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Trupanion Reports Fourth Quarter and Full Year 2022 Results

February 15, 2023

SEATTLE, Feb. 15, 2023 (GLOBE NEWSWIRE) -- Trupanion, Inc. (Nasdaq: TRUP), the leading provider of medical insurance for cats and dogs, today announced financial results for the fourth quarter and full year ended December 31, 2022.

“2022 was another year of consistent revenue growth and we set solid foundations for our long-term growth initiatives, leading to the doubling of our addressable market,” said Darryl Rawlings, founder and chief executive officer of Trupanion. “With our work over the last 24 months and the opportunities ahead of us, 2023 will be an exciting year. We will remain disciplined in our cash deployment and focused on earning strong internal rates of return.”

Full Year 2022 Financial and Business Highlights

  • Total revenue was $905.2 million, an increase of 29% compared to 2021.
  • Total enrolled pets (including pets from our other business segment) was 1,537,573 at December 31, 2022, an increase of 31% over 2021.
  • Subscription business revenue was $596.6 million, an increase of 21% compared to 2021 (22% on a constant currency basis).
  • Subscription enrolled pets was 869,862 at December 31, 2022, an increase of 24% over 2021.
  • Net loss was $(44.7) million, or $(1.10) per basic and diluted share, compared to net loss of $(35.5) million, or $(0.89) per basic and diluted share, in 2021. Net loss per share is inclusive of stock-based compensation expense of $0.80 and $0.70 for the year ended December 31, 2022 and December 31, 2021, respectively.
  • Adjusted EBITDA was $0.7 million, compared to adjusted EBITDA of $4.7 million in 2021.
  • Operating cash flow was $(8.0) million and free cash flow was $(25.1) million in 2022. This compared to operating cash flow of $7.5 million and free cash flow of $(4.9) million in 2021.

Fourth Quarter 2022 Financial and Business Highlights

  • Total revenue was $246.0 million, an increase of 27% compared to the fourth quarter of 2021.
  • Subscription business revenue was $158.6 million, an increase of 18% compared to the fourth quarter of 2021 (20% on a constant currency basis).
  • Net loss was $(9.3) million, or $(0.23) per basic and diluted share, compared to net loss of $(7.0) million, or $(0.17) per basic and diluted share, in the fourth quarter of 2021. Net loss per share is inclusive of stock-based compensation expense of $0.21 and $0.17 for the three months ended December 31, 2022 and December 31, 2021, respectively.
  • Adjusted EBITDA was $2.2 million, compared to adjusted EBITDA of $3.5 million in the fourth quarter of 2021.
  • Operating cash flow was $1.0 million and free cash flow was $(4.5) million in the fourth quarter of 2022. This compared to operating cash flow of $5.2 million and free cash flow of $1.3 million in the fourth quarter of 2021.

PDF available: http://ml.globenewswire.com/Resource/Download/ea9c2878-f3bc-469e-9572-2973c812202f

Conference Call
Trupanion’s management will host a conference call today to review its fourth quarter and full year 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 https://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: 13735524.

About Trupanion
Trupanion 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 North American 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 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 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, 2022 and any subsequently filed reports on Forms 10-Q, 10-K and 8-K. All documents are available through the SEC’s Electronic Data Gathering Analysis and Retrieval system at https://www.sec.gov/ or the Investor Relations section of Trupanion’s website at https://investors.trupanion.com/.

Non-GAAP Financial Measures
Trupanion’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 December 31,   Year Ended December 31,
      2022       2021       2022       2021  
    (unaudited)        
Revenue:                
Subscription business   $ 158,562     $ 134,120     $ 596,610     $ 494,862  
Other business     87,447       60,259       308,569       204,129  
Total revenue     246,009       194,379       905,179       698,991  
Cost of revenue:                
Subscription business(1)     131,823       108,627       497,684       407,664  
Other business     80,537       55,217       285,310       186,981  
Total cost of revenue(2)     212,360       163,844       782,994       594,645  
Operating expenses:                
Technology and development(1)     6,955       4,665       25,133       16,866  
General and administrative(1)     10,472       8,996       39,379       31,893  
New pet acquisition expense(1)     22,457       19,845       89,500       78,647  
Depreciation and amortization     2,897       2,770       10,921       11,965  
Total operating expenses     42,781       36,276       164,933       139,371  
Loss from investment in joint venture     (85 )     (22 )     (253 )     (171 )
Operating loss     (9,217 )     (5,763 )     (43,001 )     (35,196 )
Interest expense     1,587       9       4,267       10  
Other expense (income), net     (1,504 )     236       (3,072 )     14  
Loss before income taxes     (9,300 )     (6,008 )     (44,196 )     (35,220 )
Income tax expense     (15 )     1,034       476       310  
Net loss   $ (9,285 )   $ (7,042 )   $ (44,672 )   $ (35,530 )
                 
