Pethealth Inc. Announces Net Income of $90, 033 and its full results for the second quarter ended June 30, 2006

Transcription

1 Pethealth Inc. Announces Net Income of $90, 033 and its full results for the second quarter ended June 30, 2006 OAKVILLE, ON, August 11, Pethealth Inc. (TSXV:PTZ) ("Pethealth" or "the Company") today announced its financial results for the quarter and six months ended June 30, Highlights Quarter ended June 30, 2006 Total revenue for the three months ended June 30, 2006 was $4.47 million, up 27% over the three months ended June 30, Net income for the three months ended June 30, 2006 was $90,033 ($ per share), compared to a net loss of $437,720* ($ per share) recorded in Q2, EBITDA for Q was $208,877 compared to an EBITDA loss of $325,607* for the same period in the prior year. Gross premiums earned by the Company s insurance carriers were $9.0 million for the three months ended June 30, 2006, up 17% from the same period in the prior year. Six months ended June 30, 2006 Total revenue for the six months ended June 30, 2006 was $8.99 million, up 34% over the six months ended June 30, Net loss for the six months ended June 30, 2006 was $60,822 ($ per share), compared to a net loss of $903,809* ($ per share) recorded in the prior year. EBITDA for the six months ended June 30, 2006 was $175,682 compared to an EBITDA loss of $708,447* for the same period in the prior year. The cumulative calendar 2006 loss ratio for the U.S. core pet insurance book of business stood at 45% as at June 30, 2006 as the Company began to participate in a portion of its programs underwriting results in the United States. Gross premiums earned by the Company s insurance carriers were $17.9 million for the six months ended June 30, 2006, up 22% from the same period in the prior year. In addition to its financial results, the Company also announced today that Steve Zeidman has agreed, subject to regulatory approval, to assume the newly created position of Chief Information Officer effective August 15, Mr. Zeidman has been the Company s Director of Information Technology since January 2005 and has been instrumental in both the development and roll-out of the Company s PetPoint, EVE and information strategy. 1

2 Results of Operations Pethealth Inc. reports its financial results in a single reportable segment. However, in order to provide readers of the financial results greater insight into the growing diversity of the Company s operations, it has elected to provide financial results by program line, that is, by its insurance operations and its non-insurance operations. The Company s insurance operations currently consist of the distribution and administration of the PetCare, ShelterCare, QuickCare and CherryBlue pet insurance programs while non-insurance operations are made up of its 24PetWatch manufacturer-neutral pet registry, recovery and database management and information services, including the distribution of microchip technology, and the development and distribution of PetPoint, its animal shelter management software program. The following table details the operational results from each program line: 2

3 For the Three Months ended June 30, 2006 June 30, 2005 (restated)* Non- Total Non- Total Revenues $3,733,817 $733,288 $4,467,105 $3,152,077 $363,805 $3, 515,882 Cost of sales 494, , , ,052 Employment 853, ,002 1,153, , ,638 1,090,787 Marketing 1,434,360 89,679 1,524,039 1,596,462 21,276 1,617,738 General and administration 862, , , , , ,951 Other 169,400 42, , ,806 30, ,074 Total expenses 3,319,466 1,057,606 4,377,072 3,242, ,380 3,953,602 Net income (loss) 414,351 (324,318) 90,033 (90,145) (347,575) (437,720) Add: Amortization 76,344 42, ,844 81,845 30, ,113 EBITDA $490,695 $(281,818) $208,877 $(8,300) $(317,307) $(325,607) For the Six Months ended June 30, 2006 June 30, 2005 (restated)* Non- Total Non- Total Revenues $7,434,359 $1,563,183 $8,997,542 $6,041,368 $682,404 $6,723,772 Cost of sales 1,017,821 1,017, , ,931 Employment 1,751, ,981 2,350,230 1,734, ,165 2,156,951 Marketing 3,221, ,189 3,407,909 3,082,241 66,435 3,148,676 General and administration 1,577, ,606 1,865,036 1,198, ,264 1,445,328 Other 333,266 84, , ,142 43, ,695 Total expenses 6,883,665 2,174,699 9,058,364 6,292,233 1,335,348 7,627,581 Net income (loss) 550,694 (611,516) (60,822) (250,865) (652,944) (903,809) Add: Amortization 152,402 84, , ,809 43, ,362 EBITDA $703,096 $(527,414) $175,682 $(99,056) $(609,391) $(708,447) 3

