Trupanion, Inc. (NASDAQ:TRUP) Q4 2022 Earnings Call Transcript

Trupanion, Inc. (NASDAQ:TRUP) Q4 2022 Earnings Call Transcript February 15, 2023

Operator: Greetings and welcome to the Trupanion Fourth Quarter and Full Year 2022 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laura Bainbridge, Investor Relations. Thank you. You may begin.

Laura Bainbridge: Good afternoon and welcome to Trupanion’s fourth quarter and full year 2022 financial results conference call. Participating on today’s call are Darryl Rawlings, Chief Executive Officer; Margi Tooth, President; and Drew Wolff, 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 a high degree of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed.

A detailed discussion of these and other risks and uncertainties are included in our earnings release, which can be found on our Investor Relations website as well as the company’s most recent reports on Forms 10-K and 8-K filed with the Securities and Exchange Commission. Today’s presentation contains references to non-GAAP financial measures that management uses to evaluate the company’s performance, including without limitation variable expenses, fixed expenses, adjusted operating income, acquisition costs, internal rate of return, adjusted EBITDA, and free cash flow. When we use the term adjusted operating income or margin, it is intended to refer to our non-GAAP operating income or margin before new pet acquisition and development expenses.

Unless otherwise noted, margins and expenses will be presented on a non-GAAP basis, which excludes stock-based compensation expense and depreciation expense. These non-GAAP measures are in addition to and not a substitute for measures of financial performance prepared in accordance with the U.S. GAAP. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to the most directly comparable GAAP results, which can be found in today’s press release or on Trupanion’s Investor Relations website under the Quarterly Earnings tab. Lastly, I would like to remind everyone that today’s conference call is also available via webcast on Trupanion’s Investor Relations website. A replay will also be available on the site.

With that, I will hand the call over to Darryl.

Darryl Rawlings: Thanks, Laura. Revenue for the year grew 29% year-over-year to $905 million, marking another year of strong growth. We ended the year with over 1.5 million total enrolled pets. The consistency of these results demonstrate the benefits of our monthly recurring business model and a large under penetrated market. With inflation in veterinary medicine continuing to outpace that of a pet owners’ disposable income, the need for our products will continue to grow. Total adjusted operating income grew 14% year-over-year to $89 million. As a percent of revenue, our subscription adjusted operating margin was down 100 basis points year-over-year as the cost of veterinary care grew faster than we initially predicted. Long-term, expansion in our adjusted operating income will make it easier for us to deploy greater sums of capital and high rates of return.

In 2022, we deployed $80 million of these funds, acquiring pets and an estimated internal rate of return of 30%. We also invested approximately $16 million on two acquisitions that gained us access to Continental Europe. In doing so, we nearly doubled the number of veterinary hospitals in our addressable market. Further, we added two new distribution channels in North America and continued to work on our new low and medium coverage brands, including significant investments in our infrastructure to support these growth initiatives. In 2022, our balance sheet and access to working capital provided us the funds to do so. Margi will provide additional commentary on the progress against our 60-month plan momentarily. Although these are very early days, we are pleased to have these initiatives in market with the majority of upfront spend behind us.

As we have said before, we expect it will take years to build momentum. This is a characteristic we understand well with monthly recurring revenue. Our low margin other business segment grew revenue by 51% year-over-year and adjusted operating income was approximately $10 million. As a reminder, we are required to hold cash in the form of capital reserves to support this growth. In aggregate, these capital reserve requirements totaled approximately $60 million, which is more than we have earned in our adjusted operating income for this business segment over the same time period. In effect, our other business segment has been limiting our ability to deploy capital at higher rates of return. With this in mind, we have been working towards a long-term agreement with our large partner and our other business to more effectively utilize our capital for our subscription business.

Through our new agreement, existing policyholders will now stay with Trupanion for a minimum 3-year period. We expect the majority of new business to be issued by a different underwriter as early as Q2. Any new pets that we underwrite moving forward will be at a more reasonable margin. Looking ahead, we will be prioritizing our capital deployment for our entire business in areas that deliver us the highest returns. In 2023, our focus will be on continuing to leverage our veterinary leads in North America and further strengthening our balance sheet as main drivers of value creation. With that, I will hand the call over to Margi.

