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Trupanion Reports Second Quarter 2020 Results

Trupanion, Inc.
·17 mins read

SEATTLE, Aug. 04, 2020 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the second quarter ended June 30, 2020.

“Across key financial and operational metrics, it was a very strong quarter for Trupanion,” said Darryl Rawlings, Founder and CEO of Trupanion. “I’m particularly proud of our service levels we provided to our members, which contributed to records in monthly average retention and the number of pet owners adding pets or referring friends to Trupanion in the quarter.”

Second Quarter 2020 Financial and Business Highlights

  • Total revenue was $117.9 million, an increase of 28% compared to the second quarter of 2019.

  • Total enrolled pets (including pets from our other business segment) was 744,727 at June 30, 2020, an increase of 29% over the second quarter of 2019.

  • Subscription business revenue was $92.5 million, an increase of 19% compared to the second quarter of 2019. On a constant currency basis, subscription business revenue increased 20% over the prior year period.

  • Subscription enrolled pets was 529,400 at June 30, 2020, an increase of 15% over the second quarter of 2019.

  • Net income was $1.4 million, or $0.04 per basic and diluted share, compared to a net loss of $(1.9) million, or $(0.06) per basic and diluted share, in the second quarter of 2019.

  • Adjusted EBITDA was $5.5 million, compared to adjusted EBITDA of $1.3 million in the second quarter of 2019.

  • Operating cash flow was $4.9 million and free cash flow was $3.1 million in the second quarter of 2020. This compared to operating cash flow of $2.9 million and free cash flow of $2.0 million in the second quarter of 2019.

First Half 2020 Financial and Business Highlights

  • Total revenue was $229.2 million, an increase of 28% compared to the first half of 2019.

  • Subscription business revenue was $181.9 million, an increase of 20% compared to the first half of 2019.

  • Net income was $0.2 million, or $0.01 per basic and diluted share, compared to a net loss of $(3.2) million, or $(0.09) per basic and diluted share, in the first half of 2019.

  • Adjusted EBITDA was $7.5 million, compared to adjusted EBITDA of $3.0 million in the first half of 2019.

  • Operating cash flow was $7.8 million and free cash flow was $4.5 million for the first half of 2020. This compared to operating cash flow of $6.9 million and free cash flow of $5.1 million in the second quarter of 2019.

Revenue by Quarter
A chart accompanying this announcement is available at:
http://ml.globenewswire.com/Resource/Download/aa201d78-ff63-4259-bbc5-28c476dededa

Conference Call
Trupanion’s management will host a conference call today to review its second quarter 2020 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: 13706750.

About Trupanion
Trupanion is a leader in medical insurance for cats and dogs throughout the United States and Canada. For over two decades, Trupanion has given pet owners peace of mind so they can focus on their pet's recovery, not financial stress. Trupanion is committed to providing pet owners with the highest value in pet medical insurance with unlimited payouts for the life of their pets. Trupanion is listed on NASDAQ under the symbol "TRUP". The company was founded in 2000 and is headquartered in Seattle, WA. Trupanion policies are issued, in the United States, by its wholly-owned insurance entity American Pet Insurance Company and, in Canada, by Omega General Insurance Company. For more information, please visit trupanion.com.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to, among other things, expectations, plans, prospects and financial results for Trupanion, including, but not limited to, its expectations regarding its ability to 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, 2019 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 June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(unaudited)

Revenue:

Subscription business

$

92,453

$

77,736

$

181,937

$

151,958

Other business

25,467

14,463

47,284

27,219

Total revenue

117,920

92,199

229,221

179,177

Cost of revenue:

Subscription business(1)

74,594

64,264

148,016

124,651

Other business

23,459

13,222

43,486

24,781

Total cost of revenue(2)

98,053

77,486

191,502

149,432

Gross profit:

Subscription business

17,859

13,472

33,921

27,307

Other business

2,008

1,241

3,798

2,438

Total gross profit

19,867

14,713

37,719

29,745

Operating expenses:

Technology and development(1)

2,989

2,578

5,834

5,247

General and administrative(1)

6,100

5,219

11,616

10,638

Sales and marketing(1)

9,242

8,757

19,684

16,984

Total operating expenses

18,331

16,554

37,134

32,869

Gain (loss) from investment in joint venture

(27

)

(272

)

(86

)

(272

)

Operating income (loss)

1,509

(2,113

)

499

(3,396

)

Interest expense

341

317

720

634

Other income, net

(202

)

(453

)

(484

)

(797

)

Income (loss) before income taxes

1,370

(1,977

)

263

(3,233

)

Income tax expense (benefit)

17

(46

)

43

(6

)

Net income (loss)

$

1,353

$

(1,931

)

$

220

$

(3,227

)

Net income (loss) per share:

