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Trupanion Reports First Quarter 2017 Results

SEATTLE, May 02, 2017 (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, 2017.

“It was a solid first quarter financially, with 28% revenue year-over-year growth and continued scale in our fixed expenses,” said Darryl Rawlings, CEO of Trupanion. “It also was our fourth consecutive quarter of positive operating cash flow. Operationally, we built momentum in the quarter, particularly around the key initiatives aimed at deepening the competitive moats around our business.”

First Quarter 2017 Financial and Business Highlights

  • Total revenue was $54.7 million, an increase of 28% compared to the first quarter of 2016.
  • Total enrolled pets (including pets from our other business segment) was 364,259 at March 31, 2017, up 19% over the prior year period.
  • Subscription business revenue was $50.2 million, an increase of 28% compared to the first quarter of 2016.
  • Subscription enrolled pets was 334,909 at March 31, 2017, up 17% over the prior year period.
  • Net loss was $(1.5) million, compared to a net loss of $(2.6) million in the first quarter of 2016.
  • Adjusted EBITDA was $0.5 million, compared to a loss of $(1.1) million in the first quarter of 2016.
  • Generated operating cash flow of $1.9 million and free cash flow of $1.4 million, compared to negative operating cash flow of $(1.3) million and negative free cash flow of $(2.0) million in the first quarter of 2016.
  • As of March 31, 2017, there were 29.8 million shares outstanding and 33.4 million shares outstanding on a fully diluted basis.

Revenue by Quarter
A chart accompanying this release is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/32d067d4-cc77-4d91-b46c-4d008ac36469

Conference Call
Trupanion’s management will host a conference call today to review its first quarter 2017 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: 13658405.

About Trupanion
Trupanion is a leading provider of 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. Trupanion is listed on the Nasdaq Stock Exchange 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 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 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; 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; the ability to protect and enforce Trupanion’s intellectual property rights; third-party claims including litigation and regulatory actions; and the ability to recognize benefits from investments in new solutions and enhancements to Trupanion’s technology platform and website.

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, 2016 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, including, without limitation, free cash flow, acquisition cost, net acquisition cost, cost of goods, variable expenses, fixed expenses, non-GAAP subscription gross profit, non-GAAP gross profit, and adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that Trupanion defines as net loss excluding stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, income tax expense (benefit), and loss (income) from equity method investment.

Trupanion’s 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. Further, stock-based compensation expense and other items used in the calculation of various metrics have been and will continue to be for the foreseeable future significant recurring expenses in Trupanion’s business. 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 allows for more meaningful comparisons between its operating results from period to period. Trupanion calculates non-GAAP gross profit by subtracting cost of goods and variable expenses from revenue. Cost of goods and variable expenses used in this calculation are non-GAAP measures which exclude stock-based compensation expense. Fixed expenses is a non-GAAP measure which excludes stock-based compensation expense and depreciation and amortization expense. Trupanion excludes sign-up fee revenue from 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 acquisition cost, net acquisition cost and the related financial measures it derives from them, as well as adjusted EBITDA, 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 for share and per share data)
Three Months Ended
March 31,
2017 2016
(unaudited)
Revenue:
Subscription business$50,229 $39,143
Other business 4,500 3,556
Total revenue 54,729 42,699
Cost of revenue:
Subscription business (1) 41,246 32,203
Other business 4,328 3,192
Total cost of revenue (2) 45,574 35,395
Gross profit:
Subscription business 8,983 6,940
Other business 172 364
Total gross profit 9,155 7,304
Operating expenses:
Sales and marketing (1) 4,089 3,840
Technology and development (1) 2,403 2,287
General and administrative (1) 4,012 3,722
Total operating expenses 10,504 9,849
Operating loss (1,349) (2,545)
Interest expense 137 30
Other income, net (28) (17)
Loss before income taxes (1,458) (2,558)
Income tax expense 24 14
Net loss$(1,482) $(2,572)
Net loss per share:
Basic and diluted$(0.05) $(0.09)
Weighted-average shares used to compute net loss per share:
Basic and diluted 29,254,681 27,999,248
(1) Includes stock-based compensation expense as follows:
Three Months Ended
March 31,
2017 2016
Cost of revenue$113 $66
Sales and marketing 187 82
Technology and development 50 55
General and administrative 431 493
Total stock-based compensation expense$781 $696
(2)The breakout of cost of revenue between claims and other cost of revenue is as follows:
Three Months Ended
March 31,
2017 2016
Claims expense$39,187 $30,604
Other cost of revenue 6,387 4,791
Total cost of revenue$45,574 $35,395


Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
March 31,
2017
December 31,
2016
(unaudited)
Assets
Current assets:
Cash and cash equivalents$21,937 $23,637
Short-term investments 30,793 29,570
Accounts and other receivables 13,513 10,118
Prepaid expenses and other assets 2,243 2,062
Total current assets 68,486 65,387
Restricted cash 600 600
Long-term investments, at fair value 2,656 2,579
Equity method investment 265 271
Property and equipment, net 7,990 8,464
Intangible assets, net 4,946 4,910
Other long-term assets 2,790 134
Total assets$87,733 $82,345
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$2,020 $2,006
Accrued liabilities 3,791 4,322
Claims reserve 10,621 9,521
Deferred revenue 17,690 13,463
Other payables 1,278 1,094
Total current liabilities 35,400 30,406
Long-term debt 4,788 4,767
Deferred tax liabilities 1,623 1,623
Other liabilities 837 834
Total liabilities 42,648 37,630
Stockholders’ equity:
Common stock, $0.00001 par value per share, 100,000,000 shares authorized at March 31, 2017 and December 31, 2016, 30,414,926 and 29,757,626 shares
issued and outstanding at March 31, 2017; 30,156,247 and 29,498,947 shares issued and outstanding at December 31, 2016
- -
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized at March 31, 2017 and December 31, 2016, and 0 shares issued and outstanding
at March 31, 2017 and December 31, 2016
- -
Additional paid-in capital 131,421 129,574
Accumulated other comprehensive loss (372) (377)
Accumulated deficit (82,763) (81,281)
Treasury stock, at cost: 657,300 shares at March 31, 2017 and December 31, 2016 (3,201) (3,201)
Total stockholders’ equity 45,085 44,715
Total liabilities and stockholders’ equity$87,733 $82,345

Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
March 31,
2017 2016
(unaudited)
Operating activities
Net loss$(1,482) $(2,572)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization 1,036 785
Stock-based compensation expense 781 696
Other, net 97 9
Changes in operating assets and liabilities:
Accounts and other receivables (3,372) (234)
Prepaid expenses and other assets (219) 153
Accounts payable 64 (200)
Accrued liabilities (598) (1,267)
Claims reserve 1,093 521
Deferred revenue 4,218 676
Other payables 239 135
Net cash provided by (used in) operating activities 1,857 (1,298)
Investing activities
Purchases of investment securities (5,172) (3,959)
Maturities of investment securities 3,871 3,700
Purchases of property and equipment (462) (653)
Other investments (2,710) (34)
Net cash used in investing activities (4,473) (946)
Financing activities
Proceeds from stock option exercises 1,037 486
(Repayment of) proceeds from debt financing and debt financing fees (40) 987
Payments on capital lease obligations (102) -
Net cash provided by financing activities 895 1,473
Effect of foreign exchange rates on cash, net 21 341
Net change in cash, cash equivalents, and restricted cash (1,700) (430)
Cash, cash equivalents, and restricted cash at beginning of period 24,237 17,956
Cash, cash equivalents, and restricted cash at end of period$22,537 $17,526

The following table sets forth our key financial and operating metrics:
Three Months Ended
Mar. 31,
2017
Dec. 31,
2016
Sep. 30,
2016
Jun. 30,
2016
Mar. 31,
2016
Dec. 31,
2015
Sept. 30,
2015
Jun. 30,
2015
Total pets enrolled (at period end) 364,259 343,649 334,070 320,896 307,298 291,818 276,988 259,948
Total subscription pets enrolled (at period end) 334,909 323,233 312,282 299,856 287,123 272,636 258,546 241,808
Monthly average revenue per pet$50.50 $49.17 $48.37 $47.39 $46.12 $45.48 $45.15 $45.10
Lifetime value of a pet (LVP)$637 $631 $624 $622 $603 $591 $591 $570
Average pet acquisition cost (PAC)$128 $133 $120 $118 $123 $132 $129 $133
Average monthly retention 98.58% 98.60% 98.61% 98.64% 98.65% 98.64% 98.66% 98.67%
Adjusted EBITDA (in thousands)$452 $302 $304 $522 $(1,066) $(1,588) $(3,211) $(3,165)

The following table reflects the reconciliation of cash provided by (used in) operating activities to free cash flow (in thousands):
Three Months Ended
March 31,
2017 2016
Net cash provided by (used in) operating activities$1,857 $(1,298)
Purchases of property and equipment (462) (653)
Free cash flow$1,395 $(1,951)

The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
Three Months Ended
March 31,
2017
2016
Claims expense $39,187 $30,604
Stock-based compensation expense (70) (58)
Cost of goods $39,117 $30,546
% of revenue 71.5% 71.5%
Other cost of revenue $6,387 $4,791
Stock-based compensation expense (43) (8)
Variable expenses $6,344 $4,783
% of revenue 11.6% 11.2%
Subscription business gross profit $8,983 $6,940
Stock-based compensation expense 113 66
Non-GAAP subscription business gross profit $9,096 $7,006
% of subscription revenue 18.1% 17.9%
Gross profit $9,155 $7,304
Stock-based compensation expense 113 66
Non-GAAP gross profit $9,268 $7,370
% of revenue 16.9% 17.3%
General and administrative expense $4,012 $3,722
Technology and development expense 2,403 2,287
Depreciation and amortization expense (1,036) (785)
Stock-based compensation expense (481) (548)
Fixed expenses $4,898 $4,676
% of revenue 8.9% 11.0%
Sales and marketing expense $4,089 $3,840
Stock-based compensation expense (187) (82)
Acquisition cost $3,902 $3,758
% of revenue 7.1% 8.8%

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,
2017
Dec. 31,
2016
Sep. 30,
2016
Jun. 30,
2016
Mar. 31,
2016
Dec. 31,
2015
Sept. 30,
2015
Jun. 30,
2015
Sales and marketing expenses $4,089 $3,951 $3,892 $3,564 $3,840 $3,919 $4,128 $3,533
Excluding:
Stock-based compensation expense (187) (113) (172) (165) (82) (104) (102) (110)
Acquisition cost 3,902 3,838 3,720 3,399 3,758 3,815 4,026 3,423
Net of:
Sign-up fee revenue (544) (526) (525) (495) (527) (506) (542) (451)
Other business segment sales and marketing expense (48) (62) (63) (55) (38) (8) (16) (30)
Net acquisition cost $3,310 $3,250 $3,132 $2,849 $3,193 $3,301 $3,468 $2,942

The following table reflects the reconciliation of adjusted EBITDA to net loss (in thousands):
Three Months Ended
Mar. 31,
2017
Dec. 31,
2016
Sep. 30,
2016
Jun. 30,
2016
Mar. 31,
2016
Dec. 31,
2015
Sept. 30,
2015
Jun. 30,
2015
Net loss $(1,482) $(1,723) $(1,637) $(964) $(2,572) $(3,001) $(4,643) $(4,625)
Excluding:
Stock-based compensation expense 781 731 776 743 696 653 749 897
Depreciation and amortization expense 1,036 1,229 1,093 739 785 741 672 563
Interest income (51) (41) (29) (26) (23) (19) (19) (18)
Interest expense 137 81 66 41 30 26 14 40
Income tax expense (benefit) 24 7 13 4 14 12 16 (22)
Loss (income) from equity method investment 7 18 22 (15) 4 - - -
Adjusted EBITDA $452 $302 $304 $522 $(1,066) $(1,588) $(3,211) $(3,165)


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

Source:Trupanion

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