Trupanion Reports Third Quarter 2020 Results

SEATTLE, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the third quarter ended September 30, 2020.

“It was another strong quarter for Trupanion, with high retention rates driving accelerated growth in net subscription pets,” said Darryl Rawlings, Founder and CEO of Trupanion. 

Third Quarter 2020 Financial and Business Highlights

  • Total revenue was $130.1 million, an increase of 31% compared to the third quarter of 2019.
  • Total enrolled pets (including pets from our other business segment) was 804,251 at September 30, 2020, an increase of 31% over the third quarter of 2019.
  • Subscription business revenue was $99.4 million, an increase of 20% compared to the third quarter of 2019.
  • Subscription enrolled pets was 552,909 at September 30, 2020, an increase of 15% over the third quarter of 2019.
  • Net loss was $(2.6) million, or $(0.07) per basic and diluted share, compared to net income of $0.8 million, or $0.02 per basic and diluted share, in the third quarter of 2019.
  • Adjusted EBITDA was $1.8 million, compared to adjusted EBITDA of $3.9 million in the third quarter of 2019.
  • Operating cash flow was $9.8 million and free cash flow was $8.5 million in the third quarter of 2020. This compared to operating cash flow of $4.7 million and free cash flow of $2.9 million in the third quarter of 2019.

First Nine Months 2020 Financial and Business Highlights

  • Total revenue was $359.3 million, an increase of 29% compared to the first nine months of 2019.
  • Subscription business revenue was $281.3 million, an increase of 20% compared to the first nine months of 2019.
  • Net loss was $(2.3) million, or $(0.07) per basic and diluted share, compared to a net loss of $(2.4) million, or $(0.07) per basic and diluted share, in the first nine months of 2019.
  • Adjusted EBITDA was $9.3 million, compared to adjusted EBITDA of $6.9 million in the first nine months of 2019.
  • Operating cash flow was $17.6 million and free cash flow was $13.1 million for the first nine months of 2020. This compared to operating cash flow of $11.6 million and free cash flow of $8.0 million in the first nine months of 2019.

Revenue by Quarter
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Conference Call
Trupanion’s management will host a conference call today to review its third 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: 13710977.

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 September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
        
 (unaudited)
Revenue:               
Subscription business$99,379  $82,613  $281,316  $234,571 
Other business 30,741   16,663   78,025   43,882 
Total revenue 130,120   99,276   359,341   278,453 
Cost of revenue:               
Subscription business(1) 81,098   66,770   229,114   191,421 
Other business 28,433   15,061   71,919   39,842 
Total cost of revenue(2) 109,531   81,831   301,033   231,263 
Gross profit:               
Subscription business 18,281   15,843   52,202   43,150 
Other business 2,308   1,602   6,106   4,040 
Total gross profit 20,589   17,445   58,308   47,190 
Operating expenses:               
Technology and development(1) 3,383   2,271   9,217   7,518 
General and administrative(1) 6,121   5,017   17,737   15,655 
Sales and marketing(1) 13,344   9,255   33,028   26,239 
Total operating expenses 22,848   16,543   59,982   49,412 
Gain (loss) from investment in joint venture 2   (59)  (84)  (331)
Operating (loss) income (2,257)  843   (1,758)  (2,553)
Interest expense 324   340   1,044   974 
Other income, net (49)  (297)  (533)  (1,094)
(Loss) income before income taxes (2,532)  800   (2,269)  (2,433)
Income tax expense 26   18   69   12 
Net (loss) income$(2,558) $782  $(2,338) $(2,445)
                
Net (loss) income per share:               
Basic$(0.07) $0.02  $(0.07) $(0.07)
Diluted$(0.07) $0.02  $(0.07) $(0.07)
Weighted average shares of common stock outstanding:               
Basic 35,426,742   34,876,782   35,193,317   34,593,345 
Diluted 35,426,742   36,399,136   35,193,317   34,593,345 
                
(1)Includes stock-based compensation expense as follows:Three Months Ended September 30, Nine Months Ended September 30,
  2020   2019   2020   2019 
Cost of revenue$448  $258  $1,060  $783 
Technology and development 133   94   366   267 
General and administrative 1,108   916   2,912   2,452 
Sales and marketing 741   577   1,972   1,573 
Total stock-based compensation expense$2,430  $1,845  $6,310  $5,075 
                
