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CST: 21/05/2019 23:47:20   

Trupanion Reports Fourth Quarter and Full Year 2018 Results

97 Days ago

SEATTLE, Feb. 13, 2019 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the fourth quarter and full year ended December 31, 2018.

“2018 was another year of steady growth and progress at Trupanion.  We grew revenue by 25% year-over-year, expanded the funds available to us to invest in pet acquisition, and deployed that capital at our targeted internal rates of return,” said Darryl Rawlings, Founder and CEO of Trupanion. “We also moved the ball forward on our five strategic initiatives. The work we’ve done sets us up well for 2019.”

Full Year 2018 Financial and Business Highlights

  • Total revenue was $304.0 million, an increase of 25% compared to 2017.
  • Total enrolled pets (including pets from our other business segment) was 521,326 at December 31, 2018, an increase of 23% over December 31, 2017.
  • Subscription business revenue was $263.7 million, an increase of 21% compared to 2017.
  • Subscription enrolled pets was 430,770 at December 31, 2018, an increase of 16% over December 31, 2017.
  • Net loss was $(0.9) million, or $(0.03) per basic and diluted share, compared to a net loss of $(1.5) million, or $(0.05) per basic and diluted share, in 2017. Adjusted EBITDA was $8.6 million, compared to adjusted EBITDA of $5.0 million in 2017.
  • Operating cash flow was $12.7 million and free cash flow was ($44.3) million for 2018. Excluding the cash outflow of $52.5 million related to the purchase of our headquarters building, which closed in the third quarter of 2018, free cash flow was $8.3 million. This compared to operating cash flow of $9.7 million and free cash flow of $6.5 million in 2017.

Fourth Quarter 2018 Financial and Business Highlights

  • Total revenue was $82.6 million, an increase of 24% compared to the fourth quarter of 2017.
  • Subscription business revenue was $70.9 million, an increase of 20% compared to the fourth quarter of 2017.
  • Net loss was $(0.3) million, or $(0.01) per basic and diluted share, compared to a net loss of $(0.8) million, or $(0.03) per basic and diluted share, in the fourth quarter of 2017.  Adjusted EBITDA was $2.5 million, compared to adjusted EBITDA of $0.7 million in the fourth quarter of 2017.
  • Operating cash flow was $3.7 million and free cash flow was $2.6 million, compared to operating cash flow of $3.0 million and free cash flow of $2.1 million in the fourth quarter of 2017.

Revenue by Quarter
http://resource.globenewswire.com/Resource/Download/b52e38af-25e8-4d75-ba5d-7d4b41f29700

Conference Call
Trupanion’s management will host a conference call today to review its fourth quarter and full year 2018 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: 13686650.

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, 2017 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,
 
  2018   2017   2018   2017  
  (unaudited)          
Revenue:                
Subscription business $ 70,933     $ 58,991     $ 263,738     $ 218,354    
Other business   11,707       7,554       40,218       24,313    
Total revenue 82,640     66,545     303,956     242,667    
Cost of revenue:                
Subscription business(1) 57,892     47,831     215,992     176,883    
Other business 10,543     6,977     36,598     22,734    
Total cost of revenue(2) 68,435     54,808     252,590     199,617    
Gross profit:                
Subscription business 13,041     11,160     47,746     41,471    
Other business 1,164     577     3,620     1,579    
Total gross profit 14,205     11,737     51,366     43,050    
Operating expenses:                
Technology and development(1) 2,487     2,572     9,248     9,768    
General and administrative(1) 4,922     4,546     18,164     16,820    
Sales and marketing(1) 6,994     5,781     24,999     19,104    
Total operating expenses 14,403     12,899     52,411     45,692    
Operating loss (198 )   (1,162 )   (1,045 )   (2,642 )  
Interest expense 311     163     1,198     533    
Other income, net (238 )   (5 )   (1,309 )   (1,244 )  
Loss before income taxes (271 )   (1,320 )   (934 )   (1,931 )  
Income tax expense (benefit) 4     (482 )   (7 )   (428 )  
Net loss $ (275 )   $ (838 )   $ (927 )   $ (1,503 )  
                 
Net loss per share:                
   Basic and Diluted $ (0.01 )   $ (0.03 )   $ (0.03 )   $ (0.05 )  
Weighted average common shares outstanding:                
Basic and Diluted 33,716,975     29,847,574     31,961,192     29,588,324    
                 