4 We are obviously delighted with our Q2 results, which provide evidence that the initial stages of the restructuring of our ShelterCare insurance program have been successful, said Mark Warren, President and Chief Executive Officer of Pethealth. We are also very pleased with the success of our early testing of database and information services which leverage our 24PetWatch database, the aggregate medical information we collect and our electronic platforms. This testing has begun to generate significant revenue for the company which we expect to grow as the size of the database, which currently includes nearly 700,000 pets, continues to grow. Operations: The Company is the number two provider of pet insurance to the companion animal market in North America as measured by both policies in force and gross written premium. Pet insurance revenues are earned primarily through commissions and fees generated from the placement of pet insurance policies at a blended commission rate of approximately 36%. Commissions and fees earned in Q from the insurance operation increased by 19% to $3,707,467 from Q For the six months ended June 30, 2006, the Company achieved commission and fee revenue of $7,383,359 an increase of 23% over the prior year. The Company s U.S. core pet insurance programs produced a calendar year loss ratio of 45% which is within the Company s established target band of 43% to 45%. During the quarter, the Company began to place business in certain U.S. states with Praetorian Group (formerly the Corporation of Hannover). Under the terms of the agreement, the Company will begin to participate in a portion of the underwriting results for policies placed with Praetorian. The Company recorded an average annual administration cost per policy of $33 for the rolling twelve month period ended June 30, 2006, down from $37* in the preceding twelve month rolling period. This 11% reduction is the result of the Company s continued efforts to leverage its infrastructure and to create operational efficiencies. The Company believes that this cost per policy, whether measured on an absolute basis or as a percentage of premiums, is the best in the industry. Acquisition cost per policy was an average of US$66 compared to US$64 for the same twelve month periods. Acquisition cost per policy was relatively flat through the period as the relative weightings of the various marketing channels from which policies were acquired remained stable. The pet insurance operations contributed net income of $414,351 to the consolidated net income during the quarter compared to a contributed net loss of $90,145* for the same period in the prior year. For the six month period ended June 30, 2006, the insurance business contributed net income of $550,694 to the consolidated loss vs. a net loss of $250,865* in the prior year. In addition, the pet insurance operations achieved EBITDA of $490,695 for the period and $703,096 for the six months year-to-date compared to an EBITDA loss of $8,300* and $99,056* for the same periods in the prior year. Non- Operations: Non-insurance revenues are earned from the sale of microchip technology and database and information services leveraging the Company s PetPoint, EVE and 24PetWatch infrastructures. To date, the Company s non-insurance business has been focused on building out its technology platforms, which, in and of themselves, were not initially designed to generate significant margins. These platforms will be used to deliver database and information services from which the Company expects to generate significant revenues at much greater margins. During the quarter, the Company achieved revenues of $733,288 from its non-insurance businesses, an increase of 102% from the $363,805 earned in the prior year. For the six months ended June 30, 2006, the Company generated revenues of $1,563,183 an increase of 129% from the $682,404 earned in the prior year. The Company s non-insurance business contributed a net loss of $324,318 to the consolidated net income of $90,033 for the quarter ended June 30, 2006 as compared to a net loss contribution of $347,575 to the consolidated net loss for the same period in the prior year. For the six months ended June 30, 2006 the non-insurance business contributed a net loss of $611,516 to the consolidated net loss of $60,822 as compared to a net loss contribution of $652,944 for the same period in the prior year. 4

5 Consolidated Results The Company had consolidated net income of $90,033 ($ per share) for the quarter and a consolidated net loss of $60,822 ($ per share) for the first six months of the year compared to net losses of $437,720 ($ per share) and $903,809 ( per share) for the same period in the prior year. The Company s consolidated EBITDA was $208,877 for the quarter and $175,682 for the six months to date compared to EBITDA losses of $325,607 and $708,447 respectively for the same periods in the prior year. At June 30, 2006, the Company had total assets of $6,180,244 including cash resources of $1,711,437. The Company will be hosting an investor conference call on Monday, August 14, 2006 at 11:30 AM (EST) which can be accessed at For those unable to participate, an instant replay of the call will be available for 7 days at , passcode

