Laura Bainbridge - IR Darryl Rawlings - CEO Tricia Plouf - CFO.

Jon Block - Stifel David Westenberg - CL King Michael Graham - Canaccord Genuity Dylan Haber - RBC Capital Markets Mark Argento - Lake Street Capital Markets Tom Champion - Cowen and Company.

Greetings, and welcome to the Trupanion First Quarter 2018 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Laura Bainbridge with Investor Relations. Thank you. You may begin..

Thank you, and good afternoon. Welcome to the Trupanion first quarter 2018 financial results conference call. Participating on today's call are Darryl Rawlings, Chief Executive Officer; and Tricia Plouf, 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 the Investor Relations website as well as the Company's most recent reports on Form 10-K and 8-K filed with the Securities and Exchange Commission.

Today's presentation contains references to non-GAAP financial measures that management uses to evaluate the Company's performance, including, without limitation, fixed expenses, variable expenses, adjusted operating income, acquisition costs, 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 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.

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'd like to remind everyone that today's call is also available via webcast on Trupanion's Investor Relations website. A replay will also be available. With that, I'd like to turn the call over to Darryl..

Thanks, Laura, and good afternoon everyone. It’s an exciting and busy time here at Trupanion. Across the organization we’re working to deepen the competitive modes around our business. Just a few weeks ago, we held our sixth annual territory partner conference. It was an inspiring event and a great opportunity to share best practices.

Our focus at this year's conference was Trupanion Express our software that integrates with veterinary practice management software and allows us to pay veterinary invoices directly to hospitals at the time of treatment. The value of Trupanion Express would be limited without our territory partners which is one of our largest competitive modes.

I have more to say about Trupanion Express and some of the success we’re having on this front in a moment. Also I want to mention that last week we published our 2017 annual report which includes my annual shareholder letter.

I'll touch upon a few highlights today, but I would encourage you all to give it a read as it provides more detailed insight into how we think about and operate our business. These topics will also be discussed in greater detail at our upcoming shareholder meeting here in Seattle on June 7.

As a reminder, our shareholder meeting is the best opportunity for our investors to thoroughly understand our achievements and challenges over the past 12 months and our strategy going forward. Most importantly attendees will have the opportunity for direct Q&A with our entire leadership team where we will cover the questions you care about most.

Turning now to our first quarter results, we’re pleased with our start to the year results across our key financial metrics were strong and we continue to move the ball forward on several important initiatives. Revenue grew 27% year-over-year with our subscription business in line and our other business outperforming our expectations.

In the quarter, we spent approximately 5.7 million to acquire 30,000 new subscription pets. Once again, we achieved strong rates of return on our core spend and we continue to see encouraging results from our test initiatives.

Within our other business segment we’re not yet a significant piece of our revenue our corporate employee benefit’s team has begun to gain some traction. We see this as an area of opportunity in the coming years.

Adjusted operating income or the funds available to us to invest in pet acquisition increased 39% year-over-year to 6.1 million from 4.4 million in the prior year period.

Expanding our adjusted operating margin is one of our key strategic initiatives and we intend to dedicate a portion of our shareholder meeting to discussing our strategy to do so along with our efforts to deploy these funds at strong internal rates of return. Initiatives around our test spend will also be covered as part of this discussion.

We continue to spend aggressively on our inside sales team this team which now totals about 15 full time employees complements our territory partners increasing the number of touch points we have with veterinary hospitals. We ended 2017 with 107 territory partners visiting approximately 20,000 unique veterinary clinics.

In total, we estimate that we made an additional 85,000 face-to-face visits during the year and in aggregate have made over 0.5 million visits since we entered the U.S. market a decade ago. In 2017, we had approximately 8,500 active hospitals up from approximately 8,100 at the end of 2016.

As I mentioned previously one of our competitive modes is Trupanion Express and at the end of the first quarter Trupanion Express was installed in over 2,300 clinics an increase of over 50% from Q1, 2017. Over the same time period, we paid over $40 million directly to veterinarians.

