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TRUPANION, INC. (TRUP)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered revenue of $341.98M (+11.8% YoY; +1.4% QoQ), subscription AOI of $30.02M (+53% YoY), and adjusted EBITDA of $12.24M, while GAAP diluted EPS improved to $(0.03) from $(0.16) YoY .
  • Both revenue and EPS beat Wall Street consensus: revenue by ~$4.17M (+1.2%) and EPS by ~$0.02; adjusted EBITDA also beat by ~$1.19M; management raised FY25 and Q2 guidance, citing stronger than expected performance and FX tailwinds (72% CAD conversion assumption) .
  • Subscription margins expanded YoY (value proposition improved to 71.8% vs 75.3% last year; subscription AOI margin 12.9% vs 9.7% YoY), supported by pricing actions and efficiencies from the Vision platform; sequential margin compression vs Q4 reflects normal seasonality .
  • Retention inflected positively sequentially (98.28% vs 98.25% in Q4) as members moved out of the >20% rate increase cohorts; total pets declined, but subscription pets grew 5% YoY and gross adds improved with PAC held to a 31% IRR .
  • Near-term stock catalysts: guidance raise, continued subscription margin expansion, sequential retention uptick, and capital surplus monetization optionality (APIC >3x overcapitalized) .

What Went Well and What Went Wrong

What Went Well

  • Subscription margin expansion: value proposition improved to 71.8% (vs 75.3% LY), subscription AOI margin rose to 12.9% (+320 bps YoY), driven by pricing actions and operating efficiencies; management: “overachievement on both total revenue and total adjusted operating income” .
  • Operational improvements from Vision: “lower invoice processing costs… enhancing the member experience… reducing overall variable expenses”; claims inventory near record lows, faster invoice payments .
  • Retention and growth optics: sequential retention improvement to 98.28% and “first meaningful sequential increase in net pet addition in 2 years,” with PAC investment kept at ~31% IRR .

What Went Wrong

  • Seasonality and reserve development: subscription margin sequentially softened vs Q4; adverse reserve development of ~$1.7M (~70 bps of revenue) in Q1 .
  • Total pets declined 2% YoY (1,667,637 vs 1,708,017), and PAC rose to $267 (vs $261 in Q4 and $243 in Q3), reflecting reinvestment in pet acquisition and cost pressure .
  • Fixed expenses increased to 6.2% of revenue (vs 5.3% LY) due to Canadian underwriting fees during transition, with leverage expected later in 2025 .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Total Revenue ($USD Millions)$327.456 $337.307 $341.975
Net Income ($USD Millions)$1.425 $1.656 $(1.483)
Diluted EPS ($USD)$0.03 $0.04 $(0.03)
Adjusted EBITDA ($USD Millions)$14.527 $19.381 $12.237
Subscription Adjusted Operating Income ($USD Millions)$30.751 $34.964 $30.019
Subscription AOI Margin (% of subscription revenue)14.0% 15.3% 12.9%
Value Proposition (% subscription cost of paying invoices/subscription revenue)71.0% 70.0% 71.8%
Variable Expenses (% of subscription revenue)9.4% 9.2% 9.1%
Fixed Expenses (% of total revenue)5.6% 5.5% 6.2%

Q1 vs prior year/quarter vs S&P Global consensus:

MetricQ1 2024Q4 2024Q1 2025 ActualQ1 2025 Consensus*Delta vs Consensus*
Total Revenue ($USD Millions)$306.121 $337.307 $341.975 $337.810*+$4.165*
Diluted EPS ($USD)$(0.16) $0.04 $(0.03) $(0.04833)*+$0.01833*
Adjusted EBITDA ($USD Millions)$4.844 $19.381 $12.237 $11.0435*+$1.1935*

Values retrieved from S&P Global.*

Segment breakdown:

MetricQ3 2024Q4 2024Q1 2025
Subscription Revenue ($USD Millions)$218.986 $227.783 $233.064
Other Business Revenue ($USD Millions)$108.470 $109.524 $108.911
Subscription AOI (Non-GAAP, $USD Millions)$30.751 $34.964 $30.019
Other Business AOI (Non-GAAP, $USD Millions)$1.816 $0.834 $1.167
Other Business AOI Margin (%)1.7% 0.8% 1.1%

KPIs:

KPIQ3 2024Q4 2024Q1 2025
Total Pets Enrolled (period-end)1,688,903 1,677,570 1,667,637
Subscription Pets (period-end)1,032,042 1,041,212 1,052,845
Monthly Avg Revenue per Pet ($)$74.27 $76.02 $77.53
Avg Pet Acquisition Cost (PAC) ($)$243 $261 $267
Avg Monthly Retention (%)98.29% 98.25% 98.28%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueFY 2025n/a (not specified in reviewed docs)$1.39B–$1.425B Raised
Subscription RevenueFY 2025n/a$966M–$989M Raised
Total Adjusted Operating Income (AOI)FY 2025n/a$122M–$142M Raised
Total RevenueQ2 2025n/a$344M–$350M Updated
Subscription RevenueQ2 2025n/a$238M–$241M Updated
Total AOIQ2 2025n/a$27M–$30M Updated

