Trupanion Reports First Quarter 2018 Results

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| Source: Trupanion, Inc.

SEATTLE, May 01, 2018 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq:TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the first quarter ended March 31, 2018.

“We had a solid start to the year, with strong revenue growth in both our subscription and other businesses,” said Darryl Rawlings, CEO of Trupanion. “We also continue to move the ball forward on our key strategic initiatives, including accelerating the deployment of Trupanion Express.”  

First Quarter 2018 Financial and Business Highlights

  • Total revenue was $69.8 million, an increase of 27% compared to the first quarter of 2017.
  • Total enrolled pets (including pets from our other business segment) was 446,533 at March 31, 2018, an increase of 23% over March 31, 2017.
  • Subscription business revenue was $61.5 million, an increase of 22% compared to the first quarter of 2017.
  • Subscription enrolled pets was 385,640 at March 31, 2018, an increase of 15% over March 31, 2017.
  • Net loss was $(1.5) million, or $(0.05) per basic and diluted share, flat with the first quarter of 2017.
  • Adjusted EBITDA was $0.4 million, compared to adjusted EBITDA of $0.5 million in the first quarter of 2017.
  • Operating cash flow was $2.1 million and free cash flow was $1.1 million, compared to operating cash flow of $1.9 million and free cash flow of $1.4 million in the first quarter of 2017.

Revenue by Quarter

A chart accompanying this announcement is available at 
http://resource.globenewswire.com/Resource/Download/82e51c71-c31f-44d5-ab81-0ea6ea2a2d83

Conference Call
Trupanion’s management will host a conference call today to review its first quarter 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: 13678512.

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 helped provide peace of mind to pet owners 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. 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 per share data) 
       
 Three Months Ended 
 March 31, 
 2018  2017  
 (unaudited) 
Revenue:      
Subscription business$  61,517  $  50,229  
Other business   8,243     4,500  
Total revenue   69,760     54,729  
Cost of revenue:      
Subscription business (1)   51,014     41,246  
Other business   7,682     4,328  
  Total cost of revenue (2)   58,696     45,574  
Gross profit:      
Subscription business   10,503     8,983  
Other business   561     172  
Total gross profit   11,064     9,155  
Operating expenses:      
Technology and development (1)   2,164     2,403  
General and administrative (1)   4,458     4,012  
Sales and marketing (1)   5,938     4,089  
Total operating expenses   12,560     10,504  
Operating loss   (1,496)    (1,349) 
Interest expense   219     137  
Other (income) expense, net   (140)    (28) 
Loss before income taxes   (1,575)    (1,458) 
Income tax (benefit) expense   (95)    24  
Net loss$  (1,480) $  (1,482) 
       
Net loss per share:      
  Basic and diluted$  (0.05) $  (0.05) 
Weighted-average common shares outstanding:      
  Basic and diluted   30,246,585     29,254,681  
       
(1) Includes stock-based compensation expense as follows:      
 Three Months Ended 
 March 31, 
 2018  2017  
Cost of revenue$  197  $  113  
Technology and development   49     50  
General and administrative   449     431  
Sales and marketing   273     187  
Total stock-based compensation expense$  968  $  781  
       
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows: 
       
 Three Months Ended 
 March 31, 
 2018  2017  
Veterinary invoice expense $   50,113   $   39,187  
Other cost of revenue   8,583     6,387  
      Total cost of revenue $   58,696   $   45,574  
       


  
TRUPANION, INC. 
Consolidated Balance Sheets 
(in thousands, except per share data) 
     
   
   
