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CST: 13/12/2019 15:06:36   

Trupanion Reports Second Quarter 2019 Results

135 Days ago

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

“It was another consistent quarter, with solid growth in revenue and scaling fixed expenses translating into greater investable funds,” said Darryl Rawlings, Founder and CEO of Trupanion. “While initiatives around same store sales and conversion comprise the bulk of our incremental spend, we also continue to increase our investment in retention and longer-term initiatives.”

Second Quarter 2019 Financial and Business Highlights

  • Total revenue was $92.2 million, an increase of 26% compared to the second quarter of 2018.
  • Total enrolled pets (including pets from our other business segment) was 577,686 at June 30, 2019, an increase of 22% over June 30, 2018.
  • Subscription business revenue was $77.7 million, an increase of 22% compared to the second quarter of 2018.
  • Subscription enrolled pets was 461,314 at June 30, 2019, an increase of 15% over June 30, 2018.
  • Net loss was $(1.9) million, or $(0.06) per basic and diluted share, compared to a net loss of $(0.4) million, or $(0.01) per basic and diluted share, in the second quarter of 2018.
  • Adjusted EBITDA was $1.3 million, compared to adjusted EBITDA of $2.0 million in the second quarter of 2018.
  • Operating cash flow was $2.9 million and free cash flow was $2.0 million for the second quarter of 2019. This compared to operating cash flow of $(0.5) million and free cash flow of $1.4 million, which excludes an earnest money deposit of $3.3 million related to our home office acquisition, in the second quarter of 2018.

First Half 2019 Financial and Business Highlights

  • Total revenue was $179.2 million, an increase of 25% compared to the first half of 2018.
  • Subscription business revenue was $152.0 million, an increase of 21% compared to the first half of 2018.
  • Net loss was $(3.2) million, or $(0.09) per basic and diluted share, compared to a net loss of $(1.9) million, or $(0.06) per basic and diluted share, in the first half of 2018.
  • Adjusted EBITDA was $3.0 million, compared to adjusted EBITDA of $2.4 million in the first half of 2018.
  • Operating cash flow was $6.9 million and free cash flow was $5.1 million for the first half of 2019. This compared to operating cash flow of $1.6 million and free cash flow of $2.5 million, which excludes an earnest money deposit of $3.3 million related to our home office acquisition, in the second quarter of 2018. 

Revenue by Quarter
A chart accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/20e2bf9f-ab69-4483-88da-c1acb791cb12

Conference Call
Trupanion’s management will host a conference call today to review its second 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, 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: 13692316.

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 June 30,   Six Months Ended June 30,  
  2019   2018   2019   2018  
                 
  (unaudited)  
Revenue:                
Subscription business $ 77,736     $ 63,867     $ 151,958     $ 125,384    
Other business 14,463     9,525     27,219     17,768    
Total revenue 92,199     73,392     179,177     143,152    
Cost of revenue:                
Subscription business(1) 64,264     52,333     124,651     103,347    
Other business 13,222     8,706     24,781     16,388    
  Total cost of revenue(2) 77,486     61,039     149,432     119,735    
Gross profit:                
Subscription business 13,472     11,534     27,307     22,037    
Other business 1,241     819     2,438     1,380    
Total gross profit 14,713     12,353     29,745     23,417    
Operating expenses:                
Technology and development(1) 2,578     2,298     5,247     4,462    
General and administrative(1) 5,219     4,610     10,638     9,068    
Sales and marketing(1) 8,757     5,702     16,984     11,640    
Total operating expenses 16,554     12,610     32,869     25,170    
Gain (loss) from investment in joint venture (272 )       (272 )      
Operating loss (2,113 )   (257 )   (3,396 )   (1,753 )  
Interest expense 317     332     634     551    
Other income, net (453 )   (303 )   (797 )   (443 )  
Loss before income taxes (1,977 )   (286 )   (3,233 )   (1,861 )  
Income tax (benefit) expense (46 )   91     (6 )   (4 )  
Net loss $ (1,931 )   $ (377 )   $ (3,227 )   $ (1,857 )  
                 
