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Press Press Releases 2006 Pethealth Inc. Announces Record Revenue and its full Oakville, ON. – March 30, 2006. Pethealth Inc. ("Pethealth" or "the Company") (TSXV: PTZ) today announced its financial results for the year and quarter ended December 31, 2005.
QUARTER ENDED DECEMBER 31, 2005
The Accounting Standards Board in Canada has ratified a new strategic direction for financial reporting in Canada which will converge Canadian GAAP and International Financial Reporting Standards (IFRS). As a result, the Company has decided to change the way it accounts for direct-response marketing expenditures, start-up and similar costs as described more fully below. The change in accounting policy does not impact the Company’s business strategy, revenues or cash flows. Results of Operations
“2005 has been another great year in the Company’s development,” said Mark Warren, President and Chief Executive Officer. “We reached 100,000 paid policies in force faster than any other provider of pet health insurance in North America and the 24PetWatch pet registry now exceeds 500,000 individual files of pet owners and their pets. Furthermore, we have continued to lay the foundations which will allow us to take our business model to the next level with respect to both our business of pet insurance as well as the introduction of revenue generating non-insurance services. The completion of our underwriting agreement with the Insurance Corporation of Hannover represents a significant milestone in the development of our pet insurance business as we will begin to participate in a portion of our U.S. underwriting results starting in 2006. In addition, the roll-out of our PetPoint application exceeded management’s expectations. We are creating North America’s largest business-to-business “virtual pipeline” within the animal welfare industry which not only benefits our insurance business but also opens up new opportunities for our organization.”
Pet insurance revenues are earned primarily through commissions and fees generated from the placement of core and ShelterCare pet insurance policies at a blended commission rate of approximately 36%. Commissions and fees earned in 2005 from core policies increased by 34% to $10,992,654 from 2004 while commissions and fees earned from ShelterCare policies in force declined by 21%. The growth in revenues earned from core policies is the result of the 20% year on year increase in the number of core policies in force which stood at 119,420 at December 31, 2005. Core policy premiums increased by 14% in Canada and 6% in the United States (unadjusted for foreign exchange) during the year, to an average of $266/annum. The reduction in commissions and fees earned on the placement of ShelterCare policies was due to the decision taken in Q4 2004 to reduce the prepaid portion of the policies from 60 days to 30 days. Enrolments in the ShelterCare program were 308,010 for the year, up 29% over 2004. The Company recorded an average annual administration cost per policy of $34 for the year, down from $40 in 2004. This 15% 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$67 compared to US$66 in the prior year. The pet insurance operations contributed $215,072 to the consolidated pre-tax loss during the year and $404 of pre-tax net income in the fourth quarter after giving effect to the change in accounting policy as described below. This compares to a restated loss of $1,886,499 for the full year of 2004 and a loss of $284,545 for the quarter ended December 31, 2004. For the year ended December 31, 2005, EBITDA from the Company’s pet insurance operations was $118,005, an improvement from the restated EBITDA loss of $1,599,012 from the same period last year after giving effect to the change in accounting policy as described below. For the three months ended December 31, 2005, EBITDA from the Company’s pet insurance operations was $75,306, an improvement from a restated EBITDA loss of $224,462 from the same period last year. Non-Insurance Operations: (i) 24PetWatch The Company’s first move into non-insurance operations was in the area of RFID (microchip) technology where the Company, after conducting research in both Canada and the United States, determined that pet insurance and RFID technology for companion animals was complementary and that the business models being used in the microchipping space were unrobust and outdated. It is the Company’s view that RFID technology is set to become commonplace in the day-to-day lives of the consumer, not only in terms of the consumer’s purchasing activities, but also with respect to the way in which this technology will be linked to services which would provide them with greater control and convenience in managing the care of their pets. Thus Pethealth’s interest in the promotion of greater usage of RFID technology is not with respect to the sale of the technology itself, but in the sale of related services that can be sold to the owner of pets implanted with a microchip. However, to achieve this, the Company realised it was going to as a first stage create greater user group confidence amongst clinics and shelters in the use of microchip technology. As such, the Pethealth model is initially based on providing lower cost technology to clinics and shelters and to tie that technology to free registration for pet owners. By providing free registration the Company is given direct access to pet owners registered with 