Good morning, everyone. Again, this is a popular room for me. I'm gonna be here pretty much all day. But that's a good thing. Covering a great topic, which is insurance. So, my name's Greg Peters. I'm the insurance analyst, one of the insurance analysts at Raymond James, I should add. Our other analyst, Wilma Burdis, is not here this morning, but she covers life, asset management and some other specialty companies, including Trupanion. So, I'm going to do my best to chaperone a Q&A with Margi. With that said, I'm gonna have Margi begin with some basic background on Trupanion.
Mm-hmm.
You can tell us about the pet insurance marketplace. I myself am a consumer of your products.
Thank you.
She didn't know that.
I did not know that.
... till just now. We have 30 minutes of open Q&A, feel free to help me in the audience, with questions. Margi, well, why don't you begin?
Yeah. Okay. Thank you, everyone. Hopefully everyone can hear me okay. It's great to be here this morning, thank you so much for making the time. I know it's a busy schedule. A little bit about Trupanion. We only do pet insurance. We founded in BC over 25 years ago, moved into the US in 2008, and now have the largest brand across North America. Our product is designed to solve the costs and help pet parents budget for the unexpected cost of vet care, which today is significantly higher than it was just five or six years ago, I'm sure that will come up in conversation over the course of the next few minutes. Trupanion currently has over 1.1 million pets enrolled across Canada and the US
We operate in a model where we're very much vet-first, our product is designed to solve for things that people wouldn't otherwise have expected. We don't cover wellness plans. We specifically cover illness, incidents, accidents, and ongoing chronic conditions. We have currently today one branded plan. It's the Core Trupanion plan, which has got a deductible which people can toggle. Otherwise, the product is unlimited. It covers 90% of bills. Our core USP is that we pay the vet directly, the pet parent is never out of pocket. When we think about our markets we're in, aside from North America, we expanded into the European spaces. We're now in Czechia, we are in Belgium, Germany, Switzerland and Slovakia.
Those three countries, Czechia, Belgium and Slovakia, are under the PetExpert brand, and Germany and Switzerland are under the Core Trupanion brand. We are, like I said, we're based in Seattle. We have around 1,200 team members, and our core route to market through the distribution channel of the vets is through our Territory Partners, who are, they're 1099 independent contractors who their job, their mission, their life is to go into vet hospitals and help articulate the value of an insurer client to an industry that has been really under pressure. Just quickly to touch on that before I hand go back over to you for questions. When we think about the vet space in general, I'm sure everybody is aware, if you have a pet in the room, and I typically...
Can you raise your hand if you do have a pet? It's always helpful to know kind of the audience we're speaking to. You'll know yourself kind of when you go in the hospitals over the last five years since COVID have really been under pressure because our teams were constantly working through the pandemic. They started to support us as people as much as the pets. From their perspectives, they were really, there's a lot of burnout. The biggest cost of vets is staff, and when we think about how we can support that from a veterinary perspective, they're having to increase their costs to maintain their staff, to maintain their people, and to support the demand that came through COVID after people turned to their pets and were able to recognize when their pets were sick or injured.
As a result of that, we've seen around 52% inflation compounding inflation over the last five years, which has massively impacted how people get the care for their pet when they need it. It means there needs to be a real sense of budgeting thought for pet parents, so they can make sure that should their pet become injured, they can take care of it. We're seeing a demand in a space that's just 4% penetrated. I come from an environment where the UK is at 25%. There is no difference with how pet parents treat their pets. With a 4% penetration in a 180 million pet market, there is a long way to go.
Trupanion, like I said, has been one of the founding members of the industry overall in North America.
Yeah. That's a great, it's like one of the top questions I was thinking about is just the penetration rates in North America are low relative to other areas. What's been the gating factor on the lower penetration rate of pet insurance in North America, and is there going to be a seminal moment or a couple identifiable moments that we might see a step change higher in terms of penetration?
