TRUP - Earnings call transcript Q4 2017

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Operator

Greetings, and welcome to the Trupanion Fourth Quarter and Full Year 2017 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Laura Bainbridge. you. Thank begin. may you

Laura Bainbridge

welcome financial Trupanion results and full quarter year XXXX conference to afternoon fourth the and Good call.

to GAAP. statements will on Before Securities to we detailed of certain materially Trupanion XX-K from we with meaning performance, contains financial remind reports which filed like on GAAP of those of basis, future Relations forward-looking management to make everyone on results, website expense. provision reconciliations with non-GAAP unknown pet other financial not new be measures to Private depreciation noted, our a presentation discussed. statements or and expenses Today's results excludes Earnings to expense variable and Company's fixed that before be income Form Securities in included we accordance Investor Harbor substitute expenses, directly non-GAAP income within earnings website the Investors performance opportunities A U.S. begin, the measures of risks and are income, acquisition. Unless financial otherwise high comparable and today's release, Commission. Investor to degree non-GAAP tab. limitation, risks adjusted during to a Relations today's X-K under these performance cause it presented involve operating press uncertainties the in differ are as margin of non-GAAP in is Reform Quarterly could Act references on non-GAAP I prepared Safe our EBITDA the margin, financial release or and which expenses, and including, without regarding Trupanion's the or the the the Litigation encouraged addition of uses measures would that term discussion uncertainties for review operating the and margins found and of stock-based known well costs, and the and found to refer These be operations, free will that acquisition most These Company's most the When flow. of and operating cash the in are measures which can XXXX. the adjusted Exchange these a call, evaluate recent use can adjusted intended to compensation actual as

Lastly, to over on be website. that like Relations also CEO. today's available to is call webcast will A With everyone to remind Trupanion's turn call the the also Founder Darryl, available via Trupanion's on replay like I'd and site. I'd that, Investor

Darryl Rawlings

Thanks, Laura, in and provide good meeting, I'll our will afternoon letter brief and as forth we to with coming expectations. detail our review June Seattle held in In Xth. I'll be our XXXX on highlights. remarks performance my short, my which shareholder intend everyone. line during XXXX our Today, in XXXX shareholder keep more was

We operating the growth that team great constraints. have the our and our a driven good of modulating job business historically a within levers have did our understanding

days early results our of also top test for tests to at Revenues initiatives the repeatable are We target is XX% XX% from which grew range. XX% scale. see end still year it's determining in to our positive year-over-year, continue how at though these the

in benefited the the ARPU X% due increased valuable pet, contributed of each Our efforts other in Revenue which the our increase addition revenue partner. the X% our to XX% These strong of contributed $XXX subcategories. business results accurately from our new from segments a of $XXX to XXXX. lifetime year-over-year of in business, to a efforts improvement price subscription year-over-year growth also primarily to the growth

return. still allowable valuable to testing be rate pet us more aggressive acquisition lifetime Continued pet while of in increases of spend, in a enables the tax our expansion which strong achieving

this expenses to in XX% income the year. of the an addition XX the drove and for the those on fixed generated pet a predictable increase channels, elected margin that was on we enrollment. of operating scale million XXXX, scaling In us XX%. efficient prior adjusted our We prior a spent million to this operating expansion million invest to pet expenses. bulk of of adjusted the margin are acquisition, subscription funds our to we achieved In In our understood the over The in spend having XX well year. through in highly LVP, from available deliver XX increase dollars, XXXX, acquisition. XX our strategies core continued also X in higher primarily increases adjusted million, in In fixed operating pet

on initiatives In addition which sales as on to testing forecasted three based other we early well TV. encouraging Based available XXXX, we in channel, continue and same-store spend In operating intend was increase our spend in will as invest with pet our to to intend tests general, In one XXXX. acquisition. direct-to-consumer this primarily more results, in included we to the these have our on significantly of core ways. adjusted income,

will spend engine growth. of is known our continue our to core we on the First, this channels, as

not those Second, dynamically. to positive scalable. And are successful our we results spend we testing are strategies that yet will do planning need that on new not are results, may know or increase and to we showed be spend thirdly, repeatable may early tests but completely whether or adjust

visibility. initiatives. less XXXX however, our greater will my channels to comprise expect a commentary strong where a majority team. Well, the operationally. and as was our buckets a allocate spend; continue our core second to and have well strategic I worked financial culture We we Our third channels, progress, to strengthened advanced comprising our our percentage spent key of today of We year proven XXXX also highlighting the the less we bulk

