Trupanion Investor Presentation. March 2017

Transcription

1 Trupanion Investor Presentation March 2017

2 Legal Disclaimers This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to, among other things, expectations, plans, prospects and financial results for Trupanion, including, but not limited to, its expectations regarding its ability to execute its business plans and financial objectives and its future operating results and expenditures. These forward-looking statements are based upon the current expectations and beliefs of Trupanion s management as of the date of this press release, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. All forward-looking statements made in this press release are based on information available to Trupanion as of the date hereof, and Trupanion has no obligation to update these forward-looking statements. In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the ability to achieve or maintain profitability and/or appropriate levels of cash flow in future periods; the accuracy of assumptions used in determining appropriate member acquisition expenditures; the severity and frequency of claims; the ability to maintain high retention rates; the accuracy of assumptions used in pricing medical plan subscriptions and the ability to accurately estimate the impact of new products or offerings on claims frequency; actual claims expense exceeding estimates; regulatory and other constraints on the ability to institute, or the decision to otherwise delay, pricing modifications in response to changes in actual or estimated claims expense; the effectiveness and statutory or regulatory compliance of our Territory Partner model and of our Territory Partners, veterinarians and other third parties in recommending medical plan subscriptions to potential members; the ability to increase the number of Territory Partners and active hospitals; compliance by us and those referring us members with laws and regulations that apply to our business, including the sale of a pet medical plan; fluctuations in the Canadian currency exchange rate; the ability to protect our proprietary and member information; the ability to maintain our culture and team; the ability to maintain the requisite amount of risk-based capital; the ability to protect and enforce Trupanion s intellectual property rights; third-party claims including litigation and regulatory actions; and the ability to recognize benefits from investments in new solutions and enhancements to Trupanion s technology platform and website. For a detailed discussion of these and other cautionary statements, please refer to the risk factors discussed in filings with the Securities and Exchange Commission (SEC), including but not limited to, Trupanion s Annual Report on Form 10-K for the year ended December 31, 2016 and any subsequently filed reports on Forms 10-Q and 8-K. All documents are available through the SEC s Electronic Data Gathering Analysis and Retrieval system at or the Investor Relations section of Trupanion s website at In addition to U.S. GAAP financials, this presentation includes certain non-gaap financial measures. These non-gaap measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of non-gaap financial measures to the corresponding GAAP measures is provided on our Investor Relations website. 2

3 Our Mission Our mission is to help the pets we all love receive the best veterinary care 3

4 Trupanion at a Glance Pure-play focused on simple, fair and high-value medical insurance for pets Comprehensive, lifelong coverage for dogs and cats, including hereditary and congenital conditions (i.e., the most likely conditions to occur) Pet owners are free to choose any veterinarian, emergency care, or specialty hospital Driving Category Growth 37 Consecutive Quarters of 25%+ Revenue Growth 36% Total Revenue 5-year CAGR 1 Strong Member Loyalty 98.60% Average Monthly Retention 2 90% of covered veterinary costs as invoiced, with no payout limits Individual pets are not penalized for needing treatment or getting older Veterinarians can be paid directly, and nearly instantaneously with Trupanion Express 1 As of 12/31/16. 2 For the 12-month period ended 12/31/2016. Average monthly retention is calculated as the monthly retention rate of enrolled pets for each applicable period averaged over the 12 months prior to the period end date. 4

5 Compelling Value Proposition For Both Pet Owners & Veterinarians For Pet Owners For Veterinarians Comprehensive coverage that gives pet owners flexibility in choice of care Provides peace of mind Eliminates financial uncertainty and reduces financial burden Pays veterinarian invoices quickly & seamlessly Ability to practice at the highest level Freedom to be the most effective advocate for the pet Increased revenue growth & pet economics Trupanion unites pet owners & veterinarians to provide the best care for the pets they love 5

6 Predictable High Growth Subscription Model $60.0 Total Revenue by New vs. Existing Pets (dollars, in millions) $51.3 $50.0 $45.8 $48.4 $42.7 $40.0 $40.2 $37.9 $35.6 $30.0 $20.0 $24.0 $25.6 $22.1 $19.8 $17.8 $15.9 $30.3 $31.9$33.3 $28.1 $10.0 $3.1 $4.4 $5.3 $6.3 $7.6 $12.0 $13.2$14.5 $10.7 $9.9 $8.8 $0 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Existing Pets New Pets 6

7 U.S. Pet Owners Spend Generously on Their Pets Total U.S. Pet Industry Spend 1 ($ in billions) $29 $30 $32 $34 $36 $39 $41 $43 $46 $48 $51 $53 $56 $58 $60 $63 Total pet spend in U.S. estimated at $63 billion in 2016 Consistent growth through recessionary periods Veterinarian industry spend has grown at a similar rate (a 5% CAGR since 2001, totaling $15 billion in 2015) E 1 Source: APPA US Pet Industry Spending Figures & Future Outlook 7