Yeah, it's a great question. If I start at the beginning, they're both very similar age categories. When we think about the UK market, it started in the mid-'70s. The US market started in the late '70s. The difference between the two, the UK market created a product that was designed for vets to use, and, the veterinary industry notoriously not wanting to try and introduce any kind of concept of finance to their parent, to their pet patients or to their pet parents, they would, they were eventually convinced that insurance was gonna help them to solve a problem. When a person came to put a claim into the insurance agency, they would have the claim paid, and the snowball effect happened that vets realized they could rely on a product that was good, it was, it was comprehensive.
In the US market, what happened was there was a benefit schedule that was introduced originally. It had a list of items that people would be able to get coverage for. When they got the coverage, the pet would, you'd send it off to the insurance agency, and the insurance would come back and say, "Well, we have a schedule that says this is a two and a half thousand dollar treatment. Your vet charged you $7,000," which I'm sure was the right number for that vet at the time. The pet parent feels at that stage, well, you've just given me a price point that I wasn't expecting. My insurance told me it was supposed to be here, you charged me up here.
You have a trust erosion between the client and the vet, and you have a vet who's now risk-averse at introducing the concept of insurance. For the longest period of time, the vet industry was really stagnating when it came to insurance. Back in 1999 and 2000 when Trupanion came into the space, we created our Territory Partners deliberately to create an environment where we could have those pet parents speak directly to the vet to understand what they're getting with a comprehensive product. When we launched our product, we started to see it was a very slow process. It took us about 10 years to get to 1% penetration. We're now at, like I said, just over 4%.
We think about what's happening now, that kind of that tailwind that you have there, the cost of care has gone up so much. For Trupanion, cost of goods has gone up with it, but we're seeing a tremendous demand for a solution to help pet parents budget and care for their pets, which was not such a big issue 10 years ago.
Yeah. I know when I got a puppy, two years ago, it was an eye-opening conversation...
Yeah
...with the vet, in terms of what the potential cost would be if there was an accident. What's going on at the education level for consumers? Because it's like, I didn't realize this until I actually stepped in front of...
Mm-hmm
...the vet and they communicated it to me. Are there other mechanisms where you can convey that information to the consumer in North America or-?
Yeah
...is the vet the only option?
You think about if you've got a pet insurance product, the place you're gonna use it is at the vet level. You know, for us, it's important that a vet understands the product that's being used with their clients when they walk in. That being said, people acquire their pets through breeders or through shelters, sometimes through friends. Typically, there are two avenues where someone will find a pet. We're working as an industry, and certainly Trupanion is working through shelters and breeders to help bring awareness of the concept again of insurance. If you think about from a breeder perspective, the benefit that they have is that confidence in the pet parent can take care of their puppy or kitten when they take it home.
Often they get their pets returned because the puppy is sick, they've eaten something they shouldn't have done, and they go back to the breeder because they don't know what to do. Similar with a shelter, we know that pets get relinquished to shelters because they come across high vet bills, and they can't afford the cost of care. There's a direct benefit for the shelter and for the breeder to introduce a concept of insurance. Now as we start to see more and more brands coming into the space, big brands, big insurance brands, some of whose names are out there, you're gonna see an awful lot more money coming into the space, which naturally kind of drives a lot more awareness at the consumer level.
People who are browsing content online, more consumer-friendly brands that are not necessarily just associated with insurance are starting to talk about it.
Yeah, right. Go ahead, sir.
Two questions. What's the level of churn and relaxation? Churn or relaxation of the policies. Second, how do you prevent adverse selection so when people experience ?
Churn for us has always been-- we've always been the leader in this space. We look at the lifetime of that pet parent, and we look at our churn in three different cohorts. During the period of hyperinflation-- Sorry. During the period of hyperinflation, our churn went from around 98.7% on a monthly basis to 98.4%, 98.3%. It was a big shift down for us. We're still talking basis points as opposed to full points, but we agonize over every single basis point within that environment because we realize that's the member experience and people that we're losing and most of our revenue is baked at the beginning of any given year because of our existing book of business.
