Trupanion(US:TRUP)2023-05-04 16:00PART I - FINANCIAL INFORMATION Financial Statements (unaudited) The company's Q1 2023 revenue grew 24% to $256.3 million, while its net loss widened to $24.8 million amid rising costs and negative operating cash flow Condensed Consolidated Statements of Operations (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $256,329 thousand | $205,999 thousand | | Total Cost of Revenue | $229,983 thousand | $176,105 thousand | | Operating Loss | ($24,486) thousand | ($9,114) thousand | | Net Loss | ($24,780) thousand | ($8,855) thousand | | Net Loss per Share (Basic and Diluted) | ($0.60) | ($0.22) | Condensed Consolidated Balance Sheets (As of March 31, 2023) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $510,359 thousand | $469,096 thousand | | Total Assets | $717,914 thousand | $671,627 thousand | | Total Current Liabilities | $312,015 thousand | $289,616 thousand | | Total Liabilities | $423,105 thousand | $366,330 thousand | | Total Stockholders' Equity | $294,809 thousand | $305,297 thousand | Condensed Consolidated Statements of Cash Flows (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,862) thousand | ($3,590) thousand | | Net cash provided by (used in) investing activities | $33,914 thousand | ($14,251) thousand | | Net cash provided by financing activities | $33,810 thousand | $52,765 thousand | | Net change in cash, cash equivalents, and restricted cash | $61,122 thousand | $35,063 thousand | - The company incurred a non-recurring $3.8 million settlement of accounts receivable due to uncollected premiums from a third-party business transition31 - The reserve for veterinary invoices increased by a total of $4.6 million across business segments, including $2.8 million in unfavorable development of prior year reserves4950 - In Q1 2023, the company borrowed an additional $35.0 million under its Delayed Draw Term Loans, bringing total outstanding debt to $109.4 million5357 - Stock-based compensation expense increased to $12.3 million from $7.5 million YoY, which included a $4.8 million charge for accelerated RSU vesting for departing executives5859 Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth of 24% was driven by a 28% increase in enrolled pets, though operating loss widened due to higher veterinary costs and G&A expenses Key Operating Metrics (Subscription Business) | Metric | Mar. 31, 2023 | Mar. 31, 2022 | | :--- | :--- | :--- | | Total subscription pets enrolled | 906,369 | 736,691 | | Monthly average revenue per pet | $63.58 | $64.21 | | Lifetime value of a pet | $541 | $730 | | Average pet acquisition cost (PAC) | $247 | $301 | | Average monthly retention | 98.65% | 98.75% | - The company operates in two segments: a direct-to-consumer 'subscription business' and an 'other business' segment for third-party underwriting and software solutions72 - General and administrative expenses increased 124% to $21.0 million, primarily due to a $5.8 million increase in stock-based compensation and a $3.8 million non-recurring settlement116 - The company's main insurance subsidiary, APIC, was required to maintain at least $142.4 million of risk-based capital and held $162.2 million as of December 31, 2022130 Results of Operations Total revenue grew 24% to $256.3 million, propelled by pet enrollment growth, but higher veterinary costs increased the subscription segment's cost of revenue Revenue by Segment (Q1 2023 vs Q1 2022) | Segment | Q1 2023 Revenue (in thousands) | Q1 2022 Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Subscription business | $165,210 | $139,839 | 18% | | Other business | $91,119 | $66,160 | 38% | | Total revenue | $256,329 | $205,999 | 24% | Cost of Revenue as a % of Segment Revenue | Segment | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Subscription business | 88% | 82% | | Other business | 92% | 92% | - The increase in subscription cost of revenue was primarily due to a 19% increase in subscription pets, rising veterinary invoice expenses, and increased claims from software adoption113 Liquidity and Capital Resources The company held $244.6 million in cash, cash equivalents, and short-term investments, with liquidity sourced from operations and a $150.0 million credit facility - The company's primary liquidity requirements are paying veterinary invoices, funding operations, investing in member acquisition, and servicing debt121 - As of March 31, 2023, the company had $244.6 million in cash, cash equivalents and short-term investments, and $40.0 million available under its Credit Facility123 - Total assets held outside of regulated insurance entities were $227.9 million as of March 31, 2023, subject to capital and dividend regulations123 Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposure were reported for Q1 2023, with reference to the 2022 Form 10-K for full details - Management believes there have been no material changes to market risk exposure in Q1 2023 and refers to the 2022 Form 10-K for detailed disclosures140 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - The CEO and CFO concluded that as of the end of the quarter, the company's disclosure controls and procedures were effective141 - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls142 PART II - OTHER INFORMATION Legal Proceedings The company is subject to ordinary course legal proceedings, none of which are currently deemed to be material - The company is subject to litigation and claims arising from the ordinary course of business but does not currently believe any such matters to be material146 Risk Factors The company faces significant risks including a history of net losses, reliance on estimates, member retention, regulatory capital requirements, and competition - The company has a history of significant cumulative net losses ($171.6 million accumulated deficit as of Dec 31, 2022) and may not achieve or maintain profitability149 - The company's pricing is based on complex assumptions; if actual experience differs or regulatory approval for price changes is delayed, financial condition could be adversely affected154156 - The business relies significantly on independent contractor 'Territory Partners' to generate leads, which poses risks related to control, classification, and retention162167 - Actual veterinary invoice expenses may exceed reserves, and increasing use of direct-pay software is likely to increase the number and amount of invoices received, potentially pressuring margins172175 - Insurance subsidiaries are required to maintain minimum levels of risk-based capital, which may constrain the use of capital for growth and operations176 - The business is heavily regulated by numerous authorities, and failure to comply with complex laws could result in significant liabilities and harm the business241242 Unregistered Sales of Equity Securities and Use of Proceeds The company issued 259 shares of its common stock to a strategic distributor in a private placement exempt from registration - In Q1 2023, the company issued 259 shares of common stock to a strategic distributor, relying on the private placement exemption under Section 4(a)(2) of the Securities Act271 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, agreements, and required Sarbanes-Oxley Act certifications