with areas, modes around of or some more these goal strategic progress increasing our rates, operating others. members recall, all payments In diligently a the but friends, are increasing five more offsetting existing are than around business. our the pets, You'll Nirvana. more deepen we work churn adjusted fifth, margin, sales, we key multiyear to and scaling conversion of same-store initiatives of having version These referrals, adding continue to hard made initiatives, And veterinary invoices. automating our

more to efforts in typical these elaborate you to the Annual be attend benefits a of day at get far person encourage Meeting, on discussion. upcoming designed I our will to different Shareholder and from We this shareholder meeting. this We

expect about you In event most. significant panel answering the experience a opportunity For of solid shareholders, was a spend our this depth large portion get all day operationally. team, to XXXX your our can financially our and meet with you culture, day a summary, leaders access, and the in to of year care questions that is

At our conversation core pet We Tricia. mission the still is of to encouraged to to help call effort continue Trupanion. I'll the over turn trust we our the but with to the building advance of pets receive giving by progress, and the them a veterinary our care. about their veterinarians and best initiate love, staff have long way to the owners with We're confidence we go. And all that,

Tricia Plouf

increases year million contributed results our of in of from ARPU growth. of our afternoon The for our compared revenue X% first results discuss outlook good to financial everyone. contributed XX% our historical increased achievements XXXX, were ARPU X% and group XXXX of a our to were X%. Darryl, revenue X% of I of which on and business growth, segment, will roll XXX.X impact above year-over-year provide pets X% other and our year-over-year the of above that strong and our XXXX. full quarter quarter average Today, fourth due highlight XXXX primarily These the XXXX. being to Thanks, to

saw was XX% pets. our prior-year. from total adjusted X.X% XX total we million revenue invest or test from of in positive revenue, enroll operating helped up growth Additionally, XXXX available million the which income some in to results XX.X of or initiative, of incremental

million. X.X net flow free the loss achieved X.X we also positive for of cash Our In XXXX, year million. was

operating cash was for our of million for fourth Our quarter. million. now year-over-year. year the Revenue to XX.X XX% the up was results turn I'll X.X flow

XX% same XXst. XX XX% and million XX% up pets time as average increased revenue benefited subscription pets XXX,XXX Over enrolled total the was December XXX,XXX. approximately period, increases. from approximately than Total year-over-year to increased ARPU enrolled higher year-over-year of Subscription to

Our average the prior-year in from XX.XX% was period. XX.X% up monthly retention

BXB Year-over-year pets number at growth year-over-year. Our which comprised our that a other of has XX% million revenue end. segment, year our is of X.X totaled enrolled for XX,XXX of was segment other component generally in business in enrolled. reflects revenue the Total this approximately in increase an increase business quarter the an pets

at expect in the another last mentioned business new XXXX throughout enroll we significant relationship from to of result to began was growth will the was quarter year. the Subscription margin of result in XX% the for XX% of off begin our In other XX%. quarter, relationship in XX% to we beginning of pets Total project really As was which we in XXXX. that our growth within segment's a pets rate the target XXXX, margin the annual gross this gross XX%. range

down fixed scale our in the X% revenue, of represented reflecting quarter, from departments. and in total general period, XX% the and increased For prior-year expenses technology administrative

million LVP-to-PAC ratio PAC X.X we in PAC Turning to $XXX acquisition our LVP-to-PAC of resulting in X.X for the of year, on spent a ratio an fourth cost, the we pet X. or spent of million In quarter, This in a X.X pet $XXX. acquisition to resulted prior of X:X. an

the available of enabled million income during as well in period. internal during maintaining margin Adjusted to a rate Our increase the our pet have as XX% new the spend incremental fourth TV allowed order also XX% us to cost such to a totaled acquisition us to in operating quarter channels incremental quarter $XXX and in as be aggressive growth. operating quarter test spend to adjusted from prior-year incremental pet this drive quarter, while the channels improvement and still during LVP Having X.X scale strong in in more core return. us the

