Trupanion Reports Second Quarter 2020 Results

SEATTLE, Aug. 04, 2020 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the second quarter ended June 30, 2020.

“Across key financial and operational metrics, it was a very strong quarter for Trupanion,” said Darryl Rawlings, Founder and CEO of Trupanion. “I’m particularly proud of our service levels we provided to our members, which contributed to records in monthly average retention and the number of pet owners adding pets or referring friends to Trupanion in the quarter.”

Second Quarter 2020 Financial and Business Highlights

  • Total revenue was $117.9 million, an increase of 28% compared to the second quarter of 2019.
  • Total enrolled pets (including pets from our other business segment) was 744,727 at June 30, 2020, an increase of 29% over the second quarter of 2019.
  • Subscription business revenue was $92.5 million, an increase of 19% compared to the second quarter of 2019. On a constant currency basis, subscription business revenue increased 20% over the prior year period.
  • Subscription enrolled pets was 529,400 at June 30, 2020, an increase of 15% over the second quarter of 2019.
  • Net income was $1.4 million, or $0.04 per basic and diluted share, compared to a net loss of $(1.9) million, or $(0.06) per basic and diluted share, in the second quarter of 2019.
  • Adjusted EBITDA was $5.5 million, compared to adjusted EBITDA of $1.3 million in the second quarter of 2019.
  • Operating cash flow was $4.9 million and free cash flow was $3.1 million in the second quarter of 2020. This compared to operating cash flow of $2.9 million and free cash flow of $2.0 million in the second quarter of 2019.

First Half 2020 Financial and Business Highlights

  • Total revenue was $229.2 million, an increase of 28% compared to the first half of 2019.
  • Subscription business revenue was $181.9 million, an increase of 20% compared to the first half of 2019.
  • Net income was $0.2 million, or $0.01 per basic and diluted share, compared to a net loss of $(3.2) million, or $(0.09) per basic and diluted share, in the first half of 2019.
  • Adjusted EBITDA was $7.5 million, compared to adjusted EBITDA of $3.0 million in the first half of 2019.
  • Operating cash flow was $7.8 million and free cash flow was $4.5 million for the first half of 2020. This compared to operating cash flow of $6.9 million and free cash flow of $5.1 million in the second quarter of 2019. 

Revenue by Quarter
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Conference Call
Trupanion’s management will host a conference call today to review its second quarter 2020 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: 13706750.

About Trupanion
Trupanion is a leader in medical insurance for cats and dogs throughout the United States and Canada. For over 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, 2019 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, 
 2020  2019  2020  2019 
 (unaudited)
Revenue:               
Subscription business$92,453  $77,736  $181,937  $151,958 
Other business25,467  14,463  47,284  27,219 
Total revenue117,920  92,199  229,221  179,177 
Cost of revenue:           
Subscription business(1)74,594  64,264  148,016  124,651 
Other business23,459  13,222  43,486  24,781 
  Total cost of revenue(2)98,053  77,486  191,502  149,432 
Gross profit:           
Subscription business17,859  13,472  33,921  27,307 
Other business2,008  1,241  3,798  2,438 
Total gross profit19,867  14,713  37,719  29,745 
Operating expenses:           
Technology and development(1)2,989  2,578  5,834  5,247 
General and administrative(1)6,100  5,219  11,616  10,638 
Sales and marketing(1)9,242  8,757  19,684  16,984 
Total operating expenses18,331  16,554  37,134  32,869 
Gain (loss) from investment in joint venture(27) (272) (86) (272)
Operating income (loss)1,509  (2,113) 499  (3,396)
Interest expense341  317  720  634 
Other income, net(202) (453) (484) (797)
Income (loss) before income taxes1,370  (1,977) 263  (3,233)
Income tax expense (benefit)17  (46) 43  (6)
Net income (loss)$1,353  $(1,931) $220  $(3,227)
                
Net income (loss) per share:               
Basic$0.04  $(0.06) $0.01  $(0.09)
Diluted$0.04  $(0.06) $0.01  $(0.09)
Weighted average shares of common stock outstanding:           
Basic35,143,592  34,610,709  35,075,322  34,450,070 
Diluted36,688,167  34,610,709  36,601,927  34,450,070 
            