(1)Includes stock-based compensation expense as follows: Three Months Ended
December 31,
  Year Ended
December 31,
 
  2018   2017   2018   2017  
Cost of revenue $ 230     $ 162     $ 927     $ 594    
Technology and development 42     50     209     216    
General and administrative 595     471     2,304     1,887    
Sales and marketing 355     172     1,335     722    
Total stock-based compensation expense $ 1,222     $ 855     $ 4,775     $ 3,419    
                 
(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,
 
  2018   2017   2018   2017  
Veterinary invoice expense $ 58,343     $ 46,473     $ 214,539     $ 170,122    
Other cost of revenue 10,092     8,335     38,051     29,495    
  Total cost of revenue $ 68,435     $ 54,808     $ 252,590     $ 199,617    


Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
  December 31, 2018   December 31, 2017
       
Assets      
Current assets:      
Cash and cash equivalents $ 26,552     $ 25,706  
Short-term investments 54,559     37,590  
Accounts and other receivables 31,565     20,367  
Prepaid expenses and other assets 5,300     2,895  
Total current assets 117,976     86,558  
Restricted cash 1,400     600  
Long-term investments, at fair value 3,554     3,237  
Property and equipment, net 69,803     7,868  
Intangible assets, net 8,071     4,972  
Other long-term assets 6,706     2,624  
Total assets $ 207,510     $ 105,859  
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 2,767     $ 2,716  
Accrued liabilities and other current liabilities 11,347     7,660  
Reserve for veterinary invoices 16,062     12,756  
Deferred revenue 33,027     22,734  
Total current liabilities 63,203     45,866  
Long-term debt 12,862     9,324  
Deferred tax liabilities 1,002     1,002  
Other liabilities 1,270     1,233  
Total liabilities 78,337     57,425  
Stockholders’ equity:      
Common stock: $0.00001 par value per share, 100,000,000 shares authorized at December 31, 2018 and December 31, 2017, 34,781,121 and 34,025,136 shares issued and outstanding at December 31, 2018; 30,778,796 and 30,121,496 shares issued and outstanding at December 31, 2017      
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized at December 31, 2018 and December 31, 2017, and 0 shares issued and outstanding at December 31, 2018 and December 31, 2017      
Additional paid-in capital 219,838     134,511  
Accumulated other comprehensive loss (753 )   (92 )
Accumulated deficit (83,711 )   (82,784 )
Treasury stock, at cost: 755,985 shares at December 31, 2018 and 657,300 shares at December 31, 2017 (6,201 )   (3,201 )
Total stockholders’ equity 129,173     48,434  
Total liabilities and stockholders’ equity $ 207,510     $ 105,859  


Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
  Three Months Ended
December 31,
  Year Ended December 31,
  2018   2017   2018   2017
  (unaudited)        
Operating activities              
Net loss $ (275 )   $ (838 )   $ (927 )   $ (1,503 )
Adjustments to reconcile net loss to cash provided by operating activities:              
Depreciation and amortization 1,486     1,024     4,512     4,232  
Stock-based compensation expense 1,222     855     4,775     3,419  
Gain on sale of equity method investment             (1,036 )
Other, net (5 )   (626 )   (240 )   (383 )
Changes in operating assets and liabilities:              
Accounts and other receivables 344     (55 )   (11,248 )   (10,219 )
Prepaid expenses and other assets (2,079 )   118     (2,628 )   (179 )
Accounts payable, accrued liabilities, and other liabilities 682     897     4,531     3,019  
Reserve for veterinary invoices 1,956     1,510     3,440     3,149  
Deferred revenue 332     92     10,465     9,167  
Net cash provided by operating activities 3,663     2,977     12,680     9,666  
Investing activities              
Purchases of fixed maturity investment securities (23,295 )   (11,216 )   (52,862 )   (31,920 )
Maturities of fixed maturity investment securities 8,008     7,494     35,413     23,372  
Purchases of other investments         (3,000 )    
Acquisition of lease intangibles, related to corporate real estate acquisition         (2,959 )    
Proceeds from sale of equity method investment             1,402  
Purchases of property and equipment (1,080 )   (884 )   (56,936 )   (3,131 )
Other (255 )   (17 )   (1,107 )   (2,779 )
Net cash used in investing activities (16,622 )   (4,623 )   (81,451 )   (13,056 )
Financing activities              
Proceeds from public offering of common stock, net of offering costs         65,671      
Proceeds from exercise of stock options 729     463     3,601     2,545  
Shares withheld to satisfy tax withholding         (1,839 )   (1,170 )
Proceeds from debt financing, net of financing fees 4,242     1,980     13,431     4,400  
Repayment of debt financing         (10,000 )    
Other financing 581     (282 )   365     (694 )
Net cash provided by financing activities 5,552     2,161     71,229     5,081  
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net (718 )   (58 )   (812 )   378  
Net change in cash, cash equivalents, and restricted cash (8,125 )   457     1,646     2,069  
Cash, cash equivalents, and restricted cash at beginning of period 36,077     25,849     26,306     24,237  
Cash, cash equivalents, and restricted cash at end of period $ 27,952     $ 26,306     $ 27,952     $ 26,306  