in be I'll and year full first long cash year-over-year revenue, million of $X.XX quarter share full per the $X.XX range and for cash quarter XXX X.X XXst, term X.X XXX EBITDA now XXXX representing and of cash, the per flow cash in XXXX. is was year-over-year a million expected margin of expanded turn diluted free spent points net X.X year short It's of line to cash As revenue including approximately to prior for the adjusted primarily operating around average up was for million million deliver growth million. growth our our term basic net flow had XXX debt. period. that million flow for channels to XXXX, of This XX% basic and X the known investments, other midpoint. December of loss X.X equivalents free basis We year million at we the X the in compares million period million more our outlook million XX%. outlook had or predictable XX.X along XX% Revenue reflective a of noting to X.X of year X.X share the reflect which worth operating in is to and million cash and of flow This diluted revenue million also to that X% ARPU operating or to our of a these loss through compared in growth business our includes of for core percentage projections X%. in At strong our loss with prior X.X from historical Adjusted returns. quarter. expectations the with in

of will quarter. year we XXXX. EBITDA The year half for throughout to operating update As our spend we've full drive the revenue At would year of during our we deploy it the in this each segment order to growth spend. to flow, positive We'll and much of and have also monitor adjusted more progress and as course will growth we in the however, reflected in are of the guidance. able our be on levels, to discussed, our second of group the in performance is return off supporting incremental our adjusted on desired impact that you other revenue revenue is expect our cash forecasted expect our roll pronounced pets as goal the income rate while business acquisition

our to rate these midpoint. at For conversion adjusted around levels, range be EBITDA XX breakeven. revenue are the of growth At between expect subject to keep first revenue the is Canadian in XX million representing year-over-year U.S. and expected quarter Also that of million, currencies. in we revenue please the projections XX% the fluctuations would be to mind XXXX, to

end which our was conversion today. December. back For now of quarter over and at your our used time Darryl. I year to in the we call the projections rate turn first an will the full approximate for Thank guidance, XX% rate you

Darryl Rawlings

Thanks, the very share innings category. company hosting and In with following and to venue our we of Meeting a event there. May, be of Trupanion, relationships We early Trish. we'll for our excitement connect we're see Shareholder building Omaha. who Hathaway the small future. Annual seek the great likeminded a minded Berkshire is in At to investors hope shareholders still long-term and This in many with vision you

IR details, more For we'll website. for call questions. open visit please with up our And the that,

Operator

Thank time question session. go from question-and-answer is Argento you. a ahead. Lake Mark Instructions] we'll Capital first Street At Markets. this be conducting from Our [Operator Please

Mark Argento

LVP-to-PAC little a know that aggressive, a really couple of little wanted place which had drill to over you quarters. it last on Tricia, down costs. bring just great acquisition strategy ratio, down in the get bit I to you've a more pet the

mentioned are bit other for focusing going that on. that's talk potential You more you little opportunities terms that a did in Can channel about guys and one of you TV expanding bucket? how you as some

Darryl Rawlings

starting markets hospitals. we where We've a have around higher year percentage been a with testing over of a -- testing ago. little higher been active We've in number TV

it or way, bringing are value, not at acquisitions return lifetime now point we in thoughtful pet but a less like hit. hitting target of a a to greater have than is would that we our our We spend yet rates that internal so on is

we continue work buckets of conversion need on do rollout. So to see in second We to rates. say need I need to they we testing, would how they to are kind that where

learn we the churn rate. in So retention

foot additional So, that will more we areas. in at yet and to do continue can some cities and the But we we be are XXXX different going are to of point that testing not we a probably in are little value really our pets and lifetime bit on sure because of more we of efficient. to get we not put it these need to hit and accelerator really the the hard them

Mark Argento

developments of other bit nascent? I in terms for little fairly or and a channels those more still particular, become there maybe Any you social. online In talked channels know efficient you about

Darryl Rawlings

and there of year nascent. scale more started What the last and was and total new testing enrollment. the QX And around pretty up are we've I back was our an been increase half small sales of direct-to-consumers. areas are enrollments. QX in we They mean 'XX of doing to both those our percentages we mainly initiatives same-store saw as

slowly, of So, awareness capacity. the had we QX. we in better pleased was rates are we growth spends. those that are why Online, haven’t conversion we seeing and with seen quite same up brand And QX is what rates and increasing the really building and majority

Operator

from from is Block Our next ahead. question Please Jon go Stifel.

