Trupanion Reports Second Quarter 2018 Results

SEATTLE, Aug. 02, 2018 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the second quarter ended June 30, 2018.

“Overall, Q2 was a productive quarter of consistent growth that culminated with a successful equity financing.  This financing positions us to further decrease fixed expenses and increase the funds available to us to invest in pet acquisition, by acquiring our home office in Seattle,” said Darryl Rawlings, CEO of Trupanion. 

Second Quarter 2018 Financial and Business Highlights

  • Total revenue was $73.4 million, an increase of 26% compared to the second quarter of 2017.
  • Total enrolled pets (including pets from our other business segment) was 472,480 at June 30, 2018, an increase of 23% over June 30, 2017.
  • Subscription business revenue was $63.9 million, an increase of 21% compared to the second quarter of 2017.
  • Subscription enrolled pets was 401,033 at June 30, 2018, an increase of 16% over June 30, 2017.
  • Net loss of $(0.4) million, or $(0.01) per basic and diluted share, compared to net income of $0.4 million, or $0.01 per basic and diluted share, in the second quarter of 2017. Excluding the one-time gain on the sale of an equity method investment, second quarter 2017 net loss was $(0.6) million, or $(0.02) per basic and diluted share.
  • Adjusted EBITDA was $2.0 million, compared to adjusted EBITDA of $1.4 million in the second quarter of 2017.
  • Operating cash flow was $(0.5) million and free cash flow was $(1.8) million for the second quarter of 2018. Excluding an earnest money deposit of $3.3 million during the quarter related to our home office acquisition, free cash flow was $1.4 million, compared to free cash flow of $1.0 million in the second quarter of 2017, which included operating cash flow of $1.8 million. 

First Half 2018 Financial and Business Highlights

  • Total revenue was $143.2 million, an increase of 27% compared to the first half of 2017.
  • Subscription business revenue was $125.4 million, an increase of 22% compared to the first half of 2017.
  • Net loss of $(1.9) million, or $(0.06) per basic and diluted share, compared to net loss of $(1.1) million, or $(0.04) per basic and diluted share, in the first half of 2017.
  • Adjusted EBITDA was $2.4 million, compared to adjusted EBITDA of $1.8 million in the first half of 2017.
  • Operating cash flow was $1.6 million and free cash flow was $(0.8) million for the first half of 2018. Excluding an earnest money deposit of $3.3 million during the quarter related to our home office acquisition, free cash flow was $2.5 million, compared to free cash flow of $2.4 million in the first half of 2017, which included operating cash flow of $3.7 million.   

Revenue by Quarter
A chart accompanying this announcement is available at 
http://resource.globenewswire.com/Resource/Download/eb042ad3-0a51-4c96-9f8c-92c78eb4d992 

Conference Call
Trupanion’s management will host a conference call today to review its second quarter 2018 results. The call is scheduled to begin shortly after 1:30 p.m. PT/ 4:30 p.m. ET. A live webcast will be accessible through the Investor Relations section of Trupanion’s website at http://investors.trupanion.com and will be archived online for 3 months upon completion of the conference call. Participants can access the conference call by dialing 1-877-407-0784 (United States) or 1-201-689-8560 (International). A telephonic replay of the call will also be available, one hour after the completion of the call, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13681416.

About Trupanion
Trupanion is a leader in medical insurance for cats and dogs throughout the United States and Canada. For almost two decades, Trupanion has given pet owners peace of mind so they can focus on their pet's recovery, not financial stress. Trupanion is committed to providing pet owners with the highest value in pet medical insurance with unlimited payouts for the life of their pets. Trupanion is listed on NASDAQ under the symbol "TRUP". The company was founded in 2000 and is headquartered in Seattle, WA. Trupanion policies are issued, in the United States, by its wholly-owned insurance entity American Pet Insurance Company and, in Canada, by Omega General Insurance Company. For more information, please visit Trupanion.com.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to, among other things, expectations, plans, prospects and financial results for Trupanion, including, but not limited to, its expectations regarding its ability to execute its business plans. These forward-looking statements are based upon the current expectations and beliefs of Trupanion’s management as of the date of this press release, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. All forward-looking statements made in this press release are based on information available to Trupanion as of the date hereof, and Trupanion has no obligation to update these forward-looking statements.

