Greetings, and welcome to the Trupanion Second 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. Please go ahead.

Good afternoon, and welcome to the Trupanion Second 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 our Investor Relations website, as well as the company's most recent reports on Forms 10-K and 8-K filed with the Securities and Exchange Commission. Today's presentation contains references to non-GAAP financial measures that management uses to evaluate the company's performance, including, without limitation, fixed expenses, variable expenses, adjusted operating income, acquisition cost, adjusted EBITDA and free cash flow. When we use the term adjusted operating income on margin, it is intended to refer to our non-GAAP operating income or margin, before new pet acquisition. Unless otherwise noted, margins and expenses will be presented on a non-GAAP basis, which excludes stock-based compensation expense and depreciation expense. 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 call is also available via webcast on Trupanion's Investor Relations website. A replay will also be available on the site. And with that, I'll hand the call over to Darryl.

Thanks, Laura, and good afternoon, everyone. It's been a busy few months at Trupanion. Since our last quarterly call, we hosted our fourth Annual Shareholder Meeting and completed an equity financing. This financing should lower our frictional cost, which includes our fixed expenses, and therefore, increase the funds available for us to invest in new pet acquisition. I'll cover the highlights of both events in my remarks today. But first, I'll briefly recap the second quarter. Total revenue grew 26% over the prior-year period, reflecting solid growth in both our subscription and other business segment. Pet acquisition spending within our core veterinarian channel continues to perform in line with our targeted IRR. During the quarter, we spent $5.4 million to acquire roughly 31,000 new subscription pets. We also continued to advance the modes around our business. I often talk about our modes, which include our value proposition, our proprietary data, our sales force of territory partners, and our ability to pay veterinary clinics directly at the time of checkout. Another mode is our people and culture. I speak less frequently to these topics, not because they aren't equally as important, but because they are not easily translated over the phone. We have a great team here at Trupanion, and we encourage all shareholders and prospective shareholders to get to know all of us. It is for this reason that we emphasize attending our Annual Shareholder Meeting in person. At this event, we are able to provide unparalleled access to a wide group of Trupanion team members to both open Q&A and less formal conversations. Attendance at this year's event was strong and feedback was overwhelmingly positive. We look forward to building on the events momentum in the years ahead. Since a large part of the event is centered around Q&A,…

Thanks, Darryl, and good afternoon, everyone. It was a busy quarter here at Trupanion, and our second quarter financial results were solid. Revenue of $73.4 million was up 26% year-over-year reflecting slightly stronger than forecasted enrolled pets in both our subscription and other business segments. Total enrolled pets increased 23% over the prior-year period to approximately 472,000. Subscription revenue was $63.9 million, up 21% year-over-year. Total enrolled subscription pets increased 16% year-over-year to approximately 401,000 pets as of June 30th. Monthly average revenue per pet for the quarter was $53.96, an increase of 5% year-over-year, and in line with our historical average of 5% to 6%. Average monthly retention was 98.64%, up from 98.57% in the prior-year period reflecting continuing improvements from system and process upgrades that we made last year. Our other business revenue, which generally is comprised of our revenue that has a B2B component, totaled $9.5 million for the quarter, an increase of 69% year-over-year. Similar to the first quarter, year-over-year growth in our other business segment was higher than we forecasted and the roll-off of the group of pets that we discussed last quarter was slightly slower-than-anticipated. We now expect the full year revenue growth rate of this segment to be between 40% and 60% year-over-year. Total enrolled pets in this segment was approximately 71,000 at quarter end. Subscription gross margin was 18% in the quarter, in line with our annual target of 18% to 21%. Total gross margin for the quarter was 17%. Second quarter fixed expenses represented 7% of total revenue, down from 9% in the prior-year period, reflecting continued increased scale in our technology and general and administrative departments. Our long-term target remains to scale these departments to 5% of revenue, when we are at operational scale. The acquisition of our home office…

Thanks, Trish. Before we open up for questions, I want to take a moment to highlight that we've recently updated our investor-focused Q&A, which is available on our IR website. At Trupanion, we value transparency, and we hope you find these updates helpful. I'll also take a moment to mention our participation at the upcoming Canaccord Genuity Growth Conference in Boston, next week. We hope to see many of you there. With that, we'll open up the call for questions. Operator?

