, the second is improving retention. Both of them will help to ultimately drive that higher lifetime value. So as we think about margin [indiscernible] Where our focus has been as a business hasn't been on let's convert more pets in 2024. It's been about those top three goals. We're now pivoting to what Japanion has historically done very normally. It's in RDN in terms of helping to convert people, helping to understand why Trupanion. Trupanion We have a very high lead volume coming into the business and that hasn't really shifted significantly over the last eighteen months as we pull back up ad spend. But what we did pull back was the dollars that really helped to drive us through the funnel, so drive that pet parent in places where they are. So that might be above the line media, it's more social media, it's more getting the eyeballs into the content that we're providing.

And producing. That hasn't been something that we've been investing in. Even in Q4, while we did see a step up in the back half of the year of pet acquisition spend, it wasn't meaningful enough to really move the needle. We're now building that up nicely. We have some higher life term value coming through. It increases our level pack. And as those pack dollars build and reinforce, I would expect over the next two quarters to start to see that move nicely. As Paul mentioned, at the back half of this year is really where we expect to see the elevation of those PAT dollars and really have them starting to compound for us.

That was great. Thank you. And maybe just a little bit of a two part follow-up. The subscription revenue guidance, I've got 92% at the midpoint.

Also a little bit below us. For what I might have missed what you said. Did you say driven 60% price, 40% pet My apologies. I didn't know if that was for 25% or prior years. Maybe you can clarify because I am curious on the split between call it the ARPU contribution and pet growth specific to 2025? And then I need to go back to the pet adds or the gross adds, but at some point, The dynamic needs to shift right from being overly dependent on ARPU to more pets. So I'm just curious when we think about the gross adds, like, do you need those lower ARPU plans to be more successful and get at scale so you can do a better job competing for call it the more cost sensitive consumer on the margin? Thanks.

Yes, just to touch on the point that I made. And I mentioned also in the call last time, it's an an approximate mix of how much is pricing contributing versus how much is gross adds contributing to revenue. And that was a '24 comment, so full year of '24. Sorry, November 25. Yes, we haven't necessarily given guidance specifically down to that level of granularity. I think what I can say is, obviously, as we're looking to increase the PAC investment, the historical has been the opposite. It's more pet count driven than pricing driven. Ultimately, we want to get back to that. I would expect that mix dynamic to shift. Much is going to depend on the pace that we've with which we deploy that back dollar. Going to be the dependency.

Okay. I'll just jump in here and quickly speak to the the lower Opu plan. So at a high level, John, I think the biggest opportunity we have as a business today is really helping to really drive our conversion rate. So as we think about where are the biggest opportunities, we already have the leads coming through from our territory partners. Now what we're doing is adding the ability to spend more to drive conversion. Our phone conversion right now is at an all time high despite all of the rate increases in the new pet ARPU that we have. So we have the content and we have the ability to engage. Is a product that has to be sold. This is a product people need to [indiscernible] Now. We've really only kicked off over the last few weeks. So you'll see some early iterations on the website Trying to explain the difference between a Trupanion pricing model and our competition because when pet parents see Trupanion, they're not necessarily going to see a like for like product. We need to do a much better job of articulating this. Frankly, this is an ongoing thing that we need to re step up the pace for.

I will say to your point that currently the other products those lower the other swimlane products, so the PHIS, Perkins of the world that we have we introduce them to absolutely speech to other pet parents. So depending on where they are in their stage of life and what they're looking for, there's an opportunity for them. They are tiny in terms of the contribution to us at the moment. We haven't focused on that because of margin compression. We've really pivoted to our core But I would expect to see them play a bigger role over the coming years It's not where we're going to be focused on in 2025. I should you should expect more growth in our core business and also kind of really reinforcing the reasons why Trupanium. So we haven't pushed that to a degree in 2024 because of the other things we're focused on.

As we move forward, we should see that lift come through. And this is the same we've always been to the same price point. When we think about the delta between us and our competition, it's been the same consistently through this whole period. I know that we've done it historically and as we've proven in 2024, when this team focuses on goals, they deliver and I have no reason to believe that won't happen in 2025.

Thanks guys for the color.

And the next question comes from Wilma Burdes with Raymond James.

Please go ahead.

Hey, good evening. Could you talk a little bit about the outlook for the 2025 adjusted operating margins just based on some quick calculations I think it appears maybe a bit lower than I would have expected. Am I correct on my calculations? And could you just talk about what's driving that? Thank you. Yes. I will. I can just give you some commentary just on kind of what is our guidance, what are our major guidance assumptions. I talked about the PAC investment rolling through the year. The other big factor is inflation. So right now, our [indiscernible] 15%. And so we're still seeing that and expecting that to roll through next year. Obviously, if we see a reduction in inflation and abatement of that, that would be significant positive for us.

But probably the biggest factor in terms of year over year improvement. We're still expecting margin Trupanion. But obviously it's going to be factored into or dependent on the amount of inflation we see. And then in terms of expenses, just to kind of round up the P and L, we are expecting to see leverage across fixed and variable expense.