Margi Tooth: Thank you, Darryl and good afternoon everyone. I’ll echo Darryl’s sentiment that it was a strong growth year for Trupanion. We deployed $80 million to acquire nearly 260,000 pets at an estimated internal rate of return of 30% on a trailing 12-month basis. We also added approximately 29,000 additional pets in the fourth quarter through two acquisitions in Continental Europe. Excluding these pets on new pet growth of 15% benefited from robust leads led by the veterinary channel and a modest improvement in conversion rate year-over-year. We delivered this growth while maintaining our strong levels of member retention. Absent on new products, the average Trupanion pet stay with us for approximately 77 months in 2022 which we believe to be significantly higher than the industry’s average.

Drew will provide commentary on our overall book of business momentarily. With our territory partners consistently back in the field in 2022 and the rising cost environment making high quality medical insurance more relevant than ever, we saw good engagement and returns from the veterinary channel. Positively, we also saw a notable uptick in veterinary adoption and the use of our software solution that enables us to pay member invoices directly to the hospital at the time of checkout. This was especially prevalent in the second half of the year as inflationary pressures took hold and we ended 2022 with our software in approximately 8,000 hospitals across North America. This is up over 24% from the prior year, the highest rate of deployment yet.

Our territory partners and their relationships with veterinarians and their staff is a core moat around our business. In November, we hosted our first in-person territory partner conference in 3 years. We were thrilled to be together again in-person to celebrate wins and setup execution for the year ahead. As a reminder, our PAC spend is all inclusive and our estimated internal rate of return for the fourth quarter of 31% reflects the cost associated with the conference. Absent the spend, our estimated IRR would have been about 2% higher. This is a trade-off we are happy to make with much of the anticipated benefits still to come. I am encouraged by the discipline the team show with PAC spend in the quarter, particularly in light of the margin pressure we face in the back half of 2022.

We will lean into this discipline even further in €˜23 as we look to drive IRRs to the higher end of our guardrails. We also continue to take actions to get ahead of the changes we are seeing in veterinary medicine. Since we last spoke, we have an additional 4% pricing increase approved, including approvals in two key states. Absent the impact of changes in mix, we now have the total pricing increases of 15% flowing through our book exiting this quarter with another 3% imminently planned. As a reminder, pricing changes are applied immediately to new pets, but flow to our existing book over a 12-month period. In December, our average pricing increase was 8.5%. In January, it was 11.2%. In February, we expect it to be 13.1% and March 14.4%.

This will continue to build through the year. The team is working diligently to get back to our 15% margin target by the end of this year. With pricing actions taking effect, we are focusing on our member retention efforts to get ahead of the anticipated pressure on this metric. We have yet to see any material impact should these rate changes come through given the 12-month roll-on, but we fully expect them to. Nevertheless, the ARPU increases resulting from these rate adjustments should more than offset any impact to revenue. More importantly, pricing increases will hold us to our pricing promise of 71%. Ultimately, it’s this promise of value that will enable us to keep our members for the life of their pet. We remain steadfast in our mission to help pet owners budget and care for their pets.

In the years ahead, the need for our product will only grow and continued focus on our mission will ensure we are able to support as many pets as possible. And speaking of such support, in the final days of 2022, we surpassed the milestone of having paid out over $2 billion in veterinary invoices. This is a milestone no other provider has reached as quickly as we have and it’s a testament to the problem we are solving. How many of those pets would not have survived without Trupanion? The Trupanion brand, the main focus of my commentary thus far, remains the primary engine behind our reportable performance. As Darryl mentioned, in 2022, we also made progress against our other 60-month plan initiatives, including advancing our lower cost products, PHI Direct and Furkin end-market launching are powered by a suite of products with Aflac and Chewy and building on our international efforts.

Collectively today, these initiatives are small. In 2022, our new products in North America represented just 3% of our new pets. With these initiatives moving out of development, we now turn our attention to optimizing these revenue streams for growth. We will be disciplined in our approach, rolling out in a way that allows us to step up into growth and operating well within our IRR guardrails. In 2022, we significantly expanded our addressable market acquiring a foothold in Continental Europe. With the addition of Europe, we estimate our reach to be doubled to over 50,000 veterinary hospitals. Based on the nature of its revenue, contribution from our European acquisitions is relatively modest. As a reminder, these two businesses currently operate like marketing organizations, selling insurance products that are peppered through another underwriter.