The following tables set forth our key operating metrics:
                               
  Year Ended
December 31,
                       
                         
  2018   2017                        
Total pets enrolled (at period end) 521,326     423,194                          
Total subscription pets enrolled (at period end) 430,770     371,683                          
Monthly average revenue per pet $ 54.34     $ 52.07                          
Lifetime value of a pet (LVP) $ 710     $ 727                          
Average pet acquisition cost (PAC) $ 164     $ 152                          
Average monthly retention 98.60 %   98.63 %                        
                               
                               
  Three Months Ended
  Dec. 31,
2018
  Sept. 30,
2018
  Jun. 30,
2018
  Mar. 31,
2018
  Dec. 31,
2017
  Sept. 30,
2017
  Jun. 30,
2017
  Mar. 31,
2017
Total pets enrolled (at period end) 521,326     497,942     472,480     446,533     423,194     404,069     383,293     364,259  
Total subscription pets enrolled (at period end) 430,770     416,527     401,033     385,640     371,683     359,102     346,409     334,909  
Monthly average revenue per pet $ 55.15     $ 54.55     $ 53.96     $ 53.62     $ 53.17     $ 52.95     $ 51.47     $ 50.50  
Lifetime value of a pet (LVP) $ 710     $ 714     $ 732     $ 727     $ 727     $ 701     $ 654     $ 637  
Average pet acquisition cost (PAC) $ 186     $ 155     $ 150     $ 165     $ 184     $ 151     $ 143     $ 128  
Average monthly retention 98.60 %   98.61 %   98.64 %   98.63 %   98.63 %   98.61 %   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,
  2018   2017   2018   2017
Net cash provided by operating activities $ 3,663     $ 2,977     $ 12,680     $ 9,666  
Purchases of property and equipment (1,080 )   (884 )   (56,936 )   (3,131 )
Free cash flow $ 2,583     $ 2,093     $ (44,256 )   $ 6,535  
Exclude building purchase, net of acquired lease intangibles         52,534      
Free cash flow, excluding building purchase, net of acquired lease intangibles $ 2,583     $ 2,093     $ 8,278     $ 6,535  


The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
                 
    Three Months Ended
December 31,
  Year Ended
December 31,
    2018   2017   2018   2017
Veterinary invoice expense   $ 58,343     $ 46,473     $ 214,539     $ 170,122  
Stock-based compensation expense   (150 )   (95 )   (571 )   (355 )
Cost of goods   $ 58,193     $ 46,378     $ 213,968     $ 169,767  
% of revenue   70.4 %   69.7 %   70.4 %   70.0 %
                 
Other cost of revenue   $ 10,092     $ 8,335     $ 38,051     $ 29,495  
Stock-based compensation expense   (79 )   (67 )   (356 )   (239 )
Variable expenses   $ 10,013     $ 8,268     $ 37,695     $ 29,256  
% of revenue   12.1 %   12.4 %   12.4 %   12.1 %
                 
Subscription gross profit   $ 13,041     $ 11,160     $ 47,746     $ 41,471  
Stock-based compensation expense   229     162     927     594  
Non-GAAP subscription gross profit   $ 13,270     $ 11,322     $ 48,673     $ 42,065  
% of subscription revenue   18.7 %   19.2 %   18.5 %   19.3 %
                 
Gross profit   $ 14,205     $ 11,737     $ 51,366     $ 43,050  
Stock-based compensation expense   229     162     927     594  
Non-GAAP gross profit   $ 14,434     $ 11,899     $ 52,293     $ 43,644  
% of revenue   17.5 %   17.9 %   17.2 %   18.0 %
                 