We are proud of these results as they collectively represent $40 million that never left our customers pocket and thus aided in our mission to help pet owners make the best medical decisions for their pets regardless of cost.

Because Trupanion Express enabled us to pay hospitals directly at the time of treatment usually in less than five minutes it is a critical component in facilitating an exceptional customer experience. Years’ ago many thought it was crazy to try to pay a veterinary invoice in under five minutes now we think five minutes is too long.

For multiple years, we've been working to automate this process to even further reduce the time it takes to pay the hospitals directly. As we recently announced at our territory partner conference these automated processes went live in April with the first veterinary invoice submitted being processed and paid in just 12 seconds.

By this time next year, we are looking to automate an increasing number of Trupanion Express veterinary payments. We’re encouraged by the results that we’re seeing and the accelerated deployment of Trupanion Express remains an important focus in 2018. Today over one third of new pet enrollments are coming from hospitals enabled by Trupanion Express.

We will provide more insights into these topics as well as other strategic initiatives at our annual shareholder meeting in June.

Lastly before I turn the call over to Trish, I want to take a moment to address some questions we fielded recently regarding Trupanion's relationship with vet hospitals whether certain activities with veterinarians could be considered inconsistent with applicable regulations.

We have carefully reviewed these allegations and we do not think they hold any merit. All of our customer experience practices are developed with the applicable regulations in mind and we do not intend to modifier our strategy.

With respect to licensing requirements for insurance sells specifically the regulatory directive on this matter is very clear. One cannot pay for enrollments unless that pet is enrolled for license entity. We do not compensate veterinarians or their staff based on enrollments.

We do have some programs aimed at enhancing the customer experience and lowering our cost to process veterinary invoices through the usage of Trupanion Express. We have provided some more detail about these programs on our IR website. We are comfortable that these programs comply with the letter and spirit of applicable regulations.

Furthermore and more fundamentally we believe that our business model aligns closely with the goals of insurance regulators. In general regulators want to ensure customers get a high value proposition as transparency and the customers are treated fairly. We want the same things.

We believe we have the highest target payout to pet owners in the industry. Combined with our commitment to provide exceptional 24/7 customer service including paying veterinarians directly at the time of treatment. We believe we provide pet owners with the highest value available.

Our one simple product with the broadest lifetime coverage provides pet owners with a high degree of transparency. And we treat pet owners fairly by having the most pricing subcategories to ensure that each pet owner pays the fairest price for their specific pet.

We’re happy to address any questions regarding regulatory topics on today's call and as mentioned previously we will facilitate a more in-depth discussion at our annual shareholder meeting. And with that I'll turn the call over to Trish..

Thanks Darryl and good afternoon everyone. As Darryl mentioned our first quarter financial results were strong and in line to slightly ahead of our expectations. Revenue of 69.8 million was up 27% year-over-year.

We slightly exceeded the high end of our guidance range for the quarter largely due to better-than-expected enrolled pet growth in our other business segment. As a result total enrolled pets increased 23% over the prior year to approximately 447,000. Subscription revenue was 61.5 million up 22% year-over-year.

Total enrolled subscription pets increased 15% year-over-year to approximately 386,000 pets as of March 31. As Darryl mentioned, we continue to generate solid returns from our core spend and we continue to see encouraging results from our test initiatives.

Monthly average revenue per pet for the quarter was $53.62 an increase of 6% year-over-year and in line with our historical average. Average monthly retention was 98.63% up from 98.58% in the prior year period.

Our other business revenue which generally is comprised of our revenue that has a B2B component totaled 8.2 million for the quarter an increase of 83% year-over-year.

The primary driver of the increase was due to a new relationship that started with us in Q1 of last year and being with us a full quarter this year compared to only having a small number of pets with us in Q1 of last year.

Year-over-year growth in our other business segment was higher than we anticipated this quarter due to strong results in all areas coupled with the slower than anticipated roll offs of the group of pets we discussed last quarter.

On the last call, I discussed the revenue growth rate of our other business segment would be around 20% for the full year, but due to the roll off of pets being a little slower than we anticipated we now expect the full year revenue growth rate of this segment to be between 30% to 40% for the full year.

