• Trupanion Reports Third Quarter 2021 Results

    Source: Nasdaq GlobeNewswire / 03 Nov 2021 15:05:03   America/Chicago

    SEATTLE, Nov. 03, 2021 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the third quarter ended September 30, 2021.

    “Q3 marks the continuation of our strong momentum, as shown in our key financial measures.   We continue to grow the funds available to us to reinvest in our portfolio and deploy this capital at compounding high rates of return,” said Darryl Rawlings, founder and chief executive officer of Trupanion.

    Third Quarter 2021 Financial and Business Highlights

    • Total revenue was $181.7 million, an increase of 40% compared to the third quarter of 2020.
    • Total enrolled pets (including pets from our other business segment) was 1,104,376 at September 30, 2021, an increase of 37% over the third quarter of 2020.
    • Subscription business revenue was $127.1 million, an increase of 28% compared to the third quarter of 2020 (26% on a constant currency basis).
    • Subscription enrolled pets was 676,463 at September 30, 2021, an increase of 22% over the third quarter of 2020.
    • Net loss was $(6.8) million, or $(0.17) per basic and diluted share, compared to net loss of $(2.6) million, or $(0.07) per basic and diluted share, in the third quarter of 2020. Net loss per share was impacted by $0.10 due to an increase in stock-based compensation and by $0.03 due to an increase in depreciation and amortization when compared to the prior year period.
    • Adjusted EBITDA was $2.2 million, compared to adjusted EBITDA of $1.8 million in the third quarter of 2020.
    • Operating cash flow was $6.2 million and free cash flow was $3.5 million in the third quarter of 2021. This is compared to operating cash flow of $9.8 million and free cash flow of $8.5 million in the third quarter of 2020.

    First Nine Months of 2021 Financial and Business Highlights

    • Total revenue was $504.6 million, an increase of 40% compared to the first nine months of 2020.
    • Subscription business revenue was $360.7 million, an increase of 28% compared to the first nine months of 2020.
    • Net loss was $(28.5) million, or $(0.71) per basic and diluted share, compared to net loss of $(2.3) million, or $(0.07) per basic and diluted share, in the first nine months of 2020. Net loss per share was impacted by $0.38 due to an increase in stock-based compensation and by $0.11 due to an increase in depreciation and amortization when compared to the prior year period. The remaining year-over-year change in earnings per share primarily reflects our accelerated growth and associated acquisition spend in the first nine months of 2021.
    • Adjusted EBITDA was $1.2 million, compared to adjusted EBITDA of $9.3 million in the first nine months of 2020.
    • Operating cash flow was $2.3 million and free cash flow was $(6.2) million in the first nine months of 2021. This compared to operating cash flow of $17.6 million and free cash flow of $13.1 million in the first nine months of 2020.

    Revenue by Quarter

    A chart accompanying this announcement is available at: http://ml.globenewswire.com/Resource/Download/2bd55389-5f1d-4cfc-8121-00d815eb1a39

    Conference Call
    Trupanion’s management will host a conference call today to review its third 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: 13723054.

    About Trupanion
    Trupanion is a leader in medical insurance for cats and dogs throughout the United States, Canada and Australia with over 600,000 pets enrolled. 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. With its proprietary software, Trupanion is the only provider with the technology to pay veterinarians directly in minutes at the time of checkout. 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. Trupanion Australia is a partnership between Trupanion and Hollard 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 September 30, Nine Months Ended September 30,
     2021 2020 2021 2020
     (unaudited)
    Revenue:       
    Subscription business$127,077   $99,379   $360,742   $281,316  
    Other business54,590   30,741   143,870   78,025  
    Total revenue181,667   130,120   504,612   359,341  
    Cost of revenue:       
    Subscription business(1)103,754   81,098   299,037   229,114  
    Other business49,747   28,433   131,764   71,919  
    Total cost of revenue(2)153,501   109,531   430,801   301,033  
    Operating expenses:       
    Technology and development(1)4,391   2,426   12,201   6,839  
    General and administrative(1)8,246   5,412   22,897   15,345  
    Sales and marketing(1)19,708   13,344   58,802   33,028  
    Depreciation and amortization(3)2,944   1,666   9,195   4,770  
    Total operating expenses35,289   22,848   103,095   59,982  
    Gain (loss) from investment in joint venture(69)  2   (149)  (84) 
    Operating loss(7,192)  (2,257)  (29,433)  (1,758) 
    Interest expense—   324   1   1,044  
    Other income, net(61)  (49)  (222)  (533) 
    Gain (loss) before income taxes(7,131)  (2,532)  (29,212)  (2,269) 
    Income tax expense (benefit)(312)  26   (724)  69  
    Net loss$(6,819)  $(2,558)  $(28,488)  $(2,338) 
            