(1)Includes stock-based compensation expense as follows:Three Months Ended June 30,  Six Months Ended June 30, 
 2020  2019  2020  2019 
Cost of revenue$344  $278  $612  $525 
Technology and development133  110  233  173 
General and administrative1,075  918  1,804  1,536 
Sales and marketing675  567  1,231  996 
Total stock-based compensation expense$2,227  $1,873  $3,880  $3,230 
                
(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, 
 2020  2019  2020  2019 
Veterinary invoice expense$82,049  $65,933  $161,689  $127,215 
Other cost of revenue16,004  11,553  29,813  22,217 
  Total cost of revenue$98,053  $77,486  $191,502  $149,432 
                


        
Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
        
 June 30, 2020  December 31, 2019 
 (unaudited)    
Assets       
Current assets:       
Cash and cash equivalents$30,013  $29,168 
Short-term investments75,162  69,732 
Accounts and other receivables80,724  54,408 
Prepaid expenses and other assets5,888  5,513 
Total current assets191,787  158,821 
Restricted cash1,400  1,400 
Long-term investments, at fair value4,462  4,323 
Property and equipment, net71,018  70,372 
Intangible assets, net7,111  7,731 
Other long-term assets14,495  14,553 
Total assets$290,273  $257,200 
Liabilities and stockholders’ equity       
Current liabilities:       
Accounts payable$2,928  $4,087 
Accrued liabilities and other current liabilities15,017  13,798 
Reserve for veterinary invoices24,380  21,194 
Deferred revenue75,658  52,546 
Total current liabilities117,983  91,625 
Long-term debt27,347  26,086 
Deferred tax liabilities1,118  1,118 
Other liabilities1,916  1,611 
Total liabilities148,364  120,440 
Stockholders’ equity:     
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 36,179,457 and 35,246,292 shares issued and outstanding at June 30, 2020; 35,876,882 and 34,947,017 shares issued and outstanding at December 31, 2019   
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding   
Additional paid-in capital238,077  232,731 
Accumulated other comprehensive loss(89) 250 
Accumulated deficit(85,300) (85,520)
Treasury stock, at cost: 933,165 shares at June 30, 2020 and 929,865 shares at December 31, 2019(10,779) (10,701)
Total stockholders’ equity141,909  136,760 
Total liabilities and stockholders’ equity$290,273  $257,200 
 


                
Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
                
 Three Months Ended June 30,  Six Months Ended June 30, 
 2020  2019  2020  2019 
 (unaudited)
Operating activities               
Net income (loss)$1,353  $(1,931) $220  $(3,227)
Adjustments to reconcile net income (loss) to cash provided by operating activities:               
Depreciation and amortization1,723  1,564  3,104  3,177 
Stock-based compensation expense2,227  1,873  3,880  3,230 
Other, net29  100  102  97 
Changes in operating assets and liabilities:           
Accounts and other receivables(14,405) (6,046) (26,102) (11,940)
Prepaid expenses and other assets(249) 664  (444) 989 
Accounts payable, accrued liabilities, and other liabilities(806) 187  516  1,443 
Reserve for veterinary invoices1,439  1,067  3,264  2,145 
Deferred revenue13,539  5,444  23,234  10,967 
Net cash provided by operating activities4,850  2,922  7,774  6,881 
Investing activities           
Purchases of investment securities(14,971) (14,872) (26,550) (32,222)
Maturities of investment securities15,704  11,690  20,804  21,895 
Purchases of property, equipment and intangible assets(1,743) (902) (3,239) (1,780)
Other98  5  107  (1,474)
Net cash used in investing activities(912) (4,079) (8,878) (13,581)
Financing activities           
Proceeds from exercise of stock options1,108  965  1,667  1,626 
Shares withheld to satisfy tax withholding(120) (50) (441) (247)
Borrowings from line of credit, net of financing fees(9) 967  3,735  6,167 
Repayments to line of credit(2,500)   (2,500)  
Other financing  (144) (78) (415)
Net cash (used in) provided by financing activities(1,521) 1,738  2,383  7,131 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net375  176  (434) 396 
Net change in cash, cash equivalents, and restricted cash2,792  757  845  827 
Cash, cash equivalents, and restricted cash at beginning of period28,621  28,022  30,568  27,952 
Cash, cash equivalents, and restricted cash at end of period$31,413  $28,779  $31,413  $28,779 
 


The following tables set forth our key operating metrics:
                 
