Trupanion Reports Third Quarter 2016 Results

  • Total revenue of $48.4 million, up 28% year-over-year
  • 334,070 total enrolled pets at quarter-end, up 21% year-over-year

SEATTLE, Nov. 01, 2016 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq:TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the third quarter ended September 30, 2016.

"Our third quarter financial performance reflects our continued focus on balancing revenue growth against return on investment spend," said Darryl Rawlings, CEO of Trupanion.  "We again realized positive free cash flow in the quarter. Our strong financial position enables us to invest in the continued growth of Trupanion through cost effective pet acquisition and by improving the customer experience."

Third Quarter 2016 Financial and Business Highlights
  • Total revenue was $48.4 million, an increase of 28% compared to the third quarter of 2015.
  • Total enrolled pets (including pets from our other business segment) was 334,070 at September 30, 2016, up 21% over the prior year period.
  • Subscription business revenue was $44.6 million, an increase of 30% compared to the third quarter of 2015.
  • Subscription pets enrolled was 312,282 at September 30, 2016, up 21% over the prior year period.
  • Net loss was $(1.6) million, compared to a net loss of $(4.6) million in the third quarter of 2015.
  • Adjusted EBITDA was $0.3 million, compared to a loss of $(3.2) million in the third quarter of 2015.

Year-to-date 2016 Financial and Business Highlights
  • Total revenue was $136.9 million, an increase of 28% compared to the first nine months of 2015 (29% on a constant currency basis).
  • Subscription business revenue was $125.9 million, an increase of 30% compared to the first nine months of 2015 (32% on a constant currency basis).
  • Net loss was $(5.2) million, compared to a net loss of $(14.2) million in the first nine months of 2015.
  • Adjusted EBITDA was a loss of $(0.2) million, compared to a loss of $(9.7) million in the first nine months of 2015.
  • As of September 30, 2016 there were 29.2 million basic shares outstanding and 33.1 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/6d152868-e543-476f-a8e8-ad9d1cec6138

Conference CallTrupanion's management will host a conference call today to review its third quarter 2016 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: 13646031.

About TrupanionTrupanion 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 StatementsThis 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 and financial objectives and its future operating results and expenditures. 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, 2015 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 MeasuresTrupanion'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, which are included below and on Trupanion's Investors 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   Nine Months Ended  
  September 30,   September 30,  
  2016   2015   2016   2015  
  (unaudited)  
Revenue:                        
Subscription business $     44,629     $     34,420     $     125,934     $     96,684    
Other business       3,730           3,445           10,956           10,078    
Total revenue       48,359           37,865           136,890           106,762    
Cost of revenue:                        
Subscription business (1)       36,432           28,146           102,793           79,572    
Other business       3,427           3,128           10,027           9,231    
  Total cost of revenue (2)       39,859           31,274           112,820           88,803    
Gross profit:                        
Subscription business       8,197           6,274           23,141           17,112    
Other business       303           317           929           847    
Total gross profit       8,500           6,591           24,070           17,959    
Operating expenses:                        
Sales and marketing (1)       3,892           4,128           11,296           11,312    
Technology and development (1)       2,339           3,005           6,790           8,683    
General and administrative (1)       3,811           4,067           11,028           11,760    
Total operating expenses       10,042           11,200           29,114           31,755    
Operating loss       (1,542 )         (4,609 )         (5,044 )         (13,796 )  
Interest expense       66           14           137           298    
Other expense (income), net       16           4           (39 )         8    
Loss before income taxes       (1,624 )         (4,627 )         (5,142 )         (14,102 )  
Income tax expense       13           16           31           102    
Net loss $     (1,637 )   $     (4,643 )   $     (5,173 )   $     (14,204 )  
                         
Net loss per share:                        
  Basic and diluted $     (0.06 )   $     (0.17 )   $     (0.18 )   $     (0.52 )  
Weighted-average shares used to compute net loss per share:                      
  Basic and diluted       28,732,417           27,755,310           28,362,084           27,564,975    
                         
(1) Includes stock-based compensation expense as follows:                        
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
  2016   2015   2016   2015  
Cost of revenue $     83     $     68     $     215     $     195    
Sales and marketing        172           102           419           342    
Technology and development       67           97           158           311    
General and administrative       454           482           1,423           1,501    
Total stock-based compensation expense $     776     $     749     $     2,215     $     2,349    
                         
