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Trupanion Reports Third Quarter 2022 Results

November 3, 2022 4:05 PM

SEATTLE, Nov. 03, 2022 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the third quarter ended September 30, 2022.

“The team’s ability to deploy capital at strong estimated internal rates of return continues to impress. This is illustrated by our record third quarter new subscription pet growth, which was led by the veterinary channel,” said Darryl Rawlings, founder and chief executive officer of Trupanion.

Third Quarter 2022 Financial and Business Highlights

First Nine Months 2022 Financial and Business Highlights

PDF available: http://ml.globenewswire.com/Resource/Download/10fed8d5-9e31-4791-9a18-80a3b77cc93c

Conference CallTrupanion’s management will host a conference call today to review its third quarter 2022 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 1-800-753-6150 (United States) or 1-212-231-2903 (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: 22020781.

About TrupanionTrupanion is a leader in medical insurance for cats and dogs throughout the United States, Canada, Europe, Puerto Rico and Australia with over 800,000 pets enrolled. 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. With its patented process, Trupanion is the only provider with the technology to pay veterinarians directly in seconds at the time of checkout. 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. Trupanion Australia is a partnership between Trupanion and Hollard 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, 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, 2021 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 new pet acquisition 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 new pet acquisition expense. 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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(unaudited)
Revenue:
Subscription business$152,401 $127,077 $438,048 $360,742
Other business 81,359 54,590 221,122 143,870
Total revenue 233,760 181,667 659,170 504,612
Cost of revenue:
Subscription business(1) 128,158 103,754 365,861 299,037
Other business 75,543 49,747 204,773 131,764
Total cost of revenue(2) 203,701 153,501 570,634 430,801
Operating expenses:
Technology and development(1) 6,553 4,391 18,178 12,201
General and administrative(1) 10,314 8,246 28,907 22,897
New pet acquisition expense(1) 22,434 19,708 67,043 58,802
Depreciation and amortization 2,600 2,944 8,024 9,195
Total operating expenses 41,901 35,289 122,152 103,095
Gain (loss) from investment in joint venture (57) (69) (168) (149)
Operating loss (11,899) (7,192) (33,784) (29,433)
Interest expense 1,408 — 2,680 1
Other income, net (889) (61) (1,568) (222)
Loss before income taxes (12,418) (7,131) (34,896) (29,212)
Income tax expense (benefit) 496 (312) 491 (724)
Net loss$(12,914) $(6,819) $(35,387) $(28,488)
Net loss per share:
Basic and diluted$(0.32) $(0.17) $(0.87) $(0.71)
Weighted average shares of common stock outstanding:
Basic and diluted 40,799,819 40,283,818 40,707,677 40,044,518
(1)Includes stock-based compensation expense as follows:Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Cost of revenue$1,472 $1,311 $5,138 $5,769
Technology and development 1,184 749 3,193 2,213
General and administrative 3,792 2,271 9,281 6,412
New pet acquisition expense 2,195 2,112 7,214 7,024
Total stock-based compensation expense$8,643 $6,443 $24,826 $21,418
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Veterinary invoice expense$171,112 $125,058 $473,654 $353,210
Other cost of revenue 32,589 28,443 96,980 77,591
Total cost of revenue$203,701 $153,501 $570,634 $430,801

Trupanion, Inc.Consolidated Balance Sheets(in thousands, except share data)
September 30, 2022 December 31, 2021
(unaudited)
Assets
Current assets:
Cash and cash equivalents$85,506 $87,400
Short-term investments 97,438 126,012
Accounts and other receivables, net of allowance for doubtful accounts of $384 at September 30, 2022 and $342 at December 31, 2021 224,082 165,217
Prepaid expenses and other assets 14,802 12,325
Total current assets 421,828 390,954
Restricted cash 13,477 13,469
Long-term investments, at fair value 55,119 7,061
Property and equipment, net 87,066 77,950
Intangible assets, net 19,327 22,663
Other long-term assets 21,553 17,776
Goodwill 29,526 32,709
Total assets$647,896 $562,582
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$7,627 $8,952
Accrued liabilities and other current liabilities 31,112 28,162
Reserve for veterinary invoices 39,542 39,671
Deferred revenue 202,504 146,911
Long-term debt - current portion 600 —
Total current liabilities 281,385 223,696
Long-term debt 53,560 —
Deferred tax liabilities 2,601 2,827
Other liabilities 4,612 3,859
Total liabilities 342,158 230,382
Stockholders’ equity:
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 41,901,548 and 40,873,362 issued and outstanding at September 30, 2022; 41,408,350 and 40,475,185 shares issued and outstanding at December 31, 2021 — —
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding — —
Additional paid-in capital 490,566 466,792
Accumulated other comprehensive loss (6,017) 3,077
Accumulated deficit (162,277) (126,890)
Treasury stock, at cost: 1,028,186 shares at September 30, 2022 and 933,165 shares at December 31, 2021 (16,534) (10,779)
Total stockholders’ equity 305,738 332,200
Total liabilities and stockholders’ equity$647,896 $562,582

