Pethealth Inc. Announces First Quarter Revenue of $9,625,000 and Profit of $340,000 and Its Full Results for Its First Quarter Ended March 31, 2013

OAKVILLE, ONTARIO--(Marketwired - May 15, 2013) - Pethealth Inc. (TSX:PTZ) ("Pethealth" or "the Company") today announced its financial results for its first quarter ended March 31, 2013.

	For the quarter ended
($'000 except for per share figures)	March 31 2013		March 31 2012	Change %
Revenue	9,625		9,709	(1	)%
EBITDA(1)	1,282		1,781	(28	)%
Profit before taxes	479		1,302	(63	)%
Profit after taxes	340		1,215	(72	)%
Basic earnings per share	(0.01	)	0.02	-	%
Fully diluted earnings per share	(0.01	)	0.02	-	%

(1)	EBITDA, a non IFRS accounting measure, is profit before amortisation and depreciation, interest and income taxes.

"A solid performance in most of the key metrics of our business was offset by some one-off events which impacted revenue and earnings during the quarter," said Mark Warren, President and Chief Executive Officer of Pethealth. "Policy sales increased by 38% with double digit increases in each of Canada, the US and the UK. Net core insurance policies in-force improved by 5% while 24PetWatch call centre sales on non-insurance products and services were up 23%. The weather had an impact on the sale of microchip technology during the quarter which saw an 8% decline in revenues. Despite this, the Company's market share in microchipping continued to expand as PetPoint licensed animal welfare organisations grew by 10% while gross margins on microchip sales increased 2% to 50%."

First quarter results:

Consolidated comparative revenues were significantly impacted by the unseasonably warm weather in Q1 2012 vs. Q1 2013 which resulted in a timing difference in the growth rates of both intakes and adoptions of dogs and cats completed through PetPoint in North America. The year-on-year growth in North American intakes completed through PetPoint fell to 0% from 11% a year earlier while the growth in pet adoptions fell to 5% from 14% in the prior year. This timing difference suppressed market demand in the quarter for various products as (i) certain animal welfare organisations had anticipated a repeat of the prior year's adoption growth rate and as such had built microchip inventory prior to the quarter's commencement and (ii) seasonally concentrated sales, for products such as flea & tick medications, were deferred until the weather warranted their use. In addition, comparative reported results were also impacted by the one-off data report agreement with Best Friends Animal Society which generated $435,000 of data publishing revenues in Q1 of last year.

Despite the impact of the above, net gains were realised in a number of key operating metrics during the quarter. In the Insurance segment, core insurance pet insurance policy sales increased by 38%, net active core policies increased by 5% and the UK/US aggregate core loss ratio improved by 7.5% resulting in $80,000 in underwriting participation revenues being recorded during the quarter. In the non-insurance segment, the number of PetPoint licensed animal welfare organisations increased by 10% to 1,987, the 24PetWatch database grew 25% to 6.9-million registered pets, cross sales of products and services to the 24PetWatch database in North America increased by 23% and Petango store sales grew 48%.

Consolidated revenue decreased by 1% to $9.6-million for the first quarter. Consolidated revenue was the aggregate of a 4% growth in insurance segment revenues and an 8% decrease in the Company's non-insurance segment revenues.

Consolidated profit before taxes decreased by 63% to $479,000. In addition to those factors impacting revenues, profit before taxes was influenced by (i) the acceleration of investment in organic growth in the insurance segment through the expansion of its 24PetWatch gift of insurance program in North America and through increased exposure on and sales completed through insurance aggregator websites in the United Kingdom. The impact of these marketing expenses on income is a reflection of the accounting treatment applied to organic growth where the costs to acquire a new policyholder are expensed as incurred even though new insurance policies represent long-term recurring monthly revenues over the policy's life. For the quarter, an incremental $96,000 was incurred and expensed related to these two organic growth programs and (ii) a significant increase in amortisation and depreciation expense as a result of the deployment of the Company's internal ERP systems in Q1, 2012 and the deployment of the first phase of PetPoint Enterprise, the Company's first paid version of its cloud based animal welfare management system, in Q3 2012. For the quarter, an incremental $326,000 was expensed related to amortisation and depreciation.