24PetWatch, through which it can then promote other revenue generating services. These revenue generating services include not only the sale of its pet insurance, but also new and innovative services such as 24PetMedInfo, which provides pet owners the ability to have their pets’ medical information linked to their pets’ microchip number and is accessible to that pet owner at any time. It is the Company’s intention to develop other revenue generating services as well. During the year, the Company achieved revenues of $1,634,762 from the sale of 286,595 microchips and related readers to the animal shelter and veterinary communities, an increase in revenue of 104% from the sale of 138,775 microchips and related readers reported in 2004. During the quarter ended December 31, 2005, the Company achieved revenues of $470,908 from the sale of 85,175 microchips and related readers, an increase in revenue of 75% from the sale of 46,445 microchips and related readers reported in Q4, 2004. Pethealth is the largest provider of microchip technology for companion animals in Canada on a monthly basis and is the fastest growing company in the United States, with what the Company estimates at 25% of the companion animal market. As at December 31, 2005, the Company had an aggregate of 461,522 pets registered in its 24PetWatch pet registry and is now generating in excess of 88,580 registrations per quarter. (ii) PetPoint In 2004 the Company incorporated Pethealth Software Solutions (USA) Inc., through which the Company now offers the first web-based management software application to animal shelters and rescue groups under the brand name PetPoint. PetPoint has been designed to help facilitate the growth of the Company’s core insurance business through the Shelter channel in the most cost-effective way possible and to consolidate that channel of distribution. The latest version of PetPoint is provided free to animal welfare organisations using the ShelterCare pet insurance program and the 24PetWatch microchip program as both programs have been designed to be delivered electronically through the application. As a hosted solution, Pethealth believes it is best positioned to provide content to pet owners at the point of adoption. Through PetPoint, its “virtual pipeline”, the Company has the unique ability to inform adopters of dogs and cats of the products and services that are available to them and influence them as to where they purchase those products and services. The Company believes that this will provide new revenue streams in time. As of December 31, 2005, 161 shelters had licensed the PetPoint application and 108 had begun to use it to run their shelter’s day-to-day operations. As of the date of this release, 236 shelters had licensed the system and 190 were using it in daily operations. During 2005, the electronic delivery of the ShelterCare insurance program generated administrative savings of approximately $160,000, as 31% of the 308,010 pets enrolled in the ShelterCare program during the quarter were completed electronically. EVE is the first web-based software application which allows for claims under the PetCare programs to be adjusted online and for electronic registration of pets microchipped with 24PetWatch microchips. EVE allows the Company to reduce claims settlement times, eliminates the paperwork associated with both the claims process and microchip registration, and provides the Company with a distinct competitive advantage over other providers of pet insurance. The Company has successfully completed the testing phase of the application recently. During the testing period, 137 clinics in Canada and the United States used EVE and 819 claims were submitted through the application which represented an aggregate of $133,990 in paid claims. The Company expects to roll-out the application more broadly during 2006. EVE is provided free to clinics using the Company’s 24PetWatch microchip and pet registry program. As a result, the Company has decided to change the way it accounts for direct-response marketing expenditures and start-up and similar costs. Direct-response marketing costs were deferred and amortized over a three year period (the estimated average life of a pet insurance policy) while start-up and similar costs were deferred and amortized over a one to five year period. These expenditures are now expensed as incurred and previously deferred expenditures have been retroactively adjusted. This policy is consistent with the changes being made by other Canadian companies, in other industries, and represents the most conservative of the current alternatives. The change in accounting policy does not impact the Company’s business strategy, revenues or cash flows. In the United States, companies can currently continue to defer and amortize direct response advertising expenditures under U.S. GAAP. As such, the reported results for the Company may no longer be comparable with certain U.S. companies, including at least one of the Company’s direct competitors, which defer and amortize direct response advertising costs. The impact of these changes on 2004 financial statement balances is as follows:
The impact of these changes on 2005 income statement balances is as follows:
The Company will host a conference call at 10am (EST) on Friday, March 31, 2006 to discuss the 2005 results. To participate, please call 1-877-461-2816.
For further information contact: |
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