Trupanion, Inc.

Good afternoon, and welcome to 2Panion's third quarter 2025 financial results conference call. Participating on today's call are Margie Toof, Chief Executive Officer and President, and Fouad Qureshi, Chief Financial Officer. For ease of reference, we've included a slide presentation to accompany today's discussion, which will be made available on our investor relations website under our quarterly earnings tab. Before we begin, please be advised that remarks today will contain forward-looking statements. All statements other than statements of historical facts are forward-looking statements. These include, but are not limited to, statements regarding our future operations, key operating metrics, opportunities in financial performance, pricing, and veterinary industry inflation. 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 today's earnings release, as well as the company's most recent reports, including Form 10-K, 10-Q, 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, cost of paying veterinary invoices, 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 a non-GAAP operating income or margin before new pet acquisition and development expenses. Unless otherwise noted, all margins and expenses will be presented on a non-GAAP basis and excluding stock-based compensation expense and depreciation expense. These non-GAAP measures are in addition to another 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. Lastly, I would like to remind everyone that today's conference call is also available via webcast on Two Parents Investor Relations' website. A replay will also be available on the site. I will now hand over the call to Margie.

Thank you, Gil, and good afternoon, everyone. Our third quarter financial performance was strong, underscored by continued momentum across key business metrics. I'll start with the headlines, then hand over to Fawad for a full walkthrough of our financial performance, ahead of discussing how we're expanding Trupanion's reach through new partnerships and brand initiatives that strengthen our connection to veterinarians and pet parents alike. Turning to our highlights, in our subscription segment, we accelerated net pet ads for the third consecutive quarter and increased them by 45% year over year. we delivered record subscription adjusted operating income of $39 million, an increase of 27% year-over-year. Subscription adjusted operating margin was 15.5%, also our highest ever. These results reflect consistent, disciplined execution over the past 24 months to deliver on our value proposition and our cost-plus solution. Adjusted operating income is the fuel to grow the business, and pet growth in the quarter was a result of continued investment in our retention performance, and increasing contribution from our gross pet ads. Specifically related to retention, we're pleased to report continued progress. As rate flow stabilizes for the majority of our members, our efforts to make adjustments more predictable and to reinforce the importance of coverage, especially in uncertain economic times, are paying off. Targeted communications, enhanced member support, and education around coverage value are resonating, contributing to improved member loyalty and a steady climb in training 12-month retention. Retention is more than a performance indicator. It's a foundational element of long-term value creation. High retention strengthens lifetime value, which in turn increases our allowable pack. As our margin continues to hold strong, this translates into high levels of adjusted operating income dollars to reinvest in growth. With that in mind, following the third consecutive quarter of double-digit investment increases, we returned to growth in gross pet additions, which were up 4% year over year. Combined with our retention gains, this translated into the highest net pet growth in seven quarters, adding over 16,000 net new pets in our subscription segment. These are durable gains, and we expect these positive trends to continue into 2026. As we enter the final stretch of the year with record margins, record free cash flow generation, and a strengthened balance sheet, we have the capacity to invest even more deeply. We're deploying this capital aggressively, yet deliberately. to ensure the Trupanion brand is seen and heard in a broader way than before. The driving force behind our why remains. Pet parents are struggling to understand how to budget for the unexpected care of their pet, and the veterinary industry is under immense strain as they work through the challenges of access to care. Trupanion must be visible and well understood as a standout solution capable of bridging that growing gap, and we're now well poised to advance that message. I'll now turn it over to Fawad to walk through the financials in more detail.