In the quarter, revenue from these two acquisitions was approximately $200,000. But more importantly, the acquisitions cum talent, technology, licensing and relationships that will drive ease of entry in these regions. In addition, in November, we announced our joint venture with Aflac in Japan and are working hard on a go-to-market plan. This will approximately add a further 10,000 veterinary hospitals to our addressable market. As a reminder, our goal is to bring a Trupanion-like product into Europe and Japan this year. With the first 24 months of our 16-month plan in the rearview mirror, we have made substantial strides across many of our strategic initiatives. Some areas are further along than others, but we have built a strong foundation for growth.

Throughout this, we have demonstrated a solid track record of disciplined capital allocation, especially when faced with recent inflationary pressures. We still have work to do, but I expect that as we emerge from today’s inflationary environment, we will do so from a position of competitive strength having solidified our pricing promise and commitment to delivering the highest sustainable value proposition in the industry both for the vets and the pets. With that, I will hand the call over to Drew.

Drew Wolff: Thanks, Margi and good afternoon, everyone. As Darryl and Margi covered many of our 2022 financial highlights, I will focus my commentary on our fourth quarter performance, as well as discuss our outlook for the first quarter and full year 2023. Total revenue for the quarter was $246 million, up 27% year-over-year and led by strong pet enrollment in our subscription business, in addition to growth in our other business. Within our subscription business segment, revenue was $158.6 million in the quarter, up 18% year-over-year. Our business experienced a larger than typical year-over-year impact from the U.S. to Canadian exchange rate. On a constant currency basis, subscription revenue would have been up 20% year-over-year or $161.1 million in the quarter.

Total enrolled subscription pets increased 24% year-over-year to over 869,000 pets as of December 31. This includes approximately 29,000 new pets that were added in the fourth quarter as a result of our European acquisitions. Excluding the new pets from acquisitions, total enrolled subscription pets increased 19% compared to the prior year period. Across all of our products, our average monthly retention which is calculated on a trailing 12-month basis, was 98.69% compared to 98.74% in the prior year period, equating to an average life of 76 months. Monthly average revenue per pet was $63.11, which is up 0.5% year-over-year on a constant currency basis. On that same basis, cost of veterinary invoices per pet increased 2.8% over the same time period.

As we have noted in previous quarters, ARPU and cost of veterinary invoices continue to be impacted by a change in mix of business, included accelerated growth in our lower ARPU areas. Our loss ratio was 72.7% in the quarter, which is down 80 basis points from Q3. This reflects a seasonally lower claims period. Variable expenses as a percentage of subscription revenue were 9.6%, down from 9.8% in the prior year period. Fixed expenses were also down to 4.1% of subscription revenue in the quarter compared to 4.9% in the prior year period. Combined, variable and fixed expenses as a percent of subscription revenue declined 100 basis points year-over-year as the team continue to drive efficiencies throughout our business to offset our elevated loss ratio.

As a result, subscription adjusted operating income was $21.5 million, an increase of 6% over the prior year period. On a constant currency basis, this would have been an increase of 9% or adjusted operating income of $22.2 million. For the quarter, our adjusted operating margin was 13.6%, up sequentially from 12.8% in the prior quarter. Now I will turn briefly to our other business segment, which is comprised of revenue from other products and services that generally have a B2B component and different margin profiles than our subscription business. Total other business revenue was $87.4 million, an increase of 45% over the prior year period, led by growth in new pets. We anticipate growth in our other business segment to slow in 2023 as our partner transitions to an additional underwriter for their new book of business.

We currently expect growth in this segment to approximate 10% in 2023. But keep in mind that timing may shift. Adjusted operating income for our other business segment was $3.3 million in the quarter. In total, adjusted operating income was up 11% over the prior year period to $24.8 million. We invested $20.3 million or 15% more year-over-year to acquire approximately 66,000 new subscription pets, excluding those added from acquisitions. This resulted in a pet acquisition cost of $283 and an estimated internal rate of return of 31% for a single average pet as calculated on a trailing 12-month basis. We also invested an additional $2.1 million in the quarter or $7.8 million for the full year of 2022 on development costs. As Margi noted earlier, 2022 was the significant foundation setting year for our long-term efforts, including international expansion, as well as new products and distribution channels.

Moving into the first quarter, some of these expenses will shift out of development into variable or fixed within our subscription business. Adjusted EBITDA was $2.2 million as compared to $3.5 million in the prior year quarter. Depreciation and amortization was $2.9 million for the quarter. Total stock-based compensation was $8.4 million for the quarter in line with our expectations. Net loss was $9.3 million or a loss of $0.23 per basic and diluted share compared to a net loss of $7 million or a loss of $0.17 per basic diluted share in the prior year period. Turning to our balance sheet. We ended the year with over $230 million in cash and investments. We hold approximately $69 million in debt with $75 million available under our long-term credit facility.