Trupanion, Inc.Consolidated Statements of Cash Flows(in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(unaudited)
Operating activities
Net loss$(12,914) $(6,819) $(35,387) $(28,488)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization 2,600 2,944 8,024 9,195
Stock-based compensation expense 8,643 6,443 24,826 21,418
Other, net 102 (386) 28 (931)
Changes in operating assets and liabilities:
Accounts and other receivables (19,821) (17,977) (58,948) (58,773)
Prepaid expenses and other assets (1,599) 170 (4,420) (1,922)
Accounts payable, accrued liabilities, and other liabilities 45 5,225 748 4,353
Reserve for veterinary invoices 3,061 2,984 63 9,854
Deferred revenue 17,584 13,640 56,047 47,596
Net cash (used in) provided by operating activities (2,299) 6,224 (9,019) 2,302
Investing activities
Purchases of investment securities (78,292) (18,915) (125,660) (62,288)
Maturities of investment securities 73,280 8,486 104,492 39,066
Cash paid in business acquisition, net of cash acquired (2,755) — (2,755) —
Purchases of property and equipment (4,131) (2,767) (11,610) (8,537)
Other 71 25 (1,431) (48)
Net cash used in investing activities (11,827) (13,171) (36,964) (31,807)
Financing activities
Proceeds from debt financing, net of financing fees (119) — 54,312 —
Repayments of debt (150) — (300) —
Repurchases of common stock (4) — (5,755) —
Proceeds from exercise of stock options 413 698 1,584 3,056
Shares withheld to satisfy tax withholding (850) (979) (3,780) (3,730)
Net cash (used in) provided by financing activities (710) (281) 46,061 (674)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net (1,268) (461) (1,964) (53)
Net change in cash, cash equivalents, and restricted cash (16,104) (7,689) (1,886) (30,232)
Cash, cash equivalents, and restricted cash at beginning of period 115,087 123,654 100,869 146,197
Cash, cash equivalents, and restricted cash at end of period$98,983 $115,965 $98,983 $115,965

The following tables set forth our key operating metrics:
Nine Months Ended September 30,
2022 2021
Total Business:
Total pets enrolled (at period end) 1,439,605 1,104,376
Subscription Business:
Total subscription pets enrolled (at period end) 808,077 676,463
Monthly average revenue per pet$64.09 $63.43
Lifetime value of a pet, including fixed expenses$673 $697
Average pet acquisition cost (PAC)$291 $281
Average monthly retention 98.71% 98.72%
Three Months Ended
Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Dec. 31, 2020
Total Business:
Total pets enrolled (at period end) 1,439,605 1,348,145 1,267,253 1,176,778 1,104,376 1,024,226 943,854 862,928
Subscription Business:
Total subscription pets enrolled (at period end) 808,077 770,318 736,691 704,333 676,463 643,395 609,835 577,957
Monthly average revenue per pet$63.80 $64.26 $64.21 $63.89 $63.60 $63.69 $62.97 $62.03
Lifetime value of a pet, including fixed expenses$673 $713 $730 $717 $697 $681 $684 $653
Average pet acquisition cost (PAC)$268 $309 $301 $306 $280 $284 $279 $272
Average monthly retention 98.71% 98.74% 98.75% 98.74% 98.72% 98.72% 98.73% 98.71%

The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net cash (used in) provided by operating activities$(2,299) $6,224 $(9,019) $2,302
Purchases of property and equipment (4,131) (2,767) (11,610) (8,537)
Free cash flow$(6,430) $3,457 $(20,629) $(6,235)