Consolidated EBITDA decreased by 28% to $1.28-million as a result of the same factors influencing revenue and consolidated profits before tax while consolidated profit after taxes decreased 72% to $340,000.

Normal Course Issuer Bid:

On September 20, 2012, the Company's Board of Directors announced its intention to make a Normal Course Issuer Bid to repurchase up to 1,669,000 of its common shares. Repurchases commenced on November 08, 2012 and will terminate no later than September 23, 2013.

The Company appointed Industrial Alliance Securities Inc. to purchase the shares on its behalf. Up to March 31, 2012, 909,216 common shares had been repurchased and cancelled at an average price of approximately $0.94 per common share, for an aggregate of $859,000 in cash. As of today's date, the Company has repurchased 1,131,550 common shares at an average price of approximately $0.96 per common share, for an aggregate of $1,085,000 in cash.

Subsequent event:

On March 27, 2013, the Company announced that it had entered into an asset purchase agreement with Nestlé Purina Claims Processing, Inc. and PurinaCare Insurance Services, Inc. (together, "Purina") whereby the Company agreed to acquire certain assets of Purina's pet insurance operations including the rights to administer and renew the Purina polices from May 1, 2013.

Consideration for the acquisition is to a maximum of US$800,000 for the 12,196 current policyholders. The all-cash transaction is being financed through a 3 year loan agreement with a recognised financial institution at an interest rate of 6 month LIBOR plus 2.25%, reset bi-annually. The acquisition closed on May 1, 2013.

Conference call

The Company is hosting an investor conference call on Wednesday, May 15, 2013, at 4:30 PM (EST) which can be accessed at 1-866-226-1792 or on-line at www.pethealthinc.com. For those unable to participate, a replay of the call will be available shortly after the call concludes on the Company's website at www.pethealthinc.com.

About Pethealth

For detailed financial statements for the quarter ended March 31, 2013, including Management's Discussion and Analysis, please refer to the Company's website or SEDAR at www.sedar.com after March 15, 2013.

Pethealth is North America's second largest provider of medical insurance for dogs and cats to pet owners, operating in the United States, Canada and the United Kingdom. In addition, the Company is the leading provider of management software to North American animal welfare organisations through its SaaS-based application and is the leading provider of pet related database 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, 24PetWatch, Pet Protect, Petpals Direct, ShelterCare, PetPoint, Petango.com and ThePetangoStore.com.

Pethealth is based in Oakville, Ontario. To find out more about Pethealth, visit the web site at www.pethealthinc.com.

Forward-Looking Statements

This press release contains information that is forward-looking information within the meaning of applicable securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or the negative of these terms or other similar expressions concerning matters that are not historical facts.

Forward-looking information by its nature necessarily involves risks and uncertainties including, without limitation, the difficulty of predicting the current regulatory and supervisory environment, the timing and conditions to obtaining any regulatory approval, reliance on insurance underwriters for pet insurance policies, market acceptance and demand for existing and new products and services, including PetPoint and EVE Software and the 24PetWatch microchip program, the Company's ability to maintain and service new and existing customers, the protection of intellectual property associated with its products and services, the impact of competition generally and new competitive products, currency and foreign exchange fluctuations, risks associated with the Company's customer care solutions facility, and related risks and uncertainties. Additional risks and uncertainties affecting the Company can be found in the Company's Annual Information Form available on SEDAR at www.sedar.com. If any of these risks or uncertainties were to materialize or if the factors and assumptions underlying the forward-looking information were to prove incorrect, actual results could vary materially from those that are expressed or implied by the forward-looking information contained herein. The Company disclaims any intention or obligation, other than those required by security laws, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.