Technology and development expense   $ 2,487     $ 2,572     $ 9,248     $ 9,768  
General and administrative expense   4,922     4,546     18,164     16,820  
Depreciation and amortization expense   (1,485 )   (1,024 )   (4,512 )   (4,232 )
Stock-based compensation expense   (638 )   (521 )   (2,513 )   (2,103 )
Fixed expenses   $ 5,286     $ 5,573     $ 20,387     $ 20,253  
% of revenue   6.4 %   8.4 %   6.7 %   8.3 %
                 
Sales and marketing expense   $ 6,994     $ 5,781     $ 24,999     $ 19,104  
Stock-based compensation expense   (355 )   (172 )   (1,335 )   (722 )
Acquisition cost   $ 6,639     $ 5,609     $ 23,664     $ 18,382  
% of revenue   8.0 %   8.4 %   7.8 %   7.6 %


The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                               
  Year Ended
December 31,
                       
                         
  2018   2017                        
Sales and marketing expenses $ 24,999     $ 19,104                          
Excluding:                              
Stock-based compensation expense (1,335 )   (722 )                        
Acquisition cost 23,664     18,382                          
Net of:                              
Sign-up fee revenue (2,587 )   (2,169 )                        
Other business segment sales and marketing expense (377 )   (218 )                        
Net acquisition cost $ 20,700     $ 15,995                          
                               
  Three Months Ended
  Dec. 31,
2018
  Sept. 30,
2018
  Jun. 30,
2018
  Mar. 31,
2018
  Dec. 31,
2017
  Sept. 30,
2017
  Jun. 30,
2017
  Mar. 31,
2017
Sales and marketing expenses $ 6,994     $ 6,365     $ 5,702     $ 5,938     $ 5,781     $ 4,862     $ 4,372     $ 4,089  
Excluding:                              
Stock-based compensation expense (355 )   (358 )   (349 )   (273 )   (172 )   (165 )   (198 )   (187 )
Acquisition cost 6,639     6,007     5,353     5,665     5,609     4,697     4,174     3,902  
Net of:                              
Sign-up fee revenue (655 )   (693 )   (624 )   (616 )   (550 )   (558 )   (517 )   (544 )
Other business segment sales and marketing expense (102 )   (99 )   (88 )   (87 )   (56 )   (51 )   (63 )   (48 )
Net acquisition cost $ 5,882     $ 5,215     $ 4,641     $ 4,962     $ 5,003     $ 4,088     $ 3,594     $ 3,310  
                               


The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                               
  Year Ended
December 31,
                       
                         
  2018   2017                        
Net loss $ (927 )   $ (1,503 )                        
Excluding:                              
Stock-based compensation expense 4,775     3,419                          
Depreciation and amortization expense 4,512     4,232                          
Interest income (862 )   (227 )                        
Interest expense 1,198     533                          
Income tax benefit (7 )   (428 )                        
Gain from equity method investment (107 )   (1,029 )                        
Adjusted EBITDA $ 8,582     $ 4,997                          
                               
  Three Months Ended
  Dec. 31,
2018
  Sept. 30,
2018
  Jun. 30,
2018
  Mar. 31,
2018
  Dec. 31,
2017
  Sept. 30,
2017
  Jun. 30,
2017
  Mar. 31,
2017
Net income (loss) $ (275 )   $ 1,205     $ (377 )   $ (1,480 )   $ (838 )   $ 406     $ 411     $ (1,482 )
Excluding:                              
Stock-based compensation expense 1,222     1,299     1,286     968     855     895     888     781  
Depreciation and amortization expense 1,485     1,136     964     927     1,024     1,095     1,077     1,036  
Interest income (234 )   (317 )   (179 )   (132 )   (3 )   (97 )   (76 )   (51 )
Interest expense 311     336     332     219     163     124     109     137  
Income tax expense (benefit) 4     (7 )   91     (95 )   (482 )   26     4     24  
(Gain) loss from equity method investment         (107 )               (1,036 )   7  
Adjusted EBITDA $ 2,513     $ 3,652     $ 2,010     $ 407     $ 719     $ 2,449     $ 1,377     $ 452  
                               

Contacts

Investors:
Laura Bainbridge, Investor Relations Officer
310.829.5400
InvestorRelations@trupanion.com

Media:
Scott Janzen, Trupanion Director of Communications
888.612.1138 ext 3450
scott.janzen@trupanion.com

 

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