Three and Twelve Months Ended December 31, 2020
Supplementary Information
Trupanion, Inc.
Consolidated Statements of Operations (in thousands, except share data)
Three Months Ended
December 31, Year Ended December 31,
2020 2019 2020 2019 (unaudited) Revenue: Subscription business $ 106,416 $ 86,592 $ 387,732 $ 321,163 Other business 36,271 18,891 114,296 62,773 Total revenue 142,687 105,483 502,028 383,936 Cost of revenue: Subscription business(1) 85,761 70,718 314,875 262,139 Other business 33,333 17,031 105,252 56,873
Total cost of revenue(2) 119,094 87,749 420,127 319,012
Operating expenses:
Technology and development(1) 3,108 1,928 9,947 7,025
General and administrative(1) 6,502 4,665 21,847 18,384
Sales and marketing(1) 14,809 9,212 47,837 35,451
Depreciation and amortization(3) 2,301 1,275 7,071 5,632
Total operating expenses 26,720 17,080 86,702 66,492
Gain (loss) from investment in joint venture (42) (21) (126) (352)
Operating income (loss) (3,169) 633 (4,927) (1,920)
Interest expense 337 375 1,381 1,349
Other income, net (48) (535) (581) (1,629)
Gain (loss) before income taxes (3,458) 793 (5,727) (1,640)
Income tax expense (benefit) 44 157 113 169
Net income (loss) $ (3,502) $ 636 $ (5,840) $ (1,809)
Net income (loss) per share:
Basic $ (0.09) $ 0.02 $ (0.16) $ (0.05)
Diluted (0.09) 0.02 (0.16) (0.05)
Weighted average shares of common stock outstanding:
Basic 37,841,055 34,876,438 35,858,869 34,645,345
Diluted 37,841,055 36,354,620 35,858,869 34,645,345
(1)Includes stock-based compensation expense as follows: Three Months Ended
December 31, Year Ended December 31,
2020 2019 2020 2019
Cost of revenue $ 526 $ 267 $ 1,586 $ 1,050
Technology and development 392 97 758 364
General and administrative 883 860 3,795 3,312
Sales and marketing 801 547 2,773 2,120
Total stock-based compensation expense $ 2,602 $ 1,771 $ 8,912 $ 6,846
(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,
2020 2019 2020 2019
Veterinary invoice expense $ 98,169 $ 74,646 $ 351,124 $ 270,947
Other cost of revenue 20,925 13,103 69,003 48,065
Total cost of revenue $ 119,094 $ 87,749 $ 420,127 $ 319,012
(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)
December 31, 2020 December 31, 2019 Assets
Current assets:
Cash and cash equivalents $ 139,878 $ 29,168
Short-term investments 89,862 69,732
Accounts and other receivables 99,065 54,408
Prepaid expenses and other assets 8,222 5,513
Total current assets 337,027 158,821
Restricted cash 6,319 1,400
Long-term investments, at fair value 5,566 4,323
Property and equipment, net 72,602 70,372
Intangible assets, net 27,134 7,731
Other long-term assets 16,557 14,553
Goodwill 33,045 —
Total assets $ 498,250 $ 257,200
Liabilities and stockholders’ equity Current liabilities:
Accounts payable $ 6,059 $ 4,087
Accrued liabilities and other current liabilities 22,864 13,798
Reserve for veterinary invoices 28,929 21,194
Deferred revenue 92,547 52,546
Total current liabilities 150,399 91,625
Long-term debt — 26,086
Deferred tax liabilities 4,705 1,118
Other liabilities 3,207 1,611
Total liabilities 158,311 120,440
Stockholders’ equity:
Common stock: $0.00001 par value per share, 100,000,000 shares authorized at December 31, 2020 and December 31, 2019, 40,383,972 and 39,450,807 shares issued and outstanding at December 31, 2020; 35,876,882 and 34,947,017 shares
issued and outstanding at December 31, 2019 — —
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized at December 31, 2020 and December 31, 2019, and 0 shares issued and outstanding at
December 31, 2020 and December 31, 2019 — —
Additional paid-in capital 439,007 232,731
Accumulated other comprehensive loss 3,071 250
Accumulated deficit (91,360) (85,520)
Treasury stock, at cost: 933,165 shares at December 31, 2020 and 929,865 shares at
December 31, 2019 (10,779) (10,701)
Total stockholders’ equity 339,939 136,760
Trupanion, Inc.