Total enrolled pets in this segment was approximately 61,000 at quarter end. Subscription gross margin was 17% in the quarter while total gross margin was 16%.

As a reminder, we do see some variability in gross margin on a quarterly basis and when we installed Trupanion Express we typically see a slight increase in the frequency of veterinary invoices since the software makes it much easier to submit invoices compared to the typical reimbursement model.

Once we have this data, we are able to included it in our pricing going forward so we believe this is a temporary impact. We believe this is a worthwhile trade-off to drive longer-term customer satisfaction.

For the full year, we expect gross margin to be near the lower end of our annual target range of 18% to 21% as we are accelerating the rollout of Trupanion Express.

For the quarter fixed expenses represented 7% of total revenue down from 9% in the prior year period reflecting increased scale in our technology and general and administrative departments. Our long-term target is to scale these departments to 5% of revenue and we are very pleased with the continued progress this quarter.

Turning to our pet acquisitions spend. In the first quarter we spent 5.7 million on pet acquisition for a PAC of $165. This resulted in an LVP-to-PAC ratio of 4.4 to 1 which was right in line with our expectations and above our targeted internal rate of return.

In the prior year period, we spent 3.9 million for our PAC of the $128 resulting in an LVP-to-PAC ratio of 5 to 1. As we have discussed in the past, expansion of our adjusted operating income provides more funds available to invest in growth.

Our acquisition spend was higher this quarter compared to Q1 of 2017 due to our spending incremental funds to increase the number of new subscription pets by over 4,000. This is a 16% increase from the prior year. Adjusted operating income totaled 6.1 million in the first quarter which was up 39% from the prior year period.

As a percentage of revenue adjusted operating margin expanded approximately 70 basis points year-over-year to 8.7%. While this is strong expansion relative to the prior year period it fell a little short of our expectations. This is primarily due to the lower gross margin that I discussed earlier.

During the quarter, we had a net loss of 1.5 million or $0.05 loss per basic and diluted share. Adjusted EBITDA was 0.4 million compared to adjusted EBITDA 0.5 million in the prior year period. Free cash flow was 1.1 million including operating cash flow of 2.1 million for the quarter.

This compares to free cash flow of 1.4 million in the first quarter of 2017 which included operating cash flow of 1.9 million. At March 31, we had 70.1 million in cash, cash equivalents and short-term investments and 15 million of long-term debt. I'll now turn to our outlook for the second quarter and full year of 2018.

For the second quarter of 2018, we are forecasting revenue in the range of 72 million to 73 million representing 24% year-over-year growth at the midpoint. At these revenue levels, we would expect adjusted EBITDA around breakeven.

For the full year, we are increasing our revenue guidance range to reflect our slight over performance in Q1 and better visibility into our other business segment. As a result, we now expect revenue for the full year to be in the range of 295 million to 300 million representing 23% year-over-year growth at the midpoint.

At our forecasted revenue levels, we expect to spend between 23 million and 25 million of our adjusted operating income to acquire new pets.

As a reminder, if we have the opportunity to deploy more of our adjusted operating income on new pet acquisition to drive incremental growth we will do this as long as we are achieving our overall targeted IRR and we're also EBITDA and cash flow positive. We discussed our acquisition and IRR strategy in detail in our most recent shareholder letters.

Please keep in mind that our revenue projections are subject to conversion rate fluctuations between the U.S. and Canadian currencies. For our second quarter and full year guidance, we used a 78% conversion rate in our projections which was the approximate rate at the end of March.

Thank you for your time today, I will now turn the call back over to Darryl..

Thanks Trish. Before we open the call up for questions I want to remind investors that this weekend will be hosting our second Annual Investor Q&A event to follow the Berkshire Hathaway Annual Meeting in Omaha. We’re excited to use this platform as an opportunity to connect with like-minded long-term investors we hope to see you there.

And in a few weeks we’ll be at the Cowan Technology media and telecom conference and Steifel Veterinary and Dental Conference both in New York. And with that we’ll open the call up for questions..