[Operator Instructions]. Our first question comes from Mark Argento with Lake Street Capital Markets.

Just wanted to, I think you mentioned in the quarter that LVP-to-PAC ratio 4.9 versus 4.6. Last quarter, I know it sounded like you were very aggressive with some of the new tests. Could you talk a little bit about what you saw out there in the market? What led you to be able to be little less aggressive? And then looking forward, how do you see that playing out?

Sure. I'll start Mark, and Darryl can add. The main constraint here and we thought a bit -- as we went into the quarter and we thought a bit, last quarter was just -- our adjusted operating margin having a bit of pressure as we accelerated roll-offs of Trupanion Express and saw a little bit of that margin compression that we saw last year because the amount that we have to spend on pet acquisition is really driven by our adjusted operating margin. And we also want to be within the guardrails of cash flow positive. And so we were cautious going into the quarter for those reasons, as opposed to a broader market factor and just to achieve those financial targets. I'll let Darryl talk about how we think about this long-term.

Just to recap, our adjusted operating income was $7.3 million, which was up from $5.6 million in the prior year. So we are expanding the adjusted operating income, but as we thought about our long-term planning, it was a little tighter going into the quarter than we had previously anticipated. So we are just a little bit tentative. But the LVP-to-PAC ratio is driven by the IRR targets that we have for a single average pet, and that's to be in the 30% to 40% range and at 4.9, that's above 40%. And so for the total year we'll be looking at something probably closer to 4.2 or 4.4 for the year all else being equal.

Okay. That's helpful. And then Darryl, maybe just touch on Nirvana, what exactly -- just trying to follow you there, but what is a nirvana in a sense that you were describing?

So I talk a lot about it in my shareholder letters, which is -- it's our own internal language about a metric or a goal, which is, when you're dealing with a monthly recurring revenue company, and you get into larger and larger numbers, the churn needs to be offset by new -- in our case new pets coming on board. And we'd like to see that churn being offset, not from us doing outbound new leads, but from leads that are from our existing members. So if we can get to a point where our existing members were either adding pets and telling friends at the same level of pets churning, that means that all of our PAC spend could be into kind of gut growing in the category. And so that is what we describe as a Nirvana. There is more stuff in my shareholder letters to kind of get you up-to-date. And what I talked about in my opening remarks, is this is a very ambitious long-term target. If we can ever get there, that will certainly help us grow 10 and 20 years from now. And so we've been focused on it. We're constantly focused on it. And we had one of our regions recently achieve that. So it's the first time in the company's history, where that has occurred now. We have long ways until that happens everywhere, but hopefully, that gives us a little bit of a road map. And it's all around having improved customer experience, great value proposition, building up brand awareness, et cetera.

Our next question comes from Michael Graham with Canaccord Genuity.

Congrats on a good quarter. Just on the Q3 guidance? I just wondered if you could comment on the ARPP that is sort of embedded in that guidance? I mean, we saw kind of the year-over-year expansion in that metric peak in the above 9% range last year. And it's been coming -- the growth rates have been coming in for the last few quarters. Is there an expectation that, that's going to continue to kind of come in to something in the low single digits in Q3 and beyond? Or just -- can you just comment on that?

Sure, Michael. Yes, you're right, that last year I would say what we saw in the 9% and 8% year-over-year change is higher than our 10-year average. Our 10-year average has been in the 5% to 6%. And as a reminder, it was driven a lot by us updating some subcategories and having larger than what I would consider normal increases for subcategories that were more mispriced. That being said, based on how we are rolling out Trupanion Express, we estimate that really to be where we need to be currently we should be more in the 7% range. And we are rolling that pricing through our book. It's just -- it takes all things equal about a year to roll on. And so I think where we are at right now, we don't anticipate seeing a change from around the 5% range for the remainder of the year, but we will start seeing that roll on and that will have a more of an impact next year.