Consolidated Statements of Cash Flows (in thousands)
Three Months Ended
December 31, Year Ended December 31,
2020 2019 2020 2019
(unaudited) Operating activities
Net income (loss) $ (3,502) $ 636 $ (5,840) $ (1,809)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization 2,301 1,274 7,071 5,632
Stock-based compensation expense 2,602 1,771 8,912 6,846
Other, net 35 (38) 153 105
Changes in operating assets and liabilities:
Accounts and other receivables (5,204) (4,190) (43,272) (22,772)
Prepaid expenses and other assets (860) (707) (2,839) (432)
Accounts payable, accrued liabilities, and other liabilities 3,349 1,304 9,951 4,110
Reserve for veterinary invoices (30) 1,872 7,662 5,059
Deferred revenue 5,273 2,610 39,746 19,418
Net cash provided by operating activities 3,964 4,532 21,544 16,157 Investing activities
Purchases of investment securities (21,314) (20,014) (65,286) (65,506) Maturities of investment securities 14,249 21,538 44,066 49,762 Cash paid in business acquisition, net of cash acquired (48,133) (48,133) —
Purchases of other investments — (4,000) — (4,000)
Purchases of property, equipment and intangible assets (2,939) (1,787) (7,451) (5,373)
Other (31) (954) 57 (2,891)
Net cash used in investing activities (58,168) (5,217) (76,747) (28,008) Financing activities
Proceeds from issuance of common stock, net of issuance costs 192,265 — 192,265 —
Proceeds from exercise of stock options 1,717 727 6,013 2,982
Shares withheld to satisfy tax withholding (459) (57) (1,115) (1,667) Borrowings from line of credit, net of financing fees — 4,000 6,213 13,167
Repayments to line of credit (29,950) — (32,450) —
Other financing — — (78) (438)
Net cash provided by financing activities 163,573 4,670 170,848 14,044 Effect of foreign exchange rate changes on cash, cash equivalents, and
restricted cash, net 198 156 (16) 423
Net change in cash, cash equivalents, and restricted cash 109,567 4,141 115,629 2,616 Cash, cash equivalents, and restricted cash at beginning of period 36,630 26,427 30,568 27,952 Cash, cash equivalents, and restricted cash at end of period $ 146,197 $ 30,568 $ 146,197 $ 30,568
The following tables set forth our key operating metrics:
Year Ended
December 31,
2020
2019
Total Business:
Total pets enrolled (at
period end)
862,928
646,728
Subscription Business:
Total subscription pets
enrolled (at period end)
577,957
494,026
Monthly average revenue
per pet
$ 60.37
$ 57.52
Lifetime value of a pet,
including fixed expenses
$ 653
$ 523
Average pet acquisition
cost (PAC)
$ 247
$ 212
Internal rate of return per
average pet (IRR)
41 %
40 %
Average monthly retention
98.71 %
98.58 %
Three Months Ended
Dec. 31,
2020
Sept. 30,
2020
Jun. 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Sept. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Total Business:
Total pets enrolled (at
period end)
862,928
804,251
744,727
687,435
646,728
613,694
577,686
548,002
Subscription Business:
Total subscription pets
enrolled (at period end)
577,957
552,909
529,400
508,480
494,026
479,427
461,314
445,148
Monthly average revenue
per pet
$ 62.03
$ 60.87
$ 59.40
$ 58.96
$ 58.58
$ 58.12
$ 57.11
$ 56.13
Lifetime value of a pet,
including fixed expenses
$ 653
$ 615
$ 597
$ 535
$ 523
$ 511
$ 482
$ 471
Average pet acquisition
cost (PAC)
$ 272
$ 261
$ 199
$ 247
$ 222
$ 208
$ 213
$ 205
Internal rate of return per
average pet (IRR)
35 %
34 %
52 %
31 %
37 %
39 %
34 %
35 %
Average monthly retention
98.71 %
98.69 %
98.66 %
98.59 %
98.58 %
98.59 %
98.57 %
98.58 %
Total pets enrolled. Total pets enrolled reflects the number of subscription pets or pets enrolled in one of the insurance products offered in our
other business segment at the end of each period presented. We monitor total pets enrolled because it provides an indication of the growth of
our consolidated business.
Total subscription pets enrolled. Total subscription pets enrolled reflects the number of pets in active memberships at the end of each period
presented. We monitor total subscription pets enrolled because it provides an indication of the growth of our subscription business.