Net loss per share                
  Basic and Diluted $ (0.06 )   $ (0.01 )   $ (0.09 )   $ (0.06 )  
Weighted average common shares outstanding:                
Basic and Diluted 34,610,709     30,721,037     34,450,070     30,485,121    
                 
(1)Includes stock-based compensation expense as follows:        
  Three Months Ended June 30,   Six Months Ended June 30,  
   
  2019   2018   2019   2018  
Cost of revenue $ 278     $ 252     $ 525     $ 449    
Technology and development 110     60     173     109    
General and administrative 918     625     1,536     1,074    
Sales and marketing 567     349     996     622    
Total stock-based compensation expense $ 1,873     $ 1,286     $ 3,230     $ 2,254    
                 
(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,  
  2019   2018   2019   2018  
Veterinary invoice expense $ 65,933     $ 51,780     $ 127,215     $ 101,893    
Other cost of revenue 11,553     9,259     22,217     17,842    
  Total cost of revenue $ 77,486     $ 61,039     $ 149,432     $ 119,735    


Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
 
  June 30, 2019   December 31, 2018
  (unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 27,379     $ 26,552  
Short-term investments 64,712     54,559  
Accounts and other receivables 43,550     31,565  
Prepaid expenses and other assets 4,322     5,300  
Total current assets 139,963     117,976  
Restricted cash 1,400     1,400  
Long-term investments, at fair value 3,891     3,554  
Property and equipment, net 69,371     69,803  
Intangible assets, net 7,631     8,071  
Other long-term assets 8,208     6,706  
Total assets $ 230,464     $ 207,510  
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 2,117     $ 2,767  
Accrued liabilities and other current liabilities 13,390     11,347  
Reserve for veterinary invoices 18,280     16,062  
Deferred revenue 44,086     33,027  
Total current liabilities 77,873     63,203  
Long-term debt 19,056     12,862  
Deferred tax liabilities 1,014     1,002  
Other liabilities 1,498     1,270  
Total liabilities 99,441     78,337  
Stockholders’ equity:      
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 35,712,189
and 34,782,324 shares issued and outstanding at June 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 capital 229,069     219,838  
Accumulated other comprehensive loss (407 )   (753 )
Accumulated deficit (86,938 )   (83,711 )
Treasury stock, at cost: 929,865 shares at June 30, 2019 and 755,985 shares at
December 31, 2018
(10,701 )   (6,201 )
Total stockholders’ equity 131,023     129,173  
Total liabilities and stockholders’ equity $ 230,464     $ 207,510  


Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2019   2018   2019   2018
               
  (unaudited)
Operating activities              
Net loss $ (1,931 )   $ (377 )   $ (3,227 )   $ (1,857 )
Adjustments to reconcile net loss to cash provided by operating
activities:
             
Depreciation and amortization 1,564     964     3,177     1,891  
Stock-based compensation expense 1,873     1,286     3,230     2,254  
Other, net 100     15     97     38  
Changes in operating assets and liabilities:              
Accounts and other receivables (6,046 )   (4,242 )   (11,940 )   (8,168 )
Prepaid expenses and other assets 664     (3,939 )   989     (4,068 )
Accounts payable, accrued liabilities, and other liabilities 187     1,657     1,443     2,567  
Reserve for veterinary invoices 1,067     550     2,145     1,293  
Deferred revenue 5,444     3,620     10,967     7,661  
Net cash provided by (used in) operating activities 2,922     (466 )   6,881     1,611  
Investing activities              
Purchases of investment securities (14,872 )   (13,246 )   (32,222 )   (20,386 )
Maturities of investment securities 11,690     9,715     21,895     15,015  
Purchases of property, equipment and intangible assets (902 )   (1,378 )   (1,780 )   (2,370 )
Other 5     113     (1,474 )   113  
Net cash used in investing activities (4,079 )   (4,796 )   (13,581 )   (7,628 )
Financing activities              
Proceeds from public offering of common stock, net of offering costs     65,886         65,886  
Proceeds from exercise of stock options 965     1,175     1,626     1,656  
Shares withheld to satisfy tax withholding (50 )       (247 )    
Proceeds from debt financing, net of financing fees 967     3,750     6,167     9,250  
Other financing (144 )   160     (415 )   (56 )
Net cash provided by financing activities 1,738     70,971     7,131     76,736  
Effect of foreign exchange rate changes on cash, cash equivalents,
and restricted cash, net
176     (271 )   396     (201 )
Net change in cash, cash equivalents, and restricted cash 757     65,438     827     70,518  
Cash, cash equivalents, and restricted cash at beginning of period 28,022     31,386     27,952     26,306  
Cash, cash equivalents, and restricted cash at end of period $ 28,779     $ 96,824     $ 28,779     $ 96,824  