(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,
  2020   2019   2020   2019 
Veterinary invoice expense$91,266  $69,086  $252,955  $196,301 
Other cost of revenue 18,265   12,745   48,078   34,962 
Total cost of revenue$109,531  $81,831  $301,033  $231,263 



Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)

 September 30, 2020 December 31, 2019
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$35,230  $29,168 
Short-term investments83,072  69,732 
Accounts and other receivables92,409  54,408 
Prepaid expenses and other assets7,344  5,513 
Total current assets218,055  158,821 
Restricted cash1,400  1,400 
Long-term investments, at fair value5,038  4,323 
Property and equipment, net71,114  70,372 
Intangible assets, net6,944  7,731 
Other long-term assets14,591  14,553 
Total assets$317,142  $257,200 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$4,999  $4,087 
Accrued liabilities and other current liabilities19,057  13,798 
Reserve for veterinary invoices28,839  21,194 
Deferred revenue86,954  52,546 
Total current liabilities139,849  91,625 
Long-term debt29,839  26,086 
Deferred tax liabilities1,118  1,118 
Other liabilities2,038  1,611 
Total liabilities172,844  120,440 
Stockholders’ equity:   
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 36,511,705 and 35,578,540 shares issued and outstanding at September 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 capital242,825  232,731 
Accumulated other comprehensive loss110  250 
Accumulated deficit(87,858) (85,520)
Treasury stock, at cost: 933,165 shares at September 30, 2020 and 929,865 shares at December 31, 2019(10,779) (10,701)
Total stockholders’ equity144,298  136,760 
Total liabilities and stockholders’ equity$317,142  $257,200 



Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)

 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
        
 (unaudited)
Operating activities       
Net (loss) income$(2,558) $782  $(2,338) $(2,445)
Adjustments to reconcile net (loss) income to cash provided by operating activities:       
Depreciation and amortization1,666  1,181  4,770  4,358 
Stock-based compensation expense2,430  1,845  6,310  5,075 
Other, net16  46  118  143 
Changes in operating assets and liabilities:       
Accounts and other receivables(11,966) (6,642) (38,068) (18,582)
Prepaid expenses and other assets(1,535) (714) (1,979) 275 
Accounts payable, accrued liabilities, and other liabilities6,086  1,363  6,602  2,806 
Reserve for veterinary invoices4,428  1,042  7,692  3,187 
Deferred revenue11,239  5,841  34,473  16,808 
Net cash provided by operating activities9,806  4,744  17,580  11,625 
Investing activities       
Purchases of investment securities(17,422) (13,270) (43,972) (45,492)
Maturities of investment securities9,013  6,329  29,817  28,224 
Purchases of property, equipment and intangible assets(1,273) (1,806) (4,512) (3,586)
Other(19) (463) 88  (1,937)
Net cash used in investing activities(9,701) (9,210) (18,579) (22,791)
Financing activities       
Proceeds from exercise of stock options2,629  629  4,296  2,255 
Shares withheld to satisfy tax withholding(215) (1,363) (656) (1,610)
Borrowings from line of credit, net of financing fees2,478  3,000  6,213  9,167 
Repayments to line of credit    (2,500)  
Other financing  (23) (78) (438)
Net cash provided by financing activities4,892  2,243  7,275  9,374 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net220  (129) (214) 267 
Net change in cash, cash equivalents, and restricted cash5,217  (2,352) 6,062  (1,525)
Cash, cash equivalents, and restricted cash at beginning of period31,413  28,779  30,568  27,952 
Cash, cash equivalents, and restricted cash at end of period$36,630  $26,427  $36,630  $26,427 



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

                        
  2020   2019                         
Total Business:                               
Total pets enrolled (at period end) 804,251   613,694                         
Subscription Business:                               
Total subscription pets enrolled (at period end) 552,909   479,427                         
Monthly average revenue per pet$59.77  $57.14                         
Lifetime value of a pet, including fixed expenses$615  $511                         
Average pet acquisition cost (PAC)$237  $209                         
Average monthly retention 98.69%  98.59%                        
                                
