Trupanion Reports First Quarter 2019 Results

SEATTLE, May 02, 2019 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the first quarter ended March 31, 2019.

“We executed consistently across our business in the first quarter,” said Darryl Rawlings, Founder and CEO of Trupanion. “We invested more capital at strong estimated internal rates of return and advanced several initiatives that are expected to position us well over the long term.”

First Quarter 2019 Financial and Business Highlights

  • Total revenue was $87.0 million, an increase of 25% compared to the first quarter of 2018.
  • Total enrolled pets (including pets from our other business segment) was 548,002 at March 31, 2019, an increase of 23% over March 31, 2018.
  • Subscription business revenue was $74.2 million, an increase of 21% compared to the first quarter of 2018.
  • Subscription enrolled pets was 445,148 at March 31, 2019, an increase of 15% over March 31, 2018.
  • Net loss was $(1.3) million, or $(0.04) per basic and diluted share, compared to a net loss of $(1.5) million, or $(0.05) per basic and diluted share, in the first quarter of 2018.
  • Adjusted EBITDA was $1.7 million, compared to adjusted EBITDA of $0.4 million in the first quarter of 2018.
  • Operating cash flow was $4.0 million and free cash flow was $3.1 million for the first quarter of 2019. This compared to operating cash flow of $2.1 million and free cash flow of $1.1 million in the first quarter of 2018.

Revenue by Quarter
http://www.globenewswire.com/NewsRoom/AttachmentNg/3587d2dd-1d71-4968-bbec-ce2da9ce29eb

Conference Call
Trupanion’s management will host a conference call today to review its first quarter 2019 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: 13689741.

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, 2018 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 March 31, 
 2019 2018 
 (unaudited) 
Revenue:    
Subscription business$74,222  $61,517  
Other business12,756  8,243  
Total revenue86,978  69,760  
Cost of revenue:    
Subscription business(1)60,387  51,014  
Other business11,559  7,682  
  Total cost of revenue(2)71,946  58,696  
Gross profit:    
Subscription business13,835  10,503  
Other business1,197  561  
Total gross profit15,032  11,064  
Operating expenses:    
Technology and development(1)2,669  2,164  
General and administrative(1)5,419  4,458  
Sales and marketing(1)8,227  5,938  
Total operating expenses16,315  12,560  
Operating loss(1,283) (1,496) 
Interest expense317  219  
Other income, net(344) (140) 
Loss before income taxes(1,256) (1,575) 
Income tax expense (benefit)40  (95) 
Net loss$(1,296) $(1,480) 
     
Net loss per share:    
  Basic and Diluted$(0.04) $(0.05) 
Weighted average common shares outstanding:    
Basic and Diluted34,292,367  30,246,585  
     
(1)Includes stock-based compensation expense as follows:Three Months Ended March 31, 
 
 2019 2018 
Cost of revenue$247  $197  
Technology and development63  49  
General and administrative618  449  
Sales and marketing429  273  
Total stock-based compensation expense$1,357  $968  
     
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows: 
 Three Months Ended March 31, 
 2019 2018 
Veterinary invoice expense$61,282  $50,113  
Other cost of revenue10,664  8,583  
  Total cost of revenue$71,946  $58,696  


Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
 March 31, 2019 December 31, 2018
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$26,622  $26,552 
Short-term investments61,648  54,559 
Accounts and other receivables37,568  31,565 
Prepaid expenses and other assets4,847  5,300 
Total current assets130,685  117,976 
Restricted cash1,400  1,400 
Long-term investments, at fair value3,701  3,554 
Property and equipment, net69,365  69,803 
Intangible assets, net7,839  8,071 
Other long-term assets8,315  6,706 
Total assets$221,305  $207,510 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$2,897  $2,767 
Accrued liabilities and other current liabilities12,059  11,347 
Reserve for veterinary invoices17,175  16,062 
Deferred revenue38,594  33,027 
Total current liabilities70,725  63,203 
Long-term debt18,078  12,862 
Deferred tax liabilities1,002  1,002 
Other liabilities1,491  1,270 
Total liabilities91,296  78,337 
Stockholders’ equity:   
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 35,397,330 and 34,467,465 shares
issued and outstanding at March 31, 2019; 34,781,121 and 34,025,136 shares issued and outstanding at December 31, 2018
   
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding   
Additional paid-in capital226,262  219,838 
Accumulated other comprehensive loss(545) (753)
Accumulated deficit(85,007) (83,711)
Treasury stock, at cost: 929,865 shares at March 31, 2019 and 755,985 shares at December 31, 2018(10,701) (6,201)
Total stockholders’ equity130,009  129,173 
Total liabilities and stockholders’ equity$221,305  $207,510 


Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 Three Months Ended March 31,
 2019 2018
 (unaudited)
Operating activities   
Net loss$(1,296) $(1,480)
Adjustments to reconcile net loss to cash provided by operating activities:   
Depreciation and amortization1,613  927 
Stock-based compensation expense1,357  968 
Other, net(3) 23 
Changes in operating assets and liabilities:   
Accounts and other receivables(5,894) (3,926)
Prepaid expenses and other assets325  (129)
Accounts payable, accrued liabilities, and other liabilities1,256  910 
Reserve for veterinary invoices1,078  743 
Deferred revenue5,523  4,041 
Net cash provided by operating activities3,959  2,077 
Investing activities   
Purchases of investment securities(17,350) (7,140)
Maturities of investment securities10,205  5,300 
Purchases of property, equipment and intangible assets(878) (992)
Other(1,479)  
Net cash used in investing activities(9,502) (2,832)
Financing activities   
Proceeds from exercise of stock options661  481 
Shares withheld to satisfy tax withholding(197)  
Proceeds from debt financing, net of financing fees5,200  5,500 
Other financing(271) (216)
Net cash provided by financing activities5,393  5,765 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net220  70 
Net change in cash, cash equivalents, and restricted cash70  5,080 
Cash, cash equivalents, and restricted cash at beginning of period27,952  26,306 
Cash, cash equivalents, and restricted cash at end of period$28,022  $31,386 


The following table sets forth our key operating metrics:
                
 Three Months Ended
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
Total pets enrolled (at period end)548,002  521,326  497,942  472,480  446,533  423,194  404,069  383,293 
Total subscription pets enrolled (at period end)445,148  430,770  416,527  401,033  385,640  371,683  359,102  346,409 
Monthly average revenue per pet$56.13  $55.15  $54.55  $53.96  $53.62  $53.17  $52.95  $51.47 
Lifetime value of a pet (LVP)$724  $710  $714  $732  $727  $727  $701  $654 
Average pet acquisition cost (PAC)$205  $186  $155  $150  $165  $184  $151  $143 
Average monthly retention98.58% 98.60% 98.61% 98.64% 98.63% 98.63% 98.61% 98.57%
                


The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
    
 Three Months Ended March 31,
 2019 2018
Net cash provided by operating activities$3,959  $2,077 
Purchases of property and equipment(878) (992)
Free cash flow$3,081  $1,085 


The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
     
  Three Months Ended March 31,
  2019 2018
Veterinary invoice expense $61,282  $50,113 
Stock-based compensation expense (161) (120)
Cost of goods $61,121  $49,993 
% of revenue 70.3% 71.7%
     
Other cost of revenue $10,664  $8,583 
Stock-based compensation expense (86) (77)
Variable expenses $10,578  $8,506 
% of revenue 12.2% 12.2%
     
Subscription gross profit $13,835  $10,503 
Stock-based compensation expense 247  197 
Non-GAAP subscription gross profit $14,082  $10,700 
% of subscription revenue 19.0% 17.4%
     
Gross profit $15,032  $11,064 
Stock-based compensation expense 247  197 
Non-GAAP gross profit $15,279  $11,261 
% of revenue 17.6% 16.1%
     
Technology and development expense $2,669  $2,164 
General and administrative expense 5,419  4,458 
Depreciation and amortization expense (1,613) (927)
Stock-based compensation expense (681) (498)
Fixed expenses $5,794  $5,197 
% of revenue 6.7% 7.4%
     
Sales and marketing expense $8,227  $5,938 
Stock-based compensation expense (429) (273)
Acquisition cost $7,798  $5,665 
% of revenue 9.0% 8.1%


The following table reflects the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                
 Three Months Ended
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
Sales and marketing expenses$8,227  $6,994  $6,365  $5,702  $5,938  $5,781  $4,862  $4,372 
Excluding:               
Stock-based compensation expense(429) (355) (358) (349) (273) (172) (165) (198)
Acquisition cost7,798  6,639  6,007  5,353  5,665  5,609  4,697  4,174 
Net of:               
Sign-up fee revenue(703) (655) (693) (624) (616) (550) (558) (517)
Other business segment sales and marketing expense(130) (102) (99) (88) (87) (56) (51) (63)
Net acquisition cost$6,965  $5,882  $5,215  $4,641  $4,962  $5,003  $4,088  $3,594 
                


The following table reflects the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                
 Three Months Ended
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
Net (loss) income$(1,296) $(275) $1,205  $(377) $(1,480) $(838) $406  $411 
Excluding:               
Stock-based compensation expense1,357  1,222  1,299  1,286  968  855  895  888 
Depreciation and amortization expense1,613  1,485  1,136  964  927  1,024  1,095  1,077 
Interest income(342) (234) (317) (179) (132) (3) (97) (76)
Interest expense317  311  336  332  219  163  124  109 
Income tax expense (benefit) expense40  4  (7) 91  (95) (482) 26  4 
(Gain) loss from equity method investment      (107)       (1,036)
Adjusted EBITDA$1,689  $2,513  $3,652  $2,010  $407  $719  $2,449  $1,377 
                

Contacts:

Investors:
Laura Bainbridge, Head of Investor Relations
206.607.1929
InvestorRelations@trupanion.com

 

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