 March 31, 2018 December 31, 2017 
 (unaudited)   
Assets    
Current assets:    
Cash and cash equivalents$  30,786  $  25,706  
Short-term investments   39,360     37,590  
Accounts and other receivables   24,317     20,367  
Prepaid expenses and other assets   3,046     2,895  
Total current assets   97,509     86,558  
Restricted cash   600     600  
Long-term investments, at fair value   3,238     3,237  
Property and equipment, net   8,275     7,868  
Intangible assets, net   5,000     4,972  
Other long term assets   2,596     2,624  
Total assets$ 117,218  $  105,859  
Liabilities and stockholders’ equity    
Current liabilities:    
Accounts payable$  3,343  $  2,716  
Accrued liabilities and other current liabilities   8,347     7,660  
Reserve for veterinary invoices   13,450     12,756  
Deferred revenue   26,757     22,734  
Total current liabilities   51,897     45,866  
Long-term debt   14,851     9,324  
Deferred tax liabilities   1,002     1,002  
Other liabilities   1,221     1,233  
Total liabilities   68,971     57,425  
Stockholders’ equity:    
Common stock, $0.00001 par value, 100,000,000 shares authorized; 31,181,627 and 30,430,915 shares issued and outstanding at March 31, 2018; 30,778,796 and 30,121,496 shares issued and outstanding at December 31, 2017   -      -   
Preferred stock: $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding   -      -   
Additional paid-in capital  139,009     134,511  
Accumulated other comprehensive loss   (297)    (92) 
Accumulated deficit  (84,264)    (82,784) 
Treasury stock, at cost: 755,985 shares at March 31, 2018 and 657,300 shares at December 31, 2017   (6,201)    (3,201) 
Total stockholders’ equity   48,247     48,434  
Total liabilities and stockholders’ equity$ 117,218  $  105,859  


  
  
TRUPANION, INC. 
Consolidated Statements of Cash Flows 
(in thousands) 
 Three Months Ended 
 March 31, 
  2018   2017  
 (unaudited) 
Operating activities    
Net loss$  (1,480) $  (1,482) 
Adjustments to reconcile net loss to cash provided by operating activities:    
Depreciation and amortization   927     1,036  
Stock-based compensation expense   968     781  
Other, net   23     97  
Changes in operating assets and liabilities:    
Accounts and other receivables   (3,926)    (3,372) 
Prepaid expenses and other assets   (129)    (219) 
Accounts payable, accrued liabilities, and other liabilities   910     (295) 
Reserve for veterinary invoices   743     1,093  
Deferred revenue   4,041     4,218  
Net cash provided by operating activities   2,077     1,857  
Investing activities    
Purchases of investment securities   (7,140)    (5,172) 
Maturities of investment securities   5,300     3,871  
Purchases of property and equipment   (992)    (462) 
Other investments   -      (2,710) 
Net cash used in investing activities   (2,832)    (4,473) 
Financing activities    
Proceeds from exercise of stock options   481     1,037  
Proceeds from debt financing, net of financing fees   5,500     -   
Other financing   (216)    (142) 
Net cash provided by financing activities   5,765     895  
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net   70     21  
Net change in cash, cash equivalents, and restricted cash   5,080     (1,700) 
Cash, cash equivalents, and restricted cash at beginning of period   26,306     24,237  
Cash, cash equivalents, and restricted cash at end of period$  31,386  $  22,537  
     


The following table sets forth our key operating metrics:               
                 
 Three Months Ended 
 Mar. 31,
2018
 Dec. 31,
2017
 Sep. 30,
2017
 Jun. 30,
2017
 Mar. 31,
2017
 Dec. 31,
2016
 Sep. 30,
2016
 Jun. 30,
2016
 
Total subscription pets enrolled (at period end)   385,640     371,683     359,102     346,409     334,909     323,233     312,282     299,856  
Total pets enrolled (at period end)   446,533     423,194     404,069     383,293     364,259     343,649     334,070     320,896  
Monthly average revenue per pet$  53.62  $  53.17  $  52.95  $  51.47  $  50.50  $  49.17  $  48.37  $  47.39  
Lifetime value of a pet (LVP)$  727  $  727  $  701  $  654  $  637  $  631  $  624  $  622  
Average pet acquisition cost (PAC)$  165  $  184  $  151  $  143  $  128  $  133  $  120  $  118  
Average monthly retention 98.63%  98.63%  98.61%  98.57%  98.58%  98.60%  98.61%  98.64% 
                 


