Trupanion(TRUP) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 revenue increased by 30% year-over-year, reaching $219.4 million, with adjusted operating income growing approximately 13% [8][27] - Adjusted operating margin was approximately 13%, compared to an annual target of 15% [14][31] - Net loss was $13.6 million, or a loss of $0.33 per share, compared to a net loss of $9.2 million, or a loss of $0.23 per share in the prior year [35] Business Line Data and Key Metrics Changes - Subscription revenue was $145.8 million, up 21% year-over-year, with total enrolled subscription pets increasing by 20% to over 770,000 [27][28] - Other business segment revenue was $73.6 million, reflecting a 54% year-over-year increase, with adjusted operating income for this segment at approximately $2 million [32] - Monthly average revenue per pet was $64.26, an increase of 0.9% year-over-year [28] Market Data and Key Metrics Changes - The company added over 61,000 new pets in the quarter, a 10% increase year-over-year [10] - The average invoice size for veterinary services has increased by 8% to 12%, which is approximately double the historical rate of 5% to 6% [12] - The company expects veterinary costs to continue rising by 10% to 15% over the next 3 to 4 years [12] Company Strategy and Development Direction - The company aims to leverage its strong balance sheet to invest in areas with high internal rates of return, focusing on the underpenetrated pet insurance market [9] - Partnerships with veterinarians are emphasized as critical to addressing rising veterinary costs and enhancing service delivery [20][25] - The company is focused on expanding its product offerings and international presence, with new partnerships such as Chewy and Aflac [10][55] Management's Comments on Operating Environment and Future Outlook - Management noted that the current inflationary environment presents unique opportunities for the company, as rising veterinary costs can lead to higher average revenue per user (ARPU) [15][40] - The company is confident in its ability to adjust pricing in response to rising costs while maintaining retention rates [70] - Management expects to achieve adjusted operating income growth of 15% to 20% for the year, with a long-term goal of 25% growth through 2025 [38][78] Other Important Information - The company invested approximately $20 million in acquiring new pets, with a pet acquisition cost of $309 and an estimated 31% internal rate of return [9][33] - Total stock-based compensation expense was $8.5 million, and the company repurchased approximately $5.8 million of its common stock [35][36] - The company ended the quarter with over $243 million in cash and cash equivalents, indicating strong financial health [36] Q&A Session Summary Question: Subscription loss ratio and future targets - Management expects to approach a 71% loss ratio by Q4 2022 through additional cost actions [43] Question: Curbside service in vet clinics - Curbside service is less common now, with increased utilization of the company's software in veterinary clinics [45][46] Question: Trends in deductibles - The company has observed a downward trend in deductibles, contrary to expectations of higher deductibles due to inflation [48] Question: Adjusted operating income guidance - Guidance includes actions across loss adjustment expenses, fixed and variable costs, and pricing actions to achieve targets [51][52] Question: Contribution from new products - Minimal impact is expected from lower-priced products in the second half of the year, while early stages of Chewy and Aflac partnerships show promise [54][55] Question: Software installations and face-to-face interactions - The trend of software installations continues positively, with increased face-to-face interactions with territory partners [57][59] Question: Customer acquisition cost and marketing spend - The internal rate of return for customer acquisition remains strong, with adjustments being made to spending profiles [61][62] Question: ARPU growth and inflation - The company is actively adjusting pricing to keep up with inflation, with ARPU showing modest growth [64][66] Question: Capacity to increase prices without impacting retention - Historical data suggests that retention rates remain stable with moderate price increases, and the company is confident in its pricing strategy [70] Question: Partnership with ezyVet - The partnership provides full integration within the ezyVet platform, enhancing access to veterinary hospitals [71][72] Question: Trends in gross adds and future growth - The company anticipates continued growth driven by veterinary inflation and new distribution channels, despite a potential flattening in gross adds [75][78]