8 The Market for Medical Insurance for Pets is Underpenetrated in North America Massive Underpenetrated Market 1,2,3,4 Potential Market Size by Penetration Rate 180 Million Pets in U.S. & Canada 40% ($ in billions) Pets in the U.S. and Canada 180M $23.9 Illustrative Monthly Average Revenue Pet Pet (5) $49.17 Penetration in the UK 25% 25% Total Addressable Market $26.6B United States and Canada are significantly underpenetrated when compared to many other developed countries 14% $7.2 8% $4.8 1% ~2% 5% 5% $1.0 $2.4 % of Pets with Insurance: 1.0% 2.5% 5.0% 7.5% 25.0% 1 American Pet Products Association, National Pet Owners Survey, Kynetec on behalf of the Canadian Animal Health Institute, CAHI Estimate of Canadian Dog and Cat Population Survey, Packaged Facts, a division of Market Research Group, LLC, Pet Insurance in North America, 5th Edition, October Munich RE, How to Unlock the Potential of Pet Health?, May Represents our monthly average revenue per pet for the three month period ended December 31,

9 Penetration Driven by Product Value Proposition United Kingdom 16 million cats & dogs 4,200 vet hospitals 25% market penetration First offered: million cats & dogs 30,000 vet hospitals 1% market penetration First offered: 1982 United States U.K. Product (the Trupanion approach) Sourced primarily from veterinary referrals; appealed to new customers with vet-issued trial certificates Provided broad coverage Legacy U.S. Product (an insurance-minded approach) х Sourced primarily direct to consumer х Provided limited coverage, excluding the conditions most likely to occur х Imposed pricing caps and fee schedules Generated high satisfaction rates with pet owners and veterinarians х Generated low satisfaction rates with pet owners and veterinarians Trupanion s product offering aligns with the U.K. value proposition and marketing strategy 9

10 Attractive Trupanion Adoption & Economics in Relatively Established Markets Trupanion issued first policy in Canada in 2000 and first policy in the U.S. in 2008 Regional Case Study Analysis Region of Western Canada (entered 2003) Territory Partner presence for >10 years Human population of ~2.7 million High penetration rates: 2/3rd active hospital base 1,2 Quotes generated each month equal to ~25% of estimated number of pets acquired 2 ~5% of new pets enrolling with TRUP each month 1 Cats & dogs population of ~1.3 million >18,000 Trupanion enrolled pets 1 Accelerated growth: Annual pet growth > 20% 3 Annual revenue growth > 30% 3 Attractive economics: LVP to PAC > 5:1 1 The above numbers are as of Q For competitive reasons, we are not providing ongoing disclosure of this cohort. 1 For the period ended June 30, Defined as a hospital that has had a pet enrolled over the three previous months 3 For the annual period ended December 31,

11 Barriers Against Competition 1 Superior Value Proposition for Pet Owners 2 Established Deep Veterinarian Relationships 3 Data Driven Advantage 4 Proprietary Platform Enhanced by Trupanion Express 11

12 1 Superior Value Proposition for Pet Owners Key Categories Better Providers Legacy U.S. Providers Coverage Full coverage excl. preexisting conditions Pays 90% of actual vet bill Full coverage excl. preexisting conditions Pays % of actual vet bill Limited coverage excludes congenital, hereditary & pre-existing conditions Reimbursement based on fee schedules & price caps Pricing No fee increases for treatment Cost adjusts with cost of care for that specific pet sub-category Increases for age of pet and cost of care Few deductible options Increases for age of pet, prior claims and/or cost of care Few deductible options Pet owner may apply any deductible ($0-$1,000) to customize pricing Millions of pricing categories Direct Payment vs. Pet Owner Reimbursement Trupanion Express enables instantaneous, paper-free claims and direct payment of invoices at treatment Traditional reimbursement model Traditional reimbursement model 12

13 2 Established Deep Veterinary Relationships Territory Partner and Veterinary Footprint 1 Territory Partners represent long-term investment in veterinary relationships Over 80 Territory Partners..Drives Efficient Pet Acquisition Model Multi-faceted approach to driving sales leads across channels Pet Acquisition Channels 3 Each cover on average ~250 veterinary hospitals New Members Existing Members Over 86,000 vet hospital visits in 2015 Veterinary Leads Online Leads Point of Sale, All Other Add a Pet, Friend Un-replicated within market 54% 7% 15% 24% Over 7,600 veterinary hospitals actively recommend Trupanion with long-term target of 20,000 2 Nearly 80% of leads from referral sources that are not directly compensated 1 As of December 31, Defined as a hospital that has had a pet enrolled over the three previous months 3 As of December 31,

14 3 Data Driven Advantage Extensive data amassed over 16 years provides significant competitive advantages Illustrative Pricing Examples Millions of pricing categories Over 10 million medical plan months Over 1.5 million claims received $81.87 $24.56 $94.11 $28.23 Breed, postal code and age among the pricing categories used to measure risk $38.36 $56.83 $17.05 $11.51 Comprehensive data helps us understand the risk of each pet and add a 30% margin $26.85 $39.78 $57.31 $65.88 Cat Dog English Bulldog English Bulldog in NY Expected Claim per Pet per Month Other 1 All data as of December 31,