Thanks, Margie, and good afternoon, everyone. Today, I will share additional details around our third quarter performance as well as provide our outlook for the fourth quarter and full year 2025. Total revenue for the quarter was $366.9 million, up 12% year-over-year. Within our subscription business, revenue was $252.7 million, up 15% year-over-year. Total subscription pets increased 5% year over year to over 1,082,000 pets as of September 30th. This includes approximately 60,000 pets in Europe, a majority of which are currently underwritten through an MGA structure. Average monthly retention for the trailing 12 months was 98.33% up versus the third quarter last year, which was 98.29%. The subscription business cost of paying veterinary invoices was $177.1 million, resulting in a value proposition of 70.1%. This compared to 71.0% in the prior year period. This improvement more than offset adverse development from prior periods of 0.3 million or approximately 10 basis points of revenue. As a percentage of subscription revenue, variable expenses were 8.9% down from 9.4% a year ago. Fixed expenses as a percentage of revenue were 5.6% in line with the prior year period. Combined, we saw fixed and variable spending at 14.5% of revenue in Q3 and improvement from 15.0% in the prior year period. We have continued to drive efficiencies in both fixed and variable spending consistent with our expectations. The improvements in variable spending have given us the opportunity to reinvest, particularly in technology investments that sit within our fixed expenses. Our subscription business delivered adjusted operating income of $39.1 million, an increase of 27% from last year, and contributed 96% of our total AOI for the quarter. Subscription adjusted operating margin was 15.5%, up from 14% in the prior year and represents approximately 150 basis points of margin expansion. This marks a new company record for both subscription AOI and subscription AOM. Now I'll turn to our other business segment, which is comprised of revenue from other products and services that have a lower margin profile than our subscription business. Our other business revenue was $114.2 million for the quarter, an increase of 5% year over year. We expect growth for this segment to continue to decelerate as we are no longer enrolling new pets in the majority of US states for our largest partner in this segment. Adjusted operating income for this segment was $1.8 million or 1.5% of revenue. In total, adjusted operating income was 40.9 million in Q3, up 25% from Q3 last year. We deployed 20.4 million of this AOI to acquire approximately 68,100 new subscription pets. Excluding the pets that are underwritten through an MGA structure, this translated into an average pet acquisition cost of $290 per pet in the quarter, up from $243 in the prior year period. We invested $1.2 million in the quarter in development costs. Stock-based compensation expense was $9.3 million. As a result, net income from the quarter improved to $5.9 million, or $0.14 per basic and $0.13 per diluted share, as compared to a net income of $1.4 million, or $0.03 per basic and diluted share, in the prior year period. In terms of cash flow, operating cash flow was $29.2 million in the quarter compared to $15.3 million in the prior year period. Capital expenditures totaled $5.3 million, up from $1.9 million in Q3 of last year. As a result, free cash flow was $23.9 million, up from $13.4 million last year. Over the last four quarters, free cash flow reached $71.9 million. We ended the quarter with $348.5 million in cash and short-term investments. We spoke at our recent Investor Day about the work over the last two years to strengthen our balance sheet and build the financial foundation to power our future growth. Strong free cash flow generation, monetizing our capital surplus, including receiving the first extraordinary dividend in the company's history, and driving additional efficiencies have allowed us to invest in growth as well as make a $15 million early principal payment towards our debt in the second quarter. We're excited today to announce the next step in further strengthening our financial position and lowering our cost of capital. Subsequent to quarter end, we refinanced our outstanding term loan through a new 120 million credit facility with PNC Bank, one of the largest diversified financial services institutions in the United States. This new three-year facility provides us greater financial flexibility, further reduces interest expense, and gives us greater assurance as we navigate the coming years. I would like to take this opportunity to thank everyone on our team involved in developing this partnership and for helping us achieve this result. Now I'll turn to our outlook. For the full year of 2025, we are updating our guidance to account for Q3 performance. We now expect total revenue in the range of 1.433 billion to 1.439 billion. We are narrowing the range for subscription revenue, which is now expected to be between 986 million and 989 million, representing approximately 15% year over year growth at the midpoint. We now expect total adjusted operating income to be in the range of $148 million to $151 million. We're raising the low end of our outlook while maintaining the high end, resulting in a new midpoint that represents 31% year over year growth. For the fourth quarter of 2025, total revenue is expected to be in the range of $371 million to $377 million. Subscription revenue is expected to be in the range of $258 million to $261 million, representing approximately 14% year-over-year growth at the midpoint. Total adjusted operating income is expected to be in the range of $41 million to $44 million. This represents approximately 19% growth year-over-year at the midpoint. As a reminder, our revenue projections are subject to conversion rate movements predominantly between the US and Canadian currencies. For our fourth quarter and full year guidance, we used a 72% conversion rate in our projections. Let me now pass it back to Margie.