Monthly average revenue per pet. Monthly average revenue per pet is calculated as amounts billed in a given period for subscriptions divided
by the total number of subscription pet months in the period. Total subscription pet months in a period represents the sum of all subscription
pets enrolled for each month during the period. We monitor monthly average revenue per pet because it is an indicator of the per pet unit
economics of our subscription business.
Lifetime value of a pet, including fixed expenses. Lifetime value of a pet, including fixed expenses, is calculated based on subscription
revenue less cost of revenue from our subscription business segment for the 12 months prior to the period end date excluding stock-based
compensation expense related to cost of revenue from our subscription business segment, sign-up fee revenue and the change in deferred
revenue between periods. This amount is also reduced by the fixed expenses related to our subscription business, which are the pro-rata portion
of general and administrative and technology and development expenses, less stock-based compensation, based on revenues. This amount, on a
per pet basis, is multiplied by the implied average subscriber life in months. Implied average subscriber life in months is calculated as the
quotient obtained by dividing one by one minus the average monthly retention rate. We monitor lifetime value of a pet, including fixed
expenses, to estimate the value we might expect from new pets over their implied average subscriber life in months, if they behave like the
average pet in that respective period. When evaluating the amount of sales and marketing expenses we may want to incur to attract new pet
enrollments, we refer to the lifetime value of a pet, including fixed expenses, as well as our estimated internal rate of return calculation for an
average pet, which also includes an estimated surplus capital charge, to inform the amount of acquisition spend in relation to the estimated
payback period.
Average pet acquisition cost. Average pet acquisition cost (PAC) is calculated as net acquisition cost divided by the total number of new
subscription pets enrolled in that period. Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as sales and
marketing expense, excluding stock-based compensation expense and other business segment sales and marketing expense, offset by sign-up
fee revenue. We exclude stock-based compensation expense because the amount varies from period to period based on number of awards
issued and market-based valuation inputs. We offset sign-up fee revenue because it is a one-time charge to new members collected at the time
of enrollment used to partially offset initial setup costs, which are included in sales and marketing expenses. We exclude other business
segment sales and marketing expense because that does not relate to subscription enrollments. We monitor average pet acquisition cost to
evaluate the efficiency of our sales and marketing programs in acquiring new members and measure effectiveness using the ratio of our lifetime
value of a pet to average pet acquisition cost, based on our desired return on investment.
Internal rate of return per average subscription pet (IRR) is calculated assuming the new subscription pets we enroll during the period will
behave like an average subscription pet, and represents the discount rate that results in the net present value of all estimated future cash flows
generated over an average enrolled pet’s implied subscriber life, to be equal to zero. Cash outflows from an average pet include average pet
acquisition cost for the applicable period. Cash outflows also include a monthly capital charge, which we estimate as 1% of the average
monthly average revenue per pet for the four quarters preceding the period end date. Cash inflows from an average pet are calculated based on
subscription revenue less cost of revenue from our subscription business segment for the 12 months prior to the period end date excluding
stock-based compensation expense related to cost of revenue from our subscription business segment, sign-up fee revenue and the change in
deferred revenue, minus fixed expenses related to our subscription business, which are the pro-rata portion of general and administrative and
technology and development expenses, less stock-based compensation, based on revenues.
Average monthly retention. Average monthly retention is measured as the monthly retention rate of enrolled subscription pets for each
applicable period averaged over the 12 months prior to the period end date. As such, our average monthly retention rate as of December 31,
2020 is an average of each month’s retention from January 1, 2020 through December 31, 2020. We calculate monthly retention as the number
of pets that remain after subtracting all pets that cancel during a month, including pets that enroll and cancel within that month, divided by the
total pets enrolled at the beginning of that month. We monitor average monthly retention because it provides a measure of member satisfaction
and allows us to calculate the implied average subscriber life in months.
The following tables set forth our calculation of the monthly per pet unit economics for our subscription business for the trailing
twelve months ended December 31, 2020 as well as the estimated IRR for a single average subscription pet, assuming an added pet
behaves like our average pet. We present the estimated IRR for a single average subscription pet for the current quarter and the year
ended December 31, 2020.
