Trupanion, Inc.

Greetings and welcome to Trupanion Inc. First Quarter 2022 Earnings 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 telephone 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, Trupanion. Please go ahead.

Good afternoon. Good afternoon. and welcome to TruePanion's first quarter 2022 financial results conference call. Participating on today's call are Daryl Rawlings, Chief Executive Officer, and Drew Wolf, Chief Financial Officer. Similar to prior earnings calls, Margie Tooth, President, and Tricia Pluss, Chief Operating Officer, will be available 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 at 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 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 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 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. With that, I will hand the call over to Daryl.

Thanks, Lauren. Good afternoon, everyone. Earlier this week, we published my annual shareholder letter. Outside of our annual meeting, My letters are intended to be the best source of information to educate yourself on Trupanion. It explains the way we think about and run our business. I'll touch on a few of the highlights today, but I would encourage you to read it in its entirety. Turning to Q1. The year is off to a strong start, as shown in our financial results. Adjusted operating income, or the funds generated from our existing portfolio of pets, increased 29% to approximately $22 million. You've heard me say this before, but it's worth repeating. The vast majority of Trupanion's intrinsic value is derived from our core subscription business. In the quarter, approximately 90% or $20 million of our adjusted operating income was generated from our subscription business. This represents growth of 26% year over year. As a percent of our subscription revenue, adjusted operating income expanded 40 basis points year over year to 14%. In our large, under-penetrated market, pet acquisition remains the primary use of our adjusted operating income. In the quarter, we were able to deploy approximately 14% more funds year over year, or $19 million, within our subscription business at a 34% estimated internal rate of return. In the quarter, we added nearly 60,000 new subscription pets in line with our expectations at another all-time high. Members with our Trupanion branded products are staying with us longer than ever before, on average 80 months. This highlights our exceptional member experience and continues to be especially impressive in light of our accelerated growth. Improvement in our trailing 12 month retention, coupled with expansion in our subscription adjusted operating margin, drove a 7% increase in lifetime value of a pet, which topped $730 in the quarter. In short, performance was strong and we are optimistic about the road ahead. With many of the COVID disruptions of the past two years hopefully behind us, we are excited to get back in front of veterinarians and their staff. In my shareholder letter, I share key metrics around the veterinary channel. Active hospitals totaled 14,700 at the end of 2021. Since then, that number has continued to grow to over 15,600 at the end of the first quarter. Though face-to-face visits have been lower over the past two years, growth in active hospitals continues to benefit from the strength of our brand. As the penetration rate of Trupanion members continues to increase within individual veterinary clinics, in some markets, we are beginning to witness a flywheel effect, where our value proposition and customer experience increases the confidence and trust of our product to both new pet owners, veterinarians, and their staff. With veterinarian doors opening again and territory partners back in the field, we are excited to continue to build on the momentum of this key metric. On a trailing 12-month basis, our Trutopia gap was 30 basis points. Trutopia provides the pathway to self-sustaining growth with minimal acquisition spend. For additional details on Trutopia, please refer to our shareholder letters. Achieving a state of Trutopia is a key component of our 60-month plan, as is new products, international markets, and distribution channels, including through our partnerships with Aflac and Chewy. While it's early days, we are excited to see how both of these key strategic partnerships will play out. Long-term initiatives such as these increase the odds of us growing at sustainably higher rates for longer periods of time. For companies that are constantly reinvesting in growth, tracking value creation can be difficult. At Trupanion, we want to maximize value creation while at the same time making it easy for all of our constituents to track our progress in a very transparent way. In my recent shareholder letter, I provide more thoughts around value creation, including laying out the ways we intend to fund our growth. At our annual shareholder meeting, we provide a high degree of transparency into our business. through an extensive Q&A with the team members directly responsible for the execution of our 60-month plan. This year, our annual shareholder meeting will be held on June 8th at our Seattle headquarters. This event is optimized for an in-person attendance, and I would highly encourage those that are looking to better understand our business, our strategy, and our culture to attend. With that, I'll hand it over to Drew.