[Operator Instructions] Our first question comes from the line of Jon Block with Stifel. Please proceed with your question..

Darryl maybe just the first one on the territory partner. So it seems like a couple years ago during the shareholder letter you increased from 80 to 104 for the most recent letter you went from 104 to 107. Maybe if you can talk about retention, I know that was an initiative of yours in the past.

And then are you now at the right number and do we see sort of shift some more resources to the inside sales team that you alluded to earlier?.

We have about 106 territory partners currently calling on about 20, little over 20,000 veterinary clinics. We’re trying to have them visit about every 60 days and we have added the addition of about 15 inside account managers which we expect that number is going to grow over the next two to three years.

So that they can have multiple touchpoints in between those 60-day interval. There's about 15ish markets that we would still like to expand to. So ultimately we want to increase the number of territory partners in the field.

A lot of the expansion that we've been doing that is been helpful has been adding additional territory partners inside of an existing region increasing the touchpoints and in the last year and a half we've not been adding as many new regions.

We still have the challenge that with the territory partner only about 50% of them make it through the first two years. So and I don't think we want to lower the bar there. I don’t think the goal is to have 90% to make it through. We want to every year increase the quality and capabilities of our territory partner.

What we want to do is if we’re going to make a miss try to do it as quickly as we can to be respectful to that person. So I'm happy with the progress we made. I mentioned in the opening remarks, we just had our territory partner conference was a couple weeks ago to me it was really inspiring events.

We had over 106 territory partners attend and about another 80 people from the Seattle office. We spent four days working on best practices rolling out some new tools, some strategic initiatives that we'll be talking about at the shareholder meeting. And I feel really good about the field I think the quality and capabilities continue to increase..

And then I’ll ask one more online I’ll follow up with the offline and the others, but I do want to ask about the regulation or accusations. I think clearly it’s been sort of overhang on the stock.

So let me lay this out and hopefully it makes some sense, internally did you take a fresh look at some of your marketing initiatives or is it just that you did not run follow regulations in the past and nothing's changed.

So you remain confident that everything is within the letter of the law and maybe if you can clarify that and hopefully I laid it out appropriately? Thanks Darryl..

So in general we've had some allegations that were written up in the last 30, 60 days. Most of these allegations are things that we have reviewed and the issues we do not believe they hold any merit, but – at a high level what we're trying to do as a company is got great alignment with the Department of Insurance.

And I mentioned in my opening remarks about having transparency, high value proposition and being able to be fair amongst all policyholders. What we do the strategy that we've had and have had for over 10 years is very much related to territory partners and veterinarians.

The reason we work so closely with veterinarians is we believe to have an exceptional customer experience we need the cooperation of veterinarians, what we're doing on any things that have been brought up from these issues were all related to customer experience.

So what we're doing is we're monitoring and measuring the customer experience which means being able to get a medical record, but ultimately being able to pay it directly at the time of invoice.

And to do that, a veterinary clinic needs to be using Trupanion Express, they have to allow us to be able to pay their hospital directly and when we're going through that entire process we save money in our backend expenses and we're sharing some of those savings with the veterinarians.

So those tactics that we have changed from time to time, but our overall strategy has been very consistent for the last 10 years. And we believe everything that we're doing is in line with regulations and the Department of Insurance. So I hope that answer the question, if you have any more anybody else does happy to answer those..

Our next question comes from the line of David Westenberg with CL King. Please proceed with your question..

Do we’ve been seeing Wal-Mart and other retailers attempt to sort of copy the – what you've seen from PetSmart and Banfield.

Is there any opportunity in insurance rather than wellness plans in some of these new retailers and what would that opportunity sort of look like?.

David, so I think the question you're asking is Petco or PetSmart years ago worked with Banfield and have put veterinary clinics inside of their walls and there's opportunities or talk of some of those things happening in other locations such as Wal-Mart.

Our goal is to help support veterinarians and to help make sure that pet owners are able to get the best quality of care. I mean overall the problem we're solving is it makes it very difficult for pet owners to budget for the unexpected.

