Trupanion Reports Fourth Quarter and Full Year 2020 Results

SEATTLE, Feb. 10, 2021 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the fourth quarter and full year ended December 31, 2020.

“The fourth quarter capped off a strong year for Trupanion. We’re set up well to capture the growing opportunities within our large, underpenetrated market,” said Darryl Rawlings, founder and chief executive officer of Trupanion.

Full Year 2020 Financial and Business Highlights

  • Total revenue was $502.0 million, an increase of 31% compared to 2019.
  • Total enrolled pets (including pets from our other business segment) was 862,928 at December 31, 2020, an increase of 33% over 2019.
  • Subscription business revenue was $387.7 million, an increase of 21% compared to 2019.
  • Subscription enrolled pets was 577,957 at December 31, 2020, an increase of 17% over 2019.
  • Net loss was $(5.8) million, or $(0.16) per basic and diluted share, compared to a net loss of $(1.8) million, or $(0.05) per basic and diluted share, in 2019.
  • Adjusted EBITDA was $11.5 million, compared to adjusted EBITDA of $10.6 million in 2019.
  • Operating cash flow was $21.5 million and free cash flow was $14.1 million in 2020. This compared to operating cash flow of $16.2 million and free cash flow of $10.8 million in 2019.
  • In the fourth quarter of 2020, the Company issued 3,636,364 shares of common stock through a private placement, for net proceeds of $192.3 million. The shares were issued subject to a minimum holding period of 3 years.

Fourth Quarter 2020 Financial and Business Highlights

  • Total revenue was $142.7 million, an increase of 35% compared to the fourth quarter of 2019.
  • Subscription business revenue was $106.4 million, an increase of 23% compared to the fourth quarter of 2019.
  • Net loss was $(3.5) million, or $(0.09) per basic and diluted share, compared to net income of $0.6 million, or $0.02 per basic and diluted share, in the fourth quarter of 2019.
  • Adjusted EBITDA was $2.2 million, compared to adjusted EBITDA of $3.7 million in the fourth quarter of 2019.
  • Operating cash flow was $4.0 million and free cash flow was $1.0 million in the fourth quarter of 2020. This compared to operating cash flow of $4.5 million and free cash flow of $2.7 million in the fourth quarter of 2019.

Revenue by Quarter
A chart accompanying this announcement is available at:
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Conference Call
Trupanion’s management will host a conference call today to review its fourth quarter and full year 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: 13715194.

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 continue to grow its enrollments and revenue, implement its alliance with Aflac and otherwise execute its business plan. 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 successfully implement our alliance with Aflac; 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
December 31,
 Year Ended
December 31,
 2020 2019 2020 2019
      
 (unaudited)    
Revenue:       
Subscription business$106,416   $86,592   $387,732   $321,163  
Other business36,271   18,891   114,296   62,773  
Total revenue142,687   105,483   502,028   383,936  
Cost of revenue:       
Subscription business(1)85,761   70,718   314,875   262,139  
Other business33,333   17,031   105,252   56,873  
Total cost of revenue(2)119,094   87,749   420,127   319,012  
Operating expenses:       
Technology and development(1)3,108   1,928   9,947   7,025  
General and administrative(1)6,502   4,665   21,847   18,384  
Sales and marketing(1)14,809   9,212   47,837   35,451  
Depreciation and amortization(3)2,301   1,275   7,071   5,632  
Total operating expenses26,720   17,080   86,702   66,492  
Gain (loss) from investment in joint venture(42)  (21)  (126)  (352) 
Operating income (loss)(3,169)  633   (4,927)  (1,920) 
Interest expense337   375   1,381   1,349  
Other income, net(48)  (535)  (581)  (1,629) 
Gain (loss) before income taxes(3,458)  793   (5,727)  (1,640) 
Income tax expense (benefit)44   157   113   169  
Net income (loss)$(3,502)  $636   $(5,840)  $(1,809) 
        
Net income (loss) per share:       
Basic$(0.09)  $0.02   $(0.16)  $(0.05) 
Diluted(0.09)  0.02   (0.16)  (0.05) 
Weighted average shares of common stock outstanding:       
Basic37,841,055   34,876,438   35,858,869   34,645,345  
Diluted37,841,055   36,354,620   35,858,869   34,645,345  
        
(1) Includes stock-based compensation expense as follows:
Three Months Ended
December 31,

 Year Ended
December 31,
 2020 2019 2020 2019
Cost of revenue$526   $267   $1,586   $1,050  
Technology and development392   97   758   364  
General and administrative883   860   3,795   3,312  
Sales and marketing801   547   2,773   2,120  
Total stock-based compensation expense$2,602   $1,771   $8,912   $6,846  
        
(2) The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
 Three Months Ended
December 31,
 Year Ended
December 31,
 2020 2019 2020 2019
Veterinary invoice expense$98,169   $74,646   $351,124   $270,947  
Other cost of revenue20,925   13,103   69,003   48,065  
Total cost of revenue$119,094   $87,749   $420,127   $319,012  
        
(3) Depreciation and amortization expenses have been reclassified as a separate line item and prior period amounts have been reclassified from their original presentation to conform to the current period presentation. The Company has elected to present depreciation and amortization expenses as a separate line to better align with management's view of the Company's operating results.



Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
 
 December 31, 2020 December 31, 2019
    
Assets   
Current assets:   
Cash and cash equivalents$139,878   $29,168  
Short-term investments89,862   69,732  
Accounts and other receivables99,065   54,408  
Prepaid expenses and other assets8,222   5,513  
Total current assets337,027   158,821  
Restricted cash6,319   1,400  
Long-term investments, at fair value5,566   4,323  
Property and equipment, net72,602   70,372  
Intangible assets, net27,134   7,731  
Other long-term assets16,557   14,553  
Goodwill33,045     
Total assets$498,250   $257,200  
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$6,059   $4,087  
Accrued liabilities and other current liabilities22,864   13,798  
Reserve for veterinary invoices28,929   21,194  
Deferred revenue92,547   52,546  
Total current liabilities150,399   91,625  
Long-term debt   26,086  
Deferred tax liabilities4,705   1,118  
Other liabilities3,207   1,611  
Total liabilities158,311   120,440  
Stockholders’ equity:   
Common stock: $0.00001 par value per share, 100,000,000 shares authorized at December 31, 2020 and December 31, 2019, 40,383,972 and 39,450,807 shares issued and outstanding at December 31, 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 at December 31, 2020 and December 31, 2019, and 0 shares issued and outstanding at December 31, 2020 and December 31, 2019     
Additional paid-in capital439,007   232,731  
Accumulated other comprehensive loss3,071   250  
Accumulated deficit(91,360)  (85,520) 
Treasury stock, at cost: 933,165 shares at December 31, 2020 and 929,865 shares at December 31, 2019(10,779)  (10,701) 
Total stockholders’ equity339,939   136,760  
Total liabilities and stockholders’ equity$498,250   $257,200  



Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
 Three Months Ended
December 31,
 Year Ended
December 31,
 2020 2019 2020 2019
      
 (unaudited)    
Operating activities       
Net income (loss)$(3,502)  $636   $(5,840)  $(1,809) 
Adjustments to reconcile net loss to cash provided by operating activities:       
Depreciation and amortization2,301   1,274   7,071   5,632  
Stock-based compensation expense2,602   1,771   8,912   6,846  
Other, net35   (38)  153   105  
Changes in operating assets and liabilities:       
Accounts and other receivables(5,204)  (4,190)  (43,272)  (22,772) 
Prepaid expenses and other assets(860)  (707)  (2,839)  (432) 
Accounts payable, accrued liabilities, and other liabilities3,349   1,304   9,951   4,110  
Reserve for veterinary invoices(30)  1,872   7,662   5,059  
Deferred revenue5,273   2,610   39,746   19,418  
Net cash provided by operating activities3,964   4,532   21,544   16,157  
Investing activities       
Purchases of investment securities(21,314)  (20,014)  (65,286)  (65,506) 
Maturities of investment securities14,249   21,538   44,066   49,762  
Cash paid in business acquisition, net of cash acquired(48,133)    (48,133)    
Purchases of other investments   (4,000)     (4,000) 
Purchases of property, equipment and intangible assets(2,939)  (1,787)  (7,451)  (5,373) 
Other(31)  (954)  57   (2,891) 
Net cash used in investing activities(58,168)  (5,217)  (76,747)  (28,008) 
Financing activities       
Proceeds from issuance of common stock, net of issuance costs192,265      192,265     
Proceeds from exercise of stock options1,717   727   6,013   2,982  
Shares withheld to satisfy tax withholding(459)  (57)  (1,115)  (1,667) 
Borrowings from line of credit, net of financing fees   4,000   6,213   13,167  
Repayments to line of credit(29,950)     (32,450)    
Other financing      (78)  (438) 
Net cash provided by financing activities163,573   4,670   170,848   14,044  
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net198   156   (16)  423  
Net change in cash, cash equivalents, and restricted cash109,567   4,141   115,629   2,616  
Cash, cash equivalents, and restricted cash at beginning of period36,630   26,427   30,568   27,952  
Cash, cash equivalents, and restricted cash at end of period$146,197   $30,568   $146,197   $30,568  



The following tables set forth our key operating metrics:
                