Subscription business monthly per pet unit economics
1:
Q4 2020
Monthly average revenue per pet
$ 60.37
Cost of paying veterinary invoices
$ 43.26
Variable expenses
$
5.51
Fixed expenses
$
3.17
Estimated profit per pet per month
$
8.43
multiplied by 77.5 months = $653 (Lifetime value of a pet, including fixed
expenses)
1Calculated on a trailing twelve month basis
Estimated IRR calculation for the quarter ended December 31, 2020:
Year
—
1
2
3
4
5
6
Months
26
12
12
12
12
12
11.5
77.5
Estimated Profit per Pet per Month
$8
$8
$8
$8
$8
$8
$8
Estimated Profit per Pet
$51
$101
$101
$101
$101
$101
$97
$653
Capital Charge
3$(4)
$(7)
$(7)
$(7)
$(7)
$(7)
$(7)
$(47)
PAC
$(272)
IRR
$(225)
$94
$94
$94
$94
$94
$90
35%
Estimated IRR calculation for the twelve months ended December 31, 2020:
Year
—
1
2
3
4
5
6
Months
26
12
12
12
12
12
11.5
77.5
Estimated Profit per Pet per Month
$8
$8
$8
$8
$8
$8
$8
Estimated Profit per Pet
$51
$101
$101
$101
$101
$101
$97
$653
Capital Charge
3$(4)
$(7)
$(7)
$(7)
$(7)
$(7)
$(7)
$(47)
PAC
$(247)
IRR
$(200)
$94
$94
$94
$94
$94
$90
41%
2This represents the average subscriber life in months, for the period presented, which is calculated as the quotient obtained by dividing one by one
minus the average monthly retention rate.
3We include a capital charge in this calculation to estimate cost of capital on reserves which must be set aside to meet regulatory capital
The following table reflects the reconciliation between GAAP and non-GAAP measures (in thousands):
Three Months Ended
December 31,
Year Ended December 31,
2020
2019
2020
2019
Veterinary invoice expense
$
98,169 $
74,646 $
351,124 $
270,947
Excluding:
Stock-based compensation expense
(358)
(182)
(1,118)
(697)
Other business cost of paying veterinary invoices
(22,254)
(12,025)
(72,119)
(38,532)
Subscription cost of paying veterinary invoices
$
75,557 $
62,439 $
277,887 $
231,718
Other cost of revenue
$
20,925 $
13,103 $
69,003 $
48,065
Excluding:
Stock-based compensation expense
(168)
(85)
(468)
(353)
Other business variable expenses
(11,079)
(5,006)
(33,133)
(18,341)
Subscription variable expenses
$
9,678 $
8,012 $
35,402 $
29,371
Technology and development expense
$
3,108 $
1,928 $
9,947 $
7,025
General and administrative expense
6,502
4,665
21,847
18,384
Excluding:
Stock-based compensation expense
(1,275)
(956)
(4,553)
(3,676)
Development expenses
1(339)
—
(339)
—
Business combination transaction costs
2(522)
—
(522)
—
Fixed expenses
$
7,474 $
5,637 $
26,380 $
21,733
Sales and marketing expense
$
14,809 $
9,212 $
47,837 $
35,451
Excluding:
Stock-based compensation expense
(801)
(547)
(2,773)
(2,120)
Other business acquisition cost
(201)
(152)
(820)
(414)
Subscription acquisition cost
$
13,807 $
8,513 $
44,244 $
32,917
Technology and development
$
3,108 $
1,928 $
9,947 $
7,025
Excluding:
Stock-based compensation expense
(392)
(97)
(758)
(364)
Technology expenses
(2,377)
(1,831)
(8,850)
(6,661)
Development expenses
1$
339 $
— $
339 $
—
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 GAAP measures to non-GAAP measures (in thousands, except percentages): By Segment:
Three Months Ended
December 31, Year Ended December 31,
2020 2019 2020 2019
Subscription revenue $ 106,416 $ 86,592 $ 387,732 $ 321,163
Subscription cost of paying veterinary invoices 75,557 62,439 277,887 231,718
Subscription variable expenses 9,678 8,012 35,402 29,371
Subscription fixed expenses* 5,574 4,627 20,385 18,180
Subscription adjusted operating income 15,607 11,514 54,058 41,894
Other business revenue 36,271 18,891 114,296 62,773
Other business cost of paying veterinary invoices 22,254 12,025 72,119 38,532
Other business variable expenses 11,079 5,006 33,133 18,341
Other business fixed expenses* 1,900 1,010 5,995 3,553
Other business adjusted operating income 1,038 850 3,049 2,347
Subscription acquisition cost 13,807 8,513 44,244 32,917
Other business acquisition cost 201 152 820 414
Development expenses 339 — 339 —
Stock-based compensation expense 2,602 1,771 8,912 6,846
Depreciation and amortization 2,301 1,274 7,071 5,632
Business combination transaction costs 522 — 522 —
Gain (loss) from investment in joint venture (42) (21) (126) (352)
Operating income (loss) (3,169) 633 (4,927) (1,920)
As a percentage of revenue: Three Months Ended
December 31, Year Ended December 31,
2020 2019 2020 2019