Shifting to full year cash flow, operating cash flow was a negative $8 million for the year compared to a positive $7.5 million in 2021. Capital expenditures totaled $17.1 million in 2022, a step-up from $12.4 million in 2021, largely reflecting investments in our next-generation policy administration platform. As a result, free cash flow in the year was negative $25.1 million. Since 2020 and the approximate $200 million strategic investment from Aflac, we’ve been able to operate outside our previous guardrails of positive free cash flow and invest in increasing our addressable market. With much of our foundational investments now in place, we intend to prioritize cash flow generation in 2023. With this in mind, I’ll turn to our outlook. Keep in mind that our revenue projections are subject to conversion rate fluctuations, most notably between the U.S. and Canadian currencies.

For our first quarter and full year guidance, we used a 75% conversion rate in our projections, which was the approximate rate at the end of January. We expect this will amount to 1% to 2% year-over-year foreign exchange headwind, particularly in the first half of 2023. For the full year of 2023, we are now planning to grow revenue in the range of $1.32 billion to $1.64 billion. This is approximately 16% growth at the midpoint. We are planning to grow subscription revenue in the range of $700 million to $720 million, representing 19% year-over-year growth at the midpoint. We expect total adjusted operating income to be in the range of $99 million to $108 million or 16% growth at the midpoint. As Margi noted, it will take time to flow our pricing through our book.

Because of this, we expect to see a step back in adjusted operating margin sequentially in Q1 before building back towards our 15% subscription adjusted operating margin target by year-end as our pricing actions take hold. Of our adjusted operating income, we’d expect to invest approximately $80 million to $85 million in acquiring pets within our subscription business. We intend to closely monitor the broad market environment and leverage the team’s strong track record of adjusting PAC spend up or down in relation to market opportunities as needed. Development expenses are expected to be around $5 million in 2023. As for the first quarter, total revenue is expected to be in the range of $249 million to $253 million. Subscription revenue is expected to be in the range of $164 million to $165 million.

This is 18% year-over-year growth at the midpoint. Total adjusted operating income is expected to be in the range of $21 million to $23 million. Thank you for your time today. With that, I’ll hand it back over to Darryl.

Darryl Rawlings: Thanks, Drew. I want to take a moment to remind you that we’re quickly approaching two of our marquee investor events for the year. On May 6, we will once again be hosting our annual Q&A in Omaha. On June 7, Margi and I will be joined by our team at our headquarters in Seattle for our Annual Shareholder Meeting. This once-a-year event is your opportunity to hear directly from the leaders responsible for executing the initiatives in our 60-month plan in a Q&A-focused format. Additional details for both events can be found on our Investor Relations website. We hope to see many of you there. In the next few weeks, we will also be publishing my annual shareholder letter for 2022 for those looking to better understand our business and how we think. I encourage you to read it. With that, we will open up the call for questions. Operator?

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Q&A Session

Operator: Thank you. Our first question comes from Elliot Wilbur with Raymond James. Please proceed with your question.

Darryl Rawlings: Hello, Elli. Are you there?

Elliot Wilbur: Yes. Can you hear me?

Darryl Rawlings: We can now. Thanks, Elliot.

Elliot Wilbur: Okay, thanks. First question for Margi, I guess given that you just came out of your national sales or territory partners meeting, wondering if you could just talk in general terms about the plan in terms of territory partners for 2023 number of targeted hospitals that you expect to be calling on and whether or not you anticipate any changes in calling patterns, meaning territory reshuffling or reallocation of resources?

Margi Tooth: Hi, Elliot. So yes, so territory partners conference first one in 3 years, it was great to have everyone back together and the real cause for having that conference is both to celebrate what we achieved in the year prior, but also really to look forward to this year. In terms of our strategy, we’re absolutely fixed on doing what we know we do well. We’ve been 9 months back in the field since back in last March and consistency of that core pattern, the development and deepening of those relationships and most of the hospitals has really led two things, a big uptick in that lead, a big uptick in software install rates. And so for us, we know that works, and we’re continuing on the same path. The territories that are overseen by the general managers and the general managers and the territory partners are doing a great job working in partnership together to continue to deepen that moat.

