Trupanion Reports Second Quarter 2017 Results

SEATTLE, Aug. 01, 2017 -- Trupanion, Inc. (Nasdaq:TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the second quarter ended June 30, 2017.

“Our second quarter results highlight the consistency of our revenue growth and our continued progress leveraging our fixed expenses,” said Darryl Rawlings, CEO of Trupanion. “This is enabling us to test additional initiatives around pet acquisition while maintaining positive cash flow.”

Second Quarter 2017 Financial and Business Highlights

Total revenue was $58.3 million, an increase of 27% compared to the second quarter of 2016.
Total enrolled pets (including pets from our other business segment) was 383,293 at June 30, 2017, an increase of 19% over the prior year period.
Subscription business revenue was $52.6 million, an increase of 25% compared to the second quarter of 2016.
Subscription enrolled pets was 346,409 at June 30, 2017, an increase of 16% over the prior year period.
Net income was $0.4 million compared to a net loss of $(1.0) million in the second quarter of 2016. In the second quarter of 2017, net income included a one-time $1.0 million gain on the sale of an equity investment. Excluding this one-time gain, net loss would have been $(0.6) million in the second quarter of 2017.
Second quarter GAAP basic and diluted earnings per share was $0.01. Excluding our one-time gain we had a net loss of $(0.02) per share for the quarter.
Adjusted EBITDA was $1.4 million, compared to $0.5 million in the second quarter of 2016.
Operating cash flow generated was $1.8 million and free cash flow generated was $1.0 million, compared to operating cash flow of $1.6 million and free cash flow of $1.1 million in the second quarter of 2016.

First Half 2017 Financial and Business Highlights

Total revenue was $113.0 million, an increase of 28% compared to the first half of 2016.
Subscription business revenue was $102.9 million, an increase of 27% compared to the first half of 2016.
Net loss was $(1.1) million, compared to a net loss of $(3.5) million in the first half of 2016. In the first half of 2017, net loss including a one-time $1.0 million gain on the sale of an equity investment. Excluding this one-time gain, net loss would have been $(2.1) million in the first half of 2017.
Adjusted EBITDA was $1.8 million, compared to a loss of $(0.5) million in the first half of 2016.
As of June 30, 2017, there were 30.0 million basic shares outstanding and 32.7 million shares outstanding on a weighted-average diluted basis.

Revenue by Quarter
A chart accompanying this release is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/7a1224ff-48b4-4422-825f-5c2655d9d922

Conference Call
Trupanion’s management will host a conference call today to review its second quarter 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: 13666206.

About Trupanion
Trupanion 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 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 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, 2016 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, 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, adjusted EBITDA, and basic earnings per share, excluding gain on sale of equity method investment. Adjusted EBITDA is a non-GAAP financial measure that we define as net loss excluding stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, income tax expense (benefit), and loss (gain) 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. 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 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 presents earnings-per-share excluding the impact of one-time transactions and events for increased comparability 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						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016

	(unaudited)
Revenue:
Subscription business	$	52,641		$	42,162		$	102,870		$	81,305
Other business		5,634			3,670			10,134			7,226
Total revenue		58,275			45,832			113,004			88,531
Cost of revenue:
Subscription business ⁽¹⁾		42,591			34,158			83,837			66,361
Other business		5,333			3,408			9,661			6,600
Total cost of revenue ⁽²⁾		47,924			37,566			93,498			72,961
Gross profit:
Subscription business		10,050			8,004			19,033			14,944
Other business		301			262			473			626
Total gross profit		10,351			8,266			19,506			15,570
Operating expenses:
Sales and marketing ⁽¹⁾		4,372			3,564			8,461			7,404
Technology and development ⁽¹⁾		2,322			2,164			4,725			4,451
General and administrative ⁽¹⁾		4,245			3,495			8,257			7,217
Total operating expenses		10,939			9,223			21,443			19,072
Operating loss		(588	)		(957	)		(1,937	)		(3,502	)
Interest expense		109			41			246			71
Other (income) expense, net		(1,112	)		(38	)		(1,140	)		(55	)
Income (loss) before income taxes		415			(960	)		(1,043	)		(3,518	)
Income tax expense		4			4			28			18
Net income (loss)	$	411		$	(964	)	$	(1,071	)	$	(3,536	)