Net loss per share:                
Basic and diluted   $ (0.23 )   $ (0.17 )   $ (1.10 )   $ (0.89 )
Weighted average shares of common stock outstanding:                
Basic and diluted     40,936,507       40,413,434       40,765,355       40,137,505  
                 

(1)
Includes stock-based compensation expense as follows:
   Three Months Ended December 31,
  Year Ended December 31,
      2022       2021       2022       2021  
Cost of revenue   $ 1,346     $ 1,379     $ 6,484     $ 7,148  
Technology and development     1,549       843       4,742       3,056  
General and administrative     3,550       2,450       12,831       8,862  
New pet acquisition expense     2,122       2,136       9,336       9,160  
Total stock-based compensation expense   $ 8,567     $ 6,808     $ 33,393     $ 28,226  
                 
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
    Three Months Ended December 31,   Year Ended December 31,
      2022       2021       2022       2021  
Veterinary invoice expense   $ 176,083     $ 132,852     $ 649,737     $ 486,062  
Other cost of revenue     36,277       30,992       133,257       108,583  
Total cost of revenue   $ 212,360     $ 163,844     $ 782,994     $ 594,645  
                 


Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
    December 31, 2022   December 31, 2021
         
Assets        
Current assets:        
Cash and cash equivalents   $ 65,605     $ 87,400  
Short-term investments     156,804       126,012  
Accounts and other receivables, net of allowance for doubtful accounts of $540 at December 31, 2022 and $342 at December 31, 2021     232,439       165,217  
Prepaid expenses and other assets     14,248       12,325  
Total current assets     469,096       390,954  
Restricted cash     19,032       13,469  
Long-term investments     7,841       7,061  
Property and equipment, net     90,701       77,950  
Intangible assets, net     24,031       22,663  
Other long-term assets     18,943       17,776  
Goodwill     41,983       32,709  
Total assets   $ 671,627     $ 562,582  
Liabilities and stockholders’ equity        
Current liabilities:        
Accounts payable   $ 9,471     $ 8,952  
Accrued liabilities and other current liabilities     32,616       28,162  
Reserve for veterinary invoices     43,734       39,671  
Deferred revenue     202,692       146,911  
Long-term debt - current portion     1,103        
Total current liabilities     289,616       223,696  
Long-term debt     68,354        
Deferred tax liabilities     3,392       2,827  
Other liabilities     4,968       3,859  
Total liabilities     366,330       230,382  
Stockholders’ equity:        
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 42,041,344 and 41,013,158 shares issued and outstanding at December 31, 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     499,694       466,792  
Accumulated other comprehensive loss     (6,301 )     3,077  
Accumulated deficit     (171,562 )     (126,890 )
Treasury stock, at cost: 1,028,186 and 933,165 shares at December 31, 2022 and 2021     (16,534 )     (10,779 )
Total stockholders’ equity     305,297       332,200  
Total liabilities and stockholders’ equity   $ 671,627     $ 562,582  


 
Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)
  Three Months Ended December 31,   Year Ended December 31,
    2022       2021       2022       2021  
  (unaudited)        
Operating activities              
Net loss $ (9,285 )   $ (7,042 )   $ (44,672 )   $ (35,530 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:              
Depreciation and amortization   2,897       2,770       10,921       11,965  
Stock-based compensation expense   8,567       6,808       33,393       28,226  
Other, net   1,023       (996 )     1,051       (1,927 )
Changes in operating assets and liabilities:              
Accounts and other receivables   (8,034 )     (7,397 )     (66,982 )     (66,170 )
Prepaid expenses and other assets   (807 )     (1,133 )     (5,227 )     (3,055 )
Accounts payable, accrued liabilities, and other liabilities   2,388       4,443       3,136       8,796  
Reserve for veterinary invoices   4,164       914       4,227       10,768  
Deferred revenue   106       6,789       56,153       54,385  
Net cash provided by (used in) operating activities   1,019       5,156       (8,000 )     7,458  
Investing activities              
Purchases of investment securities   (147,346 )     (33,384 )     (273,006 )     (95,672 )
Maturities and sales of investment securities   134,718       18,803       239,210       57,869  
Cash paid in business acquisition, net of cash acquired   (12,279 )           (15,034 )      
Purchases of property and equipment   (5,478 )     (3,818 )     (17,088 )     (12,355 )
Other   (167 )     (1,707 )     (1,598 )     (1,755 )
Net cash provided by (used in) investing activities   (30,552 )     (20,106 )     (67,516 )     (51,913 )
Financing activities              
Repurchase of common stock               (5,755 )      
Proceeds from exercise of stock options   706       551       2,290       3,607  
Shares withheld to satisfy tax withholding   (579 )     (1,002 )     (4,359 )     (4,732 )
Proceeds from debt financing, net of financing fees   14,826             69,138        
Repayment of debt financing   (271 )           (571 )      
Net cash provided by (used in) financing activities   14,682       (451 )     60,743       (1,125 )
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net   505       305       (1,459 )     252  
Net change in cash, cash equivalents, and restricted cash   (14,346 )     (15,096 )     (16,232 )     (45,328 )
Cash, cash equivalents, and restricted cash at beginning of period   98,983       115,965       100,869       146,197  
Cash, cash equivalents, and restricted cash at end of period $ 84,637     $ 100,869     $ 84,637     $ 100,869  


