Trupanion Reports Third Quarter 2019 Results

SEATTLE, Nov. 05, 2019 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the third quarter ended September 30, 2019.

“Performance in the third quarter was strong. Our subscription business benefitted from a double digit increase in lead volume and strong ARPU and retention,” said Darryl Rawlings, Founder and CEO of Trupanion. “Our solid financial position continues to provide us the opportunity to invest in areas we believe could be meaningful contributors to our long-term growth.”

Third Quarter 2019 Financial and Business Highlights

  • Total revenue was $99.3 million, an increase of 27% compared to the third quarter of 2018.
  • Total enrolled pets (including pets from our other business segment) was 613,694 at September 30, 2019, an increase of 23% over September 30, 2018.
  • Subscription business revenue was $82.6 million, an increase of 23% compared to the third quarter of 2018.
  • Subscription enrolled pets was 479,427 at September 30, 2019, an increase of 15% over September 30, 2018.
  • Net income was $0.8 million, or $0.02 per basic and diluted share, compared to net income of $1.2 million, or $0.04 per basic and $0.03 per diluted share, in the third quarter of 2018.
  • Adjusted EBITDA was $3.9 million, compared to adjusted EBITDA of $3.7 million in the third quarter of 2018.
  • Operating cash flow was $4.7 million and free cash flow was $2.9 million for the third quarter of 2019. This compared to operating cash flow of $4.2 million and free cash flow of $3.2 million, which excludes the cash outflow of $49.3 million related to the third quarter 2018 purchase of our headquarters building. 

Year-to-date 2019 Financial and Business Highlights

  • Total revenue was $278.5 million, an increase of 26% compared to the first nine months of 2018.
  • Subscription business revenue was $234.6 million, an increase of 22% compared to the first nine months of 2018.
  • Net loss was $(2.4) million, or $(0.07) per basic and diluted share, compared to a net loss of $(0.7) million, or $(0.02) per basic and diluted share, in the first nine months of 2018.
  • Adjusted EBITDA was $6.9 million, compared to adjusted EBITDA of $6.1 million in the first nine months of 2018.
  • Operating cash flow was $11.6 million and free cash flow was $8.0 million for the first nine months of 2019. This compared to operating cash flow of $9.0 million and free cash flow of $5.7 million, which excludes the cash outflow of $52.5 million related to the third quarter 2018 purchase of our headquarters building. 

Share Repurchase Program

Trupanion’s Board of Directors has adopted a share repurchase program that will allow the repurchase of up to $15 million of the Company’s common stock over the next 12 months. 

Rawlings commented, “Our capital allocation strategy is predominately focused on acquiring new pets within our targeted internal rate of return.  Our share repurchase program is representative of our philosophy to take advantage of points in time in which our share price is trading well below our estimate of intrinsic value and when we have a high degree of confidence that the rate of return on that investment will be greater than our existing pet acquisition spend.”

Any repurchase will be subject to quarterly assessments based on set parameters that include the uses of capital in a given quarter and the market price of the Company’s common stock relative to its estimate of intrinsic value.

Revenue by Quarter
A chart accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/90589b98-645b-4a60-941d-dfd3cb16fa2e

Conference Call
Trupanion’s management will host a conference call today to review its third 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 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: 13695548.

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 September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
  
 (unaudited)
Revenue:       
Subscription business$82,613  $67,421  $234,571  $192,805 
Other business 16,663   10,743   43,882   28,511 
Total revenue99,276  78,164  278,453  221,316 
Cost of revenue:       
Subscription business(1)66,770  54,753  191,421  158,100 
Other business15,061  9,667  39,842  26,055 
  Total cost of revenue(2)81,831  64,420  231,263  184,155 
Gross profit:       
Subscription business15,843  12,668  43,150  34,705 
Other business1,602  1,076  4,040  2,456 
Total gross profit17,445  13,744  47,190  37,161 
Operating expenses:       
Technology and development(1)2,271  2,299  7,518  6,761 
General and administrative(1)5,017  4,174  15,655  13,242 
Sales and marketing(1)9,255  6,365  26,239  18,005 
Total operating expenses16,543  12,838  49,412  38,008 
Gain (loss) from investment in joint venture(59)   (331)  
Operating income (loss)843  906  (2,553) (847)
Interest expense340  336  974  887 
Other income, net(297) (628) (1,094) (1,071)
Income (loss) before income taxes800  1,198  (2,433) (663)
Income tax expense (benefit)18  (7) 12  (11)
Net income (loss)$782  $1,205  $(2,445) $(652)
        
Net income (loss) per share:       
Basic$0.02  $0.04  $(0.07) $(0.02)
Diluted$0.02  $0.03  $(0.07) $(0.02)
Weighted average shares of common stock outstanding:       
Basic34,876,782  33,129,416  34,593,345  31,376,239 
Diluted36,399,136  36,385,360  34,593,345  31,376,239 
        
