Trupanion outlines 31% AOI growth for 2025 while expanding brand reach through new partnerships

Earnings Call Insights: Trupanion, Inc. (TRUP) Q3 2025

MANAGEMENT VIEW

* CEO Margaret Tooth highlighted "continued momentum across key business metrics" and reported that Trupanion accelerated net pet adds in the subscription segment for the third consecutive quarter, increasing them by 45% year-over-year. She announced record subscription adjusted operating income of $39 million and a 15.5% subscription adjusted operating margin, the company's highest ever. Tooth stated, "These results reflect consistent, disciplined execution over the past 24 months to deliver on our value proposition and our cost-plus solution." She emphasized improved member retention due to targeted communications and efforts to make pricing adjustments more predictable. Tooth noted, "With our pricing now tracking alongside the rate of veterinary inflation, our position is strong, which in turn affords us the opportunity to continue to invest in ways to educate pet parents directly."
* CFO Fawwad Qureshi reported total revenue for the quarter of $366.9 million, up 12% year-over-year, and subscription revenue of $252.7 million, up 15%. Qureshi stated, "Operating cash flow was $29.2 million in the quarter compared to $15.3 million in the prior year period...free cash flow was $23.9 million, up from $13.4 million last year. Over the last 4 quarters, free cash flow reached $71.9 million." He announced the refinancing of Trupanion's outstanding term loan with a new $120 million credit facility from PNC Bank, noting, "This new 3-year facility provides us greater financial flexibility, further reduces interest expense and gives us greater assurance as we navigate the coming years."
* Tooth also revealed new brand initiatives, including a partnership with Seattle Reign FC and a collaboration with BMO Insurance in Canada, stating, "This partnership exemplifies a new chapter in our brand development, broadening our reach and engaging with pet parents with a shared connection of pets and community."

OUTLOOK

* Qureshi updated guidance for the full year 2025, projecting total revenue in the range of $1.433 billion to $1.439 billion and narrowing subscription revenue to $986 million to $989 million, which represents approximately 15% year-over-year growth at the midpoint. Total adjusted operating income is projected at $148 million to $151 million, with the midpoint representing 31% year-over-year growth. For Q4 2025, total revenue is expected between $371 million and $377 million, subscription revenue between $258 million and $261 million, and total adjusted operating income between $41 million and $44 million. Qureshi noted, "As a reminder, our revenue projections are subject to conversion rate movements predominantly between the U.S. and Canadian currencies."

FINANCIAL RESULTS

* Trupanion reported subscription pets increased 5% year-over-year to over 1,082,000, including approximately 60,000 pets in Europe. Average monthly retention for the trailing 12 months was 98.33%. The cost of paying veterinary invoices in the subscription business was $177.1 million, resulting in a value proposition of 70.1%. Variable expenses as a percentage of subscription revenue were 8.9%, down from 9.4% a year ago. Fixed expenses were 5.6%. Adjusted operating income for the quarter was $40.9 million, up 25% from the prior year. Net income improved to $5.9 million or $0.14 per basic share. Trupanion ended the quarter with $348.5 million in cash and short-term investments.

Q&A

* Brandon Vazquez, William Blair: "...as we go into next year, what does this business look like in terms of commercial strategy when you go maybe from defense to offense...what are some of the things that we should expect from you guys that might start to accelerate growth even further?" Tooth responded, "We're being a lot more aggressive with our investments. We're in an incredibly strong financial position. We have record levels of margin and free cash flow...we're moving into offense position, which is where this company has always operated in a heavily underpenetrated market."
* Vazquez followed up on 2026 growth modeling. Qureshi answered, "This year has really been more pricing driven. And over time, we would like to have pets continue to contribute at a higher and higher level."
* Katie Sakys asked about growth dynamics in Europe versus North America and the BMO Insurance partnership. Tooth explained current focus is on the core subscription business with limited European investment, but growth investment is expected in Europe in the future. On BMO, Tooth stated, "The core Trupanion product will be offered through that channel...We wouldn't expect it to contribute meaningfully in the short to midterm."
* Wilma Jackson Burdis, Raymond James: "How are you guys thinking about pricing going into 2026?" Qureshi said, "It was approximately in line with what we saw in Q2. So there was a little bit of reduction in the U.S., a little bit of inflation in Canada. But on balance, it was pretty much flat."
* John Barnidge, Piper Sandler: "Can you talk about the interest rate savings and any onetime items in advance of ending the old credit facility..." Qureshi stated, "The interest rate by itself, our current debt is SOFR plus 5.15%. The new debt will be SOFR plus 2.75%. So it's about a 240 basis point benefit in terms of interest savings."

SENTIMENT ANALYSIS

* Analysts took a constructive but probing tone, with questions focused on growth drivers, pricing trends, and the impact of new partnerships. The sentiment was slightly positive, reflecting confidence in the company's performance but a desire for more detail on growth sustainability.
* Management maintained a confident and assertive tone, with Tooth stating, "We're very pleased with the quarter and the performance," and Qureshi emphasizing financial flexibility and aggressive investment. Tone in the Q&A was consistent with prepared remarks, demonstrating confidence.
* Compared to the previous quarter, both analysts and management reflected growing confidence, with less focus on margin restoration and more on future growth and investment.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for full-year revenue and AOI was tightened and the midpoint raised for AOI (from 28% to 31% year-over-year growth). Subscription adjusted operating income and margin reached new records, compared to strong but lower levels in Q2. Management shifted from a heavy focus on margin restoration in Q2 to a more aggressive growth stance in Q3. Analysts in Q2 pressed on gross adds acceleration and pricing; in Q3, the focus shifted to new partnerships and future investment strategies. Management's confidence was more pronounced this quarter, supported by improved financial flexibility and new partnerships.

RISKS AND CONCERNS

* Qureshi highlighted that revenue projections are subject to currency conversion rate movements. Tooth acknowledged "increasing pressure on consumers" and the challenge of articulating value to pet parents. Management noted that the Aflac group channel remains nascent and is not expected to contribute meaningfully in the near term. Inflation in the veterinary sector remains a consideration, with management committed to monitoring it closely.

FINAL TAKEAWAY

Management credited disciplined execution and strategic investments for record margins and free cash flow in Q3, enabling Trupanion to aggressively pursue growth through brand partnerships and market expansion. With financial guidance raised and a strong balance sheet, the company aims to further accelerate net pet adds and broaden its presence through deliberate investment, while maintaining a focus on retention and cost control. Management believes these efforts position Trupanion well for continued growth into 2026 and beyond.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/trup/earnings/transcripts]

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