Basic

$

0.04

$

(0.06

)

$

0.01

$

(0.09

)

Diluted

$

0.04

$

(0.06

)

$

0.01

$

(0.09

)

Weighted average shares of common stock outstanding:

Basic

35,143,592

34,610,709

35,075,322

34,450,070

Diluted

36,688,167

34,610,709

36,601,927

34,450,070

(1)Includes stock-based compensation expense as follows:

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Cost of revenue

$

344

$

278

$

612

$

525

Technology and development

133

110

233

173

General and administrative

1,075

918

1,804

1,536

Sales and marketing

675

567

1,231

996

Total stock-based compensation expense

$

2,227

$

1,873

$

3,880

$

3,230

(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Veterinary invoice expense

$

82,049

$

65,933

$

161,689

$

127,215

Other cost of revenue

16,004

11,553

29,813

22,217

Total cost of revenue

$

98,053

$

77,486

$

191,502

$

149,432


Trupanion, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

June 30, 2020

December 31, 2019

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

30,013

$

29,168

Short-term investments

75,162

69,732

Accounts and other receivables

80,724

54,408

Prepaid expenses and other assets

5,888

5,513

Total current assets

191,787

158,821

Restricted cash

1,400

1,400

Long-term investments, at fair value

4,462

4,323

Property and equipment, net

71,018

70,372

Intangible assets, net

7,111

7,731

Other long-term assets

14,495

14,553

Total assets

$

290,273

$

257,200

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

2,928

$

4,087

Accrued liabilities and other current liabilities

15,017

13,798

Reserve for veterinary invoices

24,380

21,194

Deferred revenue

75,658

52,546

Total current liabilities

117,983

91,625

Long-term debt

27,347

26,086

Deferred tax liabilities

1,118

1,118

Other liabilities

1,916

1,611

Total liabilities

148,364

120,440

Stockholders’ equity:

Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 36,179,457 and 35,246,292 shares issued and outstanding at June 30, 2020; 35,876,882 and 34,947,017 shares issued and outstanding at December 31, 2019

Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding

Additional paid-in capital

238,077

232,731

Accumulated other comprehensive loss

(89

)

250

Accumulated deficit

(85,300

)

(85,520

)

Treasury stock, at cost: 933,165 shares at June 30, 2020 and 929,865 shares at December 31, 2019

(10,779

)

(10,701

)

Total stockholders’ equity

141,909

136,760

Total liabilities and stockholders’ equity

$

290,273

$

257,200


Trupanion, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(unaudited)

Operating activities

Net income (loss)

$

1,353

$

(1,931

)

$

220

$

(3,227

)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Depreciation and amortization

1,723

1,564

3,104

3,177

Stock-based compensation expense

2,227

1,873

3,880

3,230

Other, net

29

100

102

97

Changes in operating assets and liabilities:

Accounts and other receivables

(14,405

)

(6,046

)

(26,102

)

(11,940

)

Prepaid expenses and other assets

(249

)

664

(444

)

989

Accounts payable, accrued liabilities, and other liabilities

(806

)

187

516

1,443

Reserve for veterinary invoices

1,439

1,067

3,264

2,145

Deferred revenue

13,539

5,444

23,234

10,967

Net cash provided by operating activities

4,850

2,922

7,774

6,881

Investing activities

Purchases of investment securities

(14,971

)

(14,872

)

(26,550

)

(32,222

)

Maturities of investment securities

15,704

11,690

20,804

21,895

Purchases of property, equipment and intangible assets

(1,743

)

(902

)

(3,239

)

(1,780

)

Other

98

5

107

(1,474

)

Net cash used in investing activities

(912

)

(4,079

)

(8,878

)

(13,581

)

Financing activities

Proceeds from exercise of stock options

1,108

965

1,667

1,626

Shares withheld to satisfy tax withholding

(120

)

(50

)

(441

)

(247

)

Borrowings from line of credit, net of financing fees

(9

)

967

3,735

6,167

Repayments to line of credit

(2,500

)

(2,500

)

Other financing

(144

)

(78

)

(415

)

Net cash (used in) provided by financing activities

(1,521

)

1,738

2,383

7,131

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net

375

176

(434

)

396

Net change in cash, cash equivalents, and restricted cash

2,792

757

845

827

Cash, cash equivalents, and restricted cash at beginning of period

28,621

28,022

30,568

27,952

Cash, cash equivalents, and restricted cash at end of period

$

31,413

$

28,779

$

31,413

$

28,779


The following tables set forth our key operating metrics:

Six Months Ended June 30,

2020

2019

Total Business:

Total pets enrolled (at period end)

744,727

577,686

Subscription Business:

Total subscription pets enrolled (at period end)