Subscription revenue 100.0 % 100.0 % 100.0 % 100.0 %
Subscription cost of paying veterinary invoices 71.0 % 72.1 % 71.7 % 72.1 %
Subscription variable expenses 9.1 % 9.3 % 9.1 % 9.1 %
Subscription fixed expenses* 5.2 % 5.3 % 5.3 % 5.7 %
Subscription adjusted operating income 14.7 % 13.3 % 13.9 % 13.0 %
Other business revenue 100.0 % 100.0 % 100.0 % 100.0 %
Other business cost of paying veterinary invoices 61.4 % 63.7 % 63.1 % 61.4 %
Other business variable expenses 30.5 % 26.5 % 29.0 % 29.2 %
Other business fixed expenses* 5.2 % 5.3 % 5.2 % 5.7 %
Other business adjusted operating income 2.9 % 4.5 % 2.7 % 3.7 %
*Fixed expenses represent shared services that support both our subscription and other business segments and, as such, are allocated to each segment pro-rata based on revenues
Total Business:
Three Months Ended
December 31, Year Ended December 31,
2020 2019 2020 2019
Revenue $ 142,687 $ 105,483 $ 502,028 $ 383,936
Cost of paying veterinary invoices 97,811 74,464 350,006 270,250
Variable expenses 20,757 13,018 68,535 47,712
Fixed expenses 7,474 5,637 26,380 21,733
Adjusted operating income 16,645 12,364 57,107 44,241
Acquisition cost 14,008 8,665 45,064 33,331
Development expenses 339 — 339 —
Stock-based compensation expense 2,602 1,771 8,912 6,846
Depreciation and amortization 2,301 1,274 7,071 5,632
Business combination transaction costs 522 — 522 —
Gain (loss) from investment in joint venture (42) (21) (126) (352)
Operating income (loss) (3,169) 633 (4,927) (1,920)
As a percentage of revenue: Three Months Ended
December 31, Year Ended December 31,
2020 2019 2020 2019
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of paying veterinary invoices 68.5 % 70.6 % 69.7 % 70.4 %
Variable expenses 14.5 % 12.3 % 13.7 % 12.4 %
Fixed expenses 5.2 % 5.3 % 5.3 % 5.7 %
Adjusted operating income 11.7 % 11.7 % 11.4 % 11.5 %
Acquisition cost 9.8 % 8.2 % 9.0 % 8.7 %
Development expenses 0.2 % — % 0.1 % — %
Stock-based compensation expense 1.8 % 1.7 % 1.8 % 1.8 %
Depreciation and amortization 1.6 % 1.2 % 1.4 % 1.5 %
Business combination transaction costs 0.4 % — % 0.1 % — %
Gain (loss) from investment in joint venture — % — % — % (0.1) %
Operating income (loss) (2.2) % 0.6 % (1.0) % (0.5) %
Adjusted operating income is a non-GAAP financial measure that adjusts operating income (loss) to remove the effect of acquisition cost, development expenses, one-time business combination transactions costs and gain (loss) from investment in joint venture. Non-cash items, such as stock-based compensation expense and depreciation and amortization, are also excluded. Acquisition cost, development expenses, gain (loss) from investment in joint venture, stock-based compensation expense, and depreciation and amortization are expected to remain recurring expenses for the foreseeable future, but are excluded from this metric to measure scale in other areas of the business. Management believes acquisition costs primarily represent the cost to acquire new subscribers and are driven by the amount of growth we choose to pursue based primarily on the amount of our adjusted operating income period over period. Accordingly, this measure is not indicative of our core operating income performance. We also exclude development expenses, gain (loss) from investment in joint venture, stock-based compensation expense and depreciation and amortization because some investors may not view those items as reflective of our core operating income performance.
Management uses adjusted operating income and the margin on adjusted operating income to understand the effects of scale in its non-acquisition cost and development expenses and to plan future advertising expenditures, which are designed to acquire new pets. Management uses this measure as a principal way of understanding the operating performance of its business exclusive of acquisition cost and new product exploration and development initiatives. Management believes disclosure of this metric provides investors with the same data that the Company employs in assessing its overall operations and that disclosure of this measure may provide useful information regarding the efficiency of our utilization of revenues, return on advertising dollars in the form of new subscribers and future use of available cash to support the continued growth of our business.
