Trupanion(TRUP) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Subscription revenue grew 20% year-over-year, achieving a record adjusted operating income of $114 million for the full year of 2024, with a 40% increase [9][10] - Free cash flow reached an all-time high of$ 39 million, primarily driven by higher adjusted operating income [10] - Total revenue for Q4 2024 was $337.3 million, up 14% year-over-year, with subscription revenue at$ 227.8 million, up 19% year-over-year [29][41] Business Line Data and Key Metrics Changes - The subscription business achieved an adjusted operating margin of 15.3%, up from 13% in the prior year, marking the highest margin in the company's history [35] - The other business segment generated $109.5 million in revenue for the quarter, a 5% increase year-over-year, but adjusted operating margin decreased to 0.8% [37][38] Market Data and Key Metrics Changes - Total subscription pets increased by 5% year-over-year to over 1,041,000 pets, including over 51,000 pets in Europe [30] - Average monthly retention for the trailing 12 months was 98.25%, slightly down from 98.49% the previous year [31] Company Strategy and Development Direction - The company aims to grow adjusted operating income and strategically reinvest at high estimated internal rates of return to support more pets receiving care [11] - In 2025, the company anticipates steady growth in the subscription business, with a focus on increasing pet acquisition investment as the year progresses [20][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in margin trajectory due to recent trends in veterinary inflation aligning with expectations, anticipating improved margin performance throughout 2025 [21] - The company expects to exit 2025 with the highest per pet profit and expanding allowable pet acquisition costs, setting the stage for a return to historical growth rates [49] Other Important Information - The company reported a net income of$ 1.7 million for Q4 2024, compared to a net loss of $2.2 million in the prior year [41] - A goodwill impairment charge of$ 5.3 million was recorded related to European businesses, following a detailed business review [40][112] Q&A Session Summary Question: Can you talk about the progression of subscriber growth throughout the year? - Management indicated that they plan to gradually increase pet acquisition investment throughout 2025, aiming to approach the investment levels seen in 2022 [56] Question: What does the increase in veterinary leads mean for the business? - Management noted a 30% year-over-year increase in vet leads, indicating strong lead generation and a focus on converting these leads into subscriptions [62] Question: What is the outlook for 2025 adjusted operating margins? - Management expects margin expansion but noted that inflation will be a significant factor, with expectations of continued inflation at around 15% [91][92]