Yes, I'd just kind of reinforce one part of it. If you look over the next 10 to 20 years, or you look backwards to last 10 or 20 years, 5% to 6% is what we see is increased cost of veterinary care. And remember, we're just a cost-plus model and we're doing that by lots of categories by breeds and geographies. When we were rolling out Trupanion Express, because we are paying invoices directly at the time that a pet owner is in the clinic, and before they walk out the door, we have a slightly higher cost because in a reimbursement model, smaller invoices, $100 and $200 invoices are sometimes forgotten, where they're too much of a nuisance for a pet owner to file, with Trupanion Express, we pay all of them. So while we're expanding the use of Trupanion Express, the year-over-year change should maybe be in the 6% to 7% range versus the typical 5% to 6%.

And then, the other one I just wanted to ask is, if you could update us on what's going on with your direct-to-consumer marketing efforts? Maybe just any examples of markets where you've been leading into that a little bit and how it's going?

Yes, well, in previous comments, we talked about our LVP-to-PAC ratio being at a higher than what we otherwise would have anticipated. So in the last quarter, we were doing a lot of B2C. We kind of held back on that. We were a little bit tentative. You will see more of it in Q3, and Q4, if things go as we would expect. But to reiterate, what we've learned from B2C is that in areas where we have a lot of active clinics and people that are partnering with us with Trupanion Express, the benefit of B2C is higher. We're really -- B2C is a way of reinforcing our brand and increasing conversion rates and we need the underlying support of active clinics and Trupanion Express. In markets where we are new in the market or there is very low participation from veterinarians, B2C on its own is not yet effective.

Our next question comes from David Westenberg with CL King.

Congrats on a very good quarter. So a question we are getting a lot from investors is a lot of competitive insurance companies are talking about, how we do invoices in the clinic directly. So can you explain that the differences of specifically, what Trupanion does? And what kind of your competitors say they are doing, but don't really do?

Yes. So we mentioned in the opening remarks about, we had received a utility patent recently. The utility patent is around the technology where we're integrating with practice management software to help expedite our ability to pay an invoice within minutes, and with claims automation within seconds of a time an invoice is being created so that a pet owner only pays if they had a deductible or a coinsurance, so the small balance before they leave. What has historically been in the place and what most competitors are dealing with is, the pet owner comes out of pocket and pays for the invoice. And then, they would fill out some paperwork, sometimes having to go back to the veterinarian for signatures and then send it into -- and at the company, which then typically in a 1-to 4-week period would try to pay it, and then the pet owner would wait by their mailbox waiting for a check. So you're talking about a reimbursement model, that could be in a matter of weeks, where the pet owner is paying upfront versus our scenario, where it is our desire to pay hospitals directly within minutes or seconds from the time an invoice is created. We think it's a dramatically different customer experience and we have net promoter scores and other things that support it. As a reminder, we've been working on this for years and it's been at the core of our kind of our value propositions. We have heard of other companies trying to position how they would respond to it, but we believe that we are the only company that in any meaningful way has the ability to do this in North America.

Got it. And then, you talked about the back half of the year. Could they continue to test the B2C channel? Is there any thoughts you perhaps expanding the sales force if you see the IRR on that is not particularly as strong?

We are planning on expanding the number of people in the field, but we're also planning on expanding the number of internal inside sales, which are supporting hospitals with Trupanion Express, we call them, partnered hospitals, but this is a way that we can have multiple touch points inside of the typical 60-day call pattern that our Territory Partners are outside sales force is able to do. I would expect expansion in both of those areas throughout this year, and in particularly, the inside sales over the next multiple years as we continue to work on that initiative. So that will, obviously, be the two biggest areas that we're focused on.

And then one last question on Trupanion Express. When you're looking at the incentives you give to the veterinarians in order to enroll in Trupanion Express, how successful are you seeing that? Is there any opportunity to expand some of those programs?

Well, we are not get giving incentives for anybody to be enrolling with Trupanion Express. We do not charge veterinarian for using Trupanion Express either to get our software or the veterinarians have no cost or expenses for using it. What we are doing is trying to every year increase the number of hospitals that have it and we're trying to do that through education. Our biggest limiting factor is not demand is as much our ability to appropriately and effectively deploy it, and that has been our biggest constraint, but we do not compensate a clinic for installing it.

Our next question comes from Jonathan Block with Stifel.

