Trupanion Reports Fourth Quarter and Full Year 2018 Results

SEATTLE, Feb. 13, 2019 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the fourth quarter and full year ended December 31, 2018.

“2018 was another year of steady growth and progress at Trupanion.  We grew revenue by 25% year-over-year, expanded the funds available to us to invest in pet acquisition, and deployed that capital at our targeted internal rates of return,” said Darryl Rawlings, Founder and CEO of Trupanion. “We also moved the ball forward on our five strategic initiatives. The work we’ve done sets us up well for 2019.”

Full Year 2018 Financial and Business Highlights

  • Total revenue was $304.0 million, an increase of 25% compared to 2017.
  • Total enrolled pets (including pets from our other business segment) was 521,326 at December 31, 2018, an increase of 23% over December 31, 2017.
  • Subscription business revenue was $263.7 million, an increase of 21% compared to 2017.
  • Subscription enrolled pets was 430,770 at December 31, 2018, an increase of 16% over December 31, 2017.
  • Net loss was $(0.9) million, or $(0.03) per basic and diluted share, compared to a net loss of $(1.5) million, or $(0.05) per basic and diluted share, in 2017. Adjusted EBITDA was $8.6 million, compared to adjusted EBITDA of $5.0 million in 2017.
  • Operating cash flow was $12.7 million and free cash flow was ($44.3) million for 2018. Excluding the cash outflow of $52.5 million related to the purchase of our headquarters building, which closed in the third quarter of 2018, free cash flow was $8.3 million. This compared to operating cash flow of $9.7 million and free cash flow of $6.5 million in 2017.

Fourth Quarter 2018 Financial and Business Highlights

  • Total revenue was $82.6 million, an increase of 24% compared to the fourth quarter of 2017.
  • Subscription business revenue was $70.9 million, an increase of 20% compared to the fourth quarter of 2017.
  • Net loss was $(0.3) million, or $(0.01) per basic and diluted share, compared to a net loss of $(0.8) million, or $(0.03) per basic and diluted share, in the fourth quarter of 2017.  Adjusted EBITDA was $2.5 million, compared to adjusted EBITDA of $0.7 million in the fourth quarter of 2017.
  • Operating cash flow was $3.7 million and free cash flow was $2.6 million, compared to operating cash flow of $3.0 million and free cash flow of $2.1 million in the fourth quarter of 2017.

Revenue by Quarter
http://resource.globenewswire.com/Resource/Download/b52e38af-25e8-4d75-ba5d-7d4b41f29700

Conference Call
Trupanion’s management will host a conference call today to review its fourth quarter and full year 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: 13686650.

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 the Canadian currency exchange rate; the ability to protect our proprietary and member information; the ability to maintain our culture and team; 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; the ability to recognize benefits from investments in new solutions and enhancements to Trupanion’s technology platform and website; and our ability to retain key personnel.

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
December 31,
 Year Ended
December 31,
 
 2018 2017 2018 2017 
 (unaudited)     
Revenue:        
Subscription business$70,933  $58,991  $263,738  $218,354  
Other business 11,707   7,554   40,218   24,313  
Total revenue82,640  66,545  303,956  242,667  
Cost of revenue:        
Subscription business(1)57,892  47,831  215,992  176,883  
Other business10,543  6,977  36,598  22,734  
Total cost of revenue(2)68,435  54,808  252,590  199,617  
Gross profit:        
Subscription business13,041  11,160  47,746  41,471  
Other business1,164  577  3,620  1,579  
Total gross profit14,205  11,737  51,366  43,050  
Operating expenses:        
Technology and development(1)2,487  2,572  9,248  9,768  
General and administrative(1)4,922  4,546  18,164  16,820  
Sales and marketing(1)6,994  5,781  24,999  19,104  
Total operating expenses14,403  12,899  52,411  45,692  
Operating loss(198) (1,162) (1,045) (2,642) 
Interest expense311  163  1,198  533  
Other income, net(238) (5) (1,309) (1,244) 
Loss before income taxes(271) (1,320) (934) (1,931) 
Income tax expense (benefit)4  (482) (7) (428) 
Net loss$(275) $(838) $(927) $(1,503) 
         
Net loss per share:        
   Basic and Diluted$(0.01) $(0.03) $(0.03) $(0.05) 
Weighted average common shares outstanding:        
Basic and Diluted33,716,975  29,847,574  31,961,192  29,588,324  
         
(1)Includes stock-based compensation expense as follows:Three Months Ended
December 31,
 Year Ended
December 31,
 
 2018 2017 2018 2017 
Cost of revenue$230  $162  $927  $594  
Technology and development42  50  209  216  
General and administrative595  471  2,304  1,887  
Sales and marketing355  172  1,335  722  
Total stock-based compensation expense$1,222  $855  $4,775  $3,419  
         
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows: 
 Three Months Ended
December 31,
 Year Ended
December 31,
 
 2018 2017 2018 2017 
Veterinary invoice expense$58,343  $46,473  $214,539  $170,122  
Other cost of revenue10,092  8,335  38,051  29,495  
  Total cost of revenue$68,435  $54,808  $252,590  $199,617  


Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
 December 31, 2018 December 31, 2017
    
Assets   
Current assets:   
Cash and cash equivalents$26,552  $25,706 
Short-term investments54,559  37,590 
Accounts and other receivables31,565  20,367 
Prepaid expenses and other assets5,300  2,895 
Total current assets117,976  86,558 
Restricted cash1,400  600 
Long-term investments, at fair value3,554  3,237 
Property and equipment, net69,803  7,868 
Intangible assets, net8,071  4,972 
Other long-term assets6,706  2,624 
Total assets$207,510  $105,859 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$2,767  $2,716 
Accrued liabilities and other current liabilities11,347  7,660 
Reserve for veterinary invoices16,062  12,756 
Deferred revenue33,027  22,734 
Total current liabilities63,203  45,866 
Long-term debt12,862  9,324 
Deferred tax liabilities1,002  1,002 
Other liabilities1,270  1,233 
Total liabilities78,337  57,425 
Stockholders’ equity:   
Common stock: $0.00001 par value per share, 100,000,000 shares authorized at December 31, 2018 and December 31, 2017, 34,781,121 and 34,025,136 shares issued and outstanding at December 31, 2018; 30,778,796 and 30,121,496 shares issued and outstanding at December 31, 2017   
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized at December 31, 2018 and December 31, 2017, and 0 shares issued and outstanding at December 31, 2018 and December 31, 2017   
Additional paid-in capital219,838  134,511 
Accumulated other comprehensive loss(753) (92)
Accumulated deficit(83,711) (82,784)
Treasury stock, at cost: 755,985 shares at December 31, 2018 and 657,300 shares at December 31, 2017(6,201) (3,201)
Total stockholders’ equity129,173  48,434 
Total liabilities and stockholders’ equity$207,510  $105,859 


Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 Three Months Ended
December 31,
 Year Ended December 31,
 2018 2017 2018 2017
 (unaudited)    
Operating activities       
Net loss$(275) $(838) $(927) $(1,503)
Adjustments to reconcile net loss to cash provided by operating activities:       
Depreciation and amortization1,486  1,024  4,512  4,232 
Stock-based compensation expense1,222  855  4,775  3,419 
Gain on sale of equity method investment      (1,036)
Other, net(5) (626) (240) (383)
Changes in operating assets and liabilities:       
Accounts and other receivables344  (55) (11,248) (10,219)
Prepaid expenses and other assets(2,079) 118  (2,628) (179)
Accounts payable, accrued liabilities, and other liabilities682  897  4,531  3,019 
Reserve for veterinary invoices1,956  1,510  3,440  3,149 
Deferred revenue332  92  10,465  9,167 
Net cash provided by operating activities3,663  2,977  12,680  9,666 
Investing activities       
Purchases of fixed maturity investment securities(23,295) (11,216) (52,862) (31,920)
Maturities of fixed maturity investment securities8,008  7,494  35,413  23,372 
Purchases of other investments    (3,000)  
Acquisition of lease intangibles, related to corporate real estate acquisition    (2,959)  
Proceeds from sale of equity method investment      1,402 
Purchases of property and equipment(1,080) (884) (56,936) (3,131)
Other(255) (17) (1,107) (2,779)
Net cash used in investing activities(16,622) (4,623) (81,451) (13,056)
Financing activities       
Proceeds from public offering of common stock, net of offering costs    65,671   
Proceeds from exercise of stock options729  463  3,601  2,545 
Shares withheld to satisfy tax withholding    (1,839) (1,170)
Proceeds from debt financing, net of financing fees4,242  1,980  13,431  4,400 
Repayment of debt financing    (10,000)  
Other financing581  (282) 365  (694)
Net cash provided by financing activities5,552  2,161  71,229  5,081 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net(718) (58) (812) 378 
Net change in cash, cash equivalents, and restricted cash(8,125) 457  1,646  2,069 
Cash, cash equivalents, and restricted cash at beginning of period36,077  25,849  26,306  24,237 
Cash, cash equivalents, and restricted cash at end of period$27,952  $26,306  $27,952  $26,306 


The following tables set forth our key operating metrics:
                
 Year Ended
December 31,
            
             
 2018 2017            
Total pets enrolled (at period end)521,326  423,194             
Total subscription pets enrolled (at period end)430,770  371,683             
Monthly average revenue per pet$54.34  $52.07             
Lifetime value of a pet (LVP)$710  $727             
Average pet acquisition cost (PAC)$164  $152             
Average monthly retention98.60% 98.63%            
                
                
 Three Months Ended
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
 Mar. 31,
2017
Total pets enrolled (at period end)521,326  497,942  472,480  446,533  423,194  404,069  383,293  364,259 
Total subscription pets enrolled (at period end)430,770  416,527  401,033  385,640  371,683  359,102  346,409  334,909 
Monthly average revenue per pet$55.15  $54.55  $53.96  $53.62  $53.17  $52.95  $51.47  $50.50 
Lifetime value of a pet (LVP)$710  $714  $732  $727  $727  $701  $654  $637 
Average pet acquisition cost (PAC)$186  $155  $150  $165  $184  $151  $143  $128 
Average monthly retention98.60% 98.61% 98.64% 98.63% 98.63% 98.61% 98.57% 98.58%
                


