Pethealth Inc.

Pethealth Inc.

March 11, 2005 14:12 ET

Pethealth Inc. Announces Record Annual Results and its Results for the Fourth Quarter Ended December 31, 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: PETHEALTH INC.

TSX VENTURE SYMBOL: PTZ

MARCH 11, 2005 - 14:12 ET

Pethealth Inc. Announces Record Annual Results and its
Results for the Fourth Quarter Ended December 31, 2004

OAKVILLE, ONTARIO--(CCNMatthews - March 11, 2005) - Not for
dissemination in the United States of America or to United States news
wire services.

Pethealth Inc. ("Pethealth" or "the Company") (TSX VENTURE:PTZ) today
announced its financial results for the year and quarter ended December
31, 2004.

Financial Highlights

YEAR ENDED DECEMBER 31, 2004

- Revenue for the year ended December 31, 2004 totalled $11.29-million,
representing a 60% increase over revenue of $7.05-million for the year
ended December 31, 2003.

- Net loss for the twelve months ended December 31, 2004 was $422,540, a
79% improvement from the net loss of $1,990,298 for the year ended
December 31, 2003.

- 2004 EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) was $74,664, compared with an EBITDA loss of $1,661,252
for the year ended December 31, 2003.

- Cash generated from operations for 2004 was $2,537,423 vs. an
operating cash outflow of $789,580 in the prior year.

- Gross written premiums related to the Company's pet insurance
operations were $25.3-million for the year ended December 31, 2004, an
increase of 43% over the same period in the prior year.

- Core paid policies in force, as of December 31, 2004, stood at 99,372,
an increase over the previous year of 61%.

- ShelterCare paid policies in force were 23,815 at December 31, 2004 a
decline of 35% from those in force at December 31, 2003 as the prepaid
portion of the coverage was reduced from 60 days to 30 days.

- At December 31, 2004, the Company had a total of 123,187 paid policies
in force, a 16% increase from the 106,260 paid policies in force at
December 31, 2003.

- On January 21, 2004, the Company completed a $10-million private
placement of convertible preference shares. Each $2.00, 6% preference
share is convertible into 10 common shares of the Company at the option
of the holder.

- At December 31, 2004, the Company had cash resources of $4.55-million.

QUARTER ENDED DECEMBER 31, 2004

- Revenue for the quarter ended December 31, 2004 totalled
$2.86-million, up 41% over the quarter ended December 31, 2003.

- Net loss for the three months ended December 31, 2004 was $187,069
($0.01 per share), a 47% improvement from the net loss of $349,681
($0.01 per share) for Q4, 2003.

- Cash generated from operations for Q4 2004 was $673,278 vs. $199,771
in the fourth quarter last year.

- Gross written premiums for the quarter ended December 31, 2004 were
$6.6-million, up 29% from Q4, 2003.

Of the Company's total revenue in 2004, 85% was derived from commissions
and management fees earned from the placement of pet insurance policies
on behalf of its carriers down from 91% in 2003.

The Company's total commission and management fee revenue for 2004 was
$9,574,033 compared to commission and management fee revenue of
$6,399,099 in the prior year, an increase of 50%. This increase is the
result of both the continued growth in active core paid policies in
force which, on average, increased by 57% over the average number in
force during the previous year, and the early stages of a 6.8% premium
increase on its U.S. core policies. The growth in commission and
management fee revenue derived from total active paid policies was
reduced by $405,500 during the year as a result of the 6.4% increase in
the value of the Canadian dollar relative to the United States dollar.
Nonetheless, the Company earned 66% of its commissions and management
fees from the placement of pet insurance policies in the United States
up from 58% in the prior year. The Company began selling pet insurance
in March 1999 in Canada and May 2001 in the United States.

Commission and management fee revenue is generated from the placement of
core and ShelterCare pet insurance policies at a blended commission rate
of approximately 37%. During 2004, the Company's pet insurance programs
generated $25,309,163 in gross written premium, up 43% from the previous
year. The Company's retention rate at December 31, 2004, on its core
policies is approximately 70% on the first annual renewal and 75% on the
second annual renewal. The Company had 99,372 core policies and 23,815
ShelterCare polices in force at December 31, 2004. Core policies in
force increased by 61% while ShelterCare policies in force declined by
35%.

The decrease in the number of ShelterCare paid policies in force is the
direct result of a reduction in the prepaid portion of the policy from
60 days to 30 days. Under the terms of its agreement with Petfinder.com
("Petfinder"), Petfinder prepays a portion of the policy. The change in
the program is not expected to have any adverse impact on the expansion
of the program or on the conversion rates from the ShelterCare policies
into the Company's core polices which remained at 13.0% for the year.
Further, the impact of this change on the policyholder is expected to be
minimal as 89% of claims occur during the first 30 days of the program.
For the current quarter and the year, the change resulted in a reduction
in revenue of $187,000.

In Canada, the Company is now the number one seller of microchips to the
veterinary and shelter communities in terms of monthly sales. In the
United States, the Company offers the Allflex microchip technology and
provides its manufacturer-neutral pet registry, recovery, and database
management services in 48 states. At December 31, 2004, the Company had
212,492 pets registered on its pet registry database of which 9,252 of
those pets also had a core pet insurance policy. During 2004, the
Company achieved revenues of $802,443 from the sale of 138,775
microchips and related readers to the animal shelter and veterinary
communities, an increase in revenue of 257% from the sale of 22,086
microchips and related readers reported in 2003.

The Company had a net loss of $422,540 for the year and $187,069 or
$0.01 per share for the year and Q4 respectively. The net loss for the
year was inclusive of (i) net legal fees of $246,000, resulting from the
legal action brought by AVID Identification Systems, Inc. ("AVID") and
in the preparation of its counterclaim against AVID. The suit was
dismissed on October 9, 2004; (ii) a 6.4% appreciation in the value of
the Canadian dollar relative to the United States dollar accounted for a
reduction in net income of $354,000 for the year and $121,000 for the
quarter and (iii) the September 1, 2004 reduction in the prepaid portion
for ShelterCare policies which accounted for a reduction in net income
for the year and fourth quarter of $160,000. In the absence of these
three items, Pethealth would have reported net income of $337,000 ($0.01
per share) for the year and $94,000 ($0.01 cents per share) for the
fourth quarter.

The Company reduced its administration cost per policy to $8.90 per
quarter down from $12.00 per quarter in the prior year. This 26%
reduction is the result of the Company's concerted efforts to leverage
its infrastructure, operating more efficiently as it builds towards
profitability. The Company believes its administrative cost per policy,
whether measured on an absolute basis or as a percentage of premiums, is
the best in the industry. The Company's acquisition cost per policy also
fell by $US 8.75 for the year and $US 6.00 for the quarter when compared
to the same periods in the prior year. These results were achieved
through more efficient distribution through the shelter, veterinary and
on-line channels. A combination of information technology advances,
created by the Company to deliver its programs more efficiently, and the
expansion of the 24PetWatch microchip program were the primary reasons
for the reduction.

At December 31, 2004, the Company had total assets of $14,826,665
including cash resources of $4,549,614.

"We are delighted to be reporting strong growth in both our pet
insurance and microchip businesses during 2004 which resulted in
positive EBITDA for the year," said Mark Warren, President and Chief
Executive Officer. "I am particularly pleased with the reduction in our
administrative cost per policy which played a large role in our 2004
results and puts us in an excellent position going into 2005. The
introduction of both PetPoint, our web-hosted shelter management
software, and EVE, our .NET on-line claims adjudication software, will
further enhance our information technology platform which provides us
the ability to leverage our distribution channels and infrastructure
even further. We continue to gain market share in both our pet insurance
and microchip business, further building our unique position of being
able to create the industry's first database registry of comprehensive
medical information for dogs and cats in North America. 2005 will be an
exciting year."

The Company will host a conference call at 3pm on Friday, March 11, 2005
to discuss the year-end and fourth quarter results. To participate,
please call 1-888-789-0150.

Financial Highlights:



---------------------------------------------------------------------
For the Year Ended
December 31, December 31, Change
2004 2003 %
---------------------------------------------------------------------

---------------------------------------------------------------------
Gross Premiums Written(a) 25,309,163 17,664,288 43
---------------------------------------------------------------------

---------------------------------------------------------------------
Commissions and Management Fees 9,574,033 6,399,099 50
---------------------------------------------------------------------
Administration Fees 762,510 341,582 123
---------------------------------------------------------------------
Microchipping Revenue 802,443 224,524 257
---------------------------------------------------------------------
Interest and Other Income 147,958 87,580 69
---------------------------------------------------------------------
Total Revenue 11,286,944 7,052,785 60
---------------------------------------------------------------------

---------------------------------------------------------------------
Cost of Sales - Microchipping 694,208 189,726 266
---------------------------------------------------------------------
Marketing Expenses 3,456,784 2,408,051 44
---------------------------------------------------------------------
Employment Expenses 4,077,559 3,664,460 11
---------------------------------------------------------------------
Stock Option Expense 190,180 57,124 233
---------------------------------------------------------------------
Administration Expenses(c) 2,731,359 2,365,054 15
---------------------------------------------------------------------
Foreign Exchange 62,190 29,622 110
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---------------------------------------------------------------------
EBITDA(b) 74,664 (1,661,252)
---------------------------------------------------------------------