Just two from me. Maybe the first one, we've seen the year-over-year growth sub adds really accelerate the rate of growth over the past 3 quarters, which largely coincides with the deployment of Express. So I guess, I'm asking Darryl, is the express hospitals that are accounting for the majority of the overall acceleration? Are you also making tweaks and just call it doing things better in some of your legacy or non-express hospitals? And then I've got a follow-up?

Great question, Jon. And I -- at a high level, we are seeing acceleration in new pet adds. That coincides with a couple of things. One of them is our adjusted operating income has been increasing. So the amount of funds we have to deploy to enroll more pets has been increasing. We expect that is going to continue to increase for years to come. So the amount of tax that we have is a big driver. The second driver would be conversion rate. So as we're building brand awareness, our conversion rate, and I talked about this at the shareholder meeting. Our conversion rates have been ticking up over the last year as well. Now as you mentioned, Trupanion Express has also been going in -- we know that we have better customer experience in those scenarios, that helps I think with conversion rates, and building our brands, but I would say it's a combination of all three, as well as a lot of little tactics that we're doing out there.

Okay. Very helpful. And then just to shift gears over to the competition. I just want to check in on the overall competitive landscape. I think others pay for reviews. I don't believe you guys do. Others had been pricing them aggressively, but you might not have been making much any money. So maybe if you can give us an update on the landscape? Have there been any shifts, any change in pricing plans from competitors, where it might not have been sustainable?

So the first part of the question was, any kind of new landscape of competitors? At any given time, over the last 20 years, we've typically competed against 15 to 20 brands. That remains constant. Any given year a couple come in and a couple go out. But I would say in general, there has been no change to the landscape. To the later part of your question, which was about tactics that others may be perceived as growth may be on being priced differently than we would -- or what we might view as inappropriate. We're pricing by what we believe is more subcategories that are higher targets. And I don't think -- we don't concern ourselves a lot with what other people do, because we're clearly a cost-plus model. We are not looking at competitors and changing our pricing for competitive reasons. In this line of business, some people might accelerate their growth for a year or two, because they have accidentally priced themselves inappropriately. But that's not typically sustainable for multiple years, but that's not something we've really try to deal with. So hope that answers your question.

It does. And maybe if I can just ask a follow-up there. I guess, I was just sort of at the crux of other question. You guys have accelerated your adds and you probably know exactly why we don't, part of that's clearly expressed. So I'm just curious, the competitive landscape is a little bit quieter. I think in the past, we had discussed or there had been chatter out there that some of your competitors maybe got over their skis. They had priced whether intentionally or not, aggressively, maybe that made some potential subscriber move over their plans that you [indiscernible], that's where I was going with it.

I don't think any of our accelerated growth is in any way due to competitor -- competitive landscape. I think it has been -- we have been slowly increasing conversion rates and retention rates and slowly building up the brand awareness of Trupanion. And as I said before, as our adjusted operating income has become larger, we've been able to deploy more capital to try to convert leads that we're getting.

Our next question comes from Dylan Haber with RBC Capital Markets.

Just two quick ones. I believe that you only said that you expect EBITDA to be positive for the full year. But given that you're tracking ahead of last year so far, do you think it's fair to assume that EBITDA will be up year-over-year in 2018? And then, as you rollout the Trupanion Express product, do you think it's adoption across your active hospital base could accelerate and maybe follow an s-curve as you streamline it's operations? Or do you expect it to be more Steady Eddie growth?

Dylan, this is Tricia. I will answer the first one, and let Darryl take the second one. So your adjusted EBITDA question, it's interesting. And I say that because as a reminder, EBITDA is the result of how much adjusted operating income we generate and then how much we deploy in our acquisition spend to grow, and it's essentially on how many pets we are adding and we pay upfront for a pet and then we get the benefits over time. And so based on the new -- the updated revenue guidance for the full year that we mentioned, all things being equal, I would say that, I would expect year-over-year EBITDA to be consistent or slightly better than what it was in the prior year. And that being said, if we do have the opportunity to deploy more of our operating margin and add incremental pets, which wouldn't have a dramatic impact on revenue this year, but would have more of an impact next year, we would choose to do so. As long as we are within the guardrails of internal rates of return above 30% for an average pet and being cash flow positive.

