Trupanion Reports Second Quarter 2019 Results

SEATTLE, July 30, 2019 (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, 2019.

“It was another consistent quarter, with solid growth in revenue and scaling fixed expenses translating into greater investable funds,” said Darryl Rawlings, Founder and CEO of Trupanion. “While initiatives around same store sales and conversion comprise the bulk of our incremental spend, we also continue to increase our investment in retention and longer-term initiatives.”

Second Quarter 2019 Financial and Business Highlights

  • Total revenue was $92.2 million, an increase of 26% compared to the second quarter of 2018.
  • Total enrolled pets (including pets from our other business segment) was 577,686 at June 30, 2019, an increase of 22% over June 30, 2018.
  • Subscription business revenue was $77.7 million, an increase of 22% compared to the second quarter of 2018.
  • Subscription enrolled pets was 461,314 at June 30, 2019, an increase of 15% over June 30, 2018.
  • Net loss was $(1.9) million, or $(0.06) per basic and diluted share, compared to a net loss of $(0.4) million, or $(0.01) per basic and diluted share, in the second quarter of 2018.
  • Adjusted EBITDA was $1.3 million, compared to adjusted EBITDA of $2.0 million in the second quarter of 2018.
  • Operating cash flow was $2.9 million and free cash flow was $2.0 million for the second quarter of 2019. This compared to operating cash flow of $(0.5) million and free cash flow of $1.4 million, which excludes an earnest money deposit of $3.3 million related to our home office acquisition, in the second quarter of 2018.

First Half 2019 Financial and Business Highlights

  • Total revenue was $179.2 million, an increase of 25% compared to the first half of 2018.
  • Subscription business revenue was $152.0 million, an increase of 21% compared to the first half of 2018.
  • Net loss was $(3.2) million, or $(0.09) per basic and diluted share, compared to a net loss of $(1.9) million, or $(0.06) per basic and diluted share, in the first half of 2018.
  • Adjusted EBITDA was $3.0 million, compared to adjusted EBITDA of $2.4 million in the first half of 2018.
  • Operating cash flow was $6.9 million and free cash flow was $5.1 million for the first half of 2019. This compared to operating cash flow of $1.6 million and free cash flow of $2.5 million, which excludes an earnest money deposit of $3.3 million related to our home office acquisition, in the second quarter of 2018. 

Revenue by Quarter
A chart accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/20e2bf9f-ab69-4483-88da-c1acb791cb12

Conference Call
Trupanion’s management will host a conference call today to review its second 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: 13692316.

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 June 30, Six Months Ended June 30, 
 2019 2018 2019 2018 
         
 (unaudited) 
Revenue:        
Subscription business$77,736  $63,867  $151,958  $125,384  
Other business14,463  9,525  27,219  17,768  
Total revenue92,199  73,392  179,177  143,152  
Cost of revenue:        
Subscription business(1)64,264  52,333  124,651  103,347  
Other business13,222  8,706  24,781  16,388  
  Total cost of revenue(2)77,486  61,039  149,432  119,735  
Gross profit:        
Subscription business13,472  11,534  27,307  22,037  
Other business1,241  819  2,438  1,380  
Total gross profit14,713  12,353  29,745  23,417  
Operating expenses:        
Technology and development(1)2,578  2,298  5,247  4,462  
General and administrative(1)5,219  4,610  10,638  9,068  
Sales and marketing(1)8,757  5,702  16,984  11,640  
Total operating expenses16,554  12,610  32,869  25,170  
Gain (loss) from investment in joint venture(272)   (272)   
Operating loss(2,113) (257) (3,396) (1,753) 
Interest expense317  332  634  551  
Other income, net(453) (303) (797) (443) 
Loss before income taxes(1,977) (286) (3,233) (1,861) 
Income tax (benefit) expense(46) 91  (6) (4) 
Net loss$(1,931) $(377) $(3,227) $(1,857) 
         
Net loss per share        
  Basic and Diluted$(0.06) $(0.01) $(0.09) $(0.06) 
Weighted average common shares outstanding:        
Basic and Diluted34,610,709  30,721,037  34,450,070  30,485,121  
         
(1)Includes stock-based compensation expense as follows:    
 Three Months Ended June 30, Six Months Ended June 30, 
  
 2019 2018 2019 2018 
Cost of revenue$278  $252  $525  $449  
Technology and development110  60  173  109  
General and administrative918  625  1,536  1,074  
Sales and marketing567  349  996  622  
Total stock-based compensation expense$1,873  $1,286  $3,230  $2,254  
         
(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, 
 2019 2018 2019 2018 
Veterinary invoice expense$65,933  $51,780  $127,215  $101,893  
Other cost of revenue11,553  9,259  22,217  17,842  
  Total cost of revenue$77,486  $61,039  $149,432  $119,735  


Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
 
 June 30, 2019 December 31, 2018
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$27,379  $26,552 
Short-term investments64,712  54,559 
Accounts and other receivables43,550  31,565 
Prepaid expenses and other assets4,322  5,300 
Total current assets139,963  117,976 
Restricted cash1,400  1,400 
Long-term investments, at fair value3,891  3,554 
Property and equipment, net69,371  69,803 
Intangible assets, net7,631  8,071 
Other long-term assets8,208  6,706 
Total assets$230,464  $207,510 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$2,117  $2,767 
Accrued liabilities and other current liabilities13,390  11,347 
Reserve for veterinary invoices18,280  16,062 
Deferred revenue44,086  33,027 
Total current liabilities77,873  63,203 
Long-term debt19,056  12,862 
Deferred tax liabilities1,014  1,002 
Other liabilities1,498  1,270 
Total liabilities99,441  78,337 
Stockholders’ equity:   
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 35,712,189
and 34,782,324 shares issued and outstanding at June 30, 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 capital229,069  219,838 
Accumulated other comprehensive loss(407) (753)
Accumulated deficit(86,938) (83,711)
Treasury stock, at cost: 929,865 shares at June 30, 2019 and 755,985 shares at
December 31, 2018
(10,701) (6,201)
Total stockholders’ equity131,023  129,173 
Total liabilities and stockholders’ equity$230,464  $207,510 


Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
        
 (unaudited)
Operating activities       
Net loss$(1,931) $(377) $(3,227) $(1,857)
Adjustments to reconcile net loss to cash provided by operating
activities:
       
Depreciation and amortization1,564  964  3,177  1,891 
Stock-based compensation expense1,873  1,286  3,230  2,254 
Other, net100  15  97  38 
Changes in operating assets and liabilities:       
Accounts and other receivables(6,046) (4,242) (11,940) (8,168)
Prepaid expenses and other assets664  (3,939) 989  (4,068)
Accounts payable, accrued liabilities, and other liabilities187  1,657  1,443  2,567 
Reserve for veterinary invoices1,067  550  2,145  1,293 
Deferred revenue5,444  3,620  10,967  7,661 
Net cash provided by (used in) operating activities2,922  (466) 6,881  1,611 
Investing activities       
Purchases of investment securities(14,872) (13,246) (32,222) (20,386)
Maturities of investment securities11,690  9,715  21,895  15,015 
Purchases of property, equipment and intangible assets(902) (1,378) (1,780) (2,370)
Other5  113  (1,474) 113 
Net cash used in investing activities(4,079) (4,796) (13,581) (7,628)
Financing activities       
Proceeds from public offering of common stock, net of offering costs  65,886    65,886 
Proceeds from exercise of stock options965  1,175  1,626  1,656 
Shares withheld to satisfy tax withholding(50)   (247)  
Proceeds from debt financing, net of financing fees967  3,750  6,167  9,250 
Other financing(144) 160  (415) (56)
Net cash provided by financing activities1,738  70,971  7,131  76,736 
Effect of foreign exchange rate changes on cash, cash equivalents,
and restricted cash, net
176  (271) 396  (201)
Net change in cash, cash equivalents, and restricted cash757  65,438  827  70,518 
Cash, cash equivalents, and restricted cash at beginning of period28,022  31,386  27,952  26,306 
Cash, cash equivalents, and restricted cash at end of period$28,779  $96,824  $28,779  $96,824 


The following tables set forth our key operating metrics:
                
 Six Months Ended
June 30,
            
             
 2019 2018            
Total pets enrolled (at period end)577,686   472,480              
Total subscription pets
enrolled (at period end)
461,314   401,033              
Monthly average revenue per pet$56.63   $53.79              
Lifetime value of a pet (LVP)$722   $732              
Average pet acquisition cost (PAC)$209   $158              
Average monthly retention 98.57%  98.64%             
                  
                
                
 Three Months Ended
 Jun. 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
Total pets enrolled (at period end)577,686   548,002   521,326  497,942  472,480  446,533  423,194  404,069 
Total subscription pets enrolled (at period end)461,314   445,148   430,770  416,527  401,033  385,640  371,683  359,102 
Monthly average revenue per pet$57.11   $56.13   $55.15  $54.55  $53.96  $53.62  $53.17  $52.95 
Lifetime value of a pet (LVP)$722   $724   $710  $714  $732  $727  $727  $701 
Average pet acquisition cost (PAC)$213   $205   $186  $155  $150  $165  $184  $151 
Average monthly retention98.57  98.58  98.6% 98.61% 98.64% 98.63% 98.63% 98.61%
                        
 

 
               

The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):

