• Trupanion Reports First Quarter 2021 Results

    Source: Nasdaq GlobeNewswire / 29 Apr 2021 16:05:01   America/New_York

    SEATTLE, April 29, 2021 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the first quarter ended March 31, 2021.

    “2021 is off to a flying start, with revenues up 39% year-over-year, led by growth in subscription pets,” said Darryl Rawlings, founder and chief executive officer of Trupanion. “We’re well positioned in a large, underpenetrated market and have the capital to continue to grow at these accelerated rates.”

    First Quarter 2021 Financial and Business Highlights

    • Total revenue was $154.7 million, an increase of 39% compared to the first quarter of 2020.
    • Total enrolled pets (including pets from our other business segment) was 943,854 at March 31, 2021, an increase of 37% over the first quarter of 2020.
    • Subscription business revenue was $113.3 million, an increase of 27% compared to the first quarter of 2020.
    • Subscription enrolled pets was 609,835 at March 31, 2021, an increase of 20% over the first quarter of 2020.
    • Net loss was $(12.4) million, or $(0.31) per basic and diluted share, which is inclusive of stock-based compensation expense of $8.4 million, or $0.21 per share. The amount of stock-based compensation recognized largely reflects the timing and vesting of annual performance grants, including Q1 grants for the Company's strong 2020 performance. Of the $8.4 million, $4.3 million related to a one-time 2020 performance grant, shared with the entire team, which was fully recognized during the quarter. This is compared to a net loss of $(1.1) million, or $(0.03) per basic and diluted share, in the first quarter of 2020.
    • Adjusted EBITDA was $(1.1) million, compared to adjusted EBITDA of $2.0 million in the first quarter of 2020.
    • Operating cash flow was $(1.7) million and free cash flow was $(4.6) million in the first quarter of 2021. This compared to operating cash flow of $2.9 million and free cash flow of $1.4 million in the first quarter of 2020.

    Revenue by Quarter
    A chart accompanying this announcement is available at:
    http://ml.globenewswire.com/Resource/Download/a479b0a6-e70c-48b6-9fc8-a9cd7a1dca14

    Conference Call
    Trupanion’s management will host a conference call today to review its first quarter 2021 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: 13718006.

    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, 2020 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 March 31,
      2021 2020
     (unaudited)
    Revenue:    
    Subscription business $113,292  $89,484 
    Other business 41,393  21,817 
    Total revenue 154,685  111,301 
    Cost of revenue:    
    Subscription business(1) 95,537  73,422 
    Other business 38,048  20,027 
    Total cost of revenue(2) 133,585  93,449 
    Operating expenses:    
    Technology and development(1) 3,731  2,120 
    General and administrative(1) 7,216  4,860 
    Sales and marketing(1) 19,704  10,442 
    Depreciation and amortization(3) 3,093  1,381 
    Total operating expenses 33,744  18,803 
    Gain (loss) from investment in joint venture (85) (59)
    Operating income (loss) (12,729) (1,010)
    Interest expense (2) 379 
    Other income, net (62) (282)
    Gain (loss) before income taxes (12,665) (1,107)
    Income tax expense (benefit) (217) 26 
    Net income (loss) $(12,448) $(1,133)
         
    Net income (loss) per share:    
    Basic and diluted $(0.31) $(0.03)
    Weighted average shares of common stock outstanding:    
    Basic and diluted 39,700,454  35,007,052 
         
    (1) Includes stock-based compensation expense as follows:

    		 Three Months Ended March 31,
            
      2021 2020
    Cost of revenue $3,234  $268 
    Technology and development 664  100 
    General and administrative 1,819  729 
    Sales and marketing 2,731  556 
    Total stock-based compensation expense $8,448  $1,653 
         
    (2) The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
      Three Months Ended March 31,
      2021 2020
    Veterinary invoice expense $109,870  $79,640 
    Other cost of revenue 23,715  13,809 
    Total cost of revenue $133,585  $93,449 
         