In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the ability to achieve or maintain profitability and/or appropriate levels of cash flow in future periods; the ability to keep growing our membership base and revenue; the accuracy of assumptions used in determining appropriate member acquisition expenditures; the severity and frequency of claims; the ability to maintain high retention rates; the accuracy of assumptions used in pricing medical plan subscriptions and the ability to accurately estimate the impact of new products or offerings on claims frequency; actual claims expense exceeding estimates; regulatory and other constraints on the ability to institute, or the decision to otherwise delay, pricing modifications in response to changes in actual or estimated claims expense; the effectiveness and statutory or regulatory compliance of our Territory Partner model and of our Territory Partners, veterinarians and other third parties in recommending medical plan subscriptions to potential members; the ability to retain existing Territory Partners and increase the number of Territory Partners and active hospitals; compliance by us and those referring us members with laws and regulations that apply to our business, including the sale of a pet medical plan; the ability to maintain the security of our data; fluctuations in currency exchange rates; the ability to protect our proprietary and member information; the ability to maintain our culture and team, including key personnel; the ability to maintain the requisite amount of risk-based capital; our ability to implement and maintain effective controls, including over financial reporting; the ability to protect and enforce Trupanion’s intellectual property rights; the ability to continue key contractual relationships with third parties; third-party claims including litigation and regulatory actions; and the ability to recognize benefits from investments in new solutions and enhancements to Trupanion’s technology platform and website.

For a detailed discussion of these and other cautionary statements, please refer to the risk factors discussed in filings with the Securities and Exchange Commission (SEC), including but not limited to, Trupanion’s Annual Report on Form 10-K for the year ended December 31, 2017 and any subsequently filed reports on Forms 10-Q and 8-K. All documents are available through the SEC’s Electronic Data Gathering Analysis and Retrieval system at www.sec.gov or the Investor Relations section of Trupanion’s website at http://investors.trupanion.com.

Non-GAAP Financial Measures
Trupanion’s stated results may include certain non-GAAP financial measures. These non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in its industry as other companies in its industry may calculate or use non-GAAP financial measures differently. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on Trupanion’s reported financial results. The presentation and utilization of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. Trupanion urges its investors to review the reconciliation of its non-GAAP financial measures to the most directly comparable GAAP financial measures in its consolidated financial statements, and not to rely on any single financial or operating measure to evaluate its business. These reconciliations are included below and on Trupanion’s Investor Relations website.

Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash expenses, Trupanion believes that providing various non-GAAP financial measures that exclude stock-based compensation expense and depreciation and amortization expense allows for more meaningful comparisons between its operating results from period to period. Trupanion offsets sales and marketing expense with sign-up fee revenue in the calculation of net acquisition cost because it collects sign-up fee revenue from new members at the time of enrollment and considers it to be an offset to a portion of Trupanion’s sales and marketing expenses. Trupanion believes this allows it to calculate and present financial measures in a consistent manner across periods. Trupanion’s management believes that the non-GAAP financial measures and the related financial measures derived from them are important tools for financial and operational decision-making and for evaluating operating results over different periods of time.

  
Trupanion, Inc. 
Consolidated Statements of Operations 
(in thousands, except share data) 
  
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 
 2018 2017 2018 2017 
         
 (unaudited) 
Revenue:        
Subscription business$63,867  $52,641  $125,384  $102,870  
Other business9,525  5,634  17,768  10,134  
Total revenue73,392  58,275  143,152  113,004  
Cost of revenue:        
Subscription business(1)52,333  42,591  103,347  83,837  
Other business8,706  5,333  16,388  9,661  
  Total cost of revenue(2)61,039  47,924  119,735  93,498  
Gross profit:        
Subscription business11,534  10,050  22,037  19,033  
Other business819  301  1,380  473  
Total gross profit12,353  10,351  23,417  19,506  
Operating expenses:        
Technology and development(1)2,298  2,322  4,462  4,725  
General and administrative(1)4,610  4,245  9,068  8,257  
Sales and marketing(1)5,702  4,372  11,640  8,461  
Total operating expenses12,610  10,939  25,170  21,443  
Operating loss(257) (588) (1,753) (1,937) 
Interest expense332  109  551  246  
Other (income) expense, net(303) (1,112) (443) (1,140) 
(Loss) income before income taxes(286) 415  (1,861) (1,043) 
Income tax expense (benefit)91  4  (4) 28  
Net (loss) income$(377) $411  $(1,857) $(1,071) 
Net (loss) income per share:        
  Basic and diluted$(0.01) $0.01  $(0.06) $(0.04) 
Weighted average common shares outstanding:        
Basic30,721,037  29,510,907  30,485,121  29,383,502  
Diluted30,721,037  32,734,624  30,485,121  29,383,502  
         