    Net loss per share:       
    Basic and diluted$(0.17)  $(0.07)  $(0.71)  $(0.07) 
    Weighted average shares of common stock outstanding:       
    Basic and diluted40,283,818   35,426,742   40,044,518   35,193,317  
            
    (1)Includes stock-based compensation expense as follows:

    		Three Months Ended September 30,
    		 Nine Months Ended September 30,
     
     2021 2020 2021 2020
    Cost of revenue$1,311   $448   $5,769   $1,060  
    Technology and development749   133   2,213   366  
    General and administrative2,271   1,108   6,412   2,912  
    Sales and marketing2,112   741   7,024   1,972  
    Total stock-based compensation expense$6,443   $2,430   $21,418   $6,310  
            
    (2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
     Three Months Ended September 30, Nine Months Ended September 30,
     2021 2020 2021 2020
    Veterinary invoice expense$125,058   $91,266   $353,210   $252,955  
    Other cost of revenue28,443   18,265   77,591   48,078  
    Total cost of revenue$153,501   $109,531   $430,801   $301,033  
            
    (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)
     September 30, 2021 December 31, 2020
     (unaudited)  
    Assets   
    Current assets:   
    Cash and cash equivalents$109,641   $139,878  
    Short-term investments111,885   89,862  
    Accounts and other receivables157,945   99,065  
    Prepaid expenses and other assets11,077   8,222  
    Total current assets390,548   337,027  
    Restricted cash6,324   6,319  
    Long-term investments, at fair value6,605   5,566  
    Property and equipment, net75,432   72,602  
    Intangible assets, net23,530   27,134  
    Other long-term assets15,688   16,557  
    Goodwill32,583   33,045  
    Total assets$550,710   $498,250  
    Liabilities and stockholders’ equity   
    Current liabilities:   
    Accounts payable$6,482   $6,059  
    Accrued liabilities and other current liabilities25,865   22,864  
    Reserve for veterinary invoices38,750   28,929  
    Deferred revenue140,125   92,547  
    Total current liabilities211,222   150,399  
    Deferred tax liabilities3,803   4,705  
    Other liabilities3,712   3,207  
    Total liabilities218,737   158,311  
    Stockholders’ equity:   
    Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 41,296,940 and 40,363,775 issued and outstanding at September 30, 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 capital460,339   439,007  
    Accumulated other comprehensive loss2,261   3,071  
    Accumulated deficit(119,848)  (91,360) 
    Treasury stock, at cost: 933,165 shares at September 30, 2021 and 933,165 shares at December 31, 2020(10,779)  (10,779) 
    Total stockholders’ equity331,973   339,939  
    Total liabilities and stockholders’ equity$550,710   $498,250  


    Trupanion, Inc.
    Consolidated Statements of Cash Flows
    (in thousands)
     Three Months Ended September 30, Nine Months Ended September 30,
     2021 2020 2021 2020
     (unaudited)
    Operating activities       
    Net loss$(6,819)  $(2,558)  $(28,488)  $(2,338) 
    Adjustments to reconcile net loss to cash provided by operating activities:       
    Depreciation and amortization2,944   1,666   9,195   4,770  
    Stock-based compensation expense6,443   2,430   21,418   6,310  
    Other, net(386)  16   (931)  118  
    Changes in operating assets and liabilities:       
    Accounts and other receivables(17,977)  (11,966)  (58,773)  (38,068) 
    Prepaid expenses and other assets170   (1,535)  (1,922)  (1,979) 
    Accounts payable, accrued liabilities, and other liabilities5,225   6,086   4,353   6,602  
    Reserve for veterinary invoices2,984   4,428   9,854   7,692  
    Deferred revenue13,640   11,239   47,596   34,473  
    Net cash provided by operating activities6,224   9,806   2,302   17,580  
    Investing activities       
    Purchases of investment securities(18,915)  (17,422)  (62,288)  (43,972) 
    Maturities of investment securities8,486   9,013   39,066   29,817  
    Purchases of property, equipment and intangible assets(2,767)  (1,273)  (8,537)  (4,512) 
    Other25   (19)  (48)  88  
    Net cash used in investing activities(13,171)  (9,701)  (31,807)  (18,579) 
    Financing activities       
    Proceeds from exercise of stock options698   2,629   3,056   4,296  
    Shares withheld to satisfy tax withholding(979)  (215)  (3,730)  (656) 
    Borrowings from line of credit, net of financing fees—   2,478   —   6,213  
    Repayments to line of credit—   —   —   (2,500) 
    Other financing—   —   —   (78) 
    Net cash (used in) provided by financing activities(281)  4,892   (674)  7,275  
    Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net(461)  220   (53)  (214) 
    Net change in cash, cash equivalents, and restricted cash(7,689)  5,217   (30,232)  6,062  
    Cash, cash equivalents, and restricted cash at beginning of period123,654   31,413   146,197   30,568  
    Cash, cash equivalents, and restricted cash at end of period$115,965   $36,630   $115,965   $36,630  


    The following tables set forth our key operating metrics:
                    
     Nine Months Ended September 30,

    		            
                 
     2021 2020            
    Total Business:               
    Total pets enrolled (at period end)1,104,376   804,251              
    Subscription Business:               
    Total subscription pets enrolled (at period end)676,463   552,909              
    Monthly average revenue per pet$63.43   $59.77              
    Lifetime value of a pet, including fixed expenses$697   $615              
    Average pet acquisition cost (PAC)$281   $237              
    Average monthly retention98.72 % 98.69 %            
                    
                    
     Three Months Ended
     Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Dec. 31, 2020 Sept. 30, 2020 Jun. 30, 2020 Mar. 31, 2020 Dec. 31, 2019
    Total Business:               
    Total pets enrolled (at period end)1,104,376   1,024,226   943,854   862,928   804,251   744,727   687,435   646,728  
    Subscription Business:               
    Total subscription pets enrolled (at period end)676,463   643,395   609,835   577,957   552,909   529,400   508,480   494,026  
    Monthly average revenue per pet$63.60   $63.69   $62.97   $62.03   $60.87   $59.40   $58.96   $58.58  
    Lifetime value of a pet, including fixed expenses$697   $681   $684   $653   $615   $597   $535   $523  
    Average pet acquisition cost (PAC)$280   $284   $279   $272   $261   $199   $247   $222  
    Average monthly retention98.72 % 98.72 % 98.73 % 98.71 % 98.69 % 98.66 % 98.59 % 98.58 %


    The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
            
     Three Months Ended September 30, Nine Months Ended September 30,
     2021 2020 2021 2020
    Net cash provided by operating activities$6,224   $9,806   $2,302   $17,580  
    Purchases of property and equipment(2,767)  (1,273)  (8,537)  (4,512) 
    Free cash flow$3,457   $8,533   $(6,235)  $13,068  


    The following table reflects the reconciliation between GAAP and non-GAAP measures (in thousands except percentages):
      Three Months Ended September 30, Nine Months Ended September 30,
      2021 2020 2021 2020
    Veterinary invoice expense $125,058   $91,266   $353,210   $252,955  
    Excluding:        
    Stock-based compensation expense (769)  (337)  (3,740)  (760) 
    Other business cost of paying veterinary invoices (34,432)  (19,394)  (91,605)  (49,865) 
    Subscription cost of paying veterinary invoices $89,857   $71,535   $257,865   $202,330  
    % of subscription revenue 70.7 % 72.0 % 71.5 % 71.9 %
             
    Other cost of revenue $28,443   $18,265   $77,591   $48,078  
    Excluding:        
    Stock-based compensation expense (542)  (111)  (2,029)  (300) 
    Other business variable expenses (15,315)  (9,039)  (40,159)  (22,054) 
    Subscription variable expenses $12,586   $9,115   $35,403   $25,724  
    % of subscription revenue 9.9 % 9.2 % 9.8 % 9.1 %
             