Churn remains very high, and we've had it now on the upturn for the last five quarters in a row. That's because most of our pet parents are now seeing renewals under 20%, which we know is typically our sweet spot, and that's been kind of a cascade of people jumping into an over 20% cohort, some of them up to 30%, 40%, 50% cohorts. They're coming back into a more manageable, budgetable change every year, which we believe will be a benefit for us from a retention point of view. In terms of adverse selection, because we're looking at puppies and kittens, and we go through breeder, vet, and shelter, and also members referring their friends, we price every pet to hit $0.71 on the dollar.
Our goal is to acquire pets before they get sick or injured so that we're not giving them an experience that's subpar. Meaning two years down the line, you take your pet to the vet, and we turn around and say, "That was preexisting." We don't know if something's preexisting if they're two or three or four. We have medical records, but if they're a puppy or kitten, you can avoid that. We don't have a broad acquisition strategy, which is unlike many of our competitors, because we don't want to set that up for a bad experience for a member. We're very specific with our acquisition channels to try and avoid that. Thank you for the questions.
You mentioned the market and other insurance companies getting into pet insurance. I wanted to talk a little bit about distribution. Several of the companies I follow have launched initiatives to access the pet insurance market.
Mm-hmm.
I feel like their approach may be more independent agent. I feel like your approach is like a multiprong approach coming from both direct from the vets, but I think you mentioned 1099 agents.
Yep.
Maybe talk a little bit about the distribution of your product, please.
Yeah. The 1099s are our Territory Partners. They are people who work solely for Trupanion, and the way that they earn income is commissions through the policies that they sell. They get an upfront fee, and then they get $2 thereafter for every month that the pet is staying with Trupanion. The big revenue gain for a Territory Partner is in the longevity of that policy. The reason they get that recognition is because they're the people who help install our software, which allows us to pay the vet directly. They're also the folks who will go in there and help should there be any questions around policy coverage or claims.
They really help to build the relationship directly with the veterinarian, as well as making sure that we can maintain a kind of an ear on the pulse of what's happening. An ear on the pulse. A finger on the pulse of what's happening from a vet space. In terms of other distribution channels, we started working with State Farm. When we think about big insurance players out there, they have our product on their website, and they also offer it through their agents. There is an ability for us to get to an audience that isn't necessarily in the insurance kind of pet animal health space. We also work across the board with a number of different sort of smaller brokers will come to us. We work with Aflac.
We offer worksite benefits through Aflac, who's a shareholder in Trupanion. We also have Chewy, and Chewy has three different three insurance products and two wellness products that we underwrite for them. We have a number of different sort of smaller direct consumer channels which give us access to a greater number of pets.
One of the questions related to distribution and product is this new Landspath Factor-
Yes
... products, and maybe speak a little bit about new products that you're rolling out to your distribution, please.
Yeah. We have a couple. If I come back to Landspath for a second, if I may. I mentioned we have one product, which is our Core Trupanion product. We also have, we'll have a new product in the works, which is coming out in the next 12- 18 months, and this is designed to cater to a pet parent that is a younger pet parent that is not, to your point, prepared for the cost of care. Now Trupanion's product is very comprehensive. If you could have any product, you would have the Core Trupanion product. However, we know at $83 that that's a high bar, and it's only gonna get higher as vet costs continue to grow.
What we're thinking is kinda longer term, how do we create a product that is a blended solution that creates the benefit of Vet Direct Pay, because we know that's the biggest benefit for most pet parents, but also allows people to try something that's a little bit more restrictive in coverage but still carries the Trupanion brand and reputation at the vet level. We'll be launching that next 12-18 months, which like I said, is really kind of to speak to a different market segment now that we know the market's expanding into early majority and aside from that smaller kind of early minority adopters. When we think about the Landspath product, this is a very different product for us.
One of the things that we know we can do well is engage with pet parents, engage with veterinarians, and have a high-standing lifetime value. We realized about 10 years ago that the benefit that we have with the data we're getting on a daily basis from our members and the health of those pets is that we have data points that will help us to understand if a pet's healthier depending on their behaviors, for example, the food they're eating. We also recognized that point in time that food as a revenue source for veterinarians was going away. It was a big source of their revenue. We shifted our approach. We put a little bit of money into what we're calling Landspath. It is a food product that's designed to be sold directly through the veterinary channel.