15 4 Proprietary Platform Enhanced by Trupanion Express Proprietary Platform Provides Cost Advantage Business model designed to eliminate frictional costs: Own only N.A. insurance company focused on medical care for pets In-house actuaries, claims & contact center for quality control and speed Dedicated national Territory Partner network No brand licensing fees Proprietary underwriting technology Illustrative Comparison of Cost Structure Value Proposition Enhanced by Trupanion Express Eliminates paperwork and uncertainty of coverage Customers avoid having to pay out of pocket Veterinarians streamline billing process and eliminate credit card fees Trupanion enhances data connectivity with veterinarians Un-replicated in the market Trupanion Express ~20% in frictional cost 30% 30% 20% 50% Illustrative Legacy Model 70% Trupanion Model Strategic choice to provide customer structural benefit by paying ~20% more on claims Profits Before Other Costs Frictional Costs Fully-loaded Claim Payout 15

16 Our Mission Driven Model Resonates with Third Parties I had the opportunity to meet with a broad cross section of Trupanion s people in Seattle What I experienced was a group of people who are confident, ambitious, energized and, above all, purpose driven. Robert Vinall, RV Capital, quote from his annual investor letter In Trupanion s case, it is easy to underestimate how important trust will be in shaping the Industry trust must be continuously earned by being deserved which is expressed as a mission-driven culture. Josh Tarasoff, Greenlea Lane Capital Partners, quote from his annual investor letter 16

17 Financial Review

18 Compelling Financial Model High growth business capturing underpenetrated market Monthly subscription model with recurring and visible revenues Strong lifetime value and proven customer unit economics Attractive long-term margin profile 18

19 Member-Centric Approach Driving Growth Total Enrolled Pets 1 Total Revenue 2 (in thousands) 18% YOY Growth ($ in millions) 28% YOY Growth 344 $ $ $147 $ $116 $ $84 $7 $ $37 $56 $77 $104 $134 $37 $55 12/31/10 12/31/11 12/31/12 12/31/13 12/31/201412/31/201512/31/ Subscription Revenue Other Revenue 1 Cumulative as of December 31 st for each respective year from 2010 to Includes subscription business segment and other business segment. Other business segment primarily includes revenue from plans not marketed directly to consumers 19

20 Near Term Investment Drives Long Term Cash Flows Marketing costs are expensed up front while revenue is realized over the life of the member Annual Cash Flow from Illustrative Member 1 Cumulative Cash Flow from Illustrative Member 1 $150 $100 LVP $600 $500 $50 $400 $300 Breakeven in ~15 months $0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 $200 ($50) $100 2, 3 ($100) ($150) ($123) PAC FY X LVP to PAC $0 ($100) ($200) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 ($123) 1 Based on lifetime value of a pet and average pet acquisition cost as of December 31, 2016 in subscription business segment. 2 Lifetime value of a pet (LVP) is calculated in part based on gross profit from our subscription business segment for the 12 months prior to the period end date excluding stock-based compensation expense related to cost of revenue from our subscription business segment, sign-up fee revenue and the change in deferred revenue between periods, multiplied by the implied average subscriber life in months. 3 Pet acquisition cost (PAC) is calculated as net acquisition cost divided by the total number of new subscription pets enrolled in that period. Net acquisition cost, a non-gaap financial measure, is calculated in a reporting period as sales and marketing expenses, excluding stock-based compensation, offset by sign-up fee revenue and other business segment sales and marketing expenses. 20

21 Attractive Long Term Margin Profile % of Revenue Q Q Q Q Long-Term Target Revenues 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Cost of goods 68% 67% 69% 70% 71% 72% 71% 71% 70% 70% Variable expenses 12% 14% 14% 12% 11% 11% 11% 12% 11% 10% Fixed expenses (1) 15% 14% 17% 15% 10% 11% 10% 9% 10% 5% Adjusted operating margin 5.3% 5.1% 0.7% 2.4% 7.9% 6.3% 8.6% 8.4% 8.1% 15% Acquisition cost 12% 10% 10% 10% 8% 9% 7% 8% 7% Adjusted EBITDA -7% -5% -9% -8% 0% -2% 1% 1% 1% Net loss -12% -10% -18% -12% -4% -6% -2% -3% -3% Free cash flow (in thousands) $ (3,598) $ (2,496) $ (16,434) $ (15,319) $ 3,065 $ (1,951) $ 1,121 $ 852 $ 3,043 1 In 2016, the fixed expenses were comprised of 7% G&A and 3% Core IT. In 2015, the fixed expenses were comprised of 9% G&A, 4% Core IT and 2% related to our Direct Pay Initiative. In 2014, the fixed expenses were comprised of 10% G&A, 4% Core IT and 3% related to our Direct Pay Initiative. 21

22 Thank You