(2)The breakout of cost of revenue between claims and other cost of revenue is as follows:              
                         
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
  2016   2015   2016   2015  
Claims expense  $      34,253      $      26,604      $      97,323      $      75,442    
Other cost of revenue       5,606           4,670           15,497           13,361    
  Total cost of revenue  $      39,859      $      31,274      $      112,820      $      88,803    

 

Trupanion, Inc.  
Consolidated Balance Sheets  
(in thousands, except for share data)  
         
     
     
  September 30, 2016   December 31, 2015  
  (unaudited)      
Assets        
Current assets:        
Cash and cash equivalents $ 20,626     $ 17,956    
Short-term investments   28,720       25,288    
Accounts and other receivables   10,286       8,196    
Prepaid expenses and other assets   1,919       2,193    
Total current assets   61,551       53,633    
Long-term investments, at fair value   2,500       2,388    
Equity method investment   289       300    
Property and equipment, net   9,188       9,719    
Intangible assets, net   4,894       4,854    
Other long term assets   89       23    
Total assets $ 78,511     $ 70,917    
Liabilities and stockholders' equity        
Current liabilities:        
Accounts payable $ 1,284     $ 1,289    
Accrued liabilities   3,489       4,189    
Claims reserve   8,362       6,274    
Deferred revenue   13,171       11,042    
Deferred tax liabilities   169       169    
Other payables   987       654    
Total current liabilities   27,462       23,617    
Long-term debt   3,969       -    
Deferred tax liabilities   1,433       1,433    
Other liabilities   858       511    
Total liabilities   33,722       25,561    
Stockholders' equity:        
Common stock, $0.00001 par value per share, 100,000,000 shares authorized at September 30, 2016 and 200,000,000 shares authorized at December 31, 2015, 29,870,771 and 29,249,792 shares issued and outstanding at September 30, 2016; 29,017,168 and 28,396,189 shares issued and outstanding at December 31, 2015   -       -    
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized at September 30, 2016 and December 31, 2015, and 0 shares issued and outstanding at September 30, 2016 and December 31, 2015   -       -    
Additional paid-in capital   127,213       122,844    
Accumulated other comprehensive loss   (265 )     (502 )  
Accumulated deficit   (79,558 )     (74,385 )  
Treasury stock, at cost: 620,979 shares at September 30, 2016 and December 31, 2015   (2,601 )     (2,601 )  
Total stockholders' equity   44,789       45,356    
Total liabilities and stockholders' equity $ 78,511     $ 70,917    

 

Trupanion, Inc.  
Consolidated Statements of Cash Flows  
(in thousands)  
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
    2016       2015       2016       2015    
  (unaudited)  
Operating activities                
Net loss $ (1,637 )   $ (4,643 )   $ (5,173 )   $ (14,204 )  
Adjustments to reconcile net loss to cash provided by (used in) operating activities:                
Depreciation and amortization   1,093       673       2,617       1,800    
Stock-based compensation expense   776       749       2,215       2,349    
Other, net   179       26       218       (86 )  
Changes in operating assets and liabilities:                
Accounts and other receivables   (1,029 )     419       (2,023 )     (504 )  
Prepaid expenses and other assets   (246 )     (488 )     217       (868 )  
Accounts payable   429       223       (31 )     (329 )  
Accrued liabilities   450       670       (700 )     53    
Claims reserve   799       413       2,043       1,127    
Deferred revenue   795       561       2,079       1,310    
Other payables   (301 )     526       106       (416 )  
Net cash provided by (used in) operating activities   1,308       (871 )     1,568       (9,768 )  
Investing activities                
Purchases of investment securities   (4,769 )     (5,016 )     (15,992 )     (16,082 )  
Maturities of investment securities   3,239       3,313       12,577       13,580    
Purchases of property and equipment   (456 )     (1,171 )     (1,546 )     (3,816 )  
Equity method investment   -       (300 )     -       (300 )  
Other   (61 )     -       (130 )     -    
Net cash used in investing activities   (2,047 )     (3,174 )     (5,091 )     (6,618 )  
Financing activities                
Tax withholding on restricted stock   (662 )     (259 )     (662 )     (643 )  
Proceeds from exercise of stock options   951       113       2,736       914    
Proceeds from (repayment of) debt financing   3,002       -       3,988       (14,900 )  
Payments on capital lease obligations   (37 )     -       (110 )     -    
Net cash provided by (used in) financing activities   3,254       (146 )     5,952       (14,629 )  
Effect of foreign exchange rates on cash, net   (96 )     (278 )     241       (395 )  
Net change in cash and cash equivalents   2,419       (4,469 )     2,670       (31,410 )  
Cash and cash equivalents at beginning of period   18,207       26,157       17,956       53,098    
Cash and cash equivalents at end of period $ 20,626     $ 21,688     $ 20,626     $ 21,688    