The following tables set forth our key operating metrics:
                                 
    Year Ended
December 31,

                       
                           
      2022       2021                          
Total Business:                                
Total pets enrolled (at period end)     1,537,573       1,176,778                          
Subscription Business:                                
Total subscription pets enrolled (at period end)     869,862       704,333                          
Monthly average revenue per pet   $ 63.82     $ 63.56                          
Lifetime value of a pet, including fixed expenses   $ 641     $ 717                          
Average pet acquisition cost (PAC)   $ 289     $ 287                          
Average monthly retention     98.69 %     98.74 %                        
                                 
                                 
    Three Months Ended
    Dec. 31,
2022
  Sept. 30,
2022
  Jun. 30,
2022
  Mar. 31,
2022
  Dec. 31,
2021
  Sept. 30,
2021
  Jun. 30,
2021
  Mar. 31,
2021
Total Business:                                
Total pets enrolled (at period end)     1,537,573       1,439,605       1,348,145       1,267,253       1,176,778       1,104,376       1,024,226       943,854  
Subscription Business:                                
Total subscription pets enrolled (at period end)     869,862       808,077       770,318       736,691       704,333       676,463       643,395       609,835  
Monthly average revenue per pet   $ 63.11     $ 63.80     $ 64.26     $ 64.21     $ 63.89     $ 63.60     $ 63.69     $ 62.97  
Lifetime value of a pet, including fixed expenses   $ 641     $ 673     $ 713     $ 730     $ 717     $ 697     $ 681     $ 684  
Average pet acquisition cost (PAC)   $ 283     $ 268     $ 309     $ 301     $ 306     $ 280     $ 284     $ 279  
Average monthly retention     98.69 %     98.71 %     98.74 %     98.75 %     98.74 %     98.72 %     98.72 %     98.73 %


The following table reflects the reconciliation of cash provided by (used in) operating activities to free cash flow (in thousands):
                 
    Three Months Ended
December 31,
  Year Ended
December 31,
      2022       2021       2022       2021  
Net cash provided (used) by operating activities   $ 1,019     $ 5,156     $ (8,000 )   $ 7,458  
Purchases of property and equipment     (5,478 )     (3,818 )     (17,088 )     (12,355 )
Free cash flow   $ (4,459 )   $ 1,338     $ (25,088 )   $ (4,897 )


The following table reflects the reconciliation between GAAP and non-GAAP measures (in thousands, except percentages):
    Three Months Ended
December 31,
  Year Ended
December 31,
      2022       2021       2022       2021  
Veterinary invoice expense   $ 176,083     $ 132,852     $ 649,737     $ 486,062  
Excluding:                
Stock-based compensation expense     (899 )     (798 )     (4,054 )     (4,538 )
Other business cost of paying veterinary invoices     (59,946 )     (38,009 )     (212,857 )     (129,614 )
Subscription cost of paying veterinary invoices   $ 115,238     $ 94,045     $ 432,826     $ 351,910  
% of subscription revenue     72.7 %     70.1 %     72.5 %     71.1 %
                 
Other cost of revenue   $ 36,277     $ 30,992     $ 133,257     $ 108,583  
Excluding:                
Stock-based compensation expense     (414 )     (581 )     (2,232 )     (2,610 )
Other business variable expenses     (20,591 )     (17,208 )     (72,453 )     (57,367 )
Subscription variable expenses   $ 15,272     $ 13,203     $ 58,572     $ 48,606  
% of subscription revenue     9.6 %     9.8 %     9.8 %     9.8 %
                 
Technology and development expense   $ 6,955     $ 4,665     $ 25,133     $ 16,866  
General and administrative expense     10,472       8,996       39,379       31,893  
Excluding:                
Stock-based compensation expense     (5,019 )     (3,293 )     (17,135 )     (11,918 )
Development expenses1     (2,084 )     (858 )     (7,789 )     (3,719 )
Business combination transaction costs     (193 )           (372 )     (82 )
Fixed expenses   $ 10,131     $ 9,510     $ 39,216     $ 33,040  
% of total revenue     4.1 %     4.9 %     4.3 %     4.7 %
                 
New pet acquisition expense   $ 22,457     $ 19,845     $ 89,500     $ 78,647  
Excluding:                
Stock-based compensation expense     (2,079 )     (2,136 )     (9,116 )     (9,160 )
Other business pet acquisition expense     (65 )     (76 )     (541 )     (499 )
Subscription acquisition cost   $ 20,313     $ 17,633     $ 79,843     $ 68,988  
% of subscription revenue     12.8 %     13.1 %     13.4 %     13.9 %
                 
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.


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):
                                 
    Year Ended
December 31,

                       
                           
      2022       2021                          
New pet acquisition expense   $ 89,500     $ 78,647                          
Excluding:                                
Stock-based compensation expense     (9,116 )     (9,160 )                        
Acquisition cost     80,384       69,487                          
Net of:                                
Sign-up fee revenue     (4,984 )     (4,954 )                        
Other business segment pet acquisition expense     (541 )     (499 )                        
Pet acquisition expense for managing general agent policies     (443 )                              
Net acquisition cost   $ 74,416     $ 64,034                          
                                 
    Three Months Ended
    Dec. 31,
2022
  Sept. 30,
2022
  Jun. 30,
2022
  Mar. 31,
2022
  Dec. 31,
2021
  Sept. 30,
2021
  Jun. 30,
2021
  Mar. 31,
2021
New pet acquisition expense   $ 22,457     $ 22,434     $ 22,982     $ 21,627     $ 19,845     $ 19,708     $ 19,390     $ 19,704  
Excluding:                                
Stock-based compensation expense     (2,079 )     (2,108 )     (2,601 )     (2,328 )     (2,136 )     (2,112 )     (2,181 )     (2,731 )
Acquisition cost     20,378       20,326       20,381       19,299       17,709       17,596       17,209       16,973  
Net of:                                
Sign-up fee revenue     (1,191 )     (1,339 )     (1,252 )     (1,202 )     (1,162 )     (1,268 )     (1,260 )     (1,264 )
Other business segment pet acquisition expense     (65 )     (181 )     (186 )     (109 )     (76 )     (134 )     (118 )     (171 )
Pet acquisition expense for managing general agent policies     (443 )                                          
Net acquisition cost   $ 18,679     $ 18,806     $ 18,943     $ 17,988     $ 16,471     $ 16,194     $ 15,831     $ 15,538  
                                 


The following tables reflect the reconciliation of adjusted EBITDA to net loss (in thousands):
                                 
    Year Ended
December 31,

                       
                           
      2022       2021                          
Net loss   $ (44,672 )   $ (35,530 )                        
Excluding:                                
Stock-based compensation expense     32,537       28,226                          
Depreciation and amortization expense     10,921       11,965                          
Interest income     (3,026 )     (337 )                        
Interest expense     4,267       10                          
Other non-operating expenses     (1 )     2                          
Income tax expense     476       310                          
Business combination transaction costs     372       82                          
(Gain) loss from equity method investment     (131 )     6                          
Adjusted EBITDA   $ 743     $ 4,734                          
                                 
    Three Months Ended
    Dec. 31,
2022
  Sept. 30,
2022
  Jun. 30,
2022
  Mar. 31,
2022
  Dec. 31,
2021
  Sept. 30,
2021
  Jun. 30,
2021
  Mar. 31,
2021
Net loss   $ (9,285 )   $ (12,914 )   $ (13,618 )   $ (8,855 )   $ (7,042 )   $ (6,819 )   $ (9,221 )   $ (12,448 )
Excluding:                                
Stock-based compensation expense     8,412       8,306       8,462       7,358       6,808       6,443       6,527       8,448  
Depreciation and amortization expense     2,897       2,600       2,707       2,717       2,770       2,944       3,158       3,093  
Interest income     (1,614 )     (1,018 )     (297 )     (97 )     (80 )     (85 )     (84 )     (88 )
Interest expense     1,587       1,408       1,193       79       9             3       (2 )
Other non-operating expenses                 (1 )                 (1 )     3        
Income tax expense (benefit)     (15 )     496       19       (24 )     1,034       (312 )     (195 )     (217 )
Business combination transaction costs     193       179                                     82  
(Gain) loss from equity method investment                 (131 )                       6        
Adjusted EBITDA   $ 2,175     $ (943 )   $ (1,666 )   $ 1,178     $ 3,499     $ 2,170     $ 197     $ (1,132 )
                                 

Contacts :

Investors:
Laura Bainbridge, Vice President, Corporate Communications
Investor.Relations@trupanion.com

 


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Source: Trupanion, Inc.