Trupanion, Inc.

Greetings and welcome to the Trupanion, Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your cell phone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Laura Bainbridge, Investor Relations.

Good afternoon, and welcome to True Panion's second quarter 2021 financial results conference call. Participating on today's call are Daryl Rawlings, Chief Executive Officer, and Tricia Pluss and Margie Tooth, co-presidents. Similar to prior earnings calls, Margie will be joining Daryl and Tricia for the Q&A portion of today's call. 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 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 NUPED 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 an 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 True Panion'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. With that, I will hand the call over to Daryl.

Thanks, Laura, and good afternoon, everyone. In June, we hosted our annual shareholder meeting, during which we covered a wide range of topics that pertain to our business and our 60-month plan. Because of this, we'll keep today's remarks brief. In summary, Q2 was another strong quarter, as shown by our key financial measures. Total revenue grew 43% year over year. We added over 33,000 net new subscription pets in the quarter, and we crossed over 1 million in total pets enrolled. These are interesting, but what I am most focused on is the expansion of our adjusted operating income, which are profits generated from our existing book of business that we then have available for us to grow and invest in our business at attractive internal rates of return. In the quarter, adjusted operating income grew 32% to $18.5 million. We deployed about $17 million of these funds on our subscription business to acquire nearly 56,000 pets at an estimated internal rate of return of 34%. It's worth reiterating that for the purposes of our internal rate of return calculation, pet acquisition cost is inclusive of all sales and marketing spend, including the cost of all team members working on acquiring pets. Growing our adjusted operating income and deploying as much of this as possible at attractive internal rates of returns are the fundamentals of our business model. The team is increasingly skilled at doing so. Year over year, the team was able to put approximately 100% more capital to work and in a disciplined and highly efficient way. Historically, we spent the vast majority of our adjusted operating income in acquiring pets in our core subscription business. This quarter, in addition to the $17 million we spent acquiring new pets, we spent $1 million of our adjusted operating income on pre-revenue initiatives that are a part of our 60-month plan. We also invested roughly an additional $1 million in CapEx compared to the prior year, primarily in our next-generation product administration platform, which we will launch in the next 12 months. We expect this platform will support new product initiatives, improve our member experience, and build upon our position as the global low-cost provider in our industry. While this results in us being cash flow negative in the quarter, it's a trade-off we are excited to make given our large, under-penetrated market and the opportunities we're pursuing as a part of our 60-month plan. As a reminder, our 60-month plan was provided in our most recent shareholder letter, which can be found on the investor relations portion of our website. Our financial position is strong, and we're well capitalized to afford our accelerated growth and execute on the opportunities ahead of us. Even with our elevated growth, I'm happy to report continued exceptional monthly retention of 98.72%. the output of our ongoing focus on member experience. The average pet now stays with Trupanion for 78 months, which is up from 70 months just a few years ago. We believe our retention is industry leading, and small incremental improvements can meaningfully impact the intrinsic value of the company. Maintaining retention while accelerating growth is exceptionally difficult, and the team deserves to be commended on their efforts. Taking stock of where we stand six months into our 60-month plan, I am pleased with the progress we've made, and I'm proud of the team. With that, I'll hand the call over to Trish to discuss our Q2 results in greater detail. Trish?