Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the first quarter ended March 31, 2021.

“2021 is off to a flying start, with revenues up 39% year-over-year, led by growth in subscription pets,” said Darryl Rawlings, founder and chief executive officer of Trupanion. “We’re well positioned in a large, underpenetrated market and have the capital to continue to grow at these accelerated rates.”

First Quarter 2021 Financial and Business Highlights

  • Total revenue was $154.7 million, an increase of 39% compared to the first quarter of 2020.
  • Total enrolled pets (including pets from our other business segment) was 943,854 at March 31, 2021, an increase of 37% over the first quarter of 2020.
  • Subscription business revenue was $113.3 million, an increase of 27% compared to the first quarter of 2020.
  • Subscription enrolled pets was 609,835 at March 31, 2021, an increase of 20% over the first quarter of 2020.
  • Net loss was $(12.4) million, or $(0.31) per basic and diluted share, which is inclusive of stock-based compensation expense of $8.4 million, or $0.21 per share. The amount of stock-based compensation recognized largely reflects the timing and vesting of annual performance grants, including Q1 grants for the Company's strong 2020 performance. Of the $8.4 million, $4.3 million related to a one-time 2020 performance grant, shared with the entire team, which was fully recognized during the quarter. This is compared to a net loss of $(1.1) million, or $(0.03) per basic and diluted share, in the first quarter of 2020.
  • Adjusted EBITDA was $(1.1) million, compared to adjusted EBITDA of $2.0 million in the first quarter of 2020.
  • Operating cash flow was $(1.7) million and free cash flow was $(4.6) million in the first quarter of 2021. This compared to operating cash flow of $2.9 million and free cash flow of $1.4 million in the first quarter of 2020.

Revenue by QuarterA chart accompanying this announcement is available at:http://ml.globenewswire.com/Resource/Download/a479b0a6-e70c-48b6-9fc8-a9cd7a1dca14

Conference CallTrupanion’s management will host a conference call today to review its first quarter 2021 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: 13718006.

About TrupanionTrupanion 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 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 continue to grow its enrollments and revenue, implement its alliance with Aflac and otherwise execute its business plan. 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 successfully implement our alliance with Aflac; 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, 2020 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. 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 March 31,
    2021   2020
  (unaudited)
Revenue:        
Subscription business   $ 113,292     $ 89,484  
Other business   41,393     21,817  
Total revenue   154,685     111,301  
Cost of revenue:        
Subscription business(1)   95,537     73,422  
Other business   38,048     20,027  
Total cost of revenue(2)   133,585     93,449  
Operating expenses:        
Technology and development(1)   3,731     2,120  
General and administrative(1)   7,216     4,860  
Sales and marketing(1)   19,704     10,442  
Depreciation and amortization(3)   3,093     1,381  
Total operating expenses   33,744     18,803  
Gain (loss) from investment in joint venture   (85 )   (59 )
Operating income (loss)   (12,729 )   (1,010 )
Interest expense   (2 )   379  
Other income, net   (62 )   (282 )
Gain (loss) before income taxes   (12,665 )   (1,107 )
Income tax expense (benefit)   (217 )   26  
Net income (loss)   $ (12,448 )   $ (1,133 )
         
Net income (loss) per share:        
Basic and diluted   $ (0.31 )   $ (0.03 )
Weighted average shares of common stock outstanding:        
Basic and diluted   39,700,454     35,007,052  
         
(1) Includes stock-based compensation expense as follows:   Three Months Ended March 31,
               
    2021   2020
Cost of revenue   $ 3,234     $ 268  
Technology and development   664     100  
General and administrative   1,819     729  
Sales and marketing   2,731     556  
Total stock-based compensation expense   $ 8,448     $ 1,653  
         
(2) The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
    Three Months Ended March 31,
    2021   2020
Veterinary invoice expense   $ 109,870     $ 79,640  
Other cost of revenue   23,715     13,809  
Total cost of revenue   $ 133,585     $ 93,449  
         
(3) Depreciation and amortization expenses have been reclassified as a separate line item and prior period amounts have been reclassified from their original presentation to conform to the current period presentation. The Company has elected to present depreciation and amortization expenses as a separate line to better align with management's view of the Company's operating results.
 