Jon Block

two three from or Maybe quick just ones me.

growth quarter. same-store sales was but pick maybe initiatives? gross So, ties to up. ads from Darryl, follow the you seeing that a around were sales the new greater your growth the for double into, have are then I called it prior progress mentioned low acceleration out believe hospitals? that year-over-year digits getting play got LVP-to-PAC, you with how Obviously, of I ups. seemed spending couple gross same-store with does versus then And that And you

Darryl Rawlings

for noticing Thanks growth in pickup rate. the the

same-store end have working some saw higher been rates. that conversion to is sales growth so sales is, store breakdown was the that some more not both of by at We And But our more the We and hard adding it. we stores, year. higher the conversion direct-to-consumer. and same attribute rates it's the the that been of at where really initiatives

Jon Block

million year. if you about OI? we guide, maybe the absolute Tricia the right income quick but you, that operating around ones. about two this of an we think in Is think when And ballpark adjusted $XX 'XX obviously for gave adjusted just

Tricia Plouf

historical we Yes, I is it more year. yes, need guide What I ARPU we how at that normal right. additional mean and channels like that’s on entering things core the out In definitely effective based to said how that increases. but play is And are the our is range that capital. then about deploying are is

Jon Block

Darryl, will one from me ahead your some on big you of shareholder that. maybe get just this. last we you touch comments and from but letter, picture, can maybe sort And In of

scale, of you XXX,XXX pets? XXX,XXX And to operational number scale? be consider that an do there the around that pets So still for for updated to is timeframe

Darryl Rawlings

that to believe a still for margin operating our the XXX,XXX XXX,XXX I pets appropriate is number operating will be hitting scale, adjusted target. us us XX% which to give

when can capital. the more my to more the play we going out as year we letter, in mentioned If we I predict to As where it shareholder happen, do ability and over deploy last will year start next get strong really it and thought. that's kind we able it bit of But may timeframe. returns, enough stay capital a longer take disciplined we that to deploy to than capital get not have and shorter we're of originally effectively, little rates there if I to

see So, out we'll it comes it have in. to play where and

Operator

Our question Paul go from ahead. is Northland next Please Securities. Penney from

Unidentified Analyst

my This for Paul. questions. is on for taking Greg Thanks

could provide stats in TPA First, emerging existing color any markets? you on hiring updated NSA and

Darryl Rawlings

partners initiatives sales, or of the have on update in partners field, letter, on through frequency managers combining the seen in the my for around the that account number will the have we years I attacking and field off we're number our be of we territory you active density visits the which same-store tell with progress of where coming that something can't the that or April. sales The out territory of like shareholder hold number in inside staff. hospitals

several years. more formula points happen of more that same-store our expect of and we over next part is combination frequent the touch for sales So, increasing to the of

Unidentified Analyst

BXC subscribed pet are referrals? what debt just owner versus then then to of one channels? And And coming percentage follow-up. percent from comes referrals marketing roughly new pets, What

Darryl Rawlings

pets telling has clients offset referring on adding offset is I were referred historically add been that term is So, adding their the pet churn, our the X.X% which friends either talking been Nirvana how where our kind about we you're about of -- that of pets churns about what where own, or and their coined existing is number X.X. existing

we and itself. that on way So, half having organically churn are about between the grow

far it's all percentage either from is the where XX% it coming which or leads pretty where referring our XX% then the of coming from a are still are on we than amount owner direct-to-consumer. over pet balance and where a veterinaries as BXC, and of the about pet the either As getting that us getting is are have less about they XX%, shelter or a little breeder from people small XX%

Operator

Our next go question from ahead. is from CL Please David Westenberg King.

David Westenberg

you're and Consolidated number XX% corporate touching and terms of about Can the force picking practice the on of practices level different in are getting of talk strategies for individual both plus corporate sales speed plus on touching in about both revenue. versus where up terms practices XX% you level? practice, an the

Darryl Rawlings

Yes, that a good but David, a is XX,XXX that number and corporately X,XXX there's seemingly veterinary point you little increasing. owned, bring up about and over hospitals are

into You've got coming market. private equity the

got roll of lot think ups of little kind are XX hospitals. Mars principal, hospital I being a X,XXX a the in some range. ups the You've over happening, roll With XX to

corporate they trying buy with hospitals and lab groups the We things. also can to help that have that equipment the pharmacy buying independent and to are diagnostic chains other and so compete

driving paying their more clients or client owners done have been and well see our most a independent and a the fact method on for, as think often the to what owned. hospital wanting great to is the ourselves recent these better improve a buying the visit in as same-store twice sales without clients years that corporate replacement same-store spending The get very as with and corporate in are a our return money higher insurance, of their investments. I better sales. And think hospitals for to are aligning job a general, owners as we have I that’s behavior in good So they multiple independently on corporate