    (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)
     March 31, 2021 December 31, 2020
     (unaudited)  
    Assets   
    Current assets:   
    Cash and cash equivalents$133,126  $139,878 
    Short-term investments91,331  89,862 
    Accounts and other receivables117,884  99,065 
    Prepaid expenses and other assets9,664  8,222 
    Total current assets352,005  337,027 
    Restricted cash6,321  6,319 
    Long-term investments, at fair value5,808  5,566 
    Property and equipment, net73,664  72,602 
    Intangible assets, net26,105  27,134 
    Other long-term assets16,468  16,557 
    Goodwill33,327  33,045 
    Total assets$513,698  $498,250 
    Liabilities and stockholders’ equity   
    Current liabilities:   
    Accounts payable$5,262  $6,059 
    Accrued liabilities and other current liabilities23,365  22,864 
    Reserve for veterinary invoices30,135  28,929 
    Deferred revenue110,912  92,547 
    Total current liabilities169,674  150,399 
    Deferred tax liabilities4,477  4,705 
    Other liabilities3,470  3,207 
    Total liabilities177,621  158,311 
    Stockholders’ equity:   
    Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 40,989,571 and 40,056,406 issued and outstanding at March 31, 2021; 40,383,972 and 39,450,807 shares issued and outstanding at December 31, 2020—  — 
    Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding—  — 
    Additional paid-in capital446,975  439,007 
    Accumulated other comprehensive loss3,689  3,071 
    Accumulated deficit(103,808) (91,360)
    Treasury stock, at cost: 933,165 shares at March 31, 2021 and 933,165 shares at December 31, 2020(10,779) (10,779)
    Total stockholders’ equity336,077  339,939 
    Total liabilities and stockholders’ equity$513,698  $498,250 


     
    Trupanion, Inc.
    Consolidated Statements of Cash Flows
    (in thousands)
     Three Months Ended March 31,
     2021 2020
        
     (unaudited)
    Operating activities   
    Net loss$(12,448) $(1,133)
    Adjustments to reconcile net loss to cash provided by operating activities:   
    Depreciation and amortization3,093  1,381 
    Stock-based compensation expense8,448  1,653 
    Other, net(230) 73 
    Changes in operating assets and liabilities:   
    Accounts and other receivables(18,805) (11,697)
    Prepaid expenses and other assets(1,331) (195)
    Accounts payable, accrued liabilities, and other liabilities35  1,322 
    Reserve for veterinary invoices1,179  1,825 
    Deferred revenue18,324  9,695 
    Net cash (used in) provided by operating activities(1,735) 2,924 
    Investing activities   
    Purchases of investment securities(12,157) (11,579)
    Maturities of investment securities10,478  5,100 
    Purchases of property, equipment and intangible assets(2,883) (1,496)
    Other(40) 9 
    Net cash used in investing activities(4,602) (7,966)
    Financing activities   
    Proceeds from exercise of stock options1,238  559 
    Shares withheld to satisfy tax withholding(1,881) (321)
    Borrowings from line of credit, net of financing fees—  3,744 
    Other financing—  (78)
    Net cash (used in) provided by financing activities(643) 3,904 
    Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net230  (809)
    Net change in cash, cash equivalents, and restricted cash(6,750) (1,947)
    Cash, cash equivalents, and restricted cash at beginning of period146,197  30,568 
    Cash, cash equivalents, and restricted cash at end of period$139,447  $28,621 


     
    The following table sets forth our key operating metrics:
                    
     Three Months Ended
     Mar. 31,
    2021    		 Dec. 31,
    2020    		 Sept. 30,
    2020    		 Jun. 30,
    2020    		 Mar. 31,
    2020    		 Dec. 31,
    2019    		 Sept. 30,
    2019    		 Jun. 30,
    2019
    Total Business:               
    Total pets enrolled (at period end)943,854  862,928  804,251  744,727  687,435  646,728  613,694  577,686 
    Subscription Business:               
    Total subscription pets enrolled (at period end)609,835  577,957  552,909  529,400  508,480  494,026  479,427  461,314 
    Monthly average revenue per pet$62.97  $62.03  $60.87  $59.40  $58.96  $58.58  $58.12  $57.11 
    Lifetime value of a pet, including fixed expenses$684  $653  $615  $597  $535  $523  $511  $482 
    Average pet acquisition cost (PAC)$279  $272  $261  $199  $247  $222  $208  $213 
    Average monthly retention98.73% 98.71% 98.69% 98.66% 98.59% 98.58% 98.59% 98.57%


     
    The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
        
     Three Months Ended March 31,
     2021 2020
    Net cash (used in) provided by operating activities$(1,735) $2,924 
    Purchases of property and equipment(2,883) (1,496)
    Free cash flow$(4,618) $1,428 