 

The following tables set forth our key financial and operating metrics:                          
                                 
  Nine Months Ended                          
    September 30,                          
    2016       2015                            
Total pets enrolled (at period end)   334,070       276,988                            
Total subscription pets enrolled (at period end)   312,282       258,546                            
Monthly average revenue per pet $ 47.33     $ 44.88                            
Lifetime value of a pet (LVP) $ 624     $ 591                            
Average pet acquisition cost (PAC) $ 120     $ 132                            
Average monthly retention   98.61 %     98.66 %                          
Adjusted EBITDA (in thousands) $ (240 )   $ (9,711 )                          
                                 
  Three Months Ended  
  Sep. 30, 2016   Jun. 30, 2016   Mar. 30, 2016   Dec. 31, 2015   Sept. 30, 2015   Jun. 30, 2015   Mar. 31, 2015   Dec. 31, 2014  
Total pets enrolled (at period end)   334,070       320,896       307,298       291,818       276,988       259,948       246,106       232,450    
Total subscription pets enrolled (at period end)   312,282       299,856       287,123       272,636       258,546       241,808       228,409       215,491    
Monthly average revenue per pet $ 48.37     $ 47.39     $ 46.12     $ 45.48     $ 45.15     $ 45.10     $ 44.34     $ 44.79    
Lifetime value of a pet (LVP) $ 624     $ 622     $ 603     $ 591     $ 591     $ 570     $ 567     $ 591    
Average pet acquisition cost (PAC) $ 120     $ 118     $ 123     $ 132     $ 129     $ 133     $ 134     $ 145    
Average monthly retention   98.61 %     98.64 %     98.65 %     98.64 %     98.66 %     98.67 %     98.66 %     98.69 %  
Adjusted EBITDA (in thousands) $ 304     $ 522     $ (1,066 )   $ (1,588 )   $ (3,211 )   $ (3,165 )   $ (3,333 )   $ (2,903 )  
                                 

 

The following table reflects the reconciliation of cash provided by (used in) operating activities to free cash flow (in thousands):
                 
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
    2016       2015       2016       2015    
Net cash provided by (used in) operating activities $   1,308     $   (871 )   $   1,568     $   (9,768 )  
Purchases of property and equipment     (456 )       (1,171 )       (1,546 )       (3,816 )  
Free cash flow $   852     $   (2,042 )   $   22     $   (13,584 )  

 

The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):  
                             
    Three Months Ended September 30,   Nine Months Ended September 30,    
    2016   2015   2016   2015    
Claims expense   $   34,253     $   26,604     $   97,323     $   75,442      
Stock-based compensation expense       (74 )       (58 )       (189 )       (160 )    
Cost of goods   $   34,179     $   26,546     $   97,134     $   75,282      
% of revenue       70.7 %       70.1 %       71.0 %       70.5 %    
                             
Other cost of revenue   $   5,606     $   4,670     $   15,497     $   13,361      
Stock-based compensation expense       (9 )       (10 )       (26 )       (35 )    
Variable expenses   $   5,597     $   4,660     $   15,471     $   13,326      
% of revenue       11.6 %       12.3 %       11.3 %       12.5 %    
                             
Subscription business gross profit   $   8,197     $   6,274     $   23,141     $   17,112      
Stock-based compensation expense       83         68         215         195      
Non-GAAP subscription business gross profit   $   8,280     $   6,342     $   23,356     $   17,307      
% of subscription revenue       18.6 %       18.4 %       18.5 %       17.9 %    
                             
Gross profit   $   8,500     $   6,591     $   24,070     $   17,959      
Stock-based compensation expense       83         68         215         195      
Non-GAAP gross profit   $   8,583     $   6,659     $   24,285     $   18,154      
% of revenue       17.7 %       17.6 %       17.7 %       17.0 %    
                             
General and administrative expense   $   3,811     $   4,067     $   11,028     $   11,760      
Technology and development expense       2,339         3,005         6,790         8,683      
Depreciation and amortization expense       (1,093 )       (673 )       (2,617 )       (1,800 )    
Stock-based compensation expense       (521 )       (579 )       (1,581 )       (1,812 )    
Fixed expenses   $   4,536     $   5,820     $   13,620     $   16,831      
% of revenue       9.4 %       15.4 %       9.9 %       15.8 %    
                             
Sales and marketing expense   $   3,892     $   4,128     $   11,296     $   11,312      
Stock-based compensation expense       (172 )       (102 )       (419 )       (342 )    
Acquisition cost   $   3,720     $   4,026     $   10,877     $   10,970      
% of revenue       7.7 %       10.6 %       7.9 %       10.3 %    

 

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,                          
      2016       2015                            
Sales and marketing expenses   $   11,296     $   11,312                            
Excluding:                                  
Stock-based compensation expense       (419 )       (342 )                          
Acquisition cost       10,877         10,970                            
Net of:                                  
Sign-up fee revenue       (1,547 )       (1,477 )                          
Other business segment sales and marketing expense       (156 )       (72 )                          
Net acquisition cost   $   9,174     $   9,421                            
                                   
    Three Months Ended  
    Sep. 30, 2016   Jun. 30, 2016   Mar. 31, 2016   Dec. 31, 2015   Sept. 30, 2015   Jun. 30, 2015   Mar. 31, 2015   Dec. 31, 2014  
Sales and marketing expenses   $   3,892     $   3,564     $   3,840     $   3,919     $   4,128     $   3,533     $   3,651     $   3,218    
Excluding:                                  
Stock-based compensation expense       (172 )       (165 )       (82 )       (104 )       (102 )       (110 )       (130 )       (147 )  
Acquisition cost       3,720         3,399         3,758         3,815         4,026         3,423         3,521         3,071    
Net of:                                  
Sign-up fee revenue       (525 )       (495 )       (527 )       (506 )       (542 )       (451 )       (484 )       (363 )  
Other business segment sales and marketing expense       (63 )       (55 )       (38 )       (8 )       (16 )       (30 )       (26 )       (30 )  
Net acquisition cost   $   3,132     $   2,849     $   3,193     $   3,301     $   3,468     $   2,942     $   3,011     $   2,678    

 

The following tables reflect the reconciliation of adjusted EBITDA to net loss (in thousands):       
                                   
    Nine Months Ended                          
      September 30,                          
      2016       2015                            
Net loss   $ (5,173 )   $ (14,204 )                          
Excluding:                                  
Stock-based compensation expense     2,215       2,349                            
Depreciation and amortization expense     2,617       1,800                            
Interest income     (78 )     (56 )                          
Interest expense     137       298                            
Income tax expense (benefit)     31       102                            
Loss (income) from equity method investment     11       -                            
Adjusted EBITDA   $ (240 )   $ (9,711 )                          
                                   
    Three Months Ended  
    Sep. 30, 2016   Jun. 30, 2016   Mar. 31, 2016   Dec. 31, 2015   Sept. 30, 2015   Jun. 30, 2015   Mar. 31, 2015   Dec. 31, 2014  
Net loss   $ (1,637 )   $ (964 )   $ (2,572 )   $ (3,001 )   $ (4,643 )   $ (4,625 )   $ (4,936 )   $ (4,276 )  
Excluding:                                  
Stock-based compensation expense     776       743       696       653       749       897       703       890    
Depreciation and amortization expense     1,093       739       785       741       672       563       566       441    
Interest income     (29 )     (26 )     (23 )     (19 )     (19 )     (18 )     (19 )     (18 )  
Interest expense     66       41       30       26       14       40       245       103    
Income tax expense (benefit)     13       4       14       12       16       (22 )     108       (43 )  
Loss (income) from equity method investment     22       (15 )     4       -       -       -       -       -    
Adjusted EBITDA   $ 304     $ 522     $ (1,066 )   $ (1,588 )   $ (3,211 )   $ (3,165 )   $ (3,333 )   $ (2,903 )  
Contacts: Investors: Laura Bainbridge, Addo Investor Relations310.829.5400InvestorRelations@trupanion.com

Primary Logo

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX