Trupanion, Inc.

Good day, everyone, and welcome to the Trupanion fourth quarter 2023 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please note that today's event is being recorded. At this time, I'd like to turn the floor over to Laura Mainbridge, SVP of Corporate Communications. Ma'am, please go ahead.

Good afternoon, and welcome to True Panion's fourth quarter and full year 2023 financial results conference call. Participating on today's call are Daryl Rawlings, Chief Executive Officer, Margie Tooth, President, and Fawad Qureshi, Chief Financial Officer. For ease of reference, we've included a slide presentation to accompany today's discussion, which is broadcast on today's webcast. A copy of the slides will also be made available on our investor relations website under our quarterly earnings tab. As reported in today's earnings release, the audit of our financial statements for fiscal year 2023 is in progress. We have identified two material weaknesses in connection with that audit. As a result, the numbers reported today are preliminary. We continue to work with our auditors to complete the audit which may affect our ability to timely file our Form 10-K as we finalize our financial statements and disclosures and allow the company's independent registered public accounting firm to complete its procedures related thereto. I would also 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 provisions 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 variable expenses, fixed 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 and development expenses. 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 conference call is also available via webcast on Trupanion's Investor Relations website. A replay will also be available on the site. With that, I'll hand it over to Daryl.

Thanks, Laura. Good afternoon. Across our key financial metrics, Trupanion made strong sequential progress in the fourth quarter. We delivered significant margin expansion in our subscription business. Since Q1, our adjusted operating margin has expanded approximately 540 basis points. Quarterly capital allocation was highly efficient and we generated another quarter of positive free cash flow. I'm pleased with this improving trend in our results, but they don't tell the whole story. Entering the year, we faced unprecedented levels of veterinary inflation. We experienced margin compression in our subscription business. The first period of sustained compression since going public in 2014. We also made the necessary decision to transition to a more decentralized operating structure, which will better set us up to grow and be nimble in the years ahead. The team navigated well through this period of adversity. We took meaningful and deliberate actions to reduce expenses. We're operating with increased efficiency and discipline across the organization. I've also been impressed by the innovation and evolution of our tools the team is leveraging to drive our performance. I expect that we will carry our learnings forward with increasing levels of discipline and rigor. On that note, I also want to acknowledge the two material weaknesses reported today. We're committed to remediating and to doing better in the future. In 2024, we will look to grow our adjusted operating income by greater than 30%. As our margins expand, the team will be more aggressive in growing, deploying the majority of these pre-tax funds at our high rates of return in our large, underpenetrated global markets, in which only 3% of pets have pet medical insurance. We intend to do so while remaining free cash flow positive on an annual basis. Delivering on this plan will translate into strong value creation for our shareholders. We've done so for shareholders every year but this past one. While I'm disappointed with the year-over-year results of our adjusted operating income per share in 2023, I'm proud of the team. The inherent challenges of the post-COVID veterinary inflation environment has made us a stronger and more capable team, setting us up well headed into 2024 and beyond. With that, I'll hand it over to Margie.