529,400

461,314

Monthly average revenue per pet

$

59.19

$

56.63

Lifetime value of a pet, including fixed expenses

$

597

$

482

Average pet acquisition cost (PAC)

$

222

$

209

Average monthly retention

98.66

%

98.57

%

Three Months Ended

Jun. 30, 2020

Mar. 31, 2020

Dec. 31, 2019

Sept. 30, 2019

Jun. 30, 2019

Mar. 31, 2019

Dec. 31, 2018

Sept. 30, 2018

Total Business:

Total pets enrolled (at period end)

744,727

687,435

646,728

613,694

577,686

548,002

521,326

497,942

Subscription Business:

Total subscription pets enrolled (at period end)

529,400

508,480

494,026

479,427

461,314

445,148

430,770

416,527

Monthly average revenue per pet

$

59.40

$

58.96

$

58.58

$

58.12

$

57.11

$

56.13

$

55.15

$

54.55

Lifetime value of a pet, including fixed expenses

$

597

$

535

$

523

$

511

$

482

$

471

$

449

$

435

Average pet acquisition cost (PAC)

$

199

$

247

$

222

$

208

$

213

$

205

$

186

$

155

Average monthly retention

98.66

%

98.59

%

98.58

%

98.59

%

98.57

%

98.58

%

98.60

%

98.61

%


The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Net cash provided by operating activities

$

4,850

$

2,922

$

7,774

$

6,881

Purchases of property and equipment

(1,743

)

(902

)

(3,239

)

(1,780

)

Free cash flow

$

3,107

$

2,020

$

4,535

$

5,101


The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):

Six Months Ended June 30,

2020

2019

Sales and marketing expenses

$

19,684

$

16,984

Excluding:

Stock-based compensation expense

(1,231

)

(996

)

Acquisition cost

18,453

15,988

Net of:

Sign-up fee revenue

(1,546

)

(1,437

)

Other business segment sales and marketing expense

(354

)

(168

)

Net acquisition cost

$

16,553

$

14,383

Three Months Ended

Jun. 30, 2020

Mar. 31, 2020

Dec. 31, 2019

Sept. 30, 2019

Jun. 30, 2019

Mar. 31, 2019

Dec. 31, 2018

Sept. 30, 2018

Sales and marketing expenses

$

9,242

$

10,442

$

9,212

$

9,255

$

8,757

$

8,227

$

6,994

$

6,365

Excluding:

Stock-based compensation expense

(675

)

(556

)

(547

)

(577

)

(567

)

(429

)

(355

)

(358

)

Acquisition cost

8,567

9,886

8,665

8,678

8,190

7,798

6,639

6,007

Net of:

Sign-up fee revenue

(781

)

(765

)

(730

)

(790

)

(734

)

(703

)

(655

)

(693

)

Other business segment sales and marketing expense

(191

)

(163

)

(152

)

(94

)

(38

)

(130

)

(102

)

(99

)

Net acquisition cost

$

7,595

$

8,958

$

7,783

$

7,794

$

7,418

$

6,965

$

5,882

$

5,215


The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):

Six Months Ended June 30,

2020

2019

Net income (loss)

$

220

$

(3,227

)

Excluding:

Stock-based compensation expense

3,880

3,230

Depreciation and amortization expense

3,104

3,177

Interest income

(471

)

(754

)

Interest expense

720

634

Other non-operating expenses

96

101

Income tax expense (benefit)

43

(6

)

Gain from equity method investment

(117

)

(125

)

Adjusted EBITDA

$

7,475

$

3,030

Three Months Ended

Jun. 30, 2020

Mar. 31, 2020

Dec. 31, 2019

Sept. 30, 2019

Jun. 30, 2019

Mar. 31, 2019

Dec. 31, 2018

Sept. 30, 2018

Net income (loss)

$

1,353

$

(1,133

)

$

636

$

782

$

(1,931

)

$

(1,296

)

$

(275

)

$

1,205

Excluding:

Stock-based compensation expense

2,227

1,653

1,771

1,845

1,873

1,357

1,222

1,299

Depreciation and amortization expense

1,723

1,381

1,274

1,181

1,564

1,613

1,485

1,136

Interest income

(134

)

(337

)

(516

)

(411

)

(412

)

(342

)

(234

)

(317

)

Interest expense

341

379

375

340

317

317

311

336

Other non-operating expenses

44

52

(22

)

122

101

Income tax expense (benefit) expense

17

26

157

18

(46

)

40

4

(7

)

Gain from equity method investment

(117

)

(125

)

Adjusted EBITDA

$

5,454

$

2,021

$

3,675

$

3,877

$

1,341

$

1,689

$

2,513

$

3,652

Contacts:

Investors:
Laura Bainbridge, Head of Corporate Communications
206.607.1929
InvestorRelations@trupanion.com