Trupanion Reports Third Quarter 2015 Results

SEATTLE, Nov. 3, 2015 /PRNewswire/ -- Trupanion, Inc. (NYSE: TRUP), a direct-to-consumer, monthly subscription business that provides medical plans for cats and dogs, today announced financial results for the three and nine months ended September 30, 2015.

"Our third quarter performance was exceptionally strong, as evidenced by the strength of our new pet enrollments and the acceleration in our active hospital growth rate to the highest level in four years," said Darryl Rawlings, Trupanion's Chief Executive Officer.  "As is evident, our Territory Partners continue to build the trust and support of veterinarians and their staff.  We also continued our efforts to provide a world-class member experience with the deployment of Trupanion Express.  We are ahead of schedule on Trupanion Express installations, having already achieved our year-end projections of 350 Trupanion Express enabled hospitals during the third quarter."

Rawlings added, "Our core subscription business remains the primary driver of our performance, posting 27% revenue growth despite foreign exchange headwinds and a 26% increase in enrolled pets.  Our value proposition continues to resonate with our members, as evidenced by our continually strong 98.66% monthly membership retention rate.  We also delivered subscription gross margin expansion to within our long-term target of 18-21%.  As a result, subscription gross profit increased 54% over the prior year period."

Third Quarter 2015 Financial Highlights
(All comparisons on a year-over-year basis)

• Total revenue was $37.9 million, an increase of 25%.  Revenue growth was 30% on a constant currency basis.
• Subscription business revenue was $34.4 million, an increase of 27%.  Subscription business revenue increased 33% on a constant currency basis.
• Adjusted EBITDA was a loss of $(3.2) million, compared to a loss of $(2.9) million.
• Net loss was $(4.6) million, compared to a net loss of $(8.5) million.
• Cash, cash equivalents and short-term investments of $44.9 million.

Year-to-date 2015 Financial Highlights
(All comparisons on a year-over-year basis)

• Total revenue was $106.8 million, an increase of 27%.  Total revenue growth was 31% on a constant currency basis.
• Subscription business revenue was $96.7 million, an increase of 29%.  Subscription business revenue increased 34% on a constant currency basis.
• Adjusted EBITDA was a loss of $(9.7) million, compared to a loss of $(7.4) million.
• Net loss was $(14.2) million, compared to a net loss of $(16.9) million.

Third Quarter 2015 Operating Metrics
(All comparisons on a year-over-year basis)

• Monthly adjusted revenue per pet (ARPP) was $45.15, an increase of 0.6%.  ARPP increased 5% on a constant currency basis. 
• The ratio of lifetime value of a pet (LVP) to average pet acquisition cost (PAC) was 4.6 to 1.
• Total enrolled pets (including pets from our other business segment) was 276,988 at quarter-end, up 25%.
• Subscription pets enrolled was 258,546 at quarter-end, up 26%.

Outlook
Trupanion currently expects to achieve the following results for the full year ending December 31, 2015:

• Total revenue is expected to be in the range of $146.5 - $148.5 million.
• Adjusted EBITDA is expected to be in the range of $(13)-$(10) million.

The company's outlook for full year 2015 assumes a 75% Canadian currency exchange rate, the approximate rate at the end of September 2015.

Revenue by Quarter

Conference Call
Trupanion's management will host a conference call today to review its third quarter 2015 results and to discuss its financial outlook for the full year 2015. The call is scheduled to begin at 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 60 days upon completion of the conference call. Participants can access the conference call by dialing 1-866-311-7654 (United States), 1-855-669-9657 (Canada), or 1-412-902-4113 (International). A telephonic replay of the call will also be available, one hour after the completion of the call, by dialing 1-877-344-7529 (United States), 1-855-669-9658 (Canada), or 1-412-317-0088 (International) and entering the replay pin number: 10057847.

