Pethealth Inc.
TSX VENTURE : PTZ

Pethealth Inc.

March 30, 2006 16:03 ET

Pethealth Inc. Announces Record Revenue And Its Full Results For The Year And Quarter Ended December 31, 2005

OAKVILLE, ONTARIO--(CCNMatthews - March 30, 2006) -

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, 2005.

Financial Highlights

Year ended December 31, 2005

- Total revenue for 2005 was $14.4 million, representing a 28% increase over 2004.

- Net loss for the year was $1.89 million ($0.01 per share) a 44% improvement from the restated $3.4 million ($0.01 per share) recorded in 2004 after giving effect to the change in accounting policy described below.

- Gross premiums earned by the Company's insurance carriers were $30.9 million for the year, up 22% over 2004.

- At December 31, 2005, the Company had cash resources of $2.97 million.

- Quarter ended December 31, 2005

- Total revenue for the three months ended December 31, 2005 was $3.9 million, up 37% over the three months ended December 31, 2004.

- Net loss for the three months ended December 31, 2005 was $563,662 a reduction from the restated net loss of $617,196 recorded in Q4, 2004 after giving effect to the change in accounting policy as described below.

- Gross premiums earned by the Company's insurance carriers were $8.3 million for the three months ended December 31, 2005, up 27% from the same period in the prior year.

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

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 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:



---------------------------------------------------------------------
---------------------------------------------------------------------
For the Year ended
---------------------------------------------------------------------
December 31, 2005
---------------------------------------------------------------------
Insurance Non- Total
Insurance
--------------------------------------------
Revenues $ 12,795,422 $ 1,634,762 $ 14,430,186

Cost of sales - 1,369,782 1,369,782
Marketing 6,519,742 313,235 6,832,977
G&A, Employment 5,849,807 1,504,071 7,353,878
Other 640,945 94,725 735,670
--------------------------------------------
--------------------------------------------
Total expenses 13,010,494 3,281,813 16,292,307
--------------------------------------------

Net inc. (loss) before tax (215,072) (1,647,049) (1,862,121)
Tax 25,000 - 25,000
--------------------------------------------
--------------------------------------------
Net. Inc. (loss)
after tax $ (240,072) $ (1,647,049) $ (1,887,121)
--------------------------------------------
--------------------------------------------
Add:
Amortization 333,077 94,725 427,803
Tax 25,000 - 25,000
--------------------------------------------
--------------------------------------------
EBITDA $ 118,005 $ (1,552,323) $ (1,434,318)
---------------------------------------------------------------------
---------------------------------------------------------------------

For the Year ended
---------------------------------------------------------------------
December 31, 2004
(restated)
---------------------------------------------------------------------
Insurance Non- Total
Insurance
---------------------------------------------
Revenues $ 10,484,501 $ 802,443 $ 11,286,944

Cost of sales 694,208 694,208
Marketing 6,377,037 233,664 6,610,701
G&A,Employment 5,454,106 1,354,812 6,808,918
Other 539,857 31,944 571,801
--------------------------------------------
--------------------------------------------
Total expenses 12,371,000 2,314,628 14,685,628
--------------------------------------------

Net inc. (loss) before
tax (1,886,499) (1,512,185) (3,398,684)
Tax - - -
--------------------------------------------
--------------------------------------------
Net. Inc. (loss) after
tax (1,886,499) (1,512,185) (3,398,684)
--------------------------------------------
--------------------------------------------
Add:
Amortization 287,487 31,944 319,431
Tax - - -
--------------------------------------------
--------------------------------------------
EBITDA $ (1,599,012) $ (1,480,241) $ (3,079,253)
---------------------------------------------------------------------
---------------------------------------------------------------------

For the Three Months ended
---------------------------------------------------------------------
December 31, 2005
---------------------------------------------------------------------
Insurance Non- Total
Insurance
--------------------------------------------
Revenues $ 3,459,231 $ 470,909 $ 3,930,140

Cost of sales 391,851 391,851
Marketing 1,747,801 128,387 1,876,188
G&A, Employment 1,526,863 440,301 1,967,164
Other 184,163 49,436 233,599
--------------------------------------------
Total expenses $ 3,458,827 $ 1,009,975 $ 4,468,802

Net inc. (loss) before tax 404 (539,066) (538,662)
Tax 25,000 - 25,000
--------------------------------------------
--------------------------------------------
Net inc. (loss) after tax (24,596) (539,066) (563,662)
Add:
Amortization 74,902 49,436 124,338
Tax 25,000 - 25,000
--------------------------------------------
EBITDA $ 75,306 $ (489,630) $ (414,324)
---------------------------------------------------------------------
---------------------------------------------------------------------

For the Three Months ended
---------------------------------------------------------------------
December 31, 2004
(restated)
---------------------------------------------------------------------
Insurance Non- Total
Insurance
--------------------------------------------

Revenues $ 2,596,156 $ 268,920 $ 2,865,076

Cost of sales 242,693 242,693
Marketing 1,385,087 65,669 1,450,756
G&A, Employment 1,340,700 286,533 1,627,233
Other 154,914 6,676 161,590
--------------------------------------------
Total expenses $ 2,880,701 $ 601,571 $ 3,482,272

Net inc. (loss) before
tax (284,545) (332,651) (617,196)
Tax - - -
--------------------------------------------
--------------------------------------------
Net inc. (loss) after
tax (284,545) (332,651) (617,196)
Add:
Amortization 60,083 6,676 66,759
Tax - - -
--------------------------------------------
EBITDA $ (224,462) $ (325,975) $ (550,437)
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"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."