So no difference to what we’ve always been doing. I think we can look forward to 12 months of solid vet activity. We get to 25,000 vet hospitals several times in any given year. So the way that the market has casted up, it really allows us to have one-on-one conversations, direct discussions to support those hospitals when they need us and they do. And we will continue to do the same thing as we’ve always done. It’s working for us right now, and we’re happy to get back into that group.

Elliot Wilbur: Okay. And then I know we will see the numbers in a couple of weeks with the shareholder letter, but just thinking about call frequency and engagement, I guess, where are we now or exiting the year versus pre-pandemic levels?

Margi Tooth: Yes. So yes, there was a little bit more detail on the shareholder letter, which will be coming out, as you say, in just a few weeks. In terms of our overall core patterns, we are back on track €“ actually a little bit ahead of where we were prior to the pandemic. So now we have more people in the field than ever before. We’ve crossed the 160 mark, which is fantastic. So that means we’re able to kind of get out there more frequently and have those, like I said, more frequent conversations. Just in terms of the overall number of hospitals we’re hitting, we just said that we’re in 8,000, over 8,000 hospitals of our software. We have been working with over 16,000 hospitals on a regular basis. I think when we think about those numbers as they continue to build, that’s really through that ongoing education, conversation dollars that we’re having.

And you can expect to see that continue to ramp up as we make sure that we have all territories occupied over the next, I would say, 6 months, 6 to 9 months.

Elliot Wilbur: Okay. Then I want to ask a question on inflation trends as well. I mean it sounds like pricing flow-through is essentially consistent with what you discussed in connection with 3Q results, maybe slightly different in terms of timing. But I guess sort of the aggregate level is roughly consistent. But in looking at some of the inflation numbers out over the last couple of months, I mean, clearly, annualized increases have continued to decline. So I’m wondering what you’re seeing in your book of business versus what you discussed last call and sort of relative to what you’re planning to do in terms of rate increases?

Margi Tooth: Sure, yes, I can start this off and then hand over to Drew as well who can provide some more context. But just in terms of where we were, as we mentioned before, there are no surprises going into the CR, I’d say that everything is as we expected. When we went through with our pricing changes towards the back half of last year, they roll on gradually, as you know. So what we see is we will see a kind of slower roll out of the gate. And as I mentioned in the call, by the end of this quarter, we don’t to be about 15% with another 3 points coming through the rest of the year. That is €“ what we forecast there is in line with what we’re seeing, and we are trying to get a little bit ahead of that to make sure that we had had enough room in there to grow into any potential future increases.

I would say that it is as expected right now, which is good, and we will be paying particular attention to this, especially after last year. We’re watching it very closely and I’m really kind of making sure that we’re looking at our frequency and severity on a very regular and very granular level basis. So I think all things being equal, we’re in good shape here. We’ve got good data. We’ve got good lens on where things are going. Typically, that will raise the rate once a year, usually in January, February, March. So kind of seeing those trends come through. And I think we’re poised now to both take action if anything changes. But at the moment, we feel happy with that 18% that we’ve got through the book. Drew, what would you add?

Drew Wolff: I guess the only thing I’d add is just that dynamic that Margi described. Our rates come through linearly. And we tend to see step changes in vet pricing and that where they take prices early in the year, it’s one big dynamic. And so that’s why we take a step back in margin, but that’s totally consistent with the outlook that we gave in Q3 and the pricing that we talked about, that is all in line as expected.

Elliot Wilbur: Okay. And just last question on monthly or retention rates, another very modest sequential decline. Can you just maybe talk about sort of what you think is driving that? Is it in fact related to the level of price increases in the book of business? I mean I know you discussed sort of the and again, in the annual letter, the bucket with 20% plus increases being more negatively impacted in terms of churn, but I’m not sure necessarily the levels that we’re seeing are impacting the churn rates. And I guess, just sort of given the context of just higher inflation levels, are you actually seeing more policyholders present and look to or exploring the option of canceling policies and you’ve just been able to more effectively address those and retain the business or has that actual number of policyholders presenting or considering potentially canceling not really changed with the recent increases? Thanks.

Margi Tooth: Yes. So I mean, really, I would say, highest level, there’d be no surprises. It’s going as we expected from a retention perspective. And to your point, when you look at the macro environment, we have seen a slight decline, but let’s €“ for context, 77 months we believe is probably 2x the industry average. So we’re coming at a very high retention level anyway. I would say that as we look at the overall volume that we’ve got coming in the pipeline, it’s not dramatically different, hence not just that slight drop there. But we also haven’t yet rolled through all of those pricing changes. So as they come on, we do expect to see some impact to retention. And we still believe that we will be keeping our pets twice as long as the industry average.