     
    The following table reflects the reconciliation between GAAP and non-GAAP measures (in thousands except percentages):
      Three Months Ended March 31,
      2021 2020
    Veterinary invoice expense $109,870   $79,640  
    Excluding:    
    Stock-based compensation expense (2,299)  (178) 
    Other business cost of paying veterinary invoices (26,144)  (14,452) 
    Subscription cost of paying veterinary invoices $81,427   $65,010  
    % of subscription revenue 71.9 % 72.6 %
         
    Other cost of revenue $23,715   $13,809  
    Excluding:    
    Stock-based compensation expense (935)  (90) 
    Other business variable expenses (11,904)  (5,575) 
    Subscription variable expenses $10,876   $8,144  
    % of subscription revenue 9.6 % 9.1 %
         
    Technology and development expense $3,731   $2,120  
    General and administrative expense 7,216   4,860  
    Excluding:    
    Stock-based compensation expense (2,483)  (829) 
    Development expenses1 (821)  —  
    Business combination transaction costs2 (82)  —  
    Fixed expenses $7,561   $6,151  
    % of total revenue 4.9 % 5.5 %
         
    Sales and marketing expense $19,704   $10,442  
    Excluding:    
    Stock-based compensation expense (2,731)  (556) 
    Other business acquisition cost (171)  (163) 
    Subscription acquisition cost $16,802   $9,723  
    % of subscription revenue 14.8 % 10.9 %
         
    Technology and development $3,731   $2,120  
    Excluding:    
    Stock-based compensation expense (664)  (100) 
    Technology expenses (2,246)  (2,020) 
    Development expenses1 $821   $—  
    % of total revenue 0.5 % — %
         
    1As we enter the next phase of our growth, we expect to invest in initiatives that are pre-revenue, including adding new products and international expansion. These development expenses are costs related to product exploration and development that are pre-revenue and historically have been insignificant. We view these activities as uses of our adjusted operating income separate from pet acquisition spend.
    2These one-time expenses related to our acquisition of a software business, primarily related to legal and transaction costs incurred.


     
    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,
    2021    		 Dec. 31,
    2020    		 Sept. 30,
    2020    		 Jun. 30,
    2020    		 Mar. 31,
    2020    		 Dec. 31,
    2019    		 Sept. 30,
    2019    		 Jun. 30,
    2019
    Sales and marketing expenses$19,704  $14,809  $13,344  $9,242  $10,442  $9,212  $9,255  $8,757 
    Excluding:               
    Stock-based compensation expense(2,731) (801) (741) (675) (556) (547) (577) (567)
    Acquisition cost16,973  14,008  12,603  8,567  9,886  8,665  8,678  8,190 
    Net of:               
    Sign-up fee revenue(1,264) (919) (827) (781) (765) (730) (790) (734)
    Other business segment sales and marketing expense(171) (201) (265) (191) (163) (152) (94) (38)
    Net acquisition cost$15,538  $12,888  $11,511  $7,595  $8,958  $7,783  $7,794  $7,418 


     
    The following table reflects the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                    
     Three Months Ended
     Mar. 31,
    2021    		 Dec. 31,
    2020    		 Sept. 30,
    2020    		 Jun. 30,
    2020    		 Mar. 31,
    2020    		 Dec. 31,
    2019    		 Sept. 30,
    2019    		 Jun. 30,
    2019
    Net (loss) income$(12,448) $(3,502) $(2,558) $1,353  $(1,133) $636  $782  $(1,931)
    Excluding:               
    Stock-based compensation expense8,448  2,602  2,430  2,227  1,653  1,771  1,845  1,873 
    Depreciation and amortization expense3,093  2,301  1,666  1,723  1,381  1,274  1,181  1,564 
    Interest income(88) (83) (74) (134) (337) (516) (411) (412)
    Interest expense(2) 337  324  341  379  375  340  317 
    Other non-operating expenses—  1  2  44  52  (22) 122  101 
    Income tax (benefit) expense(217) 44  26  17  26  157  18  (46)
    Business combination transaction costs82  522  —  —  —  —  —  — 
    Gain from equity method investment—  —  —  (117) —  —  —  (125)
    Adjusted EBITDA$(1,132) $2,222  $1,816  $5,454  $2,021  $3,675  $3,877  $1,341 
                    

    Contacts:

    Investors:
    Laura Bainbridge, Vice President, Corporate Communications
    206.607.1929
    InvestorRelations@trupanion.com 


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