Fixed will be up a bit in first half and largely due to an uptick in our Canada underwriting fees. I talked about our last call that we wanted to grow into our expense base and that's absolutely part of our plan for 2025. So we will see combined fixed and variable see some leverage as the year progresses. And then we're going to continue to target free cash flow generation. So we have our 2.5% free cash flow as a percent of revenue. As we talked about in the prepared remarks, we were able to achieve 3% tremendously important for us. That gives us the capacity to be able to make the investments that we want to make So we're going to continue to focus on that. Last thing I would say is there are some currency headwinds from Canada. It's approximately for the full year in terms of subscription revenue growth. There's like some of the dimensions of the guidance.

If I can add to that as well, when we think about our overall long term goal, our long term goal is to let 15%. And as Ford said, we are continuing to see margin expansion through the year. Just to sort of put a finer point on that, our expectation is by the end of twenty twenty five, in a two year period, we will have expanded our margin by over 300 basis points. An 80% increase in a two year period. So significant for a margin of our size. And as it expands, keep in mind, so choose our allowable pack. So there's a lifetime value, which is great for growth, which is ultimately where we're intending to get back to in the not too distant future. It's not perfectly at 15% for the full year. The reality is at this stage, there's rates of inflation that are very [indiscernible] the geographies that we're in. At this point, now as we think about filing for rates throughout this year, we're in a stage of refinement. So keep in mind, the first half of twenty twenty five is already benefiting from the rate changes pushed through in 2024. The back half of the year is where we'll start to refine those prices.

And that's really when you start to see the ultimately that retention kick in because you get a more even rate approval for pet parents and we'd expect to see the majority of our book move into the under 20% rate increase, which we know is good for attention. Okay. Thank you. A quick follow-up on that. Just touch on it, but what are you seeing as far as the pricing that's coming in It sounds like what you're seeing is it's in line with the 15% you expect I just wanted to confirm that. And then guess another piece of it, other revenue appears to be rolling off a bit in 2025, can you kind of talk about the drivers there? Thank you. Yes. And from a perspective, right in line with our expectations, we assume 15 coming into the year and we're so far seeing that. We do expect Q1 is obviously the big the big quarter when people put their prices through from a vet hospital perspective. So we're monitoring it very closely, but nothing different to our expectations.

Yes. And then in terms of other revenue, as I've we've talked about over the last four, five quarters, that business is in secular decline had consecutive quarter over quarter reductions in pet bonds. We expect that's going to continue. It's largely ARPU driven. The reason for revenue still being up slightly But yes, the pace will be dependent on the the pets rolling off. And I would expect that that that will continue over the next couple of years as we roll out the book. But for the most part, the increase in revenue that you're seeing is ARPU driven. Petspace has gone through the same experience. So we have they've seen margin compression and have had to take pricing actions as a result.

Okay. Thank you.

The next question comes from John Barnidge with Piper Sandler.

Please go ahead.

Good afternoon. Thank you for the opportunity. We you talk about the normalization of pricing increases, love to hear a bit more about that. There is a a history of your pricing increases on the anniversary and there's a dynamic where the written needs to earn in.

As we get into the second half of the year and that normal earn rate increases for 25% will remain in excess of 15%? Throughout the year? Thank you.

Yes. Thank you for the question, John. So we do expect to see rate increases remaining in excess of 15%. So as we think about the pricing flowing through the back half of this year, and again, it does depend on what we seeing in the first quarter that will dictate our pricing strategy in the back end of the year. But we expect [indiscernible] than it has been over the last two years. So that's where we talk about the normalization of rates. It's getting to the realm of where our pet parents typically will sit and in theory will then help people to budget for the unexpected cost of pet care because they know what they're going to see from their monthly premium. That in turn will help from a retention perspective. In terms of the rate earning, we expect as that starts to come down, that mix of business potentially will shift slightly, but also that leans into our growth as well. When we think about the geographies we're growing in, we're going to naturally see a bit of a mix change anyway because we will start growing more broadly across the geographies we're in today. Does that answer your question?

It does. Thank you. And my follow-up question on the book goodwill write down, can you talk about how far off the markers they were in the decision to write that down. Thank you. Sure. Yes.

So on the goodwill impacts yes, through our normal process of evaluating goodwill. So this pertains to Spark [indiscernible] The two acquisitions. And in the case of SmartBus, I think one of the factors was just the delayed launch of Trupanion Europe. In Switzerland and Germany to the end of twenty twenty four. And so as a result, we had adjust the valuation model accordingly.

And then in the case of PetExpert, we're really we are really trying to focus on fewer markets and a result put on hold growth plans in Poland. We're still committed to the business. There are additional countries Czechia, Slovakia, Belgium. We just happen to kind of push those out because we felt it was more appropriate to focus on the existing business. So those are the drivers of the goodwill charge.

How much of the $37,000,000 that remains on the balance sheet is related to the two properties specifically?

Thank you.

Yes. The majority of the goodwill that we have today is related to our Aquarium acquisition.

The SmartPaws write down effectively reduced the goodwill on that to zero. There is still some remaining on FedEx, but it wasn't a complete write down.

And if I can just add, as Fot mentioned in the in the earlier remarks, we're still very excited about this. We're really eager to do is ensure that we're reinforcing our focus in areas where we see that we have the greatest opportunities today. The long term roadmap hasn't changed in terms of international Trupanion. And we're really happy see that we've got that German and Swiss entry market entry point in the back half of last year, which will help us to build this year.

This concludes our question and answer session. The conference has now concluded.