(1)Includes stock-based compensation expense as follows:        
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 
  
 2018 2017 2018 2017 
Cost of revenue$252  $149  $449  $262  
Technology and development60  59  109  109  
General and administrative625  482  1,074  913  
Sales and marketing349  198  622  385  
Total stock-based compensation expense$1,286  $888  $2,254  $1,669  
         
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows: 
  
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 
 2018 2017 2018 2017 
Veterinary invoice expense$51,780  $41,009  $101,893  $80,196  
Other cost of revenue9,259  6,915  17,842  13,302  
  Total cost of revenue$61,039  $47,924  $119,735  $93,498  
                 


 
Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
 
 June 30,
2018
 December 31,
2017
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$95,424  $25,706 
Short-term investments42,802  37,590 
Accounts and other receivables28,552  20,367 
Prepaid expenses and other assets6,890  2,895 
Total current assets173,668  86,558 
Restricted cash1,400  600 
Long-term investments, at fair value3,311  3,237 
Property and equipment, net8,208  7,868 
Intangible assets, net5,158  4,972 
Other long-term assets2,554  2,624 
Total assets$194,299  $105,859 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$2,373  $2,716 
Accrued liabilities and other current liabilities10,424  7,660 
Reserve for veterinary invoices13,996  12,756 
Deferred revenue30,339  22,734 
Total current liabilities57,132  45,866 
Long-term debt18,628  9,324 
Deferred tax liabilities1,002  1,002 
Other liabilities1,285  1,233 
Total liabilities78,047  57,425 
Stockholders’ equity:   
Common stock: $0.00001 par value, 100,000,000 shares authorized; 33,475,275 and 32,719,290 shares issued and outstanding at June 30, 2018; 30,778,796 and 30,121,496 shares issued and outstanding at December 31, 2017   
Preferred stock: $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding   
Additional paid-in capital207,505  134,511 
Accumulated other comprehensive loss(411) (92)
Accumulated deficit(84,641) (82,784)
Treasury stock, at cost: 755,985 shares at June 30, 2018 and 657,300 shares at December 31, 2017(6,201) (3,201)
Total stockholders’ equity116,252  48,434 
Total liabilities and stockholders’ equity$194,299  $105,859 
        


 
Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2018 2017 2018 2017
        
 (unaudited)
Operating activities       
Net (loss) income$(377) $411  $(1,857) $(1,071)
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:       
Depreciation and amortization964  1,077  1,891  2,113 
Stock-based compensation expense1,286  888  2,254  1,669 
Gain on sale of equity method investment  (1,036)   (1,036)
Other, net15  (41) 38  56 
Changes in operating assets and liabilities:       
Accounts and other receivables(4,242) (3,596) (8,168) (6,968)
Prepaid expenses and other assets(3,939) 36  (4,068) (183)
Accounts payable, accrued liabilities, and other liabilities1,657  1,208  2,567  913 
Reserve for veterinary invoices550  166  1,293  1,259 
Deferred revenue3,620  2,711  7,661  6,929 
Net cash (used in) provided by operating activities(466) 1,824  1,611  3,681 
Investing activities       
Purchases of investment securities(13,246) (9,723) (20,386) (14,895)
Maturities of investment securities9,715  7,841  15,015  11,712 
Proceeds from sale of equity method investment  1,402    1,402 
Purchases of property and equipment(1,378) (802) (2,370) (1,264)
Other investments113  (43) 113  (2,753)
Net cash used in investing activities(4,796) (1,325) (7,628) (5,798)
Financing activities       
Proceeds from public offering of common stock, net of offering costs65,886    65,886   
Proceeds from exercise of stock options1,175  610  1,656  1,647 
Proceeds from exercise of warrants300    300   
Proceeds from debt financing, net of financing fees3,750  1,499  9,250  1,459 
Other financing(140) (101) (356) (203)
Net cash provided by financing activities70,971  2,008  76,736  2,903 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net(271) 160  (201) 181 
Net change in cash, cash equivalents, and restricted cash65,438  2,667  70,518  967 
Cash, cash equivalents, and restricted cash at beginning of period31,386  22,537  26,306  24,237 
Cash, cash equivalents, and restricted cash at end of period$96,824  $25,204  $96,824  $25,204 