The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
        
 Three Months Ended
December 31,
 Year Ended
December 31,
 2018 2017 2018 2017
Net cash provided by operating activities$3,663  $2,977  $12,680  $9,666 
Purchases of property and equipment(1,080) (884) (56,936) (3,131)
Free cash flow$2,583  $2,093  $(44,256) $6,535 
Exclude building purchase, net of acquired lease intangibles    52,534   
Free cash flow, excluding building purchase, net of acquired lease intangibles$2,583  $2,093  $8,278  $6,535 


The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
         
  Three Months Ended
December 31,
 Year Ended
December 31,
  2018 2017 2018 2017
Veterinary invoice expense $58,343  $46,473  $214,539  $170,122 
Stock-based compensation expense (150) (95) (571) (355)
Cost of goods $58,193  $46,378  $213,968  $169,767 
% of revenue 70.4% 69.7% 70.4% 70.0%
         
Other cost of revenue $10,092  $8,335  $38,051  $29,495 
Stock-based compensation expense (79) (67) (356) (239)
Variable expenses $10,013  $8,268  $37,695  $29,256 
% of revenue 12.1% 12.4% 12.4% 12.1%
         
Subscription gross profit $13,041  $11,160  $47,746  $41,471 
Stock-based compensation expense 229  162  927  594 
Non-GAAP subscription gross profit $13,270  $11,322  $48,673  $42,065 
% of subscription revenue 18.7% 19.2% 18.5% 19.3%
         
Gross profit $14,205  $11,737  $51,366  $43,050 
Stock-based compensation expense 229  162  927  594 
Non-GAAP gross profit $14,434  $11,899  $52,293  $43,644 
% of revenue 17.5% 17.9% 17.2% 18.0%
         
Technology and development expense $2,487  $2,572  $9,248  $9,768 
General and administrative expense 4,922  4,546  18,164  16,820 
Depreciation and amortization expense (1,485) (1,024) (4,512) (4,232)
Stock-based compensation expense (638) (521) (2,513) (2,103)
Fixed expenses $5,286  $5,573  $20,387  $20,253 
% of revenue 6.4% 8.4% 6.7% 8.3%
         
Sales and marketing expense $6,994  $5,781  $24,999  $19,104 
Stock-based compensation expense (355) (172) (1,335) (722)
Acquisition cost $6,639  $5,609  $23,664  $18,382 
% of revenue 8.0% 8.4% 7.8% 7.6%


The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                
 Year Ended
December 31,
            
             
 2018 2017            
Sales and marketing expenses$24,999  $19,104             
Excluding:               
Stock-based compensation expense(1,335) (722)            
Acquisition cost23,664  18,382             
Net of:               
Sign-up fee revenue(2,587) (2,169)            
Other business segment sales and marketing expense(377) (218)            
Net acquisition cost$20,700  $15,995             
                
 Three Months Ended
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
 Mar. 31,
2017
Sales and marketing expenses$6,994  $6,365  $5,702  $5,938  $5,781  $4,862  $4,372  $4,089 
Excluding:               
Stock-based compensation expense(355) (358) (349) (273) (172) (165) (198) (187)
Acquisition cost6,639  6,007  5,353  5,665  5,609  4,697  4,174  3,902 
Net of:               
Sign-up fee revenue(655) (693) (624) (616) (550) (558) (517) (544)
Other business segment sales and marketing expense(102) (99) (88) (87) (56) (51) (63) (48)
Net acquisition cost$5,882  $5,215  $4,641  $4,962  $5,003  $4,088  $3,594  $3,310 
                


The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                
 Year Ended
December 31,
            
             
 2018 2017            
Net loss$(927) $(1,503)            
Excluding:               
Stock-based compensation expense4,775  3,419             
Depreciation and amortization expense4,512  4,232             
Interest income(862) (227)            
Interest expense1,198  533             
Income tax benefit(7) (428)            
Gain from equity method investment(107) (1,029)            
Adjusted EBITDA$8,582  $4,997             
                
 Three Months Ended
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
 Mar. 31,
2017
Net income (loss)$(275) $1,205  $(377) $(1,480) $(838) $406  $411  $(1,482)
Excluding:               
Stock-based compensation expense1,222  1,299  1,286  968  855  895  888  781 
Depreciation and amortization expense1,485  1,136  964  927  1,024  1,095  1,077  1,036 
Interest income(234) (317) (179) (132) (3) (97) (76) (51)
Interest expense311  336  332  219  163  124  109  137 
Income tax expense (benefit)4  (7) 91  (95) (482) 26  4  24 
(Gain) loss from equity method investment    (107)       (1,036) 7 
Adjusted EBITDA$2,513  $3,652  $2,010  $407  $719  $2,449  $1,377  $452 
                

Contacts

Investors:
Laura Bainbridge, Investor Relations Officer
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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