Trupanion Reports First Quarter 2018 Results

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
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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

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