I think you're asking about adoption of active hospitals with Trupanion Express. And do we expect any type of acceleration from that are kind of a Steady Eddie? And my answer would be kind of a Steady Eddie. I mean, this is 1 clinic at a time. It's not a light switch. And we've been working on this for years and we will be working on it for the years ahead. So I think more of a Steady Eddie is a way to think about it.

Our next question comes from Tom Champion with Cowen & Company.

Trish, if you could just update us on the total number of Trupanion Express hospitals as of quarter end? It sounds like that's been growing. And perhaps any update on your cooperation with State Farm?

Trish is pointing at me. So I'll answer this question. So the Trupanion -- the number of Trupanion Express hospitals is something that we report just on an annual basis in my shareholder letter. So be tuned for that next year. We might provide a little bit more color on it at the shareholder meeting. And the second part was, at the last shareholder meeting, we mentioned that we were testing a partnership and it's really early days and no any -- no material updates.

Our next question comes from Paul Penney with Northland Capital.

The sizable 70% increase in the other business bucket on the income statement and the revenue line item, can you refresh us in terms of what specifically has been there in the source -- resource of growth?

Well, there is two other, call it, two other brands that are in there, one that is rolling off a little slower than we anticipated, and another one that's rolling on, which is rolling on a little faster than we anticipated. And then, we have employee benefits, which is a small percentage, but we're pleased with the progress there, but it's not material on our P&L at this point. And then, we have another program with the federal government. Those are most of the pieces. But a reminder, what's different about our other revenue is, it's not direct-to-consumer, it's in some case, there's some other B2B play, where somebody is helping to pay or paying for a 100% of the monthly cost for a pet. And they can roll on and roll off in a different cadence in a direct-to-consumer. We typically do not have the same PAC cost, and we don't have the same margin profile. So other revenue we kind of target kind of an 8% to 10% bottom line.

Great. And one last one. Going back to the team, can you talk about your some recent hires you had both at the corporate home base and in the field with your Trupanion Associates? And then looking forward, where you have some potential holes to fill?

Well, that's a broad question. So we continue to add people to not only our office in Seattle and in every department, so from support functions like finance and IT, and data and actuarial, we continue to add numbers. We are adding those numbers well trying to get scale in all of our fixed expenses to 5%. So we're not -- are adding those at the same rate that we are growing our top line. In other areas, which is meant to be supporting our existing members, customer service, claims, et cetera, our ability to pay 24 hours a day, 7 days a week, at the time of invoice, those are being added roughly at about the same rate as our growth. We might see that slow down a little bit as we get more claims automation in the years to come. And so we are adding people in the Seattle office. We are having more people homeworkers, so people that have worked here for six months, that may take on their role and go and do it in another area. Want a big? Go back to Kansas City, wherever they lived, that would be great. We have hired and built out more around Tru-University, around our people operations. So we've hired more people last year in the regulatory department, and we've added more people in the people operations. So making sure as we build the scale up over the next five years, that we have the right tools and resources. But I would say that, I'm pleased with the group of people we are adding. We are doing a better job in training. In the past, we always have room for improvement there. And we're very cognizant about the culture here at Trupanion and trying to stay on top of that.

[Operator Instructions]. Our next question comes from Kevin Ellich with Craig-Hallum.

I guess, going back to the prepared comments Trish made about AOM of 10% I think a little bit below your plan or expectations. I guess, what's the target for the full year? And, I guess, how should that trend over the back half of the year?

Yes. Kevin, yes, so to recap, we're at 10% for the quarter. It's roughly 9.5% for the full year-to-date compared to about 8.8% for the year-to-date 2017. I mean, the main driver of us not being quite where we want to be in it, because of the prioritization of the Trupanion Express appointments that we talked about earlier, is where that margin compression and gross margin being at the 18% margin instead of closer to 20%. Long-term, we're trying to get that adjusted operating margin to 15% when we are at scale. And so I would say, we haven't still given guidance on this. But I would say trying to get that up from 10% closer of 11% this year given this margin compression is our near-term target and just continuing to make progress towards that 15%. Now in the back half of the year, one of the new items that will have is the savings from purchasing the building, which hasn't closed yet. So it'll only be partial. And so I would probably only model out a $1 million around there for this year in terms of that benefit as we get that to roll on.

Okay. That's helpful. And then, Darryl, going back to the Trupanion Express roll out, can you remind us where we are at in terms of how many hospitals and how many you plan to get into by the end of the year? And how is the claims automation being received by the vet practices?

So Trupanion Express, we -- in my last shareholder letter mentioned that we are in about 2,000 hospitals, our goal this year is to add more than we added last year, but long-term, we're trying to get to 20,000. So we've got a long, long road to travel. As a reminder, we're visiting today -- there is about 25,000 clinics in North America. We're visiting today about 20,000. Last reported about 9,000 and we are actively -- recommending us. About 14,000 actively recommended us last year, and about 2000 of them have Trupanion Express. So we're not giving any pointed guidance on how many we would like except for that we want to add more and more every year. We have in the past tried to put our foot on the accelerator and increase speed without quality. So we're really trying to balance those two things.

Okay. Helpful. And then, going back to other business -- sorry, did you have something else there?

You asked about claims automation and how that's been received? So early days, but everyone loves it. I mean, we're talking about -- as a reminder, a typical reimbursement model is a matter of, a pet owner paying out-of-pocket and then waiting by their mailbox for weeks. With Trupanion Express, we've been paying in typically 5 minutes and with claims automation, we're doing it in under 30 seconds. So we live in a world where speed is important, and it's encouraging so far. But still tiny numbers.

Got it. And then last one from me is, in the Other business segment, you mentioned group benefits. I know it's small. But just wondering, how the conversations are going? And are you continuing to gain traction in that market?

We are gaining traction and on a year-over-year basis, I think this is an area that our percentages look very encouraging, but it's such a small base that we don't think it's material. I would say that next year at the Annual shareholder Meeting, there will also be some good questions. And the team there could be giving some more highlights and places we're getting some wins. But we're seeing more companies see this as something that is valuable for retaining their talent. And in places where they are paying for a percentage of that instead of just being a add-on in a cafeteria plan, that's where we see a better traction.

Our next question comes J.D. Delafield with DHI.

Darryl, at the shareholder meeting and a couple of times today you talked about improvement in conversion rates. And I wonder if you could speak a little bit more about what's causing the conversion rates to increase?

Yes, J.D. At a high level, I think what we are trying to do for this company is to build a consumer brand, a brand where when people see our logo or a tag on whatever our pet call us, that hopefully, they have a little bit of a smile and they know that this is a company that loves their pets and wants to help them budget for if and when their pet becomes sick or injured. So I think overwhelmingly what we're doing is we're starting to build a consumer brand. And a way of measuring -- building a consumer brand is higher conversion rates. Now there is a lot of tax except we do from having the right message to the person at the right time. We've made a lot of investments on our website. We are doing things more in mobile. We are doing more things with faster communications like text. We're having Trupanion Express being able to give a stronger selling proposal. So if you talk about everything we're doing, I think it's really about building our brand. And we have a lot of emphasis on trying to improve that over the next 5 to 10 years. And in general, if you would ask me about 3 years ago, I would've said, we're building a brand of -- amongst veterinarians and we still have a long way to go there with -- amongst veterinarians. But as we approach 0.5 million pets, I think, we're now starting to make an impact on consumers.

Okay. The second question is around the capital that you raised and the ability to use part of the buildings regulatory capital. And historically, you've sort of told people that your growth rate really should stay at or under 30% a year sort of total corporate revenue because of leverage guidance that you've gotten from your primary regulator. So with this additional capital, does that move that growth -- the potential growth rate ceiling up?

No.

No, I would just add, the capital requirements and the calculation don't change. The credit you get for cash, you get the similar amount of credit for our building that is in your home office, so it's just a different use of that capital that we feel deploys it more effectively than just cash sitting there, but the requirement remains the same.

What this does is it frees up working capital. So we're going to have -- all things being equal, our adjusted operating income and hitting our 15% target, should happen quicker and faster than it would have, if we had not done this deal. And then, when you have that capital, it gives us the opportunity to try to grow consistently, but we are not increasing our long-term growth goals because of that.

Thank you. We are out of time for questions. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.