What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-04-30 · 105 added, 55 removed, 360 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands, except share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Revenue $ 168,260 $ 117,920 $ 322,945 $ 229,221

7 unchanged sentences

Technology and development (1)

4,079 2,293 7,810 4,413

General and administrative (1)

7,435 5,073 14,651 9,933

Sales and marketing (1)

3 unchanged sentences

Gain (loss) from investment in joint venture 5 ( 27 ) ( 80 ) ( 86 )

Operating loss ( 12,729 ) ( 1,010 )

Operating (loss) income ( 9,512 ) 1,509 ( 22,241 ) 499

Interest expense 3 341 1 720

Other income, net ( 99 ) ( 202 ) ( 161 ) ( 484 )

Loss before income taxes ( 12,665 ) ( 1,107 )

(Loss) income before income taxes ( 9,416 ) 1,370 ( 22,081 ) 263

Income tax (benefit) expense ( 195 ) 17 ( 412 ) 43

Net loss $ ( 12,448 ) $ ( 1,133 )

Net loss per share:

Basic and diluted $ ( 0.31 ) $ ( 0.03 )

Net (loss) income $ ( 9,221 ) $ 1,353 $ ( 21,669 ) $ 220

Net (loss) income per share:

Basic $ ( 0.23 ) $ 0.04 $ ( 0.54 ) $ 0.01

Diluted $ ( 0.23 ) $ 0.04 $ ( 0.54 ) $ 0.01

Weighted average shares of common stock outstanding:

Basic and diluted 39,700,454 35,007,052

Basic 40,142,872 35,143,592 39,922,885 35,075,322

Diluted 40,142,872 36,688,167 39,922,885 36,601,927

(1) Includes stock-based compensation expense as follows:

8 unchanged sentences

(in thousands)

Three Months Ended March 31,

Net loss $ ( 12,448 ) $ ( 1,133 )

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net (loss) income $ ( 9,221 ) $ 1,353 $ ( 21,669 ) $ 220

Other comprehensive income (loss):

2 unchanged sentences

Other comprehensive income (loss), net of taxes 374 296 992 ( 339 )

Comprehensive loss $ ( 11,830 ) $ ( 1,768 )

Comprehensive (loss) income $ ( 8,847 ) $ 1,649 $ ( 20,677 ) $ ( 119 )

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(in thousands, except share data)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Assets (unaudited)

25 unchanged sentences

$0.00001 par value per share, 100,000,000 shares authorized;

40,989,571 and 40,056,406 issued and outstanding at March 31, 2021;

41,164,220 and 40,231,055 issued and outstanding at June 30, 2021;

40,383,972 and 39,450,807 shares issued and outstanding at December 31, 2020 — —

6 unchanged sentences

Treasury stock, at cost:

933,165 shares at March 31, 2021 and 933,165 shares at December 31, 2020 ( 10,779 ) ( 10,779 )

933,165 shares at June 30, 2021 and 933,165 shares at December 31, 2020 ( 10,779 ) ( 10,779 )

Total stockholders’ equity 334,205 339,939

6 unchanged sentences

Shares Amount

Balance at April 1, 2021 40,056,406 $ — $ 446,975 $ ( 103,808 ) $ 3,689 $ ( 10,779 ) $ 336,077

Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 174,649 — 318 — — — 318

Stock-based compensation expense — — 6,657 — — — 6,657

Other comprehensive income (loss) — — — — 374 — 374

Net income (loss) — — — ( 9,221 ) — — ( 9,221 )

Balance at June 30, 2021 40,231,055 $ — $ 453,950 $ ( 113,029 ) $ 4,063 $ ( 10,779 ) $ 334,205

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity

Shares Amount

Balance at April 1, 2020 35,084,505 $ — $ 234,642 $ ( 86,653 ) $ ( 385 ) $ ( 10,779 ) $ 136,825

Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 161,787 — 1,141 — — — 1,141

Stock-based compensation expense — — 2,294 — — — 2,294

Other comprehensive income (loss) — — — — 296 — 296

Net income (loss) — — — 1,353 — — 1,353

Balance at June 30, 2020 35,246,292 $ — $ 238,077 $ ( 85,300 ) $ ( 89 ) $ ( 10,779 ) $ 141,909

See accompanying notes to the consolidated financial statements.

Trupanion, Inc.

