Trupanion / MOI Global Wide-Moat Investing Summit / June 25, 2018 Artem Fokin, Caro-Kann Capital LLC Artem.Fokin@caro-kann-capital.com www.caro-kann-capital.com
Disclaimer This presentation does not constitute an offer to sell or a solicitation or an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities. Any such offer or solicitation may only be made by means of formal offering documents that will be provided only to qualified offerees. This document should be read in conjunction with, and is qualified in its entirety by, information appearing in such formal offering documents, which should be carefully reviewed prior to investing. Past performance is not necessarily indicative or a guarantee of future results. An investment in any fund is speculative and entails substantial risks. Investors must be prepared for the risk of loss. This communication is provided for information purposes only. In addition, because this communication is preliminary and a summary only, it does not contain all material terms, including important conflicts disclosures and risk factors associated with an investment in a fund. This communication in and of itself should not form the basis for any investment decision. Nothing in this presentation constitutes or should be construed to constitute investment advice. We and/or our affiliates are long TRIP and TRUP and have no obligation to update this presentation if our views change. We can buy and/or sell TRIP and / or TRUP at any time without further notification. Certain information contained in this document constitutes "forward-looking statements," which can be identified by the use of forward- looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend“, "cont inue" or "believe" or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the funds may differ materially from those reflected or contemplated in such forward-looking statements and no undue reliance should be placed on these forward-looking statements, nor should the inclusion of these statements be regarded as Caro-Kann Capital’s representation that the funds will achieve any strategy, objectives or other plans. This communication and the material contained herein are confidential and may not be distributed in whole or in part to anyone other than the intended recipients. By accepting receipt of this communication the recipient will be deemed to represent that they possess, either individually or through their advisers, sufficient investment expertise to understand the risks involved in any purchase or sale of any financial instruments discussed herein. Caro-Kann Capital LLC caro-kann-capital.com 2
Caro-Kann Strategy • Chess opening against the king’s pawn opening. • A strong position and pawn structure make Caro-Kann Defense more solid and robust than many alternatives while creating a strong likelihood of Black winning. Caro-Kann Capital LLC caro-kann-capital.com 3
Caro-Kann Capital Investment Strategy: Special Situations and Compounders • We look for mispriced securities due to lack of sellside coverage and buyside attention. • We prefer companies with up to $1B market cap. • Favorite investment patterns for special situations: ✓ Spin offs ✓ High growth business segment hidden by a larger struggling segment ✓ Sum of the parts. • Favorite business models for compounding machines: ✓ Platform businesses with network effect ✓ Flywheel business models • Long bias: typically 80% to 100% net long. Caro-Kann Capital LLC caro-kann-capital.com 4
Involvement with Manual of Ideas • This is the 3rd time I am presenting at MOI Global Conference as an instructor. It is a pleasure to be back! • On June 15th 2017 I presented CommerceHub (ticker: CHUBK). Caro-Kann Capital LLC caro-kann-capital.com 5
What Happened to CommerceHub Since I Presented at June 2017 Wide Moat Investing Conference • We established position in November 2016 – January 2017 at less than $15.00. • I presented CommerceHub at MOI Global Wide Moat Investing Conference on June 15, 2017. CHUBK closed at $16.93 that day. • Subsequently we increased our position on a few occasions when stock market volatility presented attractive opportunity to increase our exposure. • In March 2018 two PE firms (GTCR and Sycamore Partners) announced that they will acquire CHUBK at $22.75 per share. Transaction closed in late May 2018. • Return = ~34% since the presentation in less than 12 months . CommerceHub Stock Price, $ 30 25 20 15 10 Presented at MOI Global Wide Moat 5 Investing Conference 0 7/22/16 8/22/16 9/22/16 10/22/16 11/22/16 12/22/16 1/22/17 2/22/17 3/22/17 4/22/17 5/22/17 6/22/17 7/22/17 8/22/17 9/22/17 10/22/17 11/22/17 12/22/17 1/22/18 2/22/18 3/22/18 4/22/18 Closing Price Caro-Kann Capital LLC caro-kann-capital.com 6