Net income (loss) per share:
Basic and diluted	$	0.01		$	(0.03	)	$	(0.04	)	$	(0.13	)
Weighted-average common shares outstanding:
Basic		29,510,907			28,348,348			29,383,502			28,173,798
Diluted		32,734,624			28,348,348			29,383,502			28,173,798

⁽¹⁾ Includes stock-based compensation expense as follows:
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Cost of revenue	$	149		$	66		$	262		$	132
Sales and marketing		198			165			385			247
Technology and development		59			36			109			91
General and administrative		482			476			913			969
Total stock-based compensation expense	$	888		$	743		$	1,669		$	1,439

⁽²⁾The breakout of cost of revenue between claims and other cost of revenue is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Claims expense	$	41,009		$	32,466		$	80,196		$	63,070
Other cost of revenue		6,915			5,100			13,302			9,891
Total cost of revenue	$	47,924		$	37,566		$	93,498		$	72,961

Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)



	June 30, 2017			December 31, 2016
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,604		$	23,637
Short-term investments		32,565			29,570
Accounts and other receivables		17,098			10,118
Prepaid expenses and other assets		2,294			2,062
Total current assets		76,561			65,387
Restricted cash		600			600
Long-term investments, at fair value		2,829			2,579
Equity method investment		-			271
Property and equipment, net		7,988			8,464
Intangible assets, net		4,950			4,910
Other long-term assets		2,723			134
Total assets	$	95,651		$	82,345
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,779		$	2,006
Accrued liabilities and other current liabilities		6,582			5,416
Claims reserve		10,820			9,521
Deferred revenue		20,442			13,463
Total current liabilities		39,623			30,406
Long-term debt		6,309			4,767
Deferred tax liabilities		1,623			1,623
Other liabilities		944			834
Total liabilities		48,499			37,630
Stockholders’ equity:
Common stock, $0.00001 par value per share, 100,000,000 shares authorized at June 30, 2017 and December 31, 2016, 30,652,240 and 29,994,940 shares issued and outstanding at June 30, 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 June 30, 2017 and December 31, 2016, and 0 shares issued and outstanding at June 30, 2017 and December 31, 2016		-			-
Additional paid-in capital		132,950			129,574
Accumulated other comprehensive loss		(245	)		(377	)
Accumulated deficit		(82,352	)		(81,281	)
Treasury stock, at cost: 657,300 shares at June 30, 2017 and December 31, 2016		(3,201	)		(3,201	)
Total stockholders’ equity		47,152			44,715
Total liabilities and stockholders’ equity	$	95,651		$	82,345

Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2017			2016			2017			2016

	(unaudited)
Operating activities
Net income (loss)	$	411		$	(964	)	$	(1,071	)	$	(3,536	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		1,077			739			2,113			1,524
Stock-based compensation expense		888			743			1,669			1,439
Gain on sale of equity method investment		(1,036	)		-			(1,036	)		-
Other, net		(41	)		30			56			39
Changes in operating assets and liabilities:
Accounts and other receivables		(3,596	)		(760	)		(6,968	)		(994	)
Prepaid expenses and other assets		36			310			(183	)		463
Accounts payable, accrued liabilities and other liabilities		1,208			129			913			(1,203	)
Claims reserve		166			723			1,259			1,244
Deferred revenue		2,711			608			6,929			1,284
Net cash provided by operating activities		1,824			1,558			3,681			260
Investing activities
Purchases of investment securities		(9,723	)		(7,264	)		(14,895	)		(11,223	)
Maturities of investment securities		7,841			5,638			11,712			9,338
Proceeds from sale of equity method investment		1,402			-			1,402			-
Purchases of property and equipment		(802	)		(437	)		(1,264	)		(1,090	)
Other investments		(43	)		(35	)		(2,753	)		(69	)
Net cash used in investing activities		(1,325	)		(2,098	)		(5,798	)		(3,044	)
Financing activities
Proceeds from exercise of stock options		610			1,299			1,647			1,785
Proceeds from debt financing, net of financing fees		1,499			(1	)		1,459			986
Payments on capital lease obligation		(101	)		(73	)		(203	)		(73	)
Net cash provided by financing activities		2,008			1,225			2,903			2,698
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net		160			(4	)		181			337
Net increase in cash, cash equivalents, and restricted cash		2,667			681			967			251
Cash, cash equivalents, and restricted cash at beginning of period		22,537			17,526			24,237			17,956
Cash, cash equivalents, and restricted cash at end of period	$	25,204		$	18,207		$	25,204		$	18,207