Trupanion, Inc.Consolidated Balance Sheets(in thousands, except share data)
  March 31, 2021   December 31, 2020
  (unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 133,126     $ 139,878  
Short-term investments 91,331     89,862  
Accounts and other receivables 117,884     99,065  
Prepaid expenses and other assets 9,664     8,222  
Total current assets 352,005     337,027  
Restricted cash 6,321     6,319  
Long-term investments, at fair value 5,808     5,566  
Property and equipment, net 73,664     72,602  
Intangible assets, net 26,105     27,134  
Other long-term assets 16,468     16,557  
Goodwill 33,327     33,045  
Total assets $ 513,698     $ 498,250  
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 5,262     $ 6,059  
Accrued liabilities and other current liabilities 23,365     22,864  
Reserve for veterinary invoices 30,135     28,929  
Deferred revenue 110,912     92,547  
Total current liabilities 169,674     150,399  
Deferred tax liabilities 4,477     4,705  
Other liabilities 3,470     3,207  
Total liabilities 177,621     158,311  
Stockholders’ equity:      
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 40,989,571 and 40,056,406 issued and outstanding at March 31, 2021; 40,383,972 and 39,450,807 shares issued and outstanding at December 31, 2020      
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding      
Additional paid-in capital 446,975     439,007  
Accumulated other comprehensive loss 3,689     3,071  
Accumulated deficit (103,808 )   (91,360 )
Treasury stock, at cost: 933,165 shares at March 31, 2021 and 933,165 shares at December 31, 2020 (10,779 )   (10,779 )
Total stockholders’ equity 336,077     339,939  
Total liabilities and stockholders’ equity $ 513,698     $ 498,250  
 
Trupanion, Inc.Consolidated Statements of Cash Flows(in thousands)
  Three Months Ended March 31,
  2021   2020
       
  (unaudited)
Operating activities      
Net loss $ (12,448 )   $ (1,133 )
Adjustments to reconcile net loss to cash provided by operating activities:      
Depreciation and amortization 3,093     1,381  
Stock-based compensation expense 8,448     1,653  
Other, net (230 )   73  
Changes in operating assets and liabilities:      
Accounts and other receivables (18,805 )   (11,697 )
Prepaid expenses and other assets (1,331 )   (195 )
Accounts payable, accrued liabilities, and other liabilities 35     1,322  
Reserve for veterinary invoices 1,179     1,825  
Deferred revenue 18,324     9,695  
Net cash (used in) provided by operating activities (1,735 )   2,924  
Investing activities      
Purchases of investment securities (12,157 )   (11,579 )
Maturities of investment securities 10,478     5,100  
Purchases of property, equipment and intangible assets (2,883 )   (1,496 )
Other (40 )   9  
Net cash used in investing activities (4,602 )   (7,966 )
Financing activities      
Proceeds from exercise of stock options 1,238     559  
Shares withheld to satisfy tax withholding (1,881 )   (321 )
Borrowings from line of credit, net of financing fees     3,744  
Other financing     (78 )
Net cash (used in) provided by financing activities (643 )   3,904  
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net 230     (809 )
Net change in cash, cash equivalents, and restricted cash (6,750 )   (1,947 )
Cash, cash equivalents, and restricted cash at beginning of period 146,197     30,568  
Cash, cash equivalents, and restricted cash at end of period $ 139,447     $ 28,621  
 
The following table sets forth our key operating metrics:
                               
  Three Months Ended
  Mar. 31,2021   Dec. 31,2020   Sept. 30,2020   Jun. 30,2020   Mar. 31,2020   Dec. 31,2019   Sept. 30,2019   Jun. 30,2019
Total Business:                              
Total pets enrolled (at period end) 943,854     862,928     804,251     744,727     687,435     646,728     613,694     577,686  
Subscription Business:                              
Total subscription pets enrolled (at period end) 609,835     577,957     552,909     529,400     508,480     494,026     479,427     461,314  
Monthly average revenue per pet $ 62.97     $ 62.03     $ 60.87     $ 59.40     $ 58.96     $ 58.58     $ 58.12     $ 57.11  
Lifetime value of a pet, including fixed expenses $ 684     $ 653     $ 615     $ 597     $ 535     $ 523     $ 511     $ 482  
Average pet acquisition cost (PAC) $ 279     $ 272     $ 261     $ 199     $ 247     $ 222     $ 208     $ 213  
Average monthly retention 98.73 %   98.71 %   98.69 %   98.66 %   98.59 %   98.58 %   98.59 %   98.57 %
 
The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
       
  Three Months Ended March 31,
  2021   2020
Net cash (used in) provided by operating activities $ (1,735 )   $ 2,924  
Purchases of property and equipment (2,883 )   (1,496 )
Free cash flow $ (4,618 )   $ 1,428  
 
The following table reflects the reconciliation between GAAP and non-GAAP measures (in thousands except percentages):
    Three Months Ended March 31,
    2021   2020
Veterinary invoice expense   $ 109,870       $ 79,640    
Excluding:        
Stock-based compensation expense   (2,299 )     (178 )  
Other business cost of paying veterinary invoices   (26,144 )     (14,452 )  
Subscription cost of paying veterinary invoices   $ 81,427       $ 65,010    
% of subscription revenue   71.9   %   72.6   %
         
Other cost of revenue   $ 23,715       $ 13,809    
Excluding:        
Stock-based compensation expense   (935 )     (90 )  
Other business variable expenses   (11,904 )     (5,575 )  
Subscription variable expenses   $ 10,876       $ 8,144    
% of subscription revenue   9.6   %   9.1   %
         
Technology and development expense   $ 3,731       $ 2,120    
General and administrative expense   7,216       4,860    
Excluding:        
Stock-based compensation expense   (2,483 )     (829 )  
Development expenses1   (821 )        
Business combination transaction costs2   (82 )        
Fixed expenses   $ 7,561       $ 6,151    
% of total revenue   4.9   %   5.5   %
         
Sales and marketing expense   $ 19,704       $ 10,442    
Excluding:        
Stock-based compensation expense   (2,731 )     (556 )  
Other business acquisition cost   (171 )     (163 )  
Subscription acquisition cost   $ 16,802       $ 9,723    
% of subscription revenue   14.8   %   10.9   %
         
Technology and development   $ 3,731       $ 2,120    
Excluding:        
Stock-based compensation expense   (664 )     (100 )  
Technology expenses   (2,246 )     (2,020 )  
Development expenses1   $ 821       $    
% of total revenue   0.5   %     %
         
1As we enter the next phase of our growth, we expect to invest in initiatives that are pre-revenue, including adding new products and international expansion. These development expenses are costs related to product exploration and development that are pre-revenue and historically have been insignificant. We view these activities as uses of our adjusted operating income separate from pet acquisition spend.
2These one-time expenses related to our acquisition of a software business, primarily related to legal and transaction costs incurred.
 
The following table reflects the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):
                               
  Three Months Ended
  Mar. 31,2021   Dec. 31,2020   Sept. 30,2020   Jun. 30,2020   Mar. 31,2020   Dec. 31,2019   Sept. 30,2019   Jun. 30,2019
Sales and marketing expenses $ 19,704     $ 14,809     $ 13,344     $ 9,242     $ 10,442     $ 9,212     $ 9,255     $ 8,757  
Excluding:                              
Stock-based compensation expense (2,731 )   (801 )   (741 )   (675 )   (556 )   (547 )   (577 )   (567 )
Acquisition cost 16,973     14,008     12,603     8,567     9,886     8,665     8,678     8,190  
Net of:                              
Sign-up fee revenue (1,264 )   (919 )   (827 )   (781 )   (765 )   (730 )   (790 )   (734 )
Other business segment sales and marketing expense (171 )   (201 )   (265 )   (191 )   (163 )   (152 )   (94 )   (38 )
Net acquisition cost $ 15,538     $ 12,888     $ 11,511     $ 7,595     $ 8,958     $ 7,783     $ 7,794     $ 7,418  
 
The following table reflects the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
                               
  Three Months Ended
  Mar. 31,2021   Dec. 31,2020   Sept. 30,2020   Jun. 30,2020   Mar. 31,2020   Dec. 31,2019   Sept. 30,2019   Jun. 30,2019
Net (loss) income $ (12,448 )   $ (3,502 )   $ (2,558 )   $ 1,353     $ (1,133 )   $ 636     $ 782     $ (1,931 )
Excluding:                              
Stock-based compensation expense 8,448     2,602     2,430     2,227     1,653     1,771     1,845     1,873  
Depreciation and amortization expense 3,093     2,301     1,666     1,723     1,381     1,274     1,181     1,564  
Interest income (88 )   (83 )   (74 )   (134 )   (337 )   (516 )   (411 )   (412 )
Interest expense (2 )   337     324     341     379     375     340     317  
Other non-operating expenses     1     2     44     52     (22 )   122     101  
Income tax (benefit) expense (217 )   44     26     17     26     157     18     (46 )
Business combination transaction costs 82     522                          
Gain from equity method investment             (117 )               (125 )
Adjusted EBITDA $ (1,132 )   $ 2,222     $ 1,816     $ 5,454     $ 2,021     $ 3,675     $ 3,877     $ 1,341  
                               

Contacts:

Investors:Laura Bainbridge, Vice President, Corporate Communications206.607.1929InvestorRelations@trupanion.com 

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