It won't be direct to consumer. It'll be monthly subscription, shipped direct to pet parents, the intention behind this is to provide not only revenue back to the vets, which we believe will help to reinforce the moat that we have there already, but it will also help a pet parent know that they're giving their pet high-quality food. We know that when something is consistently fed to a pet, whether it's high quality or not such high quality, we can see there is a trend of health benefits.
We believe that this level of food, which will be less processed, we've got patents on the food, and really kind of working through how we create something that we can track and we can see that the health benefits exist, meaning there's less inflammation, there's less itises, there are less reasons for a pet parent to take their pet to the vet. In doing so, we expect the pet to be healthier. We expect the pet to potentially live longer and therefore with that gives us a greater share of wallet as well. We lock in the relationship directly to the veterinary profession. We help provide them with additional streams of revenue, so there isn't the pressure to continuously increase prices the way they've had to, and that bundle, that share of wallet becomes a larger share for Trupanion.
Great. You know, in part of that answer, you mentioned data, you know, and.
Mm-hmm
... talked about the data assets that you have about consumers. One of the broader themes affecting many insurance companies and insurance stocks have been the threat of AI-
Yeah
... the threat of agentic, AI, large language models, et cetera. Maybe you could spend a minute and talk about how AI is interfacing with your world and, what are the opportunities, what are the risks, et cetera.
I mean, we've I mentioned Direct Pay at the beginning, this is really kind of our biggest use of machine learning and what is now AI in terms of our acceleration of this. We created our Direct Pay solution back in 2014. In 2016 we were using essentially the kind of the early stages of these AI models from a machine learning perspective, which allowed us to take the data, ingest the data, and automate a lot of the claims payment that we had from members. When we think about how that kinda goes through expansion, we started to really see the number of hospitals using that software expand dramatically in 2022.
As it expanded, we got an increased level of data, and that database can be interrogated for a number of different, in a number of different ways. We can understand if there are common condition changes. We can see if there are specific issues coming up in areas of the country where there may be a specific outbreak of something. There are a lot of things that we now can do to analyze it, both from an internal efficiency point of view, but also to help to spread that out to the veterinary profession in the sense of an early indication, early warning, database. We've been using AI to significantly accelerate our automation.
We've also been using AI to accelerate our automation of claims that do not come through the software, which there are around 40-50% that don't currently come through software, which allows us to be significantly more efficient from a member base perspective. Our goal being to drive down our operational efficiencies, which will ultimately help us give a greater value proposition back to members. In addition to that, we've been leveraging our 1.1 million live active members to understand what their behaviors are before a claim, what their behaviors are after a claim, retention rate, really helping us to get more sophisticated with how, you know, what those behaviors look like and how we can build on them.
Excellent. Great background information on the company and some of the opportunities. We have about 10 minutes left, and I think it's, you know, as an analyst, we wanna talk about numbers, right?
Yeah.
Can you talk a little bit about, the recent results, and then talk about sort of what you have embedded in your guidance we will start at first at the revenue side.
Mm-hmm.
you know, what your underlying assumptions are for growth, et cetera.
Just finished Q4. Q4 for us was a very strong quarter across the board from a financial perspective and also from a pet count point of view, which pet count is ultimately where we get our revenue from. We ended the year with a 50% in net pet growth year-over-year, so combining the retention rates with those gross adds. Historically, our growth came through gross pet adds and retention rates. During the massive inflation we saw coming through, we were pushing more rate, we saw ARPU pick up.
ARPU was a lion's share of our growth rate and looks set to be a bigger proportion of our growth rate in 2026, in combination with our retention improvement and our gross pet adds. As we think about that revenue run rate through this year, what we're assuming is that we will see the cost starting to abate, assuming that cost of care does not continue to increase, as well as the gross pet adds starting to increase towards the back end of this year. We've been very disciplined with our investment. Typically, we look to invest a 30-40% IRR. In Q4, we put a lot of pressure on that. We had the adjusted operating income from the business to be able to deploy more aggressively.
This year, we will continue to honor those guardrails on an annual basis, but we'll see some volatility through the quarters that will help to set us up for around a 15% annual revenue generation at the end of 2026.