                                
 Three Months Ended
  Sept. 30,
2020
   Jun. 30,
2020
   Mar. 31,
2020
   Dec. 31,
2019
   Sept. 30,
2019
   Jun. 30,
2019
   Mar. 31,
2019
   Dec. 31,
2018
 
Total Business:                               
Total pets enrolled (at period end) 804,251   744,727   687,435   646,728   613,694   577,686   548,002   521,326 
Subscription Business:                               
Total subscription pets enrolled (at period end) 552,909   529,400   508,480   494,026   479,427   461,314   445,148   430,770 
Monthly average revenue per pet$60.87  $59.4  $58.96  $58.58  $58.12  $57.11  $56.13  $55.15 
Lifetime value of a pet, including fixed expenses$615  $597  $535  $523  $511  $482  $471  $449 
Average pet acquisition cost (PAC)$261  $199  $247  $222  $208  $213  $205  $186 
Average monthly retention 98.69%  98.66%  98.59%  98.58%  98.59%  98.57%  98.58%  98.6%



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,
 2020 2019 2020 2019
Net cash provided by operating activities$9,806  $4,744  $17,580  $11,625 
Purchases of property and equipment(1,273) (1,806) (4,512) (3,586)
Free cash flow$8,533  $2,938  $13,068  $8,039 



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,

                        
  2020   2019                         
Sales and marketing expenses$33,028  $26,239                         
Excluding:                               
Stock-based compensation expense (1,972)  (1,573)                        
Acquisition cost 31,056   24,666                         
Net of:                               
Sign-up fee revenue (2,373)  (2,227)                        
Other business segment sales and marketing expense (619)  (262)                        
Net acquisition cost$28,064  $22,177                         
                                
 Three Months Ended
  Sept. 30,
2020
   Jun. 30,
2020
   Mar. 31,
2020
   Dec. 31,
2019
   Sept. 30,
2019
   Jun. 30,
2019
   Mar. 31,
2019
   Dec. 31,
2018
 
Sales and marketing expenses$13,344  $9,242  $10,442  $9,212  $9,255  $8,757  $8,227  $6,994 
Excluding:                               
Stock-based compensation expense (741)  (675)  (556)  (547)  (577)  (567)  (429)  (355)
Acquisition cost 12,603   8,567   9,886   8,665   8,678   8,190   7,798   6,639 
Net of:                               
Sign-up fee revenue (827)  (781)  (765)  (730)  (790)  (734)  (703)  (655)
Other business segment sales and marketing expense (265)  (191)  (163)  (152)  (94)  (38)  (130)  (102)
Net acquisition cost$11,511  $7,595  $8,958  $7,783  $7,794  $7,418  $6,965  $5,882 



The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                                
 Nine Months Ended
September 30,
                        
  2020   2019                         
Net loss$(2,338) $(2,445)                        
Excluding:                               
Stock-based compensation expense 6,310   5,075                         
Depreciation and amortization expense 4,770   4,358                         
Interest income (545)  (1,165)                        
Interest expense 1,044   974                         
Other non-operating expenses 98   223                         
Income tax expense 69   12                         
Gain from equity method investment (117)  (125)                        
Adjusted EBITDA$9,291  $6,907                         
                                
 Three Months Ended
  Sept. 30,
2020
   Jun. 30,
2020
   Mar. 31,
2020
   Dec. 31,
2019
   Sept. 30,
2019
   Jun. 30,
2019
   Mar. 31,
2019
   Dec. 31,
2018
 
Net (loss) income$(2,558) $1,353  $(1,133) $636  $782  $(1,931) $(1,296) $(275)
Excluding:                               
Stock-based compensation expense 2,430   2,227   1,653   1,771   1,845   1,873   1,357   1,222 
Depreciation and amortization expense 1,666   1,723   1,381   1,274   1,181   1,564   1,613   1,485 
Interest income (74)  (134)  (337)  (516)  (411)  (412)  (342)  (234)
Interest expense 324   341   379   375   340   317   317   311 
Other non-operating expenses 2   44   52   (22)  122   101       
Income tax expense (benefit) expense 26   17   26   157   18   (46)  40   4 
Gain from equity method investment    (117)           (125)      
Adjusted EBITDA$1,816  $5,454  $2,021  $3,675  $3,877  $1,341  $1,689  $2,513 


Contacts
:

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

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