VMX insured continues for Show corporately and I reinforcement pets independent Trade think the sentiment was we've the owners Orlando positive think I Trupanion to at growth category got show and means towards I good the owned. or alignment. in good more that towards recently of

Operator

Champion Our next go ahead. question from is Tom from and Cowen Company. Please

Tom Champion

of and a the Can pets? unprofitable gone you headwind retention update down kind should us percentage target hit we of through XX% bringing just whether or the into on process having you if process? curious not the XXXX consider of the I'm this

Darryl Rawlings

mispriced acquire big brought So, to a several focus spending of I your XX% we really or on were our value. question, either the were up ago fact of years about getting We subcategories it. a that pets lifetime put as back than we were more

years want as of took down end highlights details, the you of letters, that year we If XX% more to kind of had about from a you getting can XX my you about by target are couple we 'XX. read it. Last of to shareholder and mentioned, the last up XX%

we the driven of to pet As that XX% I'm lifetime you improvement, was increase valuable increase the target. slightly can happy XX% to $XXX, by our and year-over-year that see $XXX that say a by surpassed but from went that

pleased the we we are have with made. So, progress

Operator

is Our from Capital Please Dylan go ahead. next from question RBC Markets. Haber

Dylan Haber

you Just in sales? we to impact ceiling your long-term of that to of as do have same-store your out, for terms that then what think natural have team, could you on seen there's continue sort regards grow? just sales with any or LVP, you figure And built inside

Darryl

XX% So, inside meeting more a said team touch sales it points, or account who are increase. we that having shareholder had last frequent managers the the at

pleased were velocity. try with now we to and we wanted to So, that add

what people I on the be And progress the providing We the and are and going been, will team our at Q&A it to year going see that how we be leadership forward. ideas shareholder working that this on on has answering meeting expect closer to that, doing that.

then rates at. currently be the get are able the at related X% X% following Your year-after-year expect was question to go LVP we're the second going to -- retention continue are expect better I to I to dramatically ARPU. what grow LVP. to will don't

I on not ceiling a this. do but So, see

family. pet sensitive when We are to of comes sign have it their parts price that the no owners

go if as out So will XX years, will or look we you LVP. XX so ARPU up think

Operator

ahead. from question next Our is go from Genuity. Canaccord Please Michael Graham

Unidentified Analyst

question is Austin higher, your below seeing rate. more Mike. high, it explains for seems acquisition it wondering if what questions to the in if get that spending? essentially to mispriced this improvement go able that the can the on on please, can think the at if XX% This second mentioned retention but in then nice next the anticipating pet perhaps? target, is Wondering be you're expansion retention? And been And inflation of contract pets and there's you a competition, amount of down to how to year, consolidation, you costs us it at least bit can pretty still competitor all due increase Few about were we remain little in by explained

Darryl Rawlings

conversion consumers talk field me of to our the most competitors have channel don't the impact of spending competitors We really generating the leads on little impact see on the trying question, of the brands, see as Let competition very spending. increase we're or spending to veterinary what number first. or the money any and direct-to-consumer, number rates. in change the on We're from

a online other So, lead and on of much generation reflect areas. lot as if you people on, it's really what think not some

an of we're our driven spending or or spending competition on So how we're has had really think what I money. much don't impact

not has still historical XX.X%. models am a recommend average that last averaging years about at couple been I 'XX to point The retention first our I question to you've XX.X%. part The would up XX.X%. been that your moved of we've 'XX your of regarding rates,

of When Nirvana its trying having to our the still and get is think I is retention referrals. offset increasing what about average biggest us think best churn, is the our XX.X% I think for for I or we it's the amount to referral but planning. opportunity use key, pet

Tricia Plouf

just Yes, to I add bit that. little would a

the of seen we benefitted of particularly and some One particularly adjustments our we our helped offset a updating. the other from year noticeable we to through. have headwinds price processes which place this back And credit in that with card around in we to year, of that systems half retention things some put in that regard, impact has that the put the

able retention if to retention, there enrollment of pets, do variability additional we and are the some see we in may incremental looking Forward we do deploy we see particularly, and lower since capital thereafter. first year add

a as we in little bit and to So mind go XXXX. pull of push into there's keep

Operator

Thank question-and-answer as as in queue. This further for the no questions today's well Thank you. concludes There're the teleconference. participation. session you your

disconnect time. may lines your You this at

Trupanion (TRUP) 13 Feb 182017 Q4 Earnings call transcript