 Year Ended
December 31,

            
 2020 2019            
Total Business:               
Total pets enrolled (at period end)862,928  646,728             
Subscription Business:               
Total subscription pets enrolled (at period end)577,957  494,026             
Monthly average revenue per pet$60.37  $57.52             
Lifetime value of a pet, including fixed expenses$653  $523             
Average pet acquisition cost (PAC)$247  $212             
Average monthly retention98.71% 98.58%            
                
                
 Three Months Ended
 Dec. 31,
2020
 Sept. 30,
2020
 Jun. 30,
2020
 Mar. 31,
2020
 Dec. 31,
2019
 Sept. 30,
2019
 Jun. 30,
2019
 Mar. 31,
2019
Total Business:               
Total pets enrolled (at period end)862,928  804,251  744,727  687,435  646,728  613,694  577,686  548,002 
Subscription Business:               
Total subscription pets enrolled (at period end)577,957  552,909  529,400  508,480  494,026  479,427  461,314  445,148 
Monthly average revenue per pet$62.03  $60.87  $59.40  $58.96  $58.58  $58.12  $57.11  $56.13 
Lifetime value of a pet, including fixed expenses$653  $615  $597  $535  $523  $511  $482  $471 
Average pet acquisition cost (PAC)$272  $261  $199  $247  $222  $208  $213  $205 
Average monthly retention98.71% 98.69% 98.66% 98.59% 98.58% 98.59% 98.57% 98.58%



The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
        
 Three Months Ended
December 31,
 Year Ended
December 31,
 2020 2019 2020 2019
Net cash provided by operating activities$3,964   $4,532   $21,544   $16,157  
Purchases of property and equipment(2,939)  (1,787)  (7,451)  (5,373) 
Free cash flow$1,025   $2,745   $14,093   $10,784  



The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                
 Year Ended
December 31,

            
 2020 2019            
Sales and marketing expenses$47,837  $35,451             
Excluding:               
Stock-based compensation expense(2,773) (2,120)            
Acquisition cost45,064  33,331             
Net of:               
Sign-up fee revenue(3,292) (2,957)            
Other business segment sales and marketing expense(820) (414)            
Net acquisition cost$40,952  $29,960             
                
 Three Months Ended
 Dec. 31,
2020
 Sept. 30,
2020
 Jun. 30,
2020
 Mar. 31,
2020
 Dec. 31,
2019
 Sept. 30,
2019
 Jun. 30,
2019
 Mar. 31,
2019
Sales and marketing expenses$14,809  $13,344  $9,242  $10,442  $9,212  $9,255  $8,757  $8,227 
Excluding:               
Stock-based compensation expense(801) (741) (675) (556) (547) (577) (567) (429)
Acquisition cost14,008  12,603  8,567  9,886  8,665  8,678  8,190  7,798 
Net of:               
Sign-up fee revenue(919) (827) (781) (765) (730) (790) (734) (703)
Other business segment sales and marketing expense(201) (265) (191) (163) (152) (94) (38) (130)
Net acquisition cost$12,888  $11,511  $7,595  $8,958  $7,783  $7,794  $7,418  $6,965 



The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                
 Year Ended
December 31,

            
 2020 2019            
Net loss$(5,840) $(1,809)            
Excluding:               
Stock-based compensation expense8,912  6,846             
Depreciation and amortization expense7,071  5,632             
Interest income(628) (1,681)            
Interest expense1,381  1,349             
Other non-operating expenses99  201             
Income tax expense (benefit)113  169             
Business combination transaction costs522               
Gain from equity method investment(117) (125)            
Adjusted EBITDA$11,513  $10,582             
                
 Three Months Ended
 Dec. 31,
2020
 Sept. 30,
2020
 Jun. 30,
2020
 Mar. 31,
2020
 Dec. 31,
2019
 Sept. 30,
2019
 Jun. 30,
2019
 Mar. 31,
2019
Net income (loss)$(3,502) $(2,558) $1,353  $(1,133) $636  $782  $(1,931) $(1,296)
Excluding:               
Stock-based compensation expense2,602  2,430  2,227  1,653  1,771  1,845  1,873  1,357 
Depreciation and amortization expense2,301  1,666  1,723  1,381  1,274  1,181  1,564  1,613 
Interest income(83) (74) (134) (337) (516) (411) (412) (342)
Interest expense337  324  341  379  375  340  317  317 
Other non-operating expenses1  2  44  52  (22) 122  101   
Income tax expense (benefit)44  26  17  26  157  18  (46) 40 
Business combination transaction costs522               
(Gain) loss from equity method investment    (117)       (125)  
Adjusted EBITDA$2,222  $1,816  $5,454  $2,021  $3,675  $3,877  $1,341  $1,689 


Contacts:

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


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