The following tables set forth our key operating metrics:

	Six Months Ended
	June 30,
		2017			2016
Total pets enrolled (at period end)		383,293			320,896
Total subscription pets enrolled (at period end)		346,409			299,856
Monthly average revenue per pet	$	50.99		$	46.77
Lifetime value of a pet (LVP)	$	654		$	622
Average pet acquisition cost (PAC)	$	135		$	120
Average monthly retention		98.57	%		98.64	%

	Three Months Ended
	Jun. 31, 2017			Mar. 31, 2017			Dec. 31, 2016			Sep. 30, 2016			Jun. 30, 2016			Mar. 31, 2016			Dec. 31, 2015			Sept. 30, 2015
Total pets enrolled (at period end)		383,293			364,259			343,649			334,070			320,896			307,298			291,818			276,988
Total subscription pets enrolled (at period end)		346,409			334,909			323,233			312,282			299,856			287,123			272,636			258,546
Monthly average revenue per pet	$	51.47		$	50.50		$	49.17		$	48.37		$	47.39		$	46.12		$	45.48		$	45.15
Lifetime value of a pet (LVP)	$	654		$	637		$	631		$	624		$	622		$	603		$	591		$	591
Average pet acquisition cost (PAC)	$	143		$	128		$	133		$	120		$	118		$	123		$	132		$	129
Average monthly retention		98.57	%		98.58	%		98.60	%		98.61	%		98.64	%		98.65	%		98.64	%		98.66	%

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2017			2016			2017			2016
Net cash provided by operating activities	$	1,824		$	1,558		$	3,681		$	260
Purchases of property and equipment		(802	)		(437	)		(1,264	)		(1,090	)
Free cash flow	$	1,022		$	1,121		$	2,417		$	(830	)

The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Claims expense	$	41,009		$	32,466		$	80,196		$	63,070
Stock-based compensation expense		(89	)		(57	)		(159	)		(115	)
Cost of goods	$	40,920		$	32,409		$	80,037		$	62,955
% of revenue		70.2	%		70.7	%		70.8	%		71.1	%

Other cost of revenue	$	6,915		$	5,100		$	13,302		$	9,891
Stock-based compensation expense		(60	)		(9	)		(103	)		(17	)
Variable expenses	$	6,855		$	5,091		$	13,199		$	9,874
% of revenue		11.8	%		11.1	%		11.7	%		11.2	%

Subscription gross profit	$	10,050		$	8,004		$	19,033		$	14,944
Stock-based compensation expense		149			66			262			132
Non-GAAP subscription gross profit	$	10,199		$	8,070		$	19,295		$	15,076
% of subscription revenue		19.4	%		19.1	%		18.8	%		18.5	%

Gross profit	$	10,351		$	8,266		$	19,506		$	15,570
Stock-based compensation expense		149			66			262			132
Non-GAAP gross profit	$	10,500		$	8,332		$	19,768		$	15,702
% of revenue		18.0	%		18.2	%		17.5	%		17.7	%

General and administrative expense	$	4,245		$	3,495		$	8,257		$	7,217
Technology and development expense		2,322			2,164			4,725			4,451
Depreciation and amortization expense		(1,077	)		(739	)		(2,113	)		(1,524	)
Stock-based compensation expense		(541	)		(512	)		(1,022	)		(1,060	)
Fixed expenses	$	4,949		$	4,408		$	9,847		$	9,084
% of revenue		8.5	%		9.6	%		8.7	%		10.3	%

Sales and marketing expense	$	4,372		$	3,564		$	8,461		$	7,404
Stock-based compensation expense		(198	)		(165	)		(385	)		(247	)
Acquisition cost	$	4,174		$	3,399		$	8,076		$	7,157
% of revenue		7.2	%		7.4	%		7.1	%		8.1	%

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,
		2017			2016
Sales and marketing expenses	$	8,461		$	7,404
Excluding:
Stock-based compensation expense		(385	)		(247	)
Acquisition cost		8,076			7,157
Net of:
Sign-up fee revenue		(1,061	)		(1,022	)
Other business segment sales and marketing expense		(111	)		(93	)
Net acquisition cost	$	6,904		$	6,042

	Three Months Ended
	Jun. 31, 2017			Mar. 31, 2017			Dec. 31, 2016			Sep. 30, 2016			Jun. 30, 2016			Mar. 31, 2016			Dec. 31, 2015			Sept. 30, 2015
Sales and marketing expenses	$	4,372		$	4,089		$	3,951		$	3,892		$	3,564		$	3,840		$	3,919		$	4,128
Excluding:
Stock-based compensation expense		(198	)		(187	)		(113	)		(172	)		(165	)		(82	)		(104	)		(102	)
Acquisition cost		4,174			3,902			3,838			3,720			3,399			3,758			3,815			4,026
Net of:
Sign-up fee revenue		(517	)		(544	)		(526	)		(525	)		(495	)		(527	)		(506	)		(542	)
Other business segment sales and marketing expense		(63	)		(48	)		(62	)		(63	)		(55	)		(38	)		(8	)		(16	)
Net acquisition cost	$	3,594		$	3,310		$	3,250		$	3,132		$	2,849		$	3,193		$	3,301		$	3,468

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

	Six Months Ended
	June 30,
		2017			2016
Net loss	$	(1,071	)	$	(3,536	)
Excluding:
Stock-based compensation expense		1,669			1,439
Depreciation and amortization expense		2,113			1,524
Interest income		(127	)		(49	)
Interest expense		246			71
Income tax expense		28			18
Gain from equity method investment		(1,029	)		(11	)
Adjusted EBITDA	$	1,829		$	(544	)

	Three Months Ended
	Jun. 31, 2017			Mar. 31, 2017			Dec. 31, 2016			Sep. 30, 2016			Jun. 30, 2016			Mar. 31, 2016			Dec. 31, 2015			Sept. 30, 2015
Net income (loss)	$	411		$	(1,482	)	$	(1,723	)	$	(1,637	)	$	(964	)	$	(2,572	)	$	(3,001	)	$	(4,643	)
Excluding:
Stock-based compensation expense		888			781			731			776			743			696			653			749
Depreciation and amortization expense		1,077			1,036			1,229			1,093			739			785			741			672
Interest income		(76	)		(51	)		(41	)		(29	)		(26	)		(23	)		(19	)		(19	)
Interest expense		109			137			81			66			41			30			26			14
Income tax expense		4			24			7			13			4			14			12			16
(Gain) loss from equity method investment		(1,036	)		7			18			22			(15	)		4			-			-
Adjusted EBITDA	$	1,377		$	452		$	302		$	304		$	522		$	(1,066	)	$	(1,588	)	$	(3,211	)

The following tables reflect the reconciliation of net income (loss), excluding gain on sale of equity method investment, to net income (loss) (in thousands) and basic earnings per share, excluding gain on sale of equity method investment, to basic earnings per share:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2017			2016			2017			2016
Net income (loss)	$	411		$	(964	)	$	(1,071	)	$	(3,536	)
Excluding:
Gain on sale of equity method investment	$	(1,036	)	$	-		$	(1,036	)	$	-
Net income (loss), excluding gain on sale of equity method investment	$	(625	)	$	(964	)	$	(2,107	)	$	(3,536	)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2017			2016			2017			2016
Basic earnings per share	$	0.01		$	(0.03	)	$	(0.04	)	$	(0.13	)
Excluding:
Gain on sale of equity method investment		(0.03	)		-			(0.03	)		-
Basic earnings per share, excluding gain on sale of equity method investment	$	(0.02	)	$	(0.03	)	$	(0.07	)	$	(0.13	)

Basic weighted-average common shares outstanding		29,510,907			28,348,348			29,383,502			28,173,798

Contacts: 

Investors: 
Laura Bainbridge, Addo Investor Relations
310.829.5400
[email protected]

Media:
Scott Janzen, Trupanion Director of Communications
888.612.1138 ext 3450
[email protected]

Trupanion Reports Second Quarter 2017 Results

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