We're happy to work with any veterinarians in any location we know that our clients visit more frequently and spend more money on average about an extra $3,500 over the life of the pet. So I think regardless of where the veterinarians are, we're happy to work with them but we're not trying to dictate care and tell people where to go.

Our coverage is we pay 90% of an actual invoice regardless of if it’s a 24 hour specialty or the place around the corner from your house or in a bigger location. So for us, we're just here to support pet owners and veterinarians and however, that evolves and we think we can be good partners..

And then can you just remind us with Trupanion Express which practice management software systems it work with and saying that with Henry Schein spinning off, do you work well with [AVImark, InfoMed] and is there an opportunity there to maybe leverage that offering then with prescription management or is there any ways to think about insurance and how that could work with prescription management in the future?.

The first part of your question is which practice management software. So – for those that aren't as close to the industry there's about 10 or 12 different softwares, but actually probably about 80 different versions of software that are sprinkled amongst the 25,000ish clinics in North America.

We believe that we are concurrently compatible with kind of 85% to 90% of those. So all of the bigger ones that you mentioned were certainly compatible with. The second part of your question relates to some of the mergers and acquisition that's happening in animal health.

And ultimately as I mentioned to Jon's question, our clients visit more frequently and spend more money. And the reason they do that is on day one of limping or day one of other clinical symptoms like vomiting, our clients go to the veterinarian and when they go to the veterinarian, the veterinarian – might have two courses of treatment.

Course A which is their preferred course of treatment or Course B which is cheaper and our clients are more likely to do the higher level of diagnostic cares. So we think we're aligned well with the overall industry and ultimately the pet owners want the best care for their clients.

So however, the industry plays out, if we stay in alignment with veterinarians and pet owners, I think that will work and those that are supplying good services to the veterinarians, I think they see the benefit of Trupanion..

And just one more I mean LVP to PAC was within what your expectations you've been experimenting with different channels in order to increase pet acquisition.

So you can just give us some more color in terms of what channels you think have been working more and in terms of our expectations for where you’re going to be spending, channel specific in the back half of the year?.

Well for competitive reasons, I'm not going to open up all the answers there, but we've been running a few test initiatives that we've talked about on previous calls that’s, more direct to consumer as well as building out the inside account managers for more frequent touchpoints.

We're probably a year into increasing the number of account managers and we think it's probably going to be about a three year process. We like the results we're seeing there and it's just more about more frequent touchpoints.

The D2C the more we have expansion in our adjusted operating income in pure dollars, but also the adjusted operating margin allows us to have a quicker payback period time and therefore allows us to increase PAC spend while still having strong returns.

That's a lever we're turning on and off and we're testing in different markets, I expect that we'll continue to do it and with more AOM expansion, the harder that will go, if the expansion is not as much as we would like, we'll probably pull back there..

Our next question comes from the line of Michael Graham with Canaccord Genuity. Please proceed with your question..

Darryl so I just wonder this is sort of the first – this legal sort of situation is sort of the first one that I think has impacted your company that I'm aware of since you came public. And I'm just wondering if you could give us an update on like how you’re staffed from a legal perspective.

How, do you think you need to increase your investment there and are you taking – it sounds like you haven’t really been contacted by any authorities, but are you taking proactive measures to try to reach out.

Just, maybe a little more context in terms of how you're dealing with it and how you plan on dealing with it?.

So I mean I would say the first part of it is just to provide greater context. Recent articles have brought up a few issues, none of those issues as I mentioned before we think are have hold any merit.

The reason that we come to those conclusion is that in over the last three to five years we have materially invested more and more on legal and resources internally. 10 years ago when we entered the marketplace for the first time becoming an insurance company and the amount of money we had in resources to spend in these areas was limited.

We have historically made a few mistakes that the Department of Insurance have pointed out to us and some of those we reacted slower than we should have and I think we've learned from those experiences over the last number of years.

What we're talking about, what’s being brought up recently we do not think fall in the same category as mistakes that we've made previously. Previously, we did not have licensing for people inside of our contact center and we didn't react as quickly as we needed to and rightfully so had some fines from the Department of Insurance.

