Trupanion Reports Fourth Quarter and Full Year 2017 Results

SEATTLE, Feb. 13, 2018 (GLOBE NEWSWIRE) — Trupanion, Inc. (Nasdaq:TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the fourth quarter and full year ended December 31, 2017.

“We are pleased with our fourth quarter results, which capped off a solid year both operationally and financially.  Revenue grew within our 20 – 30% target range and we meaningfully increased the funds available to us to invest in pet acquisition,” said Darryl Rawlings, CEO of Trupanion. “We plan to allocate additional funds to our test spend in 2018, with the goal of better understanding the levers that can drive enrolled pet growth while also meeting our internal rate of return targets over time.”  

Fourth Quarter 2017 Financial and Business Highlights

  • Total revenue was $66.5 million, an increase of 30% compared to the fourth quarter of 2016 (28% on a constant currency basis).
  • Total enrolled pets (including pets from our other business segment) was 423,194 at December 31, 2017, an increase of 23% over December 31, 2016.
  • Subscription business revenue was $59.0 million, an increase of 24% compared to the fourth quarter of 2016.
  • Subscription enrolled pets was 371,683 at December 31, 2017, an increase of 15% over December 31, 2016.
  • Net loss was $(0.8) million, or $(0.03) per basic and diluted share, compared to a net loss of $(1.7) million, or $(0.06) per basic and diluted share, in the fourth quarter of 2016. Our Q4 2017 net loss includes a one-time tax benefit of $0.6 million, or $0.02 per share, related to the revaluation of our deferred tax liabilities as a result of the 2017 Tax Cuts and Jobs Act.
  • Adjusted EBITDA was $0.7 million, compared to adjusted EBITDA of $0.3 million in the fourth quarter of 2016.
  • Operating cash flow was $3.0 million and free cash flow was $2.1 million, compared to operating cash flow of $3.4 million and free cash flow of $3.0 million in the fourth quarter of 2016.

 Full Year 2017 Financial and Business Highlights

  • Total revenue was $242.7 million, an increase of 29% compared to 2016.
  • Subscription business revenue was $218.4 million, an increase of 26% compared to 2016.
  • Net loss was $(1.5) million, or $(0.05) per basic and diluted share, compared to a net loss of $(6.9) million or $(0.24) per basic and diluted share, in 2016. Our 2017 net loss includes a one-time tax benefit of $0.6 million, or $0.02 per share, related to the revaluation of our deferred tax liabilities as a result of the 2017 Tax Cuts and Jobs Act.
  • Adjusted EBITDA was $5.0 million, compared to adjusted EBITDA of $0.1 million in 2016.
  • Operating cash flow was $9.7 million and free cash flow was $6.5 million, compared to operating cash flow of $5.0 million and free cash flow of $3.1 million in 2016.

Revenue by Quarter

A chart accompanying this announcement is available at 
http://resource.globenewswire.com/Resource/Download/b9a28676-d652-4fb7-8016-7f204c3de98a

Conference Call
Trupanion’s management will host a conference call today to review its fourth quarter and full year 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: 13675441.

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   Years Ended  
  December 31,   December 31,  
  2017     2016     2017     2016    
  (unaudited)              
Revenue:                        
Subscription business $   58,991     $   47,422     $   218,354     $   173,356    
Other business     7,554         3,918         24,313         14,874    
Total revenue     66,545         51,340         242,667         188,230    
Cost of revenue:                        
Subscription business (1)     47,831         38,528         176,883         141,321    
Other business     6,977         3,594         22,734         13,621    
  Total cost of revenue (2)     54,808         42,122         199,617         154,942    
Gross profit:                        
Subscription business     11,160         8,894         41,471         32,035    
Other business     577         324         1,579         1,253    
Total gross profit     11,737         9,218         43,050         33,288    
Operating expenses:                        
Technology and development (1)     2,572         2,744         9,768         9,534    
General and administrative (1)     4,546         4,177         16,820         15,205    
Sales and marketing (1)     5,781         3,951         19,104         15,247    
Total operating expenses     12,899         10,872         45,692         39,986    
Operating loss     (1,162 )       (1,654 )       (2,642 )       (6,698 )  
Interest expense     163         81         533         218    
Other (income) expense, net     (5 )       (19 )       (1,244 )       (58 )  
Loss before income taxes     (1,320 )       (1,716 )       (1,931 )       (6,858 )  
Income tax (benefit) expense     (482 )       7         (428 )       38    
Net loss $   (838 )   $   (1,723 )   $   (1,503 )   $   (6,896 )  
                         