The following tables set forth our key operating metrics:
                               
  Six Months Ended
June 30,
                       
                         
  2019   2018                        
Total pets enrolled (at period end) 577,686       472,480                            
Total subscription pets
enrolled (at period end)
461,314       401,033                            
Monthly average revenue per pet $ 56.63       $ 53.79                            
Lifetime value of a pet (LVP) $ 722       $ 732                            
Average pet acquisition cost (PAC) $ 209       $ 158                            
Average monthly retention  98.57 %     98.64 %                          
                                   
                               
                               
  Three Months Ended
  Jun. 30,
2019
  Mar. 31,
2019
  Dec. 31,
2018
  Sept. 30,
2018
  Jun. 30,
2018
  Mar. 31,
2018
  Dec. 31,
2017
  Sept. 30,
2017
Total pets enrolled (at period end) 577,686       548,002       521,326     497,942     472,480     446,533     423,194     404,069  
Total subscription pets enrolled (at period end) 461,314       445,148       430,770     416,527     401,033     385,640     371,683     359,102  
Monthly average revenue per pet $ 57.11       $ 56.13       $ 55.15     $ 54.55     $ 53.96     $ 53.62     $ 53.17     $ 52.95  
Lifetime value of a pet (LVP) $ 722       $ 724       $ 710     $ 714     $ 732     $ 727     $ 727     $ 701  
Average pet acquisition cost (PAC) $ 213       $ 205       $ 186     $ 155     $ 150     $ 165     $ 184     $ 151  
Average monthly retention 98.57     98.58     98.6 %   98.61 %   98.64 %   98.63 %   98.63 %   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,
  2019   2018   2019   2018
Net cash provided by (used in) operating activities $ 2,922     $ (466 )   $ 6,881     $ 1,611  
Purchases of property and equipment (902 )   (1,378 )   (1,780 )   (2,370 )
Free cash flow $ 2,020     $ (1,844 )   $ 5,101     $ (759 )
Exclude earnest money deposit for building purchase     3,250         3,250  
Free cash flow, excluding earnest money deposit for
building purchase
$ 2,020     $ 1,406     $ 5,101     $ 2,491  


The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
Veterinary invoice expense   $ 65,933     $ 51,780     $ 127,215     $ 101,893  
Stock-based compensation expense   (185 )   (148 )   (346 )   (268 )
Cost of goods   $ 65,748     $ 51,632     $ 126,869     $ 101,625  
% of revenue   71.3 %   70.4 %   70.8 %   71.0 %
                 
Other cost of revenue   $ 11,553     $ 9,259     $ 22,217     $ 17,842  
Stock-based compensation expense   (93 )   (104 )   (179 )   (181 )
Variable expenses   $ 11,460     $ 9,155     $ 22,038     $ 17,661  
% of revenue   12.4 %   12.5 %   12.3 %   12.3 %
                 
Subscription gross profit   $ 13,472     $ 11,534     $ 27,307     $ 22,037  
Stock-based compensation expense   278     252     525     449  
Non-GAAP subscription gross profit   $ 13,750     $ 11,786     $ 27,832     $ 22,486  
% of subscription revenue   17.7 %   18.5 %   18.3 %   17.9 %
                 
Gross profit   $ 14,713     $ 12,353     $ 29,745     $ 23,417  
Stock-based compensation expense   278     252     525     449  
Non-GAAP gross profit   $ 14,991     $ 12,605     $ 30,270     $ 23,866  
% of revenue   16.3 %   17.2 %   16.9 %   16.7 %
                 
