Trupanion(US:TRUP)2021-08-05 16:00PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The company reports a 43% revenue increase to $168.3 million for Q2 2021 but a net loss of $9.2 million Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $168,260 | $117,920 | $322,945 | $229,221 | | Operating (loss) income | $(9,512) | $1,509 | $(22,241) | $499 | | Net (loss) income | $(9,221) | $1,353 | $(21,669) | $220 | | Diluted (loss) income per share | $(0.23) | $0.04 | $(0.54) | $0.01 | Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $117,332 | $139,878 | | Total assets | $531,966 | $498,250 | | Total liabilities | $197,761 | $158,311 | | Total stockholders' equity | $334,205 | $339,939 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(3,922) | $7,774 | | Net cash used in investing activities | $(18,636) | $(8,878) | | Net cash (used in) provided by financing activities | $(393) | $2,383 | - The company operates through a 'subscription business' and an 'other business' segment, with Q2 2021 revenues of $120.4 million and $47.9 million, respectively6163 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth from pet enrollment, offset by higher marketing spend and a resulting net loss Overview and Key Operating Metrics The company's growth is driven by member acquisition, with total enrolled pets up 38% to over one million - The business model prioritizes acquiring pets at a targeted internal rate of return over short-term profit69 Key Operating Metrics (as of June 30, 2021) | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Pets Enrolled | 1,024,226 | 744,727 | 38% | | Total Subscription Pets Enrolled | 643,395 | 529,400 | 22% | | Monthly Average Revenue per Pet | $63.69 | $59.40 | 7% | | Average Pet Acquisition Cost (PAC) | $284 | $199 | 43% | | Average Monthly Retention | 98.72% | 98.66% | +0.06 p.p. | Results of Operations Q2 2021 revenue grew 43% to $168.3 million, but a 110% rise in marketing costs led to a $9.5 million operating loss Revenue by Segment (Three Months Ended June 30) | Segment | 2021 (in thousands) | 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Subscription business | $120,373 | $92,453 | 30% | | Other business | $47,887 | $25,467 | 88% | | Total revenue | $168,260 | $117,920 | 43% | - Sales and marketing expenses increased by $10.1 million (110%) year-over-year in Q2 2021, driving a 46% increase in new subscription pet enrollments118 - Depreciation and amortization expense increased 83% to $3.2 million in Q2 2021, primarily due to incremental amortization from a recent acquisition120121 - Total stock-based compensation expense was $6.5 million for Q2 2021, a significant increase from $2.2 million in Q2 2020123 Liquidity and Capital Resources The company holds $219.4 million in cash and investments, with sufficient liquidity for the next 12 months - The insurance subsidiary, APIC, held $93.2 million in risk-based capital, exceeding the required $79.1 million as of year-end 2020134 - A new wholly-owned insurance subsidiary, ZPIC Insurance Company, was established in Q2 2021135 - A share repurchase program was approved in April 2021, but no shares were repurchased during the quarter129 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures are reported for the period ended June 30, 2021 - Management believes there have been no material changes to the company's market risks since the end of the previous fiscal year144 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period145 - No material changes in internal control over financial reporting occurred during the quarter146 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material impact - The company is subject to ordinary course litigation but does not currently consider any matters to be material150 Item 1A. Risk Factors Key business risks include the COVID-19 pandemic, a history of net losses, and regulatory compliance challenges - The company has incurred significant net losses since inception, with an accumulated deficit of $91.4 million as of December 31, 2020157 - A key risk involves the potential misclassification of its Territory Partners as independent contractors175 - The insurance subsidiary must maintain required risk-based capital levels, which was $79.1 million as of December 31, 2020184 - The business is subject to extensive and complex insurance regulations, with non-compliance posing significant risks247251 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period - None282 Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - None283 Item 4. Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable284 Item 5. Other Information The company reports no other material information for the period - None285 Item 6. Exhibits This section lists all exhibits filed as part of the quarterly report