6 CONSOLIDATED FINANCIAL HIGHLIGHTS: For Quarter Ended June 30, 2005 June 30, 2006 (restated)* Change % Commissions and Fees 3,707,467 3,126,659 19% Microchip Technology and Non-insurance Revenue 733, , % Interest and Other Income 26,350 25,418 4% Total Revenue $4,467,105 $3,515,882 27% Cost of Sales Microchip Technology 494, ,052 64% Marketing Expenses 1,524,039 1,617,738 (6%) Employment Expenses 1,153,563 1,090,787 6% Stock Option Expense 96,000 60,099 60% Administration Expenses 993, ,951 29% Foreign Exchange (2,944) (138) Amortization of Capital, Intangible and Other Assets 118, ,113 6% Net Income (Loss) For the Period 90,033 (437,720) 121% EPS Basic (0.0015) EPS - Fully Diluted (0.0015) Add Back: Amortization 118, ,113 EBITDA** $ 208,877 $ (325,607) 164% Cash Resources 1,711,437 3,911,871 (56%) Total Assets 6,180,244 7,796,788 (21%) Gross Premiums Earned by Carriers*** $ 8,980,792 $ 7,644,329 17% 6

7 CONSOLIDATED FINANCIAL HIGHLIGHTS: For the Six Months Ended June 30, 2005 June 30, 2006 (restated)* Change % Commissions and Fees 7,383,359 5,990,363 23% Microchip Technology and Non-insurance Revenue 1,563, , % Interest and Other Income 51,000 51,005 -% Total Revenue $8,997,542 $6,723,772 34% Cost of Sales Microchip Technology 1,017, ,931 83% Marketing Expenses 3,407,909 3,148,676 8% Employment Expenses 2,350,230 2,156,951 9% Stock Option Expense 183, ,564 45% Administration Expenses 1,865,036 1,445,328 29% Foreign Exchange (2,781) (1,231) Amortization of Capital, Intangible and Other Assets 236, ,362 21% Net Income (Loss) For the Period (60,822) (903,809) (93%) EPS Basic (0.0024) (0.0053) EPS Fully Diluted (0.0018) (0.0037) Add Back: Amortization 236, ,362 EBITDA** $ 175,682 $ (708,447) Gross Premiums Earned by Carriers *** $ 17,897,216 14,615,886 22% * Restatement of comparative balances Following a prior review of its cash management system, the Company determined that certain errors had been made in the recording of certain electronic customer payments and service fees processed in the United States during 2004 and As a result, cash was over-stated and selling, general and administrative expenses were understated. These items were previously corrected by restating the 2004 and 2005 financial statements. The Q and the six months ended June 30, 2006 comparative balances reflect this correction. ** The Company believes the presentation of EBITDA is a useful means of providing investors with additional information in reviewing and analyzing the Company s operating results. EBITDA is considered to be a non-gaap earnings measure and does not have any standardized meaning prescribed by GAAP. It is, therefore, unlikely to be comparable to similar measures presented by other issuers. *** As the Company writes new or renewing pet insurance policies, its insurance carriers earn written premiums and pay the Company commissions. The Company s revenues consist of commissions and fees, microchip technology sales, database and information services, and interest and other income. 7

8 About Pethealth Pethealth is a leading provider of pet insurance and pet related data management services to the North American companion animal industry. Pethealth offers a unique range of products and services for veterinarians, shelters and pet owners through a number of wholly owned subsidiaries using a range of brand names including PetCare, ShelterCare, QuickCare, CherryBlue, 24PetWatch, PetPoint, PetMedInfo and PetMedAlert. Pethealth is based in Oakville, Ontario. To find out more about Pethealth, visit the web site at The TSX Venture Exchange Inc. has not reviewed and does not accept responsibility for the adequacy or accuracy of this release. Statements contained in this news release, if not historical, are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from the results described in forward-looking statements. Not for dissemination in the United States of America or to United States news wire services. For further information contact: Mark Warren, President and CEO Glen Tennison, Chief Financial Officer Pethealth Inc. (905)