The margin target is?
Margin target is the same. It's still 15%.
Okay.
We achieved that. Thank you. That's, it's sort of we got a win last year, and I'm moving on to this year. We achieved our margin target for the first time in the company's history in 2025, which if you go back to 2023, was at its low point of 7.6% in Q1 of 2023. That took a long time to build back through, the team really kind of got behind understanding COGS, understanding retention, understanding kind of what was driving this in the business, and ultimately needing to go to regulators, as you're well aware, get everybody's buy-in and approval on rates, and slowly release them through the book of business.
If you take into consideration, it takes us anywhere between 14 and 20 months to get a rate filed with regulators, have it approved, enrolled through our book of business, it took us a long time to catch up from that margin that we suddenly saw reduce in 2023. We ended the year at a target that remains our target. We recognize we're now on the other side of that story, and now the goal will be to make sure that we can be as disciplined as possible to bring that back into 15%. It's a great position to be in because it does give us adjusted operating income that we will then use to refuel the business.
You don't. Go ahead. No, no. I can keep asking questions, but, please.
I was gonna ask about the kinds of pets that you're acquiring from home breeders and shelters. Are you seeing that they're getting younger? Are you seeing a difference at all from years versus a few years ago?
Yeah. The question, if everyone heard, was, are the pets getting younger that we're enrolling? We've been targeting puppies and kittens for, I would say the last 10 years. We've definitely seen a shift to much younger puppies and kittens, because of the breeder channels. There's a little bit of, you know, it's not necessarily apples to apples. We've been quite heavily focused on breeder and growing breeder, and also trying to reinforce a message to the industry that if you have a pet that's a little bit older, and yes, you have to go and get medical records, you're not gonna have the best member experience. We're seeing in that shift down. We're also not looking to add every pet that comes to us. Now, if they enroll, they'll be priced appropriately, but we're not, I think, prospecting specifically for the older pets.
Thanks.
Go ahead, sir.
You talked earlier about using data to inform you on cost of care and trends and what have you. You also mentioned earlier, I think, that some bigger players are starting to compete. Can you talk about how that data, like how big a competitive advantage is that for you, how extensive the data is, others coming in that maybe haven't been in the industry as long? What would set you up competitively against these players having that data?
Yeah. Thank you for the question. The database is structured. We started our database compilation in a very structured way from the beginning, which gives us a massive benefit. We've always been able to interrogate that database with the lens of how do we pay the vet directly, how are we actually taking that and using it. I would say that there's a few things that set us apart. One, the structure of the data. Two, the volume of members that we have using our product.
Three, and this is probably the biggest, our product, because it's comprehensive and it covers everything, except for wellness, we see every line item on that invoice data, which there is no product as broad as Trupanion's, meaning that that coverage layer is just so detailed that we get everything from diagnostic treatments, from ongoing cost of care. Because we have the connection directly with the practice management systems within the hospital infrastructure, we get that data on a regular basis that other people do not have.
I'd say it is an absolute competitive advantage for us to be able to not only lean into that to make sure we're pricing appropriately at a granular level, but also being able to lean into the next phase of what's happening from a cost of care perspective, looking at it by region, looking at it by breed and by age, and it can be interrogated. We overlay that with partnerships like we have with the CDC. We have partnerships with IDEXX, with Covetrus. We're bringing in together an industry of data to really help not only move Trupanion forward competitively, but also the animal health ecosystem, which again reinforces that connection with vets. It's a massive advantage for us.
We have a robust data science team that we've been adding to with the emergence of AI, so we can do more with it. I'd expect to see more of that to come over the next couple of years as we really lean into that point of difference for us.
Go ahead, sir, at back.
What I mean by that is you have an aging population. The second part to that is that with the younger people, they're staying single longer.
Yeah.
You're starting to see people, you know, having more pets. You have a change in ethnic backgrounds and also disposable income. I guess in your modeling, are you expecting pet ownership to increase? The second question is more going back to AI. If Elon Musk is correct, we're gonna have a lot of time on our hands. With that, again, you know, do you model that somehow, talk about, you know, five, 10 years later, expecting growth in pet ownership?