Consolidated Statements of Stockholders' Equity

(in thousands, except share amounts)

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity

Shares Amount

Balance at January 1, 2021 39,450,807 $ — $ 439,007 $ ( 91,360 ) $ 3,071 $ ( 10,779 ) $ 339,939

3 unchanged sentences

Net income (loss) — — — ( 21,669 ) — — ( 21,669 )

Balance at March 31, 2021 40,056,406 $ — $ 446,975 $ ( 103,808 ) $ 3,689 $ ( 10,779 ) $ 336,077

Balance at June 30, 2021 40,231,055 $ — $ 453,950 $ ( 113,029 ) $ 4,063 $ ( 10,779 ) $ 334,205

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity

6 unchanged sentences

Net income (loss) — — — 220 — — 220

Balance at March 31, 2020 35,084,505 $ — $ 234,642 $ ( 86,653 ) $ ( 385 ) $ ( 10,779 ) $ 136,825

Balance at June 30, 2020 35,246,292 $ — $ 238,077 $ ( 85,300 ) $ ( 89 ) $ ( 10,779 ) $ 141,909

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities

Net loss $ ( 12,448 ) $ ( 1,133 )

Adjustments to reconcile net loss to cash provided by operating activities:

Net (loss) income $ ( 21,669 ) $ 220

Adjustments to reconcile net (loss) income to cash provided by operating activities:

Depreciation and amortization 6,251 3,104

18 unchanged sentences

Borrowings from line of credit, net of financing fees — 3,735

Repayments to line of credit — ( 2,500 )

Other — ( 78 )

21 unchanged sentences

The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2020 10-K.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.

Use of Estimates

9 unchanged sentences

Potential shares of common stock outstanding include stock options, unvested restricted stock awards and restricted stock units, and warrants.

The components of basic and diluted earnings per share were as follows (in thousands except share and per share information):

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Basic earnings per share:

Net (loss) income $ ( 9,221 ) $ 1,353 $ ( 21,669 ) $ 220

Shares used in computation:

Weighted average shares of common stock outstanding 40,142,872 35,143,592 39,922,885 35,075,322

Basic earnings per share $ ( 0.23 ) $ 0.04 $ ( 0.54 ) $ 0.01

Diluted earnings per share:

Net (loss) income $ ( 9,221 ) $ 1,353 $ ( 21,669 ) $ 220

Shares used in computation:

Weighted average shares of common stock outstanding 40,142,872 35,143,592 39,922,885 35,075,322

Stock options — 1,390,249 — 1,382,192

Restricted stock awards and units — 154,326 — 144,413

Weighted average shares of diluted common stock outstanding 40,142,872 36,688,167 39,922,885 36,601,927

Diluted earnings per share $ ( 0.23 ) $ 0.04 $ ( 0.54 ) $ 0.01

The following potentially dilutive equity securities were not included in the diluted earnings per share of common stock calculation because they would have had an antidilutive effect:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Stock options 916,434 — 916,434 —

Restricted stock awards and restricted stock units 1,175,228 56,311 1,175,228 56,311

The amortized cost, gross unrealized holding gains and losses, and estimates of fair value of long-term and short-term investments by major security type and class of security were as follows as of March 31, 2021 and December 31, 2020 (in thousands):

As of March 31, 2021

The amortized cost, gross unrealized holding gains and losses, and estimates of fair value of long-term and short-term investments by major security type and class of security were as follows as of June 30, 2021 and December 31, 2020 (in thousands):

As of June 30, 2021

Long-term investments:

18 unchanged sentences

Maturities of debt securities classified as available-for-sale were as follows (in thousands):

As of March 31, 2021

As of June 30, 2021

Available-for-sale:

12 unchanged sentences

The Company's investment and amounts loaned under the line of credit are recorded in other long-term assets on its consolidated balance sheet.

The outstanding loan balance under the line of credit was $ 2.5 million as of March 31, 2021 and December 31, 2020.

The outstanding loan balance under the line of credit was $ 2.5 million as of June 30, 2021 and December 31, 2020.

The Company has also entered into a series of agreements to provide ancillary services to the variable interest entity at cost.

The Company provided $ 0.2 million and $ 0.4 million of these services for the three months ended March 31, 2021 and 2020, respectively, which were recorded against its operating expenses.

The Company provided $ 0.4 million and $ 0.7 million of these services for the six months ended June 30, 2021 and 2020, respectively, which were recorded against its operating expenses.