                         
Net loss per share:                        
  Basic and diluted $   (0.03 )   $   (0.06 )   $   (0.05 )   $   (0.24 )  
Weighted-average common shares outstanding:                        
  Basic and diluted     29,847,574         29,020,559         29,588,324         28,527,602    
                         
(1) Includes stock-based compensation expense as follows:                        
  Three Months Ended   Years Ended  
  December 31,   December 31,  
  2017     2016     2017     2016    
Cost of revenue $   162     $   60     $   594     $   275    
Technology and development     50         88         216         246    
General and administrative     471         470         1,887         1,893    
Sales and marketing      172         113         722         532    
Total stock-based compensation expense $   855     $   731     $   3,419     $   2,946    
                         
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:                        
                         
  Three Months Ended   Years Ended  
  December 31,   December 31,  
  2017     2016     2017     2016    
Veterinary invoice expense  $    46,473      $    36,211      $    170,122      $    133,534    
Other cost of revenue     8,335         5,911         29,495         21,408    
  Total cost of revenue  $    54,808      $    42,122      $    199,617      $    154,942    
                         

 

   
Trupanion, Inc.  
Consolidated Balance Sheets  
(in thousands, except per share data)  
         
         
         
  December 31, 2017   December 31, 2016  
                 
Assets        
Current assets:        
Cash and cash equivalents $   25,706     $   23,637    
Short-term investments     37,590         29,570    
Accounts and other receivables     20,367         10,118    
Prepaid expenses and other assets     2,895         2,062    
Total current assets     86,558         65,387    
Restricted cash     600         600    
Long-term investments, at fair value     3,237         2,579    
Equity method investment     –          271    
Property and equipment, net     7,868         8,464    
Intangible assets, net     4,972         4,910    
Other long-term assets     2,624         134    
Total assets $   105,859     $   82,345    
Liabilities and stockholders’ equity        
Current liabilities:        
Accounts payable $   2,716     $   2,006    
Accrued liabilities and other current liabilities     7,660         5,416    
Reserve for veterinary invoices     12,756         9,521    
Deferred revenue     22,734         13,463    
Total current liabilities     45,866         30,406    
Long-term debt     9,324         4,767    
Deferred tax liabilities     1,002         1,623    
Other liabilities     1,233         834    
Total liabilities     57,425         37,630    
Stockholders’ equity:        
Common stock, $0.00001 par value per share, 100,000,000 shares authorized at December 31, 2017 and December 31, 2016, 30,778,796 and 30,121,496 shares issued and outstanding at December 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 December 31, 2017 and December 31, 2016, and 0 shares issued and outstanding at December 31, 2017 and December 31, 2016.     –          –     
Additional paid-in capital     134,511         129,574    
Accumulated other comprehensive loss     (92 )       (377 )  
Accumulated deficit     (82,784 )       (81,281 )  
Treasury stock, at cost: 657,300 shares at December 31, 2017 and December 31, 2016.     (3,201 )       (3,201 )  
Total stockholders’ equity     48,434         44,715    
Total liabilities and stockholders’ equity $   105,859     $   82,345    
         

 

       
Trupanion, Inc.      
Consolidated Statements of Cash Flows      
(in thousands)      
  Three Months Ended   Years Ended      
  December 31,   December 31,      
    2017       2016       2017       2016        
                             
  (unaudited)              
Operating activities                    
Net loss $   (838 )   $   (1,723 )   $   (1,503 )   $   (6,896 )      
Adjustments to reconcile net loss to cash provided by operating activites:                    
Depreciation and amortization     1,024         1,229         4,232         3,846        
Stock-based compensation expense     855         731         3,419         2,946        
Gain on sale of equity method investment     –          –          (1,036 )       –         
Other, net     (626 )       (114 )       (383 )       104        
Changes in operating assets and liabilities:                    
Accounts and other receivables     (55 )       193         (10,219 )       (1,830 )      
Prepaid expenses and other assets     118         (169 )       (179 )       48        
Accounts payable, accrued liabilities, and other liabilities     897         1,789         3,019         1,164        
Reserve for veterinary invoices     1,510         1,183         3,149         3,226        
Deferred revenue     92         319         9,167         2,398        
Net cash provided by operating activities     2,977         3,438         9,666         5,006        
Investing activities                    
Purchases of investment securities     (11,216 )       (15,624 )       (31,920 )       (31,616 )      
Maturities of investment securities     7,494         14,670         23,372         27,247        
Proceeds from sale of equity method investment     –          –          1,402         –         
Purchases of property and equipment     (884 )       (395 )       (3,131 )       (1,941 )      
Other investments     (17 )       (68 )       (2,779 )       (198 )      
Net cash used in investing activities     (4,623 )       (1,417 )       (13,056 )       (6,508 )      
Financing activities                    
Proceeds from exercise of stock options     463         1,009         2,545         3,745        
Taxes paid related to net share settlement of equity awards     –          –          (1,170 )       (662 )      
Proceeds from debt financing, net financing fees     1,980         1,000         4,400         4,988        
Other financing     (282 )       (289 )       (694 )       (399 )      
Net cash provided by financing activities     2,161         1,720         5,081         7,672        
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net     (58 )       (130 )       378         111        
Net increase in cash, cash equivalents, and restricted cash     457         3,611         2,069         6,281        
Cash, cash equivalents, and restricted cash at beginning of period     25,849         20,626         24,237         17,956        
Cash, cash equivalents, and restricted cash at end of period $   26,306     $   24,237     $   26,306     $   24,237        
                     

 

The following tables set forth our key operating metrics:                              
                                 
  Years Ended                          
  December 31,                          
    2017       2016                            
Total subscription pets enrolled (at period end)     371,683         323,233                            
Total pets enrolled (at period end)     423,194         343,649                            
Monthly average revenue per pet $   52.07     $   47.82                            
Lifetime value of a pet (LVP) $   727     $   631                            
Average pet acquisition cost (PAC) $   152     $   123                            
Average monthly retention   98.63 %     98.60 %                          
                                 
  Three Months Ended  
  Dec. 31,
2017
  Sep. 30,
2017
  Jun. 30,
2017
  Mar. 31,
2017
  Dec. 31,
2016
  Sep. 30,
2016
  Jun. 30,
2016
  Mar. 31,
2016
 
Total subscription pets enrolled (at period end)     371,683         359,102         346,409         334,909         323,233         312,282         299,856         287,123    
Total pets enrolled (at period end)     423,194         404,069         383,293         364,259         343,649         334,070         320,896         307,298    
Monthly average revenue per pet $   53.17     $   52.95     $   51.47     $   50.50     $   49.17     $   48.37     $   47.39     $   46.12    
Lifetime value of a pet (LVP) $   727     $   701     $   654     $   637     $   631     $   624     $   622     $   603    
Average pet acquisition cost (PAC) $   184     $   151     $   143     $   128     $   133     $   120     $   118     $   123    
Average monthly retention   98.63 %     98.61 %     98.57 %     98.58 %     98.60 %     98.61 %     98.64 %     98.65 %  
                                 

 

             
The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands): 
                   
    Three Months Ended   Years Ended  
    December 31,   December 31,  
      2017       2016       2017       2016    
Net cash provided by operating activities   $ 2,977     $   3,438     $   9,666     $   5,006    
Purchases of property and equipment     (884 )       (395 )       (3,131 )       (1,941 )  
Free cash flow   $ 2,093     $   3,043     $   6,535     $   3,065    
                   

 

   
The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):  
                             
    Three Months Ended
December 31,
  Years Ended
December 31,
   
    2017     2016     2017     2016      
Veterinary invoice expense   $   46,473     $   36,211     $   170,122     $   133,534      
Stock-based compensation expense       (95 )       (45 )       (355 )       (234 )    
Cost of goods   $   46,378     $   36,166     $   169,767     $   133,300      
% of revenue     69.7 %     70.4 %     70.0 %     70.8 %    
                             
Other cost of revenue   $   8,335     $   5,911     $   29,495     $   21,408      
Stock-based compensation expense       (67 )       (15 )       (239 )       (41 )    
Variable expenses   $   8,268     $   5,896     $   29,256     $   21,367      
% of revenue     12.4 %     11.5 %     12.1 %     11.4 %    
                             
Subscription gross profit   $   11,160     $   8,894     $   41,471     $   32,035      
Stock-based compensation expense       162         60         594         275      
Non-GAAP subscription gross profit   $   11,322     $   8,954     $   42,065     $   32,310      
% of subscription revenue     19.2 %     18.9 %     19.3 %     18.6 %    
                             
Gross profit   $   11,737     $   9,218     $   43,050     $   33,288      
Stock-based compensation expense       162         60         594         275      
Non-GAAP gross profit   $   11,899     $   9,278     $   43,644     $   33,563      
% of revenue     17.9 %     18.1 %     18.0 %     17.8 %    
                             
Technology and development expense   $   2,572     $   2,744     $   9,768     $   9,534      
General and administrative expense       4,546         4,177         16,820         15,205      
Depreciation and amortization expense       (1,024 )       (1,229 )       (4,232 )       (3,846 )    
Stock-based compensation expense       (521 )       (558 )       (2,103 )       (2,139 )    
Fixed expenses   $   5,573     $   5,134     $   20,253     $   18,754      
% of revenue     8.4 %     10.0 %     8.3 %     10.0 %    
                             
Sales and marketing expense   $   5,781     $   3,951     $   19,104     $   15,247      
Stock-based compensation expense       (172 )       (113 )       (722 )       (532 )    
Acquisition cost   $   5,609     $   3,838     $   18,382     $   14,715      
% of revenue     8.4 %     7.5 %     7.6 %     7.8 %    
                             

 

           
The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):          
                                   
    Years Ended                          
    December 31,                          
      2017       2016                            
Sales and marketing expenses   $   19,104     $   15,247                            
Excluding:                                  
Stock-based compensation expense       (722 )       (532 )                          
Acquisition cost       18,382         14,715                            
Net of:                                  
Sign-up fee revenue       (2,169 )       (2,073 )                          
Other business segment sales and marketing expense       (218 )       (218 )                          
Net acquisition cost   $   15,995     $   12,424                            
                                   
    Three Months Ended  
    Dec. 31,
2017
  Sep. 30,
2017
  Jun. 30,
2017
  Mar. 31,
2017
  Dec. 31,
2016
  Sep. 30,
2016
  Jun. 30,
2016
  Mar. 31,
2016
 
Sales and marketing expenses   $   5,781     $   4,862     $   4,372     $   4,089     $   3,951     $   3,892     $   3,564     $   3,840    
Excluding:                                  
Stock-based compensation expense       (172 )       (165 )       (198 )       (187 )       (113 )       (172 )       (165 )       (82 )  
Acquisition cost       5,609         4,697         4,174         3,902         3,838         3,720         3,399         3,758    
Net of:                                  
Sign-up fee revenue       (550 )       (558 )       (517 )       (544 )       (526 )       (525 )       (495 )       (527 )  
Other business segment sales and marketing expense       (56 )       (51 )       (63 )       (48 )       (62 )       (63 )       (55 )       (38 )  
Net acquisition cost   $   5,003     $   4,088     $   3,594     $   3,310     $   3,250     $   3,132     $   2,849     $   3,193    
                                   

 

                   
The following tables reflect the reconciliation of adjusted EBITDA to net (loss) income (in thousands):                  
                                   
    Years Ended                          
    December 31,                          
      2017       2016                            
Net loss   $   (1,503 )   $   (6,896 )                          
Excluding:                                  
Stock-based compensation expense       3,419         2,946                            
Depreciation and amortization expense       4,232         3,846                            
Interest income       (227 )       (119 )                          
Interest expense       533         218                            
Income tax (benefit) expense       (428 )       38                            
(Gain) loss from equity method investment       (1,029 )       29                            
Adjusted EBITDA   $   4,997     $   62                            
                                   
    Three Months Ended  
    Dec. 31,
2017
  Sep. 30,
2017
  Jun. 30,
2017
  Mar. 31,
2017
  Dec. 31,
2016
  Sep. 30,
2016
  Jun. 30,
2016
  Mar. 31,
2016
 
Net (loss) income   $   (838 )   $   406     $   411     $   (1,482 )   $   (1,723 )   $   (1,637 )   $   (964 )   $   (2,572 )  
Excluding:                                  
Stock-based compensation expense       855         895         888         781       731         776         743         696    
Depreciation and amortization expense       1,024         1,095         1,077         1,036       1229         1,093         739         785    
Interest income       (3 )       (97 )       (76 )       (51 )       (41 )       (29 )       (26 )       (23 )  
Interest expense       163         124         109         137         81         66         41         30    
Income tax (benefit) expense       (482 )       26         4         24         7         13         4         14    
(Gain) loss from equity method investment       –          –          (1,036 )       7         18         22         (15 )       4    
Adjusted EBITDA   $   719     $   2,449     $   1,377     $   452     $   302     $   304     $   522     $   (1,066 )  
                                   

 

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