Assumptions: Guidance uses a 72% USD/CAD conversion rate .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Subscription margin/value propositionAchieved 71% target; strong FCF Value proposition 71.8%; AOI margin 12.9% (+320 bps YoY); seasonality noted Improving YoY; seasonal Q1 uptick
Vision platformn/aLower invoice processing costs; faster payments; reduced variable expenses Efficiency gains
Retention98.25% (Q4) with prior YoY pressure 98.28%; inflection from >20% rate cohort normalization Sequential improvement
Underwriting shift (Canada GPIC)n/aTransition underway; higher near-term underwriting fees; leverage expected later In-flight
Pets Best partnern/aOther business growth decelerating; limited new pet enrollments in most U.S. states Decelerating
PAC and IRRPAC rising into Q4 ($261) PAC $267; IRR ~31%; disciplined vet channel spend Investment ramp within guardrails
Capital surplusAPIC surplus $140.2M > action level (FY24) >3x overcapitalized; considering dividends Growing optionality
Macro/lead volumen/aStrong vet channel leads; brief Feb dip, March recovered Stable
Digital advertising strategyn/aAvoid pay-to-play; DTC used for conversion within IRR Disciplined testing
Legal/regulatoryn/aDestination Pet dispute resolved/dismissed Resolved

Management Commentary

  • “The year is off to a strong start, and I'm pleased to report overachievement on both total revenue and total adjusted operating income in the quarter.” — CEO Margi Tooth .
  • “We made continued progress toward our annual target value proposition… ending the quarter at 71.8%,” driven by pricing and Vision efficiencies .
  • “Average monthly retention improved quarter-on-quarter for the first time in 12 quarters to 98.28%… members transitioning out of our highest rate cohorts and into more stable pricing tiers.” — CEO .
  • “For the full year 2025, we are increasing our guidance… total revenue $1.39B–$1.425B; subscription revenue $966M–$989M; total AOI $122M–$142M.” — CFO .
  • “We deployed $17.6M of AOI to acquire ~63,700 new subscription pets… PAC $267… IRR 31%.” — CFO .

Q&A Highlights

  • Macro/trends: Lead volume strong through vet traffic; brief February dip recovered; retention stable to improving; no notable conversion weakness observed in April .
  • Canada underwriting transition: GPIC seeded; no additional capital expected; Q1 underwriting charge step-up planned; leverage anticipated as transition completes .
  • Market share: Management prioritized margin expansion in 2023–2024 over growth; now reaccelerating high-lifetime-value core product growth without chasing market share .
  • Loss ratio/reserving: Adverse reserve development ~$1.7M (~70 bps); within normal range; margin expansion expected to moderate as pricing aligns with claims experience .
  • Retention cohorts: Focus shifting to first-year retention as growth resumes; early improvements seen with aligned conversion/retention messaging .
  • Digital acquisition: Avoids pay-to-play channels outside IRR guardrails; DTC used as conversion tool; consistent investment needed to sustain conversion improvements .

Estimates Context

  • Q1 2025 beats: Revenue $341.98M vs $337.81M*; EPS $(0.03) vs $(0.04833); Adjusted EBITDA $12.24M vs $11.04M — all beats; consensus based on 5–6 estimates for revenue/EPS .
  • Q2 2025 setup: Management guides revenue to $344M–$350M; consensus revenue $346.67M* at the midpoint; consensus EPS $(0.026); management guided AOI $27M–$30M (no EPS guidance) .
    Values retrieved from S&P Global.

Key Takeaways for Investors

  • Subscription margin expansion and Vision-driven efficiencies underpin sustainable AOI growth; expect moderation but continued YoY improvement as pricing aligns with claims .
  • Sequential retention inflection is an early positive as members cycle out of high-rate cohorts; watch first-year retention as PAC deployment increases .
  • Guidance raised across FY25 and Q2; revenue outlook broadly in line with consensus, AOI strong — supports near-term sentiment and de-risks trajectory .
  • Capital surplus provides potential for ordinary dividends/upstreaming; APIC >3x overcapitalized — a medium-term capital returns lever .
  • Reinvestment in high-IRR pet acquisition (PAC $267; IRR ~31%) should rebuild net adds; subscription pet count growth offsets total pet declines .
  • Other business (e.g., Pets Best) growth deceleration and higher fixed expenses in Q1 are known headwinds; expect expense leverage later in 2025 as Canadian underwriting transitions .
  • Near-term trading: Positive reaction drivers include beats, guidance raise, retention improvement; monitor FX (72% CAD assumption), reserve development variability, and seasonal margin cadence .
Additional Q1 2025 items:
- Cash + short-term investments $321.8M (incl. $48.8M outside insurance entities); OCF $16.0M; FCF $14.0M **[1371285_c41e8a99edc24ed6b4519bc04b8ee5ff_0]** **[1371285_c41e8a99edc24ed6b4519bc04b8ee5ff_8]**.
- Legal: Destination Pet dispute resolved/dismissed (no admission of liability) **[1371285_3f96a10db808486da5a950a4a3684ae7_0]**.
- Upcoming events: Investor Day on Sept 17; CFO at Raymond James conference (Mar 3) **[1371285_2e6bf40b06e74a529db3c6f42e596ea3_0]** **[1371285_7d275725c9fe459b8317423f839fd691_0]**.