Release Date: May 01, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Trupanion Inc (NASDAQ:TRUP) reported a strong start to the year with overachievement in total revenue and total adjusted operating income.
• Subscription adjusted operating income increased by 53% year over year to over $30 million.
• Revenue from the core subscription business grew by 16% year over year, driven by increases in average revenue per pet and growth in enrolled pets.
• The company achieved a meaningful improvement in its loss ratio and operational efficiencies, contributing to a substantial increase in subscription adjusted operating income.
• Trupanion Inc (NASDAQ:TRUP) reported an improvement in monthly average retention for the first time in 12 quarters, reaching 98.28%.

Negative Points

• The company experienced adverse reserve development of $1.7 million, impacting revenue by approximately 70 basis points.
• Fixed expenses as a percentage of revenue increased to 6.2% from 5.3% in the prior year period, primarily due to higher Canadian underwriting fees.
• The other business segment, which includes lower-margin products, saw a decrease in adjusted operating margin from 1.6% to 1.1%.
• Trupanion Inc (NASDAQ:TRUP) faced challenges in retaining first-year customers, with retention dropping significantly in this cohort.
• The company experienced a year-over-year increase in the cohort of customers receiving rate increases of 20% or more, which could impact customer satisfaction and retention.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with TRUP.

Q: Are you seeing any notable changes in business trends after Q1, especially with the macroeconomic noise in April? A: Margie Tuf, CEO: We have been monitoring the situation closely and so far, we are not seeing any changes from our expectations. Volume and retention remain strong, and we are continuing to see good lead volume and conversion rates. Overall, the business is performing as expected.

Q: Can you discuss the move away from Accelerant as an underwriter and its implications for Trupanion? A: Margie Tuf, CEO: Our strategy has been to become vertically integrated, and we are pleased to have established GPIC, our Canadian underwriting entity. This move reduces frictional costs. Fara Qureishi, CFO: From a capital perspective, we have existing capital in place and do not anticipate needing additional capital for this transition.

Q: The NAFIA data shows share losses for Trupanion. How do you plan to address this, and what are your European initiatives? A: Margie Tuf, CEO: We focused on margin expansion in 2023 and 2024, which impacted growth. We are now starting to reinvest in growth. Market share is not our primary driver; we focus on intrinsic value. Our European initiatives are ongoing, but we are prioritizing high lifetime value products like the Trupanion product.

Q: Can you explain the adverse reserve development in the quarter and your confidence in the subscription loss ratio improvement? A: Fara Qureishi, CFO: The adverse reserve development was about 1.7 million, which is within our normal range. Margie Tuf, CEO: The reserving process involves variability, but we are pleased with where our loss ratio ended up, and it was ahead of expectations.

Q: How are you thinking about rate adjustments throughout 2025 given the current loss ratio? A: Margie Tuf, CEO: We continue to work with regulators to get necessary rate adjustments. About 40% of our book is priced ahead of the curve, and we expect rate flow to normalize, leading to continued margin expansion over the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.