(1)Includes stock-based compensation expense as follows:Three Months Ended September 30,
 Nine Months Ended September 30,
 2019 2018 2019 2018
Cost of revenue$258  $249  $783  $698 
Technology and development94  58  267  167 
General and administrative916  634  2,452  1,708 
Sales and marketing577  358  1,573  980 
Total stock-based compensation expense$1,845  $1,299  $5,075  $3,553 
        
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Veterinary invoice expense$69,086  $54,303  $196,301  $156,196 
Other cost of revenue12,745  10,117  34,962  27,959 
  Total cost of revenue$81,831  $64,420  $231,263  $184,155 


 
Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
 
 September 30, 2019 December 31, 2018
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$25,027  $26,552 
Short-term investments71,424  54,559 
Accounts and other receivables50,144  31,565 
Prepaid expenses and other assets4,861  5,300 
Total current assets151,456  117,976 
Restricted cash1,400  1,400 
Long-term investments, at fair value4,102  3,554 
Property and equipment, net69,568  69,803 
Intangible assets, net7,692  8,071 
Other long-term assets8,769  6,706 
Total assets$242,987  $207,510 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$2,815  $2,767 
Accrued liabilities and other current liabilities13,555  11,347 
Reserve for veterinary invoices19,299  16,062 
Deferred revenue49,900  33,027 
Total current liabilities85,569  63,203 
Long-term debt22,071  12,862 
Deferred tax liabilities1,002  1,002 
Other liabilities1,499  1,270 
Total liabilities110,141  78,337 
Stockholders’ equity:   
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 35,865,687
and 34,935,822 shares issued and outstanding at September 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 capital230,209  219,838 
Accumulated other comprehensive loss(506) (753)
Accumulated deficit(86,156) (83,711)
Treasury stock, at cost: 929,865 shares at September 30, 2019 and 755,985 shares at
December 31, 2018
(10,701) (6,201)
Total stockholders’ equity132,846  129,173 
Total liabilities and stockholders’ equity$242,987  $207,510 


 
Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
  
 (unaudited)
Operating activities       
Net income (loss)$782  $1,205  $(2,445) $(652)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
       
Depreciation and amortization1,181  1,136  4,358  3,027 
Stock-based compensation expense1,845  1,299  5,075  3,553 
Other, net46  (275) 143  (237)
Changes in operating assets and liabilities:       
Accounts and other receivables(6,642) (3,424) (18,582) (11,592)
Prepaid expenses and other assets(714) 269  275  (549)
Accounts payable, accrued liabilities, and other liabilities1,363  1,282  2,806  3,849 
Reserve for veterinary invoices1,042  191  3,187  1,484 
Deferred revenue5,841  2,472  16,808  10,133 
Net cash provided by operating activities4,744  4,155  11,625  9,016 
Investing activities       
Purchases of investment securities(13,270) (9,181) (45,492) (29,567)
Maturities of investment securities6,329  12,390  28,224  27,405 
Purchases of other investments  (3,000)   (3,000)
Acquisition of lease intangibles, related to corporate real estate
acquisition
  (2,959)   (2,959)
Purchases of property, equipment and intangible assets(1,806) (50,236) (3,586) (55,856)
Other(463) (965) (1,937) (852)
Net cash used in investing activities(9,210) (53,951) (22,791) (64,829)
Financing activities       
Proceeds from public offering of common stock, net of offering
costs
  (196)   65,690 
Proceeds from exercise of stock options629  1,216  2,255  2,872 
Shares withheld to satisfy tax withholding(1,363) (1,839) (1,610) (1,839)
Proceeds from debt financing, net of financing fees3,000  (61) 9,167  9,189 
Repayment of debt financing  (10,000)   (10,000)
Other financing(23) (179) (438) (535)
Net cash provided by (used in) financing activities2,243  (11,059) 9,374  65,677 
Effect of foreign exchange rate changes on cash, cash equivalents,
and restricted cash, net
(129) 108  267  (93)
Net change in cash, cash equivalents, and restricted cash(2,352) (60,747) (1,525) 9,771 
Cash, cash equivalents, and restricted cash at beginning of period28,779  96,824  27,952  26,306 
Cash, cash equivalents, and restricted cash at end of period$26,427  $36,077  $26,427  $36,077 


 
The following tables set forth our key operating metrics:
                
 Nine Months Ended
September 30,

            
 2019 2018            
Total pets enrolled (at period end)613,694  497,942             
Total subscription pets enrolled (at period end)479,427  416,527             
Monthly average revenue per pet$57.14  $54.06             
Lifetime value of a pet (LVP)$749  $714             
Average pet acquisition cost (PAC)$209  $157             
Average monthly retention98.59% 98.61%            
                
                
 Three Months Ended
 Sept. 30,
2019
 Jun. 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
Total pets enrolled (at period end)613,694  577,686  548,002  521,326  497,942  472,480  446,533  423,194 
Total subscription pets enrolled (at period end)479,427  461,314  445,148  430,770  416,527  401,033  385,640  371,683 
Monthly average revenue per pet$58.12  $57.11  $56.13  $55.15  $54.55  $53.96  $53.62  $53.17 
Lifetime value of a pet (LVP)$749  $722  $724  $710  $714  $732  $727  $727 
Average pet acquisition cost (PAC)$208  $213  $205  $186  $155  $150  $165  $184 
Average monthly retention98.59% 98.57% 98.58% 98.6% 98.61% 98.64% 98.63% 98.63%
                