      
 The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands): 
      
  Three Months Ended 
  March 31, 
   2018   2017  
 Net cash provided by operating activities$  2,077  $  1,857  
 Purchases of property and equipment   (992)    (462) 
 Free cash flow$  1,085  $  1,395  


          
 The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages): 
          
   Three Months Ended
March 31,
  
   2018  2017   
 Veterinary invoice expense $  50,113  $  39,187   
 Stock-based compensation expense    (120)    (70)  
 Cost of goods $  49,993  $  39,117   
 % of revenue  71.7%  71.5%  
          
 Other cost of revenue $  8,583  $  6,387   
 Stock-based compensation expense    (77)    (43)  
 Variable expenses $  8,506  $  6,344   
 % of revenue  12.2%  11.6%  
          
 Subscription gross profit $  10,503  $  8,983   
 Stock-based compensation expense    197     113   
 Non-GAAP subscription gross profit $  10,700  $  9,096   
 % of subscription revenue  17.4%  18.1%  
          
 Gross profit $  11,064  $  9,155   
 Stock-based compensation expense    197     113   
 Non-GAAP gross profit $  11,261  $  9,268   
 % of revenue  16.1%  16.9%  
          
 Technology and development expense $  2,164  $  2,403   
 General and administrative expense    4,458     4,012   
 Depreciation and amortization expense    (927)    (1,036)  
 Stock-based compensation expense    (498)    (481)  
 Fixed expenses $  5,197  $  4,898   
 % of revenue  7.4%  8.9%  
          
 Sales and marketing expense $  5,938  $  4,089   
 Stock-based compensation expense    (273)    (187)  
 Acquisition cost $  5,665  $  3,902   
 % of revenue  8.1%  7.1%  
          


The following table reflects the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):    
                   
  Three Months Ended 
  Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
 Mar. 31,
2017
 Dec. 31,
2016
 Sep. 30,
2016
 Jun. 30,
2016
  
Sales and marketing expenses $  5,938  $  5,781  $  4,862  $  4,372  $  4,089  $  3,951  $  3,892  $  3,564   
Excluding:                  
Stock-based compensation expense    (273)    (172)    (165)    (198)    (187)    (113)    (172)    (165)  
Acquisition cost    5,665     5,609     4,697     4,174     3,902     3,838     3,720     3,399   
Net of:                  
Sign-up fee revenue    (616)    (550)    (558)    (517)    (544)    (526)    (525)    (495)  
Other business segment sales and marketing expense    (87)    (56)    (51)    (63)    (48)    (62)    (63)    (55)  
Net acquisition cost $  4,962  $  5,003  $  4,088  $  3,594  $  3,310  $  3,250  $  3,132  $  2,849   
                   


The following table reflects the reconciliation of adjusted EBITDA to net loss (in thousands):          
                   
  Three Months Ended 
  Mar. 31,
2018
 Dec. 31,
2017
 Sept. 30,
2017
 Jun. 30,
2017
 Mar. 31,
2017
 Dec. 31,
2016
 Sep. 30,
2016
 Jun. 30,
2016
  
Net loss $  (1,480) $  (838) $  406  $  411  $  (1,482) $  (1,723) $ (1,637) $  (964)  
Excluding:                  
Stock-based compensation expense    968     855     895     888     781     731     776   743   
Depreciation and amortization expense    927     1,024     1,095     1,077     1,036     1,229     1,093   739   
Interest income    (132)    (3)    (97)    (76)    (51)    (41)    (29)    (26)  
Interest expense    219     163     124     109     137     81     66     41   
Income tax (benefit) expense    (95)    (482)    26     4     24     7     13     4   
(Gain) loss from equity method investment    -      -      -      (1,036)    7     18     22     (15)  
Adjusted EBITDA $  407  $  719  $  2,449  $  1,377  $  452  $  302  $  304  $  522   
                   

Contacts

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

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