But overall we've been investing more and more we have three full time lawyers inside of the company. Today, we use outside attorneys as needed. We also have a regulatory team that is reviewing everything that we're doing and we continue to get better, but on a broad basis this is one of the reasons we're in a challenging category.

We're not a company that is easy to copy. We are the only model line company and we have 65 different jurisdictions that we deal with. So trying to be perfect in every jurisdiction every moment of the day is very, very difficult.

The largest companies have problems with it, we will have problems coming and going in different times, but it's not because of intent. It's because it's very, very hard to do things perfectly. On the broad strategy we feel very good about our broad strategy.

And as I've mentioned before tactics we review with Department of Insurance on a regular basis they're contacting us on a daily, weekly, monthly basis and they could be anywhere from pricing questions to other tactics on how we communicate to customers or veterinarian.

So we feel comfortable that we're in a good shape on it and we continue to invest in the area..

Just an another sort of bigger picture question if you look at what's happened in human health insurance in the United States. You've just had this study escalation of sort of what's covered that has helped to fund a lot of research and it seems like we're in the sort of upward spiral.

And can you kind of see the same thing starting to happen with pet insurance where your product allows the vets to, allows pet owners to get more things done to their pets and then that sort of starts to escalate the cost and you can see that in your metrics in terms of ARPP and things like that.

Just wondering like do you have any thoughts on could this accelerate could we see health care cost for pets accelerate, a lot like how are you just sort of thinking about that and planning for it?.

Well I think as we've seen over the last close to 20 years that we've been in this business. The cost of veterinary care has been outpacing regular inflations it’s been averaging. We typically talk about 5% to 6% a year that's not because it’s 5% to 6% and the cost of an x-ray is going up year-over-year.

It’s because there is an expansion in the level of care moving from x-rays to diagnostic testing that includes ultrasounds and CT scans and it means that there's been more 24-hour emergency in specialty hospitals.

The makeup of a veterinarian clinic is changing from having a average clinic have one to two veterinarians working six days a week to larger clinic that have three to five veterinarians and referring out different types of cases like ACL, ACL is going to TPLOs.

We expect over the next 20 years that the cost of veterinary care is going to continue to escalate and increase and that is going to continue to increase the demand for our product. I mentioned in the shareholder letter and I'll reiterate again, the problem we're solving is it’s very, very difficult for pet owners to be able to budget for the care.

It's not only very difficult to budget for the care in case and where you live and what the breed is. But obviously pet owners don't know if they're going to have an average or an unlucky pet. But the backdrop is we believe the cost of veterinary care will continue to increase.

We have not seen any signs nor do we believe there will be any signs in the next 10 to 20 years. The cost of veterinary care expanding beyond the wallets or, needs of the consumer and we just past 1% penetration rate in North America.

If we look 20 years ahead we don't expect to be over 20% penetrated and so 80% of pet owners are not going to be – have the assistance of having high quality medical insurance. And the pricing and availability is going to have to be dependent on what the market will bear and our clients will be able to come more frequently.

So we hope the veterinarians continue to do more I think the pet owners want to do more and we expect it's going to go faster than inflation, typical inflation..

Our next question comes from the line of Dylan Haber with RBC Capital Markets. Please proceed with your question..

What learning’s have you guys had so far from your TV marketing initiatives and do you expect to ramp spend there in 2018. And then can you provide more color on the outlook for the other revenue line in 2018. Where do you expect growth to normalize there over the course of the year and do you see any more partnerships coming online? Thank you..

I’ll answer the first part of the question which is more about the D2C and then hand the second part over to Trish. On the D2C we would like to be more aggressive on D2C I think it's going to be dependent on the margin expansion on our – if it continues and it's strong that gives us more money to play with.

What is not intuitive to many is D2C is not a way of actually driving up more high quality leads. It does increase leads, but not necessarily more high quality leads. What it's really doing is helping us increase our brand awareness and increase conversion rates and the benefits of those we have seen pretty good results.

