Trupanion Investor Presentation - May 2018
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Trupanion Investor Presentation May 2018
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. These forward-looking statements are based upon the current expectations and beliefs of Trupanion’s management as of the date of this presentation, 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 within this presentation 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 ability to keep growing our membership base and revenue; 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 retain existing Territory Partners and 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; the ability to maintain the security of our data; 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; our ability to implement and maintain effective controls, including over financial reporting; the ability to protect and enforce Trupanion’s intellectual property rights; the ability to continue key contractual relationships with third parties; third-party claims including litigation and regulatory actions; the ability to recognize benefits from investments in new solutions and enhancements to Trupanion’s technology platform and website; and our ability to retain key personnel. 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, 2017 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 www.sec.gov or the Investor Relations section of Trupanion’s website at http://investors.trupanion.com. 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
Our Mission
Our mission is to help
the pets we all love
receive the best
veterinary care
3
Trupanion at a Glance
• Simple, fair & high-value medical insurance for pets Driving Category Growth
• Comprehensive, lifelong coverage for dogs and 42 34%
cats, including hereditary and congenital Consecutive Quarters of
25%+ Revenue Growth
Total Revenue
5-year CAGR 1
conditions (i.e., the most likely conditions to occur)
Strong Member Loyalty
• Pet owners are free to choose any veterinarian,
emergency care, or specialty hospital 98.63%
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 12/31/17.
2 For the 12-month period ended 3/31/2018. Average monthly retention is calculated as the monthly retention rate of enrolled subscription pets for each applicable period averaged over the 12
months prior to the period end date. 4
Compelling Value Proposition
For Both Pet Owners & Veterinarians
For Pet Owners For Veterinarians
• Comprehensive coverage that gives • Ability to practice at the highest level
pet owners flexibility in choice of care
• Freedom to be the most effective
• Provides peace of mind advocate for the pet
• Eliminates financial uncertainty and
• Increased revenue growth & pet
reduces financial burden
economics
• Pays veterinarian invoices quickly &
seamlessly
Trupanion unites pet owners & veterinarians to provide the best care for the pets they love
5
Predictable High Growth Subscription Model
6
U.S. Pet Owners Spend Generously
on Their Pets
Total U.S. Pet Industry Spend 1
($ in billions) $72
$70
$67
$60 • Total pet spend in U.S.
$58
$56 estimated at $72 billion in
$53
$51 2018
$48
$46
$43
$39
$41
• Consistent growth through
$36
$34 recessionary periods
$32
$29 $30
• Veterinarian industry spend
has grown at a similar rate
(totaling $17 billion in 2017)
1 Source: APPA US Pet Industry Spending Figures & Future Outlook. 7
The Market for Medical Insurance for Pets
is Underpenetrated in North America
1,2,3,4
Massive Underpenetrated Market Potential Market Size by Penetration Rate
($ in billions)
200 Million Pets in U.S. & Canada
40% $32.2
Pets in the U.S. and Canada 200M
Illustrative Monthly Average Revenue $53.62
Per Pet(5)
Penetration in the UK 25%
25% Total Addressable Market $32.2B
United States and Canada
are significantly
underpenetrated when
14%
compared to many other $9.7
developed countries
8% $6.4
5% 5% $3.2
~2% $1.3
1%
% of Pets with 1.0% 2.5% 5.0% 7.5% 25.0%
Insurance:
1 APPA, National Pet Owners Survey, 2017 – 2018.
2 Kynetec on behalf of the Canadian Animal Health Institute, CAHI Estimate of Canadian Dog and Cat Population Survey, 2016.
3 Packaged Facts, a division of Market Research Group, LLC, Pet Insurance in North America, 5th Edition, October 2013.
4 Munich RE, How to Unlock the Potential of Pet Health?, May 2013.
5 Represents our monthly average revenue per pet for the three month period ended March 31, 2018. 8Penetration Driven by Product Value
Proposition
United Kingdom
• 16 million cats & dogs
• 4,200 vet hospitals United States
• 25% market penetration
• 184 million cats & dogs
• First offered: 1970
• 28,000 vet hospitals
• 1% market penetration
• First offered: 1982
U.K. Product (the Trupanion approach)
Legacy U.S. Product (an insurance-minded approach)
Sourced primarily from veterinary referrals;
х Sourced primarily direct to consumer
appealed to new customers with vet-issued
trial certificates х Provided limited coverage, excluding the conditions
most likely to occur
Provided broad coverage
х Imposed pricing caps and fee schedules
Generated high satisfaction rates with pet
х Generated low satisfaction rates with pet owners
owners and veterinarians
and veterinarians
Trupanion’s product offering aligns with the U.K. value proposition and marketing strategy
9Attractive 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) • High penetration rates:
− 2/3rd active hospital base1,2
− Quotes generated each month equal to
• Territory Partner presence for >10 years
~25% of estimated number of pets acquired2
− ~5% of new pets enrolling with TRUP each
• Human population of ~2.7 million month1
• Accelerated growth:
• Cats & dogs population of ~1.3 million
− Annual pet growth > 20%3
− Annual revenue growth > 30%3
• >18,000 Trupanion enrolled pets1
• Attractive economics:
− LVP to PAC > 5:11
The above numbers are as of Q2 2015. For competitive reasons, we are not providing ongoing disclosure of this cohort.