        
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Net cash provided by (used in) operating activities$2,922  $(466) $6,881  $1,611 
Purchases of property and equipment(902) (1,378) (1,780) (2,370)
Free cash flow$2,020  $(1,844) $5,101  $(759)
Exclude earnest money deposit for building purchase  3,250    3,250 
Free cash flow, excluding earnest money deposit for
building purchase
$2,020  $1,406  $5,101  $2,491 


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,
  2019 2018 2019 2018
Veterinary invoice expense $65,933  $51,780  $127,215  $101,893 
Stock-based compensation expense (185) (148) (346) (268)
Cost of goods $65,748  $51,632  $126,869  $101,625 
% of revenue 71.3% 70.4% 70.8% 71.0%
         
Other cost of revenue $11,553  $9,259  $22,217  $17,842 
Stock-based compensation expense (93) (104) (179) (181)
Variable expenses $11,460  $9,155  $22,038  $17,661 
% of revenue 12.4% 12.5% 12.3% 12.3%
         
Subscription gross profit $13,472  $11,534  $27,307  $22,037 
Stock-based compensation expense 278  252  525  449 
Non-GAAP subscription gross profit $13,750  $11,786  $27,832  $22,486 
% of subscription revenue 17.7% 18.5% 18.3% 17.9%
         
Gross profit $14,713  $12,353  $29,745  $23,417 
Stock-based compensation expense 278  252  525  449 
Non-GAAP gross profit $14,991  $12,605  $30,270  $23,866 
% of revenue 16.3% 17.2% 16.9% 16.7%
         
Technology and development expense $2,578  $2,298  $5,247  $4,462 
General and administrative expense 5,219  4,610  10,638  9,068 
Depreciation and amortization expense (1,564) (964) (3,177) (1,891)
Stock-based compensation expense (1,028) (685) (1,709) (1,183)
Fixed expenses $5,205  $5,259  $10,999  $10,456 
% of revenue 5.6% 7.2% 6.1% 7.3%
         
Sales and marketing expense $8,757  $5,702  $16,984  $11,640 
Stock-based compensation expense (567) (349) (996) (622)
Acquisition cost $8,190  $5,353  $15,988  $11,018 
% of revenue 8.9% 7.3% 8.9% 7.7%


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,
            
             
 2019 2018            
Sales and marketing
expenses
$16,984  $11,640             
Excluding:               
Stock-based
compensation expense
(996) (622)            
Acquisition cost15,988  11,018             
Net of:               
Sign-up fee revenue(1,437) (1,240)            
Other business segment
sales and marketing
expense
(168) (175)            
Net acquisition cost$14,383  $9,603             
                
 Three Months Ended
 Jun. 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
Sales and marketing
expenses
$8,757  $8,227  $6,994  $6,365  $5,702  $5,938  $5,781  $4,862 
Excluding:               
Stock-based
compensation expense
(567) (429) (355) (358) (349) (273) (172) (165)
Acquisition cost8,190  7,798  6,639  6,007  5,353  5,665  5,609  4,697 
Net of:               
Sign-up fee revenue(734) (703) (655) (693) (624) (616) (550) (558)
Other business segment
sales and marketing
expense
(38) (130) (102) (99) (88) (87) (56) (51)
Net acquisition cost$7,418  $6,965  $5,882  $5,215  $4,641  $4,962  $5,003  $4,088 
                


The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                
 Six Months Ended
June 30,
            
             
 2019 2018            
Net loss$(3,227) $(1,857)            
Excluding:               
Stock-based
compensation expense
3,230  2,254             
Depreciation and
amortization expense
3,177  1,891             
Interest income(754) (311)            
Interest expense634  551             
Other non-operating expenses101               
Income tax benefit(6) (4)            
Gain from equity
method investment
(125) (107)            
Adjusted EBITDA$3,030  $2,417             
                
 Three Months Ended
 Jun. 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
Net (loss) income$(1,931) $(1,296) $(275) $1,205  $(377) $(1,480) $(838) $406 
Excluding:               
Stock-based
compensation expense
1,873  1,357  1,222  1,299  1,286  968  855  895 
Depreciation and
amortization expense
1,564  1,613  1,485  1,136  964  927  1,024  1,095 
Interest income(412) (342) (234) (317) (179) (132) (3) (97)
Interest expense317  317  311  336  332  219  163  124 
Other non-operating expenses101               
Income tax (benefit)
expense
(46) 40  4  (7) 91  (95) (482) 26 
Gain from equity
method investment
(125)       (107)      
Adjusted EBITDA$1,341  $1,689  $2,513  $3,652  $2,010  $407  $719  $2,449 
                


Contacts
:

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

Revenue by Quarter

Total Revenue by New vs. Existing Pets
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