The following tables set forth our key operating metrics:
                 
 Six Months Ended             
 June 30,             
 2018 2017             
Total subscription pets enrolled (at period end)401,033  346,409              
Total pets enrolled (at period end)472,480  383,293              
Monthly average revenue per pet$53.79  $50.99              
Lifetime value of a pet (LVP)$732  $654              
Average pet acquisition cost (PAC)$158  $135              
Average monthly retention98.64% 98.57%             
                 
                 
 Three Months Ended
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31, 2017 Sept. 30, 2017 Jun. 30,
2017
 Mar. 31,
2017
 Dec. 31,
2016
 Sept. 30, 2016 
Total subscription pets enrolled (at period end)401,033  385,640  371,683  359,102  346,409  334,909  323,233  312,282  
Total pets enrolled (at period end)472,480  446,533  423,194  404,069  383,293  364,259  343,649  334,070  
Monthly average revenue per pet$53.96  $53.62  $53.17  $52.95  $51.47  $50.50  $49.17  $48.37  
Lifetime value of a pet (LVP)$732  $727  $727  $701  $654  $637  $631  $624  
Average pet acquisition cost (PAC)$150  $165  $184  $151  $143  $128  $133  $120  
Average monthly retention98.64% 98.63% 98.63% 98.61% 98.57% 98.58% 98.60% 98.61% 
                 


 
The following table reflects the reconciliation of net cash (used in) provided by operating activities to free cash flow and free cash flow, excluding earnest money deposit (in thousands):
         
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 
 2018 2017 2018 2017 
Net cash (used in) provided by operating activities$(466) $1,824  $1,611  $3,681  
Purchases of property and equipment(1,378) (802) (2,370) (1,264) 
Free cash flow$(1,844) $1,022  $(759) $2,417  
Exclude earnest money deposit3,250    3,250    
Free cash flow, excluding earnest money deposit$1,406  $1,022  $2,491  $2,417  


The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages): 
          
  Three Months Ended
June 30,
 Six Months Ended
June 30,
 
  2018 2017 2018 2017 
Veterinary invoice expense $51,780  $41,009  $101,893  $80,196  
Stock-based compensation expense (148) (89) (268) (159) 
Cost of goods $51,632  $40,920  $101,625  $80,037  
% of revenue 70.4% 70.2% 71.0% 70.8% 
          
Other cost of revenue $9,259  $6,915  $17,842  $13,302  
Stock-based compensation expense (104) (60) (181) (103) 
Variable expenses $9,155  $6,855  $17,661  $13,199  
% of revenue 12.5% 11.8% 12.3% 11.7% 
          
Subscription gross profit $11,534  $10,050  $22,037  $19,033  
Stock-based compensation expense 252  149  449  262  
Non-GAAP subscription gross profit $11,786  $10,199  $22,486  $19,295  
% of subscription revenue 18.5% 19.4% 17.9% 18.8% 
          
Gross profit $12,353  $10,351  $23,417  $19,506  
Stock-based compensation expense 252  149  449  262  
Non-GAAP gross profit $12,605  $10,500  $23,866  $19,768  
% of revenue 17.2% 18.0% 16.7% 17.5% 
          
Technology and development expense $2,298  $2,322  $4,462  $4,725  
General and administrative expense 4,610  4,245  9,068  8,257  
Depreciation and amortization expense (964) (1,077) (1,891) (2,113) 
Stock-based compensation expense (685) (541) (1,183) (1,022) 
Fixed expenses $5,259  $4,949  $10,456  $9,847  
% of revenue 7.2% 8.5% 7.3% 8.7% 
          