About Trupanion
Founded in 2000, Trupanion is an industry-leading, direct-to-consumer, monthly subscription business that provides medical plans for cats and dogs in the United States, Canada and Puerto Rico through its affiliated entities. With over 275,000 total enrolled pets (as of November 3, 2015), Trupanion is one of the largest pet medical insurance companies in North America with the mission to help the pets we all love receive the best veterinary care. Trupanion offers a simple, fair and comprehensive pet medical plan that pays 90% of covered veterinary costs for pets' illness and injury claims. Trupanion's shares are traded on the New York Stock Exchange under the ticker symbol TRUP. The company is headquartered in Seattle, WA and can be found online at 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 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 in the future; the accuracy of assumptions used in determining appropriate member acquisition expenditures; the severity and frequency of claims; fluctuations in the Canadian currency exchange rate; 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 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; 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 the Trupanion's intellectual property rights; 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 compliance with laws and regulations that apply to our business, including the sale of a pet medical plan.

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, 2014 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 include certain non-GAAP financial measures, including adjusted revenue, Trupanion's stated results include certain non-GAAP financial measures, including free cash flow, adjusted revenue, contribution margin, acquisition cost and adjusted EBITDA. Free cash flow is a non-GAAP measure that Trupanion defines as net cash used in operating activities less purchases of property and equipment. Monthly adjusted revenue per pet is calculated in part based on adjusted revenue, a non-GAAP financial measure that Trupanion defines as revenue from our subscription business segment excluding sign-up fee revenue and the change in deferred revenue between periods. Lifetime value of a pet is calculated in part based on contribution margin, a non-GAAP financial measure, that Trupanion defines as gross profit from its subscription business segment for the 12 months prior to the period end date excluding stock-based compensation expense related to cost of revenue from its subscription business segment, sign-up fee revenue and the change in deferred revenue between periods. Average pet acquisition cost is calculated in part based on acquisition cost, a non-GAAP financial measure that Trupanion defines as sales and marketing expenses, excluding stock-based compensation expense and other business segment sales and marketing expense, net of sign-up fee revenue. 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, change in fair value of warrant liabilities and income tax expense (benefit).

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 adjusted EBITDA 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.

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 non-GAAP financial measures such as contribution margin, acquisition cost and adjusted EBITDA that exclude stock-based compensation expense and, in the case of adjusted EBITDA, the change in fair value of warrant liabilities allows for more meaningful comparisons between its operating results from period to period. Trupanion excludes sign-up fee revenue from the calculation of both adjusted revenue and contribution margin 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. For this reason, Trupanion also nets sign-up fees with sales and marketing expenses in its calculation of acquisition cost. Trupanion excludes changes in deferred revenue from the calculation of both adjusted revenue and contribution margin in order to eliminate fluctuations caused by the timing of pet enrollment during the last month of any particular period in which such measures are being presented or utilized. Trupanion excludes the change in fair value of warrant liabilities from its calculation of adjusted EBITDA in order to eliminate fluctuations caused by changes in its stock price. Trupanion believes this allows it to calculate and present adjusted revenue, contribution margin and acquisition cost and the related financial measures it derives from them, as well as adjusted EBITDA, in a consistent manner across periods. Trupanion calculates non-GAAP free cash flow as net cash used in operating activities less purchases of property and equipment. Free cash flow is included as it is a key measure used by Trupanion's management and board of directors. Trupanion's management believes free cash flow is an important indicator of liquidity and its business performance as it measures the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities. Free cash flow also reflects changes in working capital. Trupanion's non-GAAP financial measures and the related financial measures it derives from them are important tools for financial and operational decision-making and for evaluating its own operating results over different periods of time.

Trupanion has not reconciled adjusted EBITDA guidance to net income (loss) guidance because it does not provide guidance for stock-based compensation expense, depreciation and amortization, interest income, interest expense, change in fair value of warrant liabilities or income tax expense (benefit), which are reconciling items between net income (loss) and adjusted EBITDA.  Accordingly, reconciliation to net income (loss) is not available without unreasonable effort.  For a reconciliation of historical non-GAAP financial measures to the nearest comparable GAAP measures, see the reconciliation tables included in this press release.

Contacts: 

Investors:
Laura Bainbridge, Addo Communications
310.829.5400
[email protected]

Media:
Britta Gidican, Director, Public Relations
206.607.1930
[email protected]