Yeah. Thank you for those questions. If you look at the market in general, when I first moved to the States back in 2013, we were around 1% penetrated. In a market that hasn't massively shifted in terms of its total volume of pets, it's around 180 across North America, 180 million. We're now around seven million pets insured, and that's what? 13 years later. It's taken us a while. We're starting to see it really pick up, though, and where we see that inflection point is just around COVID when people were at home, and they were seeing their pets wandering around. It was all they had to do. They suddenly noticed that they were scratching or they were lame.
The connection, the pet-parent bond, which has always been strong, just went up a notch during the pandemic, and it hasn't really come down significantly since then. People are still really interested in making sure they can take care of their pet. To your point, they are becoming the new the baby of today's generation. There are people that are not choosing to have. I think there are more pets in the US than there are babies today. When we think about the demographic of society, they're absolutely playing a more pivotal role. That's again why vets were able to increase the cost, that they were able to increase them in, because they know people will pay that money.
You don't sacrifice the care of your family member when they need care, and that's kind of really where we've seen that inflection point come through, and we saw, as a category, huge growth during 2021 and 2022 from a pet parent perspective. To your second question around kind of how is that dynamic changing, because of the awareness and the concept and need of insurance in general, and specifically in the pet space, we're moving into more of a kind of a majority market, which is naturally gonna bring more pet parents to the fore. People who wouldn't necessarily have a relationship with a veterinarian, who wouldn't really talk to their breeder particularly, but they have their pet by their side, and they wanna take care of them. They are also people who don't want to have a traditional insurance relationship.
They wanna be on an app. We see this with new companies coming into the space. There's a lot, I think, out there for the market, and if we see market entrants that are priced right, and they're not doing I would consider it a bait and switch, where you bring someone in on a cheap price, and then you kind of whack their prices up at the end of life. I think the category is absolutely on the verge of exploding. I saw it happen in the UK market, and it's very similar signs to that, where you get more noise, you get more competition, you get more investment. Consumers are leaning into the care of their pet more because the vet cost is higher.
What we're doing as a company is taking that data to think about how do we create a different suite of products that complement the existing Core Trupanion plan, that we use our brand that we've now got equity in to then build it through the category, through the years of pet parenting, so that we bring them in as a Gen Z, and they're with us for the next 20, 30 years of their life because they can trust Trupanion. We're evolving that. We know that pets are gonna continue to feature more on social media. I mean, everyone loves a cat video. I think kind of that's naturally just gonna increase, and therefore the role that we play in protecting that human-animal bond is really critical and becomes more important.
We have time for one quick question. About a minute left, so fire away.
Just a quick question. I can't remember if you had answers before. In my family, we have eight pets. Is there such a thing as a family plan, or it's just each individual? Now I think you raised the deductible. Is it deductible per pet, or is it per family?
Yeah, no, it's a great question. If everyone heard, if you've got multiple pets, is there a family plan? There isn't a family plan. The sole reason being the data that we actually shows that the more pets you have, the higher chances of them getting sick or injured there is. Probably 'cause they're all playing with each other, and they end up kind of roughed up. No, we don't offer a multi-pet discount. The deductible is on a per pet basis, but it's per pet, per condition for life. If one of your pets were to get sick or get diabetes, and they had a chronic condition, once you've met that deductible, you don't have to ever pay it again.
Stop for a year or two?
It's per life for the Core Trupanion plan. Again, that's what speaks to our long retention rate, which is why it's nearly a third higher than the industry average. Not only do we not price and increase prices every year the pet ages, the key thing for that, for the deductibles, is once you've met it's taken care of.
There's a range per type of animal? Some is 1,000.
It's $0- 1,000. We're actually just about to launch some product enhancements which will see that broaden, which will again will kind of help to change that price point a little bit. We haven't shared too much publicly about it. We're excited to see what that will do from a category perspective too. Yeah. Thank you.
Excellent. Well, this is a great stopping point. Margi and Trupanion will be downstairs in Cordova 6 for a breakout session. We wanna thank Trupanion for being here today. Thank you very much for your time, Margi. Everyone have a great day.
Thank you.