Insurance Operations:

The Company is the number two provider of pet insurance to the companion animal market in North America as measured by both paid policies in force and gross written premium.

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:

During 2002, the Company determined that to maximise long term shareholder value it would have to take advantage of opportunities to develop complementary products and services within the North American companion animal market. Additionally, these new services, while outside of its core business of insurance, would be selected on the basis of their ability to not only create new revenue streams but also to enhance the Company's pet insurance business either by providing for a greater number of policy sales or by consolidating the channels through which it was currently distributing its pet insurance programs. It was determined that to maximise the opportunity, some of the initiatives undertaken in their initial states would not necessarily be revenue generating but would provide the platform on which significant revenues could ultimately be created.

The concept of providing free base platforms on both a Business to Business and Business to Consumer basis is becoming more commonplace within the financial services sector as a whole as a result of the development of technology and specifically the Internet. Pethealth, anticipating this trend, has placed itself at the forefront in developing the concept of free platforms for pet owners (24PetWatch free registry), animal shelters (PetPoint) and veterinary clinics (EVE) within the industry as a whole. The Company believes that significant additional revenue streams can be generated by offering complementary services that these clients of Pethealth will be prepared to pay for given their value, and overall quality.

(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.

(iii) EVE

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.

Consolidated Results

The Company had a net loss of $1,887,121 ($0.01 per share) for 2005 compared to a restated net loss of $3,398,684 ($0.01 per share) in 2004 after giving effect to the change in accounting policy as described below. The net loss for the year was inclusive of an 8% appreciation in the value of the Canadian dollar relative to the United States dollar that accounted for a reduction in revenue of $745,000 for the year. Pethealth would have reported a net loss of $1,630,000 for the year had the value of the Canadian dollar relative to the American dollar remained the same as its value during 2004.

At December 31, 2005, the Company had total assets of $6,999,358 including cash resources of $2,971,892.

Change in Accounting Policy

The Accounting Standards Board (ASB) in Canada has ratified a new strategic direction for financial reporting in Canada which will converge Canadian GAAP and International Financial Reporting Standards (IFRS). Under IFRS, the deferral and subsequent recognition of pre-operating, advertising and promotional costs is not permitted. In addition, the ASB has been working to finalize a project which is likely to eliminate the deferral of certain intangible assets including start-up, deferred program, advertising and promotional expenditures as evidenced by the recently released CICA Exposure Draft.

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:

---------------------------------------------------------------------
Increase / (decrease)
---------------------------------------------------------------------

Direct Start-up
Response and
Previously Advertising similar
Reported Costs costs Restated
---------------------------------------------------------------------
Balance Sheet
---------------------------------------------------------------------
Deferred acquisition
costs 6,044,811 (6,044,811) - -
---------------------------------------------------------------------
Intangible and other
assets 581,568 - (506,395) 75,173
---------------------------------------------------------------------
Deficit (18,950,691) (6,044,811) (506,395)(25,501,897)
---------------------------------------------------------------------
Income Statement
---------------------------------------------------------------------
Marketing expense 3,456,784 3,009,487 144,430 6,610,701
---------------------------------------------------------------------
Amortization 497,204 - (177,773) 319,431
---------------------------------------------------------------------
Net loss (422,540) (3,009,487) 33,343 (3,398,684)
---------------------------------------------------------------------

---------------------------------------------------------------------
Earnings per share -
basic (0.01) - - (0.01)
---------------------------------------------------------------------

The impact of these changes on 2005 income statement balances is
as follows:

---------------------------------------------------------------------
Increase / (decrease)
---------------------------------------------------------------------

Direct Start-up
Response and
Prior to Advertising similar
Restatement Costs costs Restated
---------------------------------------------------------------------
Income Statement
---------------------------------------------------------------------
Marketing expense 5,495,015 1,265,743 72,219 6,832,977
---------------------------------------------------------------------
Amortization 601,373 - (173,571) 427,802
---------------------------------------------------------------------
Net loss (722,730) (1,265,743) 101,352 (1,887,121)
---------------------------------------------------------------------

---------------------------------------------------------------------
Earnings per share -
basic (0.01) (0.01)
---------------------------------------------------------------------

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.


