TRUPANION, INC. Q1 FY2025 earnings call

• The year started strong with overachievement on total revenue and adjusted operating income.
• Subscription revenue was $233 million, up 16% year-over-year, driven by average revenue per pet increases and growth in enrolled pets.
• Loss ratio improved 350 basis points year-over-year to 71.8%, with operational gains from transitioning to internal technology platform Vision.
• Monthly average retention improved to 98.28% quarter-on-quarter for the first time in 12 quarters, driven by improvements in the core Trupanion product.
• Pet acquisition investment increased 18% year-over-year, with an estimated internal rate of return of 31%, and expansion of the patented vet portal to support real-time payments to veterinary hospitals.

The subscription business had revenue of $233.1 million, up 16% year-over-year. The other business segment had revenue of $108.9 million, up 4% year-over-year. Subscription adjusted operating income was $30 million, a 53% increase from the prior year, contributing over 96% of total adjusted operating income. The other business segment had adjusted operating income of $1.2 million.

• Total revenue expected in the range of $1.39 billion to $1.425 billion for full year 2025.
• Subscription revenue expected in the range of $966 million to $989 million for full year 2025.
• Adjusted operating income expected in the range of $122 million to $142 million for full year 2025.
• Second quarter 2025 total revenue expected in the range of $344 million to $350 million.
• Second quarter 2025 subscription revenue expected in the range of $238 million to $241 million.
• Second quarter 2025 adjusted operating income expected in the range of $27 million to $30 million.

• Macro environment uncertainties that could impact operations.
• Industry cost trends and their potential effect on pricing and retention.
• Risks associated with achieving expected conversion rates in different territories.

Q: Any notable changes seen after Q1 due to macro noise?

A: No changes seen so far, strong lead volume continuing, Q1 ended as expected, Q2 continuing similarly.

Q: How to close conversion gap in underperforming territories and PAC spend allocation?

A: Treat each territory independently, work with territory partners to understand lead volume, focus on conveying Trupanion's value, PAC spend used for testing and improving conversion.

Q: Move away from Accelerant in underwriting and capital perspective?

A: Strategy to be vertically integrated, transition to GPIC, existing reinsurance and capital in GPIC, no additional capital anticipated.

Q: Share losses and European initiatives?

A: Focus on adjusted operating income growth, not chasing market share, European initiatives still moving forward as part of 60-month plan.

Q: Reserve development in Q1 and pricing impact?

A: Adverse reserve development of $1.7 million, pricing consistent with expectations, loss ratio ahead of curve.

Q: Retention inflection and tailwinds?

A: Retention a big focus, inflection point from team efforts, tailwind from members normalizing rate adjustments, focus on first-year retention.

Q: Rate increases and operating cash flow?

A: Continuing to work with regulators for rate, operating cash flow strong due to AOI growth, free cash flow positive, focus on free cash flow as % of revenue.

Q: Rate increase cohorts and first-year retention?

A: Cohort with >20% increase coming down, first-year retention improved with realigned marketing structure, expecting further improvement.

Q: PAC spend and DTC marketing?

A: PAC spend used as conversion tool, disciplined with internal rates of return, will test DTC marketing within IRR constraints