Investment in Joint Venture

In September 2018, the Company acquired a non-controlling equity interest in a joint venture in Australia, whereby it has committed to licensing certain intellectual property and contributing up to $ 2.2 million AUD upon the achievement of specific operational milestones over a period of at least four years from the agreement execution date.

As of March 31, 2021, the Company has contributed $ 0.6 million AUD.

As of June 30, 2021, the Company has contributed $ 0.6 million AUD.

This equity investment is accounted for using the equity method and is classified in other long-term assets on the Company's consolidated balance sheet.

1 unchanged sentence

Also included in this line item are income and expenses associated with administrative services provided to the joint venture.

The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands):

As of March 31, 2021

The following tables summarize, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands):

As of June 30, 2021

Fair Value Level 1 Level 2 Level 3

22 unchanged sentences

An increase or decrease in any of these unobservable inputs would result in a change in the fair value measurement.

Estimated fair value was $ 7.9 million as of March 31, 2021, unchanged from December 31, 2020, recorded in other long-term assets on the Company's consolidated balance sheet.

Estimated fair value was $ 7.9 million as of June 30, 2021, unchanged from December 31, 2020, recorded in other long-term assets on the Company's consolidated balance sheet.

Fair Value Disclosures

The Company's other long-term assets balance included notes receivable of $ 6.1 million as of March 31, 2021 and December 31, 2020, recorded at their estimated collectible amount.

The Company's other long-term assets balance included notes receivable of $ 6.1 million as of June 30, 2021 and December 31, 2020, recorded at their estimated collectible amount.

The Company estimates that the carrying value of the notes receivable approximates the fair value.

The estimated fair value represents a Level 3 measurement within the fair value hierarchy and is based on market interest rates and the assessed creditworthiness of the third party.

There was no significant activity in Level 3 of the hierarchy during the three months ended March 31, 2021.

There was no significant activity in Level 3 of the hierarchy during the six months ended June 30, 2021.

The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.

There were no transfers between levels for the three months ended March 31, 2021 and the year ended December 31, 2020.

There were no transfers between levels for the six months ended June 30, 2021 and the year ended December 31, 2020.

Commitments and Contingencies

15 unchanged sentences

Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Subscription 2021 2020

10 unchanged sentences

Reserve at end of period $ 21,013 $ 17,440

The Company's reserve for the subscription business segment increased from $ 19.9 million at December 31, 2020 to $ 20.6 million at March 31, 2021.

The Company's reserve for the subscription business segment increased from $ 19.9 million at December 31, 2020 to $ 21.0 million at June 30, 2021.

This change was comprised of $ 171.0 million in expense recorded during the period less $ 166.8 million in payments of veterinary invoices.

The $ 171.0 million in veterinary invoice expense incurred included a reduction of $ 0.8 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends.

For the three months ended March 31, 2020, the Company increased prior year reserves by $ 0.4 million as a result of analysis of payment trends.

For the six months ended June 30, 2020, the Company increased prior year reserves by $ 0.4 million as a result of analysis of payment trends.

Summarized below are the changes in total liability for the Company's other business segment (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Other Business 2021 2020

10 unchanged sentences

Reserve at end of period $ 14,843 $ 6,940

The Company’s reserve for the other business segment increased from $ 9.0 million at December 31, 2020 to $ 9.5 million at March 31, 2021.

The Company’s reserve for the other business segment increased from $ 9.0 million at December 31, 2020 to $ 14.8 million at June 30, 2021.

This change was comprised of $ 57.2 million in expense recorded during the period less $ 51.3 million in payments of veterinary invoices.

The $ 57.2 million in veterinary invoice expense incurred included a reduction of $ 0.3 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends.

For the three months ended March 31, 2020, the Company increased prior year reserves by $ 0.1 million as a result of analysis of payment trends.

For the six months ended June 30, 2020, the Company decreased prior year reserves by $ 0.2 million as a result of analysis of payment trends.

Reserve for veterinary invoices, by year of occurrence

In the following tables, the reserve for veterinary invoices for each segment is presented as the amount (in thousands) by the year to which the veterinary invoice relates, referred to as the year of occurrence.