The following table reflects the reconciliation between GAAP and non-GAAP measures (in thousands except percentages):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Veterinary invoice expense $171,112 $125,058 $473,654 $353,210
Less:
Stock-based compensation expense1 (960) (769) (3,155) (3,740)
Other business cost of paying veterinary invoices (58,197) (34,432) (152,911) (91,605)
Subscription cost of paying veterinary invoices (non-GAAP) $111,955 $89,857 $317,588 $257,865
% of subscription revenue 73.5% 70.7% 72.5% 71.5%
Other cost of revenue $32,589 $28,443 $96,980 $77,591
Less:
Stock-based compensation expense1 (433) (542) (1,818) (2,029)
Other business variable expenses (17,346) (15,315) (51,862) (40,159)
Subscription variable expenses (non-GAAP) $14,810 $12,586 $43,300 $35,403
% of subscription revenue 9.7% 9.9% 9.9% 9.8%
Technology and development expense $6,553 $4,391 $18,178 $12,201
General and administrative expense 10,314 8,246 28,907 22,897
Less:
Stock-based compensation expense1 (4,805) (3,020) (12,116) (8,625)
Business combination transaction costs (179) — (179) (82)
Development expenses2 (2,435) (919) (5,705) (2,861)
Fixed expenses (non-GAAP) $9,448 $8,698 $29,085 $23,530
% of total revenue 4.0% 4.8% 4.4% 4.7%
New pet acquisition expense $22,434 $19,708 $67,043 $58,802
Less:
Stock-based compensation expense1 (2,108) (2,112) (7,037) (7,024)
Other business pet acquisition expense (181) (134) (476) (423)
Subscription acquisition cost (non-GAAP) $20,145 $17,462 $59,530 $51,355
% of subscription revenue 13.2% 13.7% 13.6% 14.2%
1Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses. We account for such expense as stock-based compensation according to GAAP, but we do not include it in any non-GAAP adjustments. Stock-based compensation associated with bonuses was approximately $0.3 million and $0.7 million for the three and nine months ended September 30, 2022, respectively.
2As 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.

The following tables reflect the reconciliation of new pet acquisition expense, previously called "sales and marketing", to acquisition cost and net acquisition cost (in thousands):
Nine Months Ended September 30,
2022 2021
New pet acquisition expense$67,043 $58,802
Excluding:
Stock-based compensation expense (7,037) (7,024)
Acquisition cost 60,006 51,778
Net of:
Sign-up fee revenue (3,793) (3,792)
Other business segment pet acquisition expense (476) (423)
Net acquisition cost$55,737 $47,563
Three Months Ended
Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Dec. 31, 2020
New pet acquisition expense$22,434 $22,982 $21,627 $19,845 $19,708 $19,390 $19,704 $14,809
Excluding:
Stock-based compensation expense (2,108) (2,601) (2,328) (2,136) (2,112) (2,181) (2,731) $(801)
Acquisition cost 20,326 20,381 19,299 17,709 17,596 17,209 16,973 $14,008
Net of:
Sign-up fee revenue (1,339) (1,252) (1,202) (1,162) (1,268) (1,260) (1,264) $(919)
Other business segment pet acquisition expense (181) (186) (109) (76) (134) (118) (171) $(201)
Net acquisition cost$18,806 $18,943 $17,988 $16,471 $16,194 $15,831 $15,538 $12,888

The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
Nine Months Ended September 30,
2022 2021
Net loss$(35,387) $(28,488)
Excluding:
Stock-based compensation expense 24,125 21,418
Depreciation and amortization expense 8,024 9,195
Interest income (1,412) (257)
Interest expense 2,680 1
Other non-operating expenses (1) 2
Income tax expense (benefit) 491 (724)
Business combination transaction costs 179 82
(Gain) loss from equity method investment (131) 6
Adjusted EBITDA$(1,432) $1,235
Three Months Ended
Sep. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Dec. 31, 2020
Net loss$(12,914) $(13,618) $(8,855) $(7,042) $(6,819) $(9,221) $(12,448) $(3,502)
Excluding:
Stock-based compensation expense 8,306 8,462 7,358 6,808 6,443 6,527 8,448 2,602
Depreciation and amortization expense 2,600 2,707 2,717 2,770 2,944 3,158 3,093 2,301
Interest income (1,018) (297) (97) (80) (85) (84) (88) (83)
Interest expense 1,408 1,193 79 9 — 3 (2) 337
Other non-operating expenses — (1) — — (1) 3 — 1
Income tax expense (benefit) 496 19 (24) 1,034 (312) (195) (217) 44
Business combination transaction costs 179 — — — — — 82 522
(Gain) loss from equity method investment — (131) — — — 6 — —
Adjusted EBITDA$(943) $(1,666) $1,178 $3,499 $2,170 $197 $(1,132) $2,222

Contacts:

Investors:Laura Bainbridge, Vice President, Corporate Communications[email protected]

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Source: Trupanion, Inc.

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