The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
        
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2019 2018 2019 2018
Net cash provided by operating activities$4,744  $4,155  $11,625  $9,016 
Purchases of property and equipment(1,806) (50,236) (3,586) (55,856)
Free cash flow$2,938  $(46,081) $8,039  $(46,840)
Exclude earnest money deposit for building purchase  49,284    52,534 
Free cash flow, excluding earnest money deposit for building purchase$2,938  $3,203  $8,039  $5,694 


 
The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
        
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2019 2018 2019 2018
Veterinary invoice expense$69,086  $54,303  $196,301  $156,196 
Stock-based compensation expense(169) (153) (515) (421)
Cost of goods$68,917  $54,150  $195,786  $155,775 
% of revenue69.4% 69.3% 70.3% 70.4%
        
Other cost of revenue$12,745  $10,117  $34,962  $27,959 
Stock-based compensation expense(89) (96) (268) (277)
Variable expenses$12,656  $10,021  $34,694  $27,682 
% of revenue12.7% 12.8% 12.5% 12.5%
        
Subscription gross profit$15,843  $12,668  $43,150  $34,705 
Stock-based compensation expense258  249  783  698 
Non-GAAP subscription gross profit$16,101  $12,917  $43,933  $35,403 
% of subscription revenue19.5% 19.2% 18.7% 18.4%
        
Gross profit$17,445  $13,744  $47,190  $37,161 
Stock-based compensation expense258  249  783  698 
Non-GAAP gross profit$17,703  $13,993  $47,973  $37,859 
% of revenue17.8% 17.9% 17.2% 17.1%
        
Technology and development expense$2,271  $2,299  $7,518  $6,761 
General and administrative expense5,017  4,174  15,655  13,242 
Depreciation and amortization expense(1,181) (1,136) (4,358) (3,027)
Stock-based compensation expense(1,010) (692) (2,719) (1,875)
Fixed expenses$5,097  $4,645  $16,096  $15,101 
% of revenue5.1% 5.9% 5.8% 6.8%
        
Sales and marketing expense$9,255  $6,365  $26,239  $18,005 
Stock-based compensation expense(577) (358) (1,573) (980)
Acquisition cost$8,678  $6,007  $24,666  $17,025 
% of revenue8.7% 7.7% 8.9% 7.7%


The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                
 Nine Months Ended
September 30,

            
 2019 2018            
Sales and marketing expenses$26,239  $18,005             
Excluding:               
Stock-based compensation expense(1,573) (980)            
Acquisition cost24,666  17,025             
Net of:               
Sign-up fee revenue(2,227) (1,933)            
Other business segment sales and marketing expense(262) (275)            
Net acquisition cost$22,177  $14,817             
                
 Three Months Ended
 Sept. 30,
2019
 Jun. 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
Sales and marketing expenses$9,255  $8,757  $8,227  $6,994  $6,365  $5,702  $5,938  $5,781 
Excluding:               
Stock-based compensation expense(577) (567) (429) (355) (358) (349) (273) (172)
Acquisition cost8,678  8,190  7,798  6,639  6,007  5,353  5,665  5,609 
Net of:               
Sign-up fee revenue(790) (734) (703) (655) (693) (624) (616) (550)
Other business segment sales and marketing expense(94) (38) (130) (102) (99) (88) (87) (56)
Net acquisition cost$7,794  $7,418  $6,965  $5,882  $5,215  $4,641  $4,962  $5,003 
                


The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                
 Nine Months Ended
September 30,

            
 2019 2018            
Net loss$(2,445) $(652)            
Excluding:               
Stock-based compensation expense5,075  3,553             
Depreciation and amortization expense4,358  3,027             
Interest income(1,165) (628)            
Interest expense974  887             
Other non-operating expenses223               
Income tax expense (benefit)12  (11)            
Gain from equity method investment(125) (107)            
Adjusted EBITDA$6,907  $6,069             
                
 Three Months Ended
 Sept. 30,
2019
 Jun. 30,
2019
 Mar. 31,
2019
 Dec. 31,
2018
 Sept. 30,
2018
 Jun. 30,
2018
 Mar. 31,
2018
 Dec. 31,
2017
Net income (loss)$782  $(1,931) $(1,296) $(275) $1,205  $(377) $(1,480) $(838)
Excluding:               
Stock-based compensation expense1,845  1,873  1,357  1,222  1,299  1,286  968  855 
Depreciation and amortization expense1,181  1,564  1,613  1,485  1,136  964  927  1,024 
Interest income(411) (412) (342) (234) (317) (179) (132) (3)
Interest expense340  317  317  311  336  332  219  163 
Other non-operating expenses122  101             
Income tax expense (benefit) expense18  (46) 40  4  (7) 91  (95) (482)
Gain from equity method investment  (125)       (107)    
Adjusted EBITDA$3,877  $1,341  $1,689  $2,513  $3,652  $2,010  $407  $719 
                

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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