Involvement with Manual of Ideas (2) • On December 19th 2017 I presented TripAdvisor (ticker: TRIP). Caro-Kann Capital LLC caro-kann-capital.com 7
TripAdvisor Shares Are Up ~63% since Presented at December 2017 Best Ideas Conference • I presented TripAdvisor at MOI Global Best Ideas Investing Conference on December 19, 2017. TRIP closed at $34.77 that day. • Return = ~63% since the presentation in ~6 months . TripAdvisor Stock Price ($) 70 60 50 40 30 Presented at MOI Global Wide Moat Investing Conference 20 10 0 12/1/2017 1/1/2018 2/1/2018 3/1/2018 4/1/2018 5/1/2018 6/1/2018 Closing Price Caro-Kann Capital LLC caro-kann-capital.com 8
Let’s Start with a Quote “I have always been attracted to the low cost operator in any business and when you can find a combination of (1) an extremely large business, (2) a more or less homogeneous product, and (3) a very large gap in operating costs between the low cost operator and all of the other companies in the industry, you have a really attractive investment situation. That situation prevailed twenty five years ago when I first became interested in the company, and it still prevails.” Letter to Mr. George D. Young from Warren Buffett July 22nd, 1976 Caro-Kann Capital LLC caro-kann-capital.com 9
With This Quote in Mind Let Me Introduce You the Idea I am Presenting Today … Caro-Kann Capital LLC caro-kann-capital.com 10
Trupanion: Price History Since IPO Trupanion Stock Price ($) 45 40 35 30 25 20 15 10 Position Established at ~ $15 5 0 Close Caro-Kann Capital LLC caro-kann-capital.com 11
Trupanion: 30 Second Pitch • A founder – CEO who is an intelligent fanatic Founder. • Strong alignment of management with shareholders: • CEO’s equity stake is worth more than 160x (not a typo!) than his executive compensation in 2017. • Moat based on proprietary data and virtuous cycle flywheels. • Massive under-penetrated market with a multi year or even multi decade growth runway. • Product with the best customer value proposition. • Mission-driven culture. Caro-Kann Capital LLC caro-kann-capital.com 12
What Does Trupanion Do? • Trupanion sells medical insurance for dogs and cats. Caro-Kann Capital LLC caro-kann-capital.com 13
Trupanion History: from Humble Beginnings to IPO 2013 – 2014 2000 2Q 2016 ??? • First pet enrolled • Develops and • Trupanion • This chapter yet • (CEO’s own dog) introduces becomes cash to be written. Trupanion flow positive Express 2008 July 18, 2014 3Q 2017 ??? • Trupanion enters • IPO on NYSE • Trupanion • This chapter yet U.S. market reaches 400K pets to be written. enrolled Caro-Kann Capital LLC caro-kann-capital.com 14
Pet Owners Spent $70B on Their Pets in 2017 And Those Expenses Are Growing Caro-Kann Capital LLC caro-kann-capital.com 15
Costumes on Halloween Alone Cost ~$500M! • On a typical Halloween alone pet owners spend ~$500M on costumes! • So propensity to spend is definitely there. We LOVE our pets! Caro-Kann Capital LLC caro-kann-capital.com 16
Penetration of Medical Pet Insurance in North America Is Extraordinary Low • Today it is somewhere between 1.5% and 2%. • Let’s compare it to other developed countries. ✓ France = 5%. ✓ Denmark = 5%. ✓ Netherlands = 8%. ✓ Norway = 14%. ✓ U.K. – 25%. ✓ Sweden – 40%. Caro-Kann Capital LLC caro-kann-capital.com 17
Why Is Medical Pet Insurance Not More Common? • There is no reason to believe that pet owners in North America love their pets less than Europeans! • As we saw, Americans spend ~$70B on their pets, including $500M on Halloween costumes alone! • It is unlikely to be a money issue… Caro-Kann Capital LLC caro-kann-capital.com 18
What Is the Answer Then? • The answer is somewhat surprising. • While the U.S. is ahead of almost any other country on the planet when we speak about almost any financial, technological, or consumer product innovation, it is actually quite behind many European countries when we speak about “comprehensive” medical insurance for pets as a product. • For example, “comprehensive” medical insurance for pets came to the U.K. in the 1970s. • However, until Trupanion launched its medical insurance in Canada in 2000 and in the U.S. in 2008, there were no “comprehensive” pet medical insurance offerings. Caro-Kann Capital LLC caro-kann-capital.com 19
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