    Technology and development expense $4,391   $2,426   $12,201   $6,839  
    General and administrative expense 8,246   5,412   22,897   15,345  
    Excluding:        
    Stock-based compensation expense (3,020)  (1,241)  (8,625)  (3,278) 
    Development expenses1 (919)  —   (2,861)  —  
    Business combination transaction costs2 —   —   (82)  —  
    Fixed expenses $8,698   $6,597   $23,530   $18,906  
    % of total revenue 4.8 % 5.1 % 4.7 % 5.3 %
             
    Sales and marketing expense $19,708   $13,344   $58,802   $33,028  
    Excluding:        
    Stock-based compensation expense (2,112)  (741)  (7,024)  (1,972) 
    Other business acquisition cost (134)  (265)  (423)  (619) 
    Subscription acquisition cost $17,462   $12,338   $51,355   $30,437  
    % of subscription revenue 13.7 % 12.4 % 14.2 % 10.8 %
             
    Technology and development $4,391   $2,426   $12,201   $6,839  
    Excluding:        
    Stock-based compensation expense (749)  (133)  (2,213)  (366) 
    Technology expenses (2,723)  (2,293)  (7,127)  (6,473) 
    Development expenses1 $919   $—   $2,861   $—  
    % of total revenue 0.5 % — % 0.6 % — %
             
    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 tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                    
     Nine Months Ended September 30,

    		            
                 
     2021 2020            
    Sales and marketing expenses$58,802   $33,028              
    Excluding:               
    Stock-based compensation expense(7,024)  (1,972)             
    Acquisition cost51,778   31,056              
    Net of:               
    Sign-up fee revenue(3,792)  (2,373)             
    Other business segment sales and marketing expense(423)  (619)             
    Net acquisition cost$47,563   $28,064              
                    
     Three Months Ended
     Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Dec. 31, 2020 Sept. 30, 2020 Jun. 30, 2020 Mar. 31, 2020 Dec. 31, 2019
    Sales and marketing expenses$19,708   $19,390   $19,704   $14,809   $13,344   $9,242   $10,442   $9,212  
    Excluding:               
    Stock-based compensation expense(2,112)  (2,181)  (2,731)  (801)  (741)  (675)  (556)  (547) 
    Acquisition cost17,596   17,209   16,973   14,008   12,603   8,567   9,886   8,665  
    Net of:               
    Sign-up fee revenue(1,268)  (1,260)  (1,264)  (919)  (827)  (781)  (765)  (730) 
    Other business segment sales and marketing expense(134)  (118)  (171)  (201)  (265)  (191)  (163)  (152) 
    Net acquisition cost$16,194   $15,831   $15,538   $12,888   $11,511   $7,595   $8,958   $7,783  


    The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                    
     Nine Months Ended September 30,

    		            
                 
     2021 2020            
    Net loss$(28,488)  $(2,338)             
    Excluding:               
    Stock-based compensation expense21,418   6,310              
    Depreciation and amortization expense9,195   4,770              
    Interest income(257)  (545)             
    Interest expense1   1,044              
    Other non-operating expenses2   98              
    Income tax (benefit) expense(724)  69              
    Business combination transaction costs82   —              
    (Gain) loss from equity method investment6   (117)             
    Adjusted EBITDA$1,235   $9,291              
                    
     Three Months Ended
     Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Dec. 31, 2020 Sept. 30, 2020 Jun. 30, 2020 Mar. 31, 2020 Dec. 31, 2019
    Net (loss) income$(6,819)  $(9,221)  $(12,448)  $(3,502)  $(2,558)  $1,353   $(1,133)  $636  
    Excluding:               
    Stock-based compensation expense6,443   6,527   8,448   2,602   2,430   2,227   1,653   1,771  
    Depreciation and amortization expense2,944   3,158   3,093   2,301   1,666   1,723   1,381   1,274  
    Interest income(85)  (84)  (88)  (83)  (74)  (134)  (337)  (516) 
    Interest expense—   3   (2)  337   324   341   379   375  
    Other non-operating expenses(1)  3   —   1   2   44   52   (22) 
    Income tax (benefit) expense(312)  (195)  (217)  44   26   17   26   157  
    Business combination transaction costs—   —   82   522   —   —   —   —  
    (Gain) loss from equity method investment—   6   —   —   —   (117)  —   —  
    Adjusted EBITDA$2,170   $197   $(1,132)  $2,222   $1,816   $5,454   $2,021   $3,675  
                    

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


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