Now we don't tend to see that in a new market, so market where we might have 5% or 10% of veterinary clinics recommending Trupanion or understanding how we work or having Trupanion Express. We don't get the full benefit of having a client, learn about or hear about Trupanion and have higher conversion rates.

But in a market where 50%, 60%, 70% of clinics are actively recommending Trupanion we have a different outcome. So we don't think that we are able to broad based go D2C and be able to do a cost effectively. And once again we don't think this is an awareness issue this is really about increasing the conversion rates which is not intuitive to many.

On the other side of it will also tell you that somebody coming into this marketplace that has deep pockets, but doesn't have relationships with veterinarians. We don't think it's going to be a practical way to expand the category. We think it has to be done in conjunction.

With that, I'll hand it over to Trish and if you have follow-up come back to me..

With regards to your other business segment question, as I mentioned on the call for the full year we do expect it to be between 30% and 40% year-over-year growth which is increased from our prior expectation. That’s primarily related to slower roll offs of one of our partners, but also all parts of that business are performing pretty well right now.

And we would continue to expect that at about the same pace. We're not forecasting anything to dramatically change from the pace we're on. When it comes to you how to look at that on a quarterly basis in terms of growth rate the 83% that we saw this quarter we expect to be the peak for the year.

And then, we do expect sequential decline for the next three quarters, you averaged about 30% to 40%..

[Operator Instructions] Our next question comes from the line of Mark Argento with Lake Street Capital Markets. Please proceed with your question..

I see lot of questions have been asked and answered, but just had a couple follow-ups or drilldowns. One is the LVP lifetime value look to be fairly steady over the last couple quarters in particular. I would have thought maybe we would see that trend down a little bit as you got more aggressive in terms of the pet acquisitions.

So, first question would be kind of better understanding the dynamics there. And then secondly, Trish I know you talked about gross margins was it lower end of that 18% to 21% range for the year.

Could you talk - drill down a little bit and talk about the - I know you said Trupanion Express are cranking up more Trupanion Express penetration rates there would have a negative impact maybe you could get down a little bit and explains us how that would work?.

Mark your first question was about LVP and how it’s been trending over the last number of quarters. So as a reminder Q1 of 2016 it was $600 and it was in Q1 of 2017 it was $637 and most recently it’s been about $727.

With the mix of business that we have coming in and the margins we’re running at and the retention rates we’re running at which are the combination that drive LVP. I would expect that it will stay relatively flat for the foreseeable maybe for the balance of the year.

Like there is couple things that can do to increase it, so having our ARPU increasing in a 5% to 6% year-over-year obviously as a positive if retention stays the same. We have had margin expansion, but not quite as much margin expansion as we’d wanted so that would tell me that it’s going to be more likely flat then going up dramatically.

The mix of business as we accelerate our growth in the last three quarters we've been adding more new pets. You are right that in general that will slightly lower LVP in general, but its depended on a referral sources and bunch of other things.

And the last thing I’d mention is probably P calculation is a 12-month backward looking average so it tends to smooth things out a little bit. So moving forward maybe it will expand or stay similar to what it has been over the most recent quarters..

And Mark to provide some more color on Trupanion Express. So what we generally see is a slight step-up in the number of invoices that we received when we added Trupanion Express cost at all.

It’s really lot of times its the smaller dollar invoices that the owner maybe thought it was too cumbersome to submit previously as they had to go through the reimbursement process. And now those don't fall through the cracks we see all of that which is good at providing more value to the customer and just emphasizing that experience.

That being paid now as we move towards in a matter of seconds can provide so we think that that is a trade-off that we’re willing to make. What happens though is because we don't know exactly which hospital we’re going to be installing it in or how frequently we are going to be using it.

We have to wait for that day to come into us and then we can incorporate it into our pricing going forward. And so just like we do that in general we’re always looking at data and updating our pricing as needed this is another thing coming through and we’re incorporating that into our pricing.

As a matter of magnitude we think if this level of Trupanion Express stays where it is we need pricing increases of about 8% year-over-year versus the 6% we’re seeing now. So that’s about $0.88 impact to ARPU and we’re working through that.

But just remember those aren’t instantaneous it can take 12 to 18 to just get things approved and then roll it through our book.

And we’re working on that as we always do this is a little bit more impactful because of that more dramatic acceleration that we mentioned in installment, but we think it's definitely worth it for the short-term because of the benefit that Trupanion Express bring..

And then just pivoting back kind of exposure awareness availability so $8,500 hospital is up I think it was 8100 a year ago. Do you anticipate seeing that number move materially as you bring on some of these 15 additional new markets.

It seems to me like that’s a key driver here and obviously you’re doing a nice job with same-store, same hospital growth but I actually increase that the breadth of hospitals we would be either story here going forward?.

Mark I agree with you but it is been historically very, very difficult for us to be going wide and deep at the same time. And we’re having some nice success on having better deeper relationship and that’s being lined up with our new inside account managers and more frequent touchpoints in Trupanion Express.

So I think probably for the next year or two we need to kind of fine tune and build that muscle and then likely start increasing the breadth of hospital after that. I would love to be able to do both at same time really well and if you know how to do it there is a job waiting for you here..

Our next question comes from the line of Paul Penney with Northland Securities. Please proceed with your question..

This is Greg on for Paul. Thanks for taking my questions. Most of mine have been answered but as given what you said earlier about your B2C marketing.

How do you expect the B2C spend the trend going forward and what new markets are you planning on expanding B2C spend in this year?.

Well specific markets I’m not going kind of provide that level of detail. I would suggest maybe coming to the shareholder meeting where the teams who are closer to B2C as well as some other initiative will be able to happy to answer questions directly to you and in more detail than we can just do over a telephone call.

But I would say that our desire to increase it is probably greater than our ability to increase it this year as we look at the initiatives we’re driving with increasing the number of account manager which is not nearly at scale yet and it’s going take us several years to build out.

I would expect our B2C is probably going to be similar to the last two or three quarters and not really expanding for the balance of the year unless we get a higher margin expansion in Q3 or Q4 then the current visibility shows us..

Our final question comes from line of Tom Champion with Cowen and Company. Please proceed with your question..

Thank you for the comments on Trupanion Express. I'm wondering if you could just remind us of what portion of your hospital base is using the system I don’t know if I have the numbers correctly it looks like about a quarter. But where do you think that number could get to over time.

And I'm just curious why a hospital wouldn't choose to use? Thank you..

The number of clinics using Trupanion Express those deployments as I mentioned in my earlier remarks they’re up 50% year-over-year. I would say two years ago we were holding back our ability to do this until we felt like we're getting it right and it was a combination of the cost of deploying it.

Our ability to absorb having a large enough adjusted operating margin so that we could put on the gas and fill up the cash flow to grow. As well as our ability to get all the benefits from it where we could really understand the customer experience communicated with our hospitals.

I believe and we have seen market where 60%, 70%, 80% of clinics can be on Trupanion Express and long-term we believe that we can get to those numbers across North America that would have us long-term been able to get to maybe 20,000 clinics.

Now currently we only have about 8,500 active clinics so the first goal is to get those 70%, 80%, 90% of those active clinics on Trupanion Express. And then the second stage after that is going to be more about going wide and doing it the right way first.

It’s not going to happen overnight, but we are definitely putting our foot on this accelerator and wanted to continue to grow. So it’s a major initiative for us and we compound that with the fact that we announced that we’ve started testing or started deploying automated claims and how we think that’s going to continue to improve Trupanion Express.

We look at all of the information you can automate a claim without Trupanion Express. We can't provide the level of service without Trupanion Express. So we want to go as fast as we can without stubbing our toes and we think we’re getting into a pretty good rhythm.

I think the only other part of your question was why would a hospital not want to use it and the short answer is I don't have any good reason why hospital would not want to use it. I think we have greater demand than we have our ability to deploy it. So the constraints are more on our side than the hospital demand..

Ladies and gentlemen, we have reached the end of the question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..