 Six Months Ended June 30,             
 2020 2019             
Total Business:                
Total pets enrolled (at period end)744,727  577,686              
Subscription Business:                
Total subscription pets enrolled (at period end)529,400  461,314              
Monthly average revenue per pet$59.19  $56.63              
Lifetime value of a pet, including fixed expenses$597  $482              
Average pet acquisition cost (PAC)$222  $209              
Average monthly retention98.66% 98.57%             
                 
                 
 Three Months Ended
 Jun. 30, 2020 Mar. 31, 2020 Dec. 31, 2019
 Sept. 30, 2019 Jun. 30, 2019 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018
Total Business:                
Total pets enrolled (at period end)744,727  687,435  646,728  613,694  577,686  548,002  521,326  497,942 
Subscription Business:                
Total subscription pets enrolled (at period end)529,400  508,480  494,026  479,427  461,314  445,148  430,770  416,527 
Monthly average revenue per pet$59.40  $58.96  $58.58  $58.12  $57.11  $56.13  $55.15  $54.55 
Lifetime value of a pet, including fixed expenses$597  $535  $523  $511  $482  $471  $449  $435 
Average pet acquisition cost (PAC)$199  $247  $222  $208  $213  $205  $186  $155 
Average monthly retention98.66% 98.59% 98.58% 98.59% 98.57% 98.58% 98.60% 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,
 2020 2019 2020 2019
Net cash provided by operating activities$4,850  $2,922  $7,774  $6,881 
Purchases of property and equipment(1,743) (902) (3,239) (1,780)
Free cash flow$3,107  $2,020  $4,535  $5,101 
 


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,            
 2020 2019            
Sales and marketing expenses$19,684  $16,984             
Excluding:               
Stock-based compensation expense(1,231) (996)            
Acquisition cost18,453  15,988             
Net of:               
Sign-up fee revenue(1,546) (1,437)            
Other business segment sales and marketing expense(354) (168)            
Net acquisition cost$16,553  $14,383             
                
 Three Months Ended
 Jun. 30, 2020 Mar. 31, 2020 Dec. 31, 2019 Sept. 30, 2019 Jun. 30, 2019 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018
Sales and marketing expenses$9,242  $10,442  $9,212  $9,255  $8,757  $8,227  $6,994  $6,365 
Excluding:               
Stock-based compensation expense(675) (556) (547) (577) (567) (429) (355) (358)
Acquisition cost8,567  9,886  8,665  8,678  8,190  7,798  6,639  6,007 
Net of:               
Sign-up fee revenue(781) (765) (730) (790) (734) (703) (655) (693)
Other business segment sales and marketing expense(191) (163) (152) (94) (38) (130) (102) (99)
Net acquisition cost$7,595  $8,958  $7,783  $7,794  $7,418  $6,965  $5,882  $5,215 
 


The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                
 Six Months Ended June 30,            
 2020 2019            
Net income (loss)$220  $(3,227)            
Excluding:               
Stock-based compensation expense3,880  3,230             
Depreciation and amortization expense3,104  3,177             
Interest income(471) (754)            
Interest expense720  634             
Other non-operating expenses96  101             
Income tax expense (benefit)43  (6)            
Gain from equity method investment(117) (125)            
Adjusted EBITDA$7,475  $3,030             
                
 Three Months Ended
 Jun. 30, 2020 Mar. 31, 2020 Dec. 31, 2019 Sept. 30, 2019 Jun. 30, 2019 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018
Net income (loss)$1,353  $(1,133) $636  $782  $(1,931) $(1,296) $(275) $1,205 
Excluding:               
Stock-based compensation expense2,227  1,653  1,771  1,845  1,873  1,357  1,222  1,299 
Depreciation and amortization expense1,723  1,381  1,274  1,181  1,564  1,613  1,485  1,136 
Interest income(134) (337) (516) (411) (412) (342) (234) (317)
Interest expense341  379  375  340  317  317  311  336 
Other non-operating expenses44  52  (22) 122  101       
Income tax expense (benefit) expense17  26  157  18  (46) 40  4  (7)
Gain from equity method investment(117)       (125)      
Adjusted EBITDA$5,454  $2,021  $3,675  $3,877  $1,341  $1,689  $2,513  $3,652 
                

Contacts:

Investors:
Laura Bainbridge, Head of Corporate Communications
206.607.1929
InvestorRelations@trupanion.com

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