Technology and development expense   $ 2,578     $ 2,298     $ 5,247     $ 4,462  
General and administrative expense   5,219     4,610     10,638     9,068  
Depreciation and amortization expense   (1,564 )   (964 )   (3,177 )   (1,891 )
Stock-based compensation expense   (1,028 )   (685 )   (1,709 )   (1,183 )
Fixed expenses   $ 5,205     $ 5,259     $ 10,999     $ 10,456  
% of revenue   5.6 %   7.2 %   6.1 %   7.3 %
                 
Sales and marketing expense   $ 8,757     $ 5,702     $ 16,984     $ 11,640  
Stock-based compensation expense   (567 )   (349 )   (996 )   (622 )
Acquisition cost   $ 8,190     $ 5,353     $ 15,988     $ 11,018  
% of revenue   8.9 %   7.3 %   8.9 %   7.7 %


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,
                       
                         
  2019   2018                        
Sales and marketing
expenses
$ 16,984     $ 11,640                          
Excluding:                              
Stock-based
compensation expense
(996 )   (622 )                        
Acquisition cost 15,988     11,018                          
Net of:                              
Sign-up fee revenue (1,437 )   (1,240 )                        
Other business segment
sales and marketing
expense
(168 )   (175 )                        
Net acquisition cost $ 14,383     $ 9,603                          
                               
  Three Months Ended
  Jun. 30,
2019
  Mar. 31,
2019
  Dec. 31,
2018
  Sept. 30,
2018
  Jun. 30,
2018
  Mar. 31,
2018
  Dec. 31,
2017
  Sept. 30,
2017
Sales and marketing
expenses
$ 8,757     $ 8,227     $ 6,994     $ 6,365     $ 5,702     $ 5,938     $ 5,781     $ 4,862  
Excluding:                              
Stock-based
compensation expense
(567 )   (429 )   (355 )   (358 )   (349 )   (273 )   (172 )   (165 )
Acquisition cost 8,190     7,798     6,639     6,007     5,353     5,665     5,609     4,697  
Net of:                              
Sign-up fee revenue (734 )   (703 )   (655 )   (693 )   (624 )   (616 )   (550 )   (558 )
Other business segment
sales and marketing
expense
(38 )   (130 )   (102 )   (99 )   (88 )   (87 )   (56 )   (51 )
Net acquisition cost $ 7,418     $ 6,965     $ 5,882     $ 5,215     $ 4,641     $ 4,962     $ 5,003     $ 4,088  
                               


The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                               
  Six Months Ended
June 30,
                       
                         
  2019   2018                        
Net loss $ (3,227 )   $ (1,857 )                        
Excluding:                              
Stock-based
compensation expense
3,230     2,254                          
Depreciation and
amortization expense
3,177     1,891                          
Interest income (754 )   (311 )                        
Interest expense 634     551                          
Other non-operating expenses 101                              
Income tax benefit (6 )   (4 )                        
Gain from equity
method investment
(125 )   (107 )                        
Adjusted EBITDA $ 3,030     $ 2,417                          
                               
  Three Months Ended
  Jun. 30,
2019
  Mar. 31,
2019
  Dec. 31,
2018
  Sept. 30,
2018
  Jun. 30,
2018
  Mar. 31,
2018
  Dec. 31,
2017
  Sept. 30,
2017
Net (loss) income $ (1,931 )   $ (1,296 )   $ (275 )   $ 1,205     $ (377 )   $ (1,480 )   $ (838 )   $ 406  
Excluding:                              
Stock-based
compensation expense
1,873     1,357     1,222     1,299     1,286     968     855     895  
Depreciation and
amortization expense
1,564     1,613     1,485     1,136     964     927     1,024     1,095  
Interest income (412 )   (342 )   (234 )   (317 )   (179 )   (132 )   (3 )   (97 )
Interest expense 317     317     311     336     332     219     163     124  
Other non-operating expenses 101                              
Income tax (benefit)
expense
(46 )   40     4     (7 )   91     (95 )   (482 )   26  
Gain from equity
method investment
(125 )               (107 )            
Adjusted EBITDA $ 1,341     $ 1,689     $ 2,513     $ 3,652     $ 2,010     $ 407     $ 719     $ 2,449  
                               


Contacts
:

Investors:
Laura Bainbridge, Head of Investor Relations
206.607.1929
InvestorRelations@trupanion.com

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