1 For the period ended June 30, 2015.
2 Defined as a hospital to which we’ve attributed a new enrollment within the 90 days prior.
3 For the annual period ended December 31, 2014. 10Barriers 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™
111 Superior Value Proposition for Pet Owners
Key Categories Better Providers Legacy U.S. Providers
• Full coverage excl. pre- • Full coverage excl. pre- • Limited coverage excludes
Coverage existing conditions existing conditions congenital, hereditary &
pre-existing conditions
• Pays 90% of actual vet bill • Pays 70-100% of actual
vet bill • Reimbursement based on
fee schedules & price caps
• No fee increases for • Increases for age of pet • Increases for age of pet,
Pricing treatment and cost of care prior claims and/or cost of
care
• Cost adjusts with cost of • Few deductible options
care for that specific pet • Few deductible options
sub-category
• Pet owner may apply any
deductible ($0-$1,000) to
customize pricing
• Millions of pricing
categories
• Trupanion Express™ • Traditional • Traditional reimbursement
Direct Payment vs. enables instantaneous, reimbursement model model
Pet Owner paper-free claims and
Reimbursement direct payment of
invoices at treatment 122 Established Deep Veterinary Relationships
Territory Partner and Veterinary Footprint … …Drives Efficient Pet Acquisition Model
• Territory Partners represent long-term investment • Multi-faceted approach to driving sales
in veterinary relationships leads across channels
Pet Acquisition Channels 1
• 107 Territory Partners 1
– Each cover on average New Existing
Members Members
~250 veterinary hospitals
– Approximately 85,000 vet Veterinary
Direct-to- Point of Add a
Consumer Sale, Pet,
Leads
hospital visits in 2017 Leads All Other Friend
• Un-replicated within market 49% 7% 17% 27%
• Approximately 8,500 veterinary hospitals
actively recommend Trupanion at the end of
2017 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, 2017.
2 Defined as a hospital to which we’ve attributed a new enrollment within at least 90 days prior. 133 Data Driven Advantage
Extensive data amassed over 18 years provides significant competitive advantages
Illustrative Pricing Examples
• Millions of pricing categories
$122.99
• Over 2 million claims received
$80.08
$36.90
• Breed, postal code and age among
$24.02
the pricing categories used to
$45.82
measure risk
$13.75
$28.88
$8.66 $86.09
$56.06
Comprehensive data helps us $32.07
understand the risk of each pet and $20.22
add a reasonable margin
Cat Dog English Bulldog English Bulldog in NY
Expected Invoiced Amount per Pet per Month Expected Profit per Pet per Month
1 All data as of December 31, 2017. 14Proprietary Platform Enhanced by
4 Trupanion Express™
Proprietary Platform Provides Cost Advantage Value Proposition Enhanced by Trupanion Express™
• Business model designed to eliminate frictional • Eliminates paperwork and uncertainty of
costs: coverage
– Own only N.A. insurance company focused on – Customers avoid having to pay out of pocket
medical care for pets
– Veterinarians streamline billing process and
– In-house actuaries, claims & contact center for eliminate credit card fees
quality control and speed
– Trupanion enhances data connectivity with
– Dedicated national Territory Partner network veterinarians
– No brand licensing fees
• Un-replicated in the market
– Proprietary underwriting technology
Illustrative Comparison of Cost Structure Trupanion Express™
30% 30% Strategic choice to
~20% in provide customer
frictional 20% structural benefit
cost by paying ~20%
more on claims
70%
50%
Profits Before Other Costs
Frictional Costs
Illustrative Legacy Trupanion Fully-loaded Claim Payout
Model Model
15Our 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
16Financial Review
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
18Member-Centric Approach Driving Growth
Total Enrolled Pets 1 Total Revenue 2
(in thousands)
23% YOY ($ in millions)
27% YOY
Growth Growth
447
423 $243
$24
364
344
$188
292 $15
$147
232
$14
$116
182
$12 $219
$84
128 $173
$7 $70
89 $56 $133 $55 $8
$104 $5
$77
$55 $62
$50
2011 2012 2013 2014 2015 2016 2017 3/31/17 3/31/18 2012 2013 2014 2015 2016 2017 3/31/17 3/31/18
Subscription Revenue Other Revenue
1 Number of pets subscribed to either our plan or one of the insurance products offered in our other business segment at the end of the period presented.
2 Cumulative as of December 31st for each respective year from 2012 to 2017, and the three months ended March 31, 2017 and 2018. Includes subscription business segment and other business segment. Other 19
business segment primarily includes revenue from plans not marketed directly to consumers.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 $600
LVP
$500
$100
$400
Breakeven in
$50
~17 months
$300
$0
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 $200
($50) $100
($100) $0
2, 3 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
($100)
($150) Q1 2018
($165) 4.4X ($200)
($200) LVP to PAC
PAC
($300)
1 Based on lifetime value of a pet and average pet acquisition cost for the quarter ended March 31, 2018 in subscription business segment.
2 Lifetime value of a pet (LVP) is a business operating metric that we believe reflects the lifetime value we might expect from a new pet enrollment. We calculate LVP 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 expense, excluding stock-based compensation expense and other business segment sales and marketing expense, offset by sign-up fee revenue. 20Attractive Long Term Margin Profile(1)
1 The following table includes non-GAAP financial measures. For more information about our non-GAAP financial measures, see “Supplemental Financial Information” in the Investor Relations section of Trupanion’s
website at http://investors.trupanion.com.
2 In 2017, the fixed expenses were comprised of 6% G&A and 2% Core IT. 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.
21Thank You
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