---------------------------------------------------------------------
Amortization 497,204 329,046 51
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---------------------------------------------------------------------
Net Loss (422,540) (1,990,298)
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EPS (0.01) (0.01)
---------------------------------------------------------------------

---------------------------------------------------------------------
Cash Resources 4,549,614 419,567
---------------------------------------------------------------------
Total Assets 14,826,665 6,759,216
---------------------------------------------------------------------

---------------------------------------------------------------------
Total Paid Policies in Force 123,187 106,260 16
---------------------------------------------------------------------
Total Paid Core Policies in Force 99,372 61,817 61
---------------------------------------------------------------------
Total Paid ShelterCare
Policies in Force 23,815 36,470 (35)
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---------------------------------------------------------------------
For the three month period ended
December 31, December 31, Change
2004 2003 %
---------------------------------------------------------------------

---------------------------------------------------------------------
Gross Premiums Written(a) 6,604,192 5,122,804 29
---------------------------------------------------------------------

---------------------------------------------------------------------
Commissions and Management Fees 2,359,512 1,850,390 28
---------------------------------------------------------------------
Administration Fees 207,221 104,442 98
---------------------------------------------------------------------
Microchipping Revenue 268,920 71,934 274
---------------------------------------------------------------------
Interest and Other Income 29,423 10,993 168
---------------------------------------------------------------------
Total Revenue 2,865,076 2,037,759 41
---------------------------------------------------------------------

---------------------------------------------------------------------
Cost of Sales - Microchipping 242,693 60,056 304
---------------------------------------------------------------------
Marketing Expenses 970,312 636,476 52
---------------------------------------------------------------------
Employment Expenses 1,017,532 968,339 5
---------------------------------------------------------------------
Stock Option Expense 56,506 57,124 (1)
---------------------------------------------------------------------
Administration Expenses 609,701 562,415 8
---------------------------------------------------------------------
Foreign Exchange 20,281 14,782 37
---------------------------------------------------------------------

---------------------------------------------------------------------
EBITDA(b) (51,949) (261,433)
---------------------------------------------------------------------

---------------------------------------------------------------------
Amortization 135,120 88,248 53
---------------------------------------------------------------------

---------------------------------------------------------------------
Net Loss (187,069) (349,681)
---------------------------------------------------------------------
EPS (0.01) (0.01)
---------------------------------------------------------------------


(a) The Company writes Gross Premiums and remits the carriers' portion
to its pet insurance carriers. The Company's revenue consists of
Commissions, Management and Administrative Fees, Microchip technology
sales and Interest Income.

(b) EBITDA is inclusive of amortization of non-cash deferred marketing
expenses and is presented before other capital amortization. This data
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.

(c) Administration expenses include net legal fees of $246,000 expensed
in the year, associated with the defence and counterclaim against Avid
Identification Systems, Inc. ("AVID").

About Pethealth

Founded in February 1998, Pethealth is Canada's number one provider of
pet insurance and is number two in North America, currently offering its
PetCare Pet Insurance Programs in 10 provinces, 48 states plus
Washington, D.C. In addition to the PetCare Pet Insurance Programs,
Pethealth offers its pet insurance programs under a variety of names,
including QuickCare, ShelterCare and Union Plus Pet Insurance. In the
United States, the PetCare Pet Insurance Programs are underwritten by
Lincoln General Insurance Company, York, PA, and administered by PetCare
Insurance Brokers Ltd. and PetCare Insurance Agency, Ltd., both wholly
owned subsidiaries of the Company. In Canada, the Company's pet
insurance is underwritten by ING Novex, a member of ING Group, and
Kingsway General Insurance Company and offered through PetCare Insurance
Brokers Ltd. In addition, Pethealth, through its wholly owned
subsidiaries Pethealth Services Inc. and Pethealth Services (USA) Inc.,
distributes Allflex pet microchip supplies to the companion animal
market in North America and operates the related pet recovery registry
under the trade name 24PetWatch.

During 2004, the Company completed two innovations: PetPoint, the first
web-hosted management software program for animal welfare organizations
in North America, which allows shelters to easily offer the ShelterCare
insurance and the 24PetWatch microchip programs electronically at the
point of adoption; and EVE, the first web-based claims adjustment
software for veterinary clinics in North America. This program, the
first of its kind in the pet insurance industry, allows claims to be
adjusted online at the veterinary clinic, thus simplifying the claims
adjudication process.

Pethealth is based in Oakville, Ontario. To find out more about
Pethealth Inc. (TSXV: PTZ), visit the web site at www.pethealthinc.com.

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.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Pethealth Inc.
    Mark Warren
    President and CEO
    (905) 842-2615
    or
    Pethealth Inc.
    Glen Tennison
    Chief Financial Officer
    (905) 842-2615
    The TSX Venture Exchange Inc. has not reviewed and does not accept
    responsibility for the adequacy or accuracy of this release.