Trupanion maintains revenue growth in Q2 amid marketing hurdles

Pet insurance can save owners a bundle on pricey procedures, but Trupanion still faces challenges marketing its coverage.

Pet insurer Trupanion ($TRUP) reached an important milestone in the second quarter, achieving positive free cash flow for the first time, as it narrowed its net loss from $4.6 million in the same period last year to $1 million. But the Seattle-based company, which also saw its revenues jump 29% year-over-year to $45.8 million, faced questions from analysts about whether it could sustain its strong performance, or if it would be in danger of falling back into negative cash-flow territory.

CEO Darryl Rawlings said during a conference call after the August 2 earnings report that he’s confident the company will be able to keep its head above water, despite challenges, not the least of which is stiff competition that’s increasing the pressure on Trupanion to beef up its marketing efforts.

“We expect to have relatively consistent revenue growth over the next year or two. And with that we are expanding our operating margin,” Rawlings said during the call. “What we [want] to do is to be able to cost effectively spend as much as our operating profit as we can. But we want to do it in a very disciplined way.”

There were definite signs that awareness among pet owners of the potential value of insurance are on the upswing. Trupanion saw its population of enrolled cats and dogs rise 23% year-over-year to 320,896 during the quarter, it reported. It was the company’s 35th quarter in which revenue growth exceeded 25%.

Still, Rawlings admitted in a letter to shareholders last year that Trupanion was not doing a good enough job communicating to pet owners the value of its offerings vs. those of its competitors. “We are doing better this year although I still think we have a long ways to go,” he said during the earnings call.

Trupanion does get some marketing help from partners like VCA ($WOOF), the large chain of veterinary clinics that signed up the insurer as a preferred provider in early 2015. But Rawlings told analysts such partnerships aren’t “material enough” to disclose. He said the company’s priority in the second half of the year would be to improve its efforts to reach more customers via online marketing and other direct-to-consumer channels.

One analyst on the call noted that Trupanion has been able to steadily increase its prices without losing customers. But he wondered if pricing pressure from competitors might force the company to rethink its strategy. “We absolutely do not look at our competitors for pricing,” Rawlings said. “This is medical insurance, where people are making a 13- to 15-year decision for their pet. Our job is not to undercut or over-cut short term to get a client,” he said.

No doubt Trupanion’s biggest competitor is the status quo, which for the vast majority of pet parents is to carry no insurance at all. Although the number of insured pets jumped 12% last year to 1.6 million, according to the North American Pet Health Insurance Association, that’s still just a tiny fraction of the total population of dogs and cats.

- here’s the earnings release
- read a transcript of the earnings call at Seeking Alpha

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