Sales and marketing expense $5,702  $4,372  $11,640  $8,461  
Stock-based compensation expense (349) (198) (622) (385) 
Acquisition cost $5,353  $4,174  $11,018  $8,076  
% of revenue 7.3% 7.2% 7.7% 7.1% 


 
The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                
 Six Months Ended            
 June 30,            
 2018 2017            
Sales and marketing expenses$11,640  $8,461             
Excluding:               
Stock-based compensation expense(622) (385)            
Acquisition cost11,018  8,076             
Net of:               
Sign-up fee revenue(1,240) (1,061)            
Other business segment sales and marketing expense(175) (111)            
Net acquisition cost$9,603  $6,904             
                
 Three Months Ended
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31, 2017 Sept. 30, 2017 Jun. 30,
2017
 Mar. 31,
2017
 Dec. 31, 2016 Sept. 30, 2016
Sales and marketing expenses$5,702  $5,938  $5,781  $4,862  $4,372  $4,089  $3,951  $3,892 
Excluding:               
Stock-based compensation expense(349) (273) (172) (165) (198) (187) (113) (172)
Acquisition cost5,353  5,665  5,609  4,697  4,174  3,902  3,838  3,720 
Net of:               
Sign-up fee revenue(624) (616) (550) (558) (517) (544) (526) (525)
Other business segment sales and marketing expense(88) (87) (56) (51) (63) (48) (62) (63)
Net acquisition cost$4,641  $4,962  $5,003  $4,088  $3,594  $3,310  $3,250  $3,132 
                


The following tables reflect the reconciliation of adjusted EBITDA to net (loss) income (in thousands):
                
 Six Months Ended            
 June 30,            
 2018 2017            
Net loss$(1,857) $(1,071)            
Excluding:               
Stock-based compensation expense2,254  1,669             
Depreciation and amortization expense1,891  2,113             
Interest income(311) (127)            
Interest expense551  246             
Income tax (benefit) expense(4) 28             
Gain from equity method investment(107) (1,029)            
Adjusted EBITDA$2,417  $1,829             
                
 Three Months Ended
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31, 2017 Sept. 30, 2017 Jun. 30,
2017
 Mar. 31,
2017
 Dec. 31, 2016 Sept. 30, 2016
Net (loss) income$(377) $(1,480) $(838) $406  $411  $(1,482) $(1,723) $(1,637)
Excluding:               
Stock-based compensation expense1,286  968  855  895  888  781  731  776 
Depreciation and amortization expense964  927  1,024  1,095  1,077  1,036  1,229  1,093 
Interest income(179) (132) (3) (97) (76) (51) (41) (29)
Interest expense332  219  163  124  109  137  81  66 
Income tax expense (benefit)91  (95) (482) 26  4  24  7  13 
(Gain) loss from equity method investment(107)       (1,036) 7  18  22 
Adjusted EBITDA$2,010  $407  $719  $2,449  $1,377  $452  $302  $304 
                


 
The following tables reflect the reconciliation of net loss, excluding gain on sale of equity method investment, to net (loss) income, and basic and diluted earnings per share, excluding gain on sale of equity method investment, to basic and diluted earnings per share (in thousands, except share data): 
         
 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2018 2017 2018 2017 
Net (loss) income$(377) $411  $(1,857) $(1,071) 
Excluding:        
Gain on sale of equity method investment  (1,036)   (1,036) 
Net loss, excluding gain on sale of equity method investment$(377) $(625) $(1,857) $(2,107) 
         
 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2018 2017 2018 2017 
Basic and diluted earnings per share$(0.01) $0.01  $(0.06) $(0.04) 
Excluding:        
Gain on sale of equity method investment  (0.03)   (0.03) 
Basic and diluted earnings per share, excluding gain on sale of equity method investment$(0.01) $(0.02) $(0.06) $(0.07) 
         
Basic weighted average common shares outstanding30,721,037  29,510,907  30,485,121  29,383,502  
Diluted weighted average common shares outstanding30,721,037  32,734,624  30,485,121  29,383,502  
             

Contacts

Investors:
Laura Bainbridge, Addo Investor Relations
310.829.5400
InvestorRelations@trupanion.com

Media:
Scott Janzen, Trupanion Director of Communications
888.612.1138 ext 3450
scott.janzen@trupanion.com

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