That said, we are expecting to see a €“ over the course of the next 6 to 12 months as we get to the bulk of the book seeing those increases roll through, we will see a little bit of a hit there. Just in terms of €“ I mean Drew can speak to the numbers in terms of what that impact actually is. I would say overall, though, anything that we are putting through from retention €“ sorry, from an ARPU perspective as those prices increase, we do believe it’s going to offset the retention and it’s necessary for us to make sure that we’re living up to the value proposition, and we can sustainably try to keep our membership for the life of the pet. Drew?

Drew Wolff: I’d just add, one good data point is as we look back in our history, in 2019, we had almost 20% of members got a price increase greater than 20%. And back then, we had a retention rate at 70 months roughly in the low 70s. And so €“ and we’ve got a lot better at retention since then. But that gives you a point of reference point of what it might look like.

Margi Tooth: I think one of the other tactics the teams are thinking about as well to add to that. As we see the rates come through, and we see more of our members falling into that 20% plus bucket, we do have what we internally refer to as our pricing promise and what this is, is basically we’re trying to price to stay in line with the expenses that are coming through that invoices in the event that we price ahead of that, we are committed to being able to rebate to our members in some shape or form, and we’re again, true to that value proposition. So as a retention message, we’re not trying to change anything from our member and our promise that we made to members, and that commitment is holding true as we roll these prices through.

Darryl Rawlings: Operator, you want to take the next call? Operator, are you there?

Operator: Sorry. Our next question is from John Barnidge. Please proceed with your question.

John Barnidge: Thank you very much. Appreciate the opportunity. I had a question around the term loan and plans to draw. I know in the prepared remarks, there was a comment about increased reserve requirements with state regulators. So curious about that and plans to draw on that term loan, please? Thank you.

Drew Wolff: Sure. I’d remind everybody what we have is a revolving credit facility. It’s a long-term 5-year facility. That total is $150 million, has a $15 million line of credit feature. And then any draw that we do on it becomes a term loan. So €“ and we view this as a lower cost way to fund our reserve requirement versus equity. And that’s kind of our internal debt management guardrails. And so yes, over time, we will continue to draw on that to fund reserves. Now the agreement that we’ve reached with a large partner in our other business really is about more efficient capital usage and frees up reserves inside our insurance company to allocate towards our higher-margin subscription business. And we do that as a significant upside there. But yes, over time, that’s how we will fund our reserve requirements.

John Barnidge: Great. Thank you for that. And then I had a question about open enrollment season for the worksite. There is times where a new medical product or can get introduced and there is a lapse and reissue dynamic that begins to emerge as someone switches maybe from a vet-driven channel to a worksite driven channel. Can you maybe talk about how you’re thinking about that for 1Q as open enrollment begins to take effect, please? Thank you.

Margi Tooth: Yes, sure. Let me just make sure I understand the question. So we are talking here about potential cannibalization of one channel to another. Is that fair?

John Barnidge: Cannibalization might be too strong. But yes, essentially, someone that might have had it through the vet channel now has it offered through their employer.

Margi Tooth: Yes. Thank you for that. So, I mean just in general, when we think about the penetration rate, I agree with you, cannibalization, it’s quite a strong word to use when we have got 3% penetration. Definitely in terms of the products and the distribution channels, the partnership with Aflac is really allowing us to reach a new type of pattern, if you will, than we typically with vet channel. So, we don’t anticipate seeing a huge crossover in terms of the people that we are speaking to. We are using our brand because our brand is known in the vet channel, and it’s known for being able to pay the veterinarian directly at the time of checkout. And we believe that through Aflac, we will not necessarily be hitting that same person.

So, we are not, at this point, concerned about seeing any overlap or crossover, and we believe the products are designed very specifically for the purposes of which the consumer is shopping. So, they are in the work site. They are going to be looking for something a little bit different than if they are in a hospital. And I think for now, it’s very early days with worksites, just in a handful of enrollment coming through businesses. And really, we are kind of long-term looking to see how it can become a meaningful part of what we are doing, but nothing more to share really at this point related to it. But we will obviously be watching it to make sure that we can capitalize on the benefit that we have through our new distribution channel and our strategy.

John Barnidge: Thank you very much. Appreciate the answers.

Margi Tooth: Yes.