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CONSOLIDATED FINANCIAL HIGHLIGHTS: For Year Ended
---------------------------------------------------------------------
Dec. 31, 2004
Dec. 31, 2005 (restated) Change %
---------------------------------------------------------------------

---------------------------------------------------------------------
Gross Premiums
Earned by Carriers(a) $ 30,896,821 $ 25,309,163 22%
---------------------------------------------------------------------

---------------------------------------------------------------------
Commissions and Fees - Core 10,992,654 8,187,994 34%
---------------------------------------------------------------------
Commissions and Fees
- ShelterCare 1,698,096 2,148,549 (21%)
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Microchip Technology Revenue 1,634,762 802,443 104%
---------------------------------------------------------------------
Interest and Other Income 104,674 147,958 (29%)
---------------------------------------------------------------------
Total Revenue $ 14,430,186 $11,286,944 28%
---------------------------------------------------------------------

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Cost of Sales -
Microchip Technology 1,369,782 694,208 97%
---------------------------------------------------------------------
Marketing Expenses 6,832,977 6,610,701 3%
---------------------------------------------------------------------
Employment Expenses 4,572,033 4,077,559 12%
---------------------------------------------------------------------
Stock Option Expense 324,798 190,180 71%
---------------------------------------------------------------------
Administration Expenses 2,781,844 2,731,359 2%
---------------------------------------------------------------------
Foreign Exchange (16,930) 62,190
---------------------------------------------------------------------
Amortization 427,803 319,431 34%
---------------------------------------------------------------------

---------------------------------------------------------------------
Net Loss before Tax (1,862,121) (3,398,684)
---------------------------------------------------------------------
Tax 25,000 -
---------------------------------------------------------------------
Net Loss after Tax $ (1,887,121) $ (3,398,684) (44%)
---------------------------------------------------------------------
EPS (0.01) (0.01)
---------------------------------------------------------------------

---------------------------------------------------------------------
Add Back: Amortization 427,803 319,431
---------------------------------------------------------------------
Add Back: Tax 25,000 -
---------------------------------------------------------------------
EBITDA(b) $ (1,434,318) $ (3,079,253) (53%)
---------------------------------------------------------------------

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Cash Resources 2,971,892 4,784,130
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Total Assets 6,999,358 8,530,335
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Total Paid Policies in Force 152,627 123,187 24%
---------------------------------------------------------------------
Total Paid Core
Policies in Force 119,420 99,372 20%
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Total Paid ShelterCare
Policies in Force 33,207 23,815 39%
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---------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS: For the Three Months Ended
---------------------------------------------------------------------
Dec. 31, 2004
Dec. 31, 2005 (restated) Change %
---------------------------------------------------------------------

---------------------------------------------------------------------
Gross Premiums
Earned by Carriers(a) $ 8,348,968 $6,579,019 27%
---------------------------------------------------------------------

---------------------------------------------------------------------
Commissions and Fees - Core 2,947,560 2,246,885 31%
---------------------------------------------------------------------
Commissions and Fees
- ShelterCare 484,144 319,848 51%
---------------------------------------------------------------------
Microchip Technology
Revenue 470,908 268,920 75%
---------------------------------------------------------------------
Interest and Other Income 27,528 29,423 (6%)
---------------------------------------------------------------------
Total Revenue $ 3,930,140 $ 2,865,076 37%
---------------------------------------------------------------------

---------------------------------------------------------------------
Cost of Sales -
Microchip Technology 391,851 242,693 61%
---------------------------------------------------------------------
Marketing Expenses 1,876,188 1,450,756 29%
---------------------------------------------------------------------
Employment Expenses 1,241,083 1,017,532 22%
---------------------------------------------------------------------
Stock Option Expense 110,593 56,506 96%
---------------------------------------------------------------------
Administration Expenses 726,081 609,701 19%
---------------------------------------------------------------------
Foreign Exchange (1,332) 38,325
---------------------------------------------------------------------
Amortization 124,338 66,759 86%
---------------------------------------------------------------------

---------------------------------------------------------------------
Net Loss before Tax $ (538,662) $ (617,196)
---------------------------------------------------------------------
Tax 25,000 -
---------------------------------------------------------------------
Net Loss after Tax (563,662) (617,196)
---------------------------------------------------------------------
EPS (.01) (.01)
---------------------------------------------------------------------

---------------------------------------------------------------------
Add Back: Capital
Asset Amortization 124,338 66,759
---------------------------------------------------------------------
Add Back: Tax 25,000 -
---------------------------------------------------------------------
EBITDA(b) $ (414,324) $ (550,437)
---------------------------------------------------------------------

---------------------------------------------------------------------


(a) As the Company writes new or renewing pet insurance policies, its insurance carriers earn written premiums and pay the Company commissions over the term of each pet insurance policy. The Company's revenues consist of commissions and fees, microchip technology sales, interest and other income.

(b) 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.

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 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.

The TSX Venture Exchange Inc. has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Pethealth Inc.
    Mark Warren
    President and CEO
    (905) 842-2615
    or
    Pethealth Inc.
    Glen Tennison
    Chief Financial Officer
    (905) 842-2615
    www.pethealth.com