Subscription As of March 31, 2021

Subscription As of June 30, 2021

Year of Occurrence

2019 and prior $ 1,422

Other Business As of March 31, 2021

Other Business As of June 30, 2021

Year of Occurrence

3 unchanged sentences

Stock-based compensation expense recognized in each category of the consolidated statements of operations was as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Veterinary invoice expense $ 672 $ 245 $ 2,971 $ 423

6 unchanged sentences

Total stock-based compensation $ 6,658 $ 2,294 $ 15,268 $ 4,000

As of March 31, 2021, the Company had 16,795 unvested stock options and 1,232,549 unvested restricted stock units that are expected to vest.

Stock-based compensation expenses of $ 0.1 million related to unvested stock options and $ 82.1 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 0.1 years and 3.2 years, respectively.

As of June 30, 2021, the Company had 418 unvested stock options and 1,175,228 unvested restricted stock units that are expected to vest.

Stock-based compensation expenses of $ 76.9 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 3.0 years.

Stock Options

5 unchanged sentences

Forfeited ( 2,419 ) 11.77 —

Outstanding as of March 31, 2021 1,026,605 12.88 65,010

Exercisable as of March 31, 2021 1,009,810 $ 12.79 $ 64,038

As of March 31, 2021, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 4.9 years and 4.9 years, respectively.

Outstanding as of June 30, 2021 916,434 13.13 93,445

Exercisable as of June 30, 2021 916,016 $ 13.13 $ 93,407

As of June 30, 2021, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 4.5 years.

Restricted Stock Units

6 unchanged sentences

Forfeited ( 23,299 ) 70.96

Unvested shares as of March 31, 2021 1,232,549 $ 68.89

Unvested shares as of June 30, 2021 1,175,228 $ 71.33

Stockholders' Equity

Common Stock and Preferred Stock

As of March 31, 2021, the Company had 100,000,000 shares of common stock authorized and 40,056,406 shares of common stock outstanding.

As of June 30, 2021, the Company had 100,000,000 shares of common stock authorized and 40,231,055 shares of common stock outstanding.

Holders of common stock are entitled to one vote on each matter properly submitted to the stockholders of the Company except those related to matters concerning possible outstanding preferred stock.

At March 31, 2021, the Company had 10,000,000 shares of undesignated preferred stock authorized for future issuance and did not have any outstanding shares of preferred stock.

The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company, whenever funds are legally available.

At June 30, 2021, the Company had 10,000,000 shares of undesignated preferred stock authorized for future issuance and did not have any outstanding shares of preferred stock.

The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company (the Board), whenever funds are legally available.

These rights are subordinate to the dividend rights of holders of any senior classes of stock outstanding at the time.

The Company does not intend to declare or pay any cash dividends in the foreseeable future.

Share Repurchase Program

In April 2021, the Board approved a share repurchase program, pursuant to which the Company may, between May 2021 and May 2026, repurchase outstanding shares of the Company’s common stock.

The Company did not repurchase any shares during the three months ended June 30, 2021.

The Company has two reporting segments:

subscription business and other business.

The subscription business segment currently includes revenue from subscription fees related the Company's "Trupanion" branded products, while the other business segment is comprised of revenue from other product offerings that generally have a business-to-business relationship and a different margin profile than our subscription segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.

The subscription business segment currently includes revenue from subscription fees related to the Company's "Trupanion" branded products, while the other business segment is comprised of revenue from other product offerings that generally have a business-to-business relationship and a different margin profile than our subscription segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.

The chief operating decision maker reviews revenue and operating income (loss) to evaluate segment performance.

4 unchanged sentences

Operating income (loss) of the Company’s segments were as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Subscription business:

19 unchanged sentences

The following table presents the Company’s revenue by geographic region of the member (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

United States $ 139,128 $ 99,056 $ 266,887 $ 191,580

1 unchanged sentence

Total revenue $ 168,260 $ 117,920 $ 322,945 $ 229,221

Substantially all of the Company’s long-lived assets were located in the United States as of March 31, 2021 and December 31, 2020.

Substantially all of the Company’s long-lived assets were located in the United States as of June 30, 2021 and December 31, 2020.

Business Combination

16 unchanged sentences

The investee is considered to be a related party, as the Company has the ability to exercise significant influence over the investee.

In February 2020, the Company entered into a service agreement with the investee, under which the Company incurred $ 0.8 million of expenses for consulting services provided by the investee during the three months ended March 31, 2021.

In February 2020, the Company entered into a service agreement with the investee, under which the Company incurred $ 0.8 million and $ 1.6 million of expenses for consulting services provided by the investee during the three and six months ended June 30, 2021, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements