UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 8, 2018
TRUPANION, INC.
(Exact name of registrant as specified in its charter)

					
 	 	 	 	 	
Delaware	 	001-36537	 	83-0480694	
(State or other jurisdiction of
incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	
6100 4th Avenue S, Suite 200
Seattle, Washington 98108
(Address of principal executive offices, including zip code)

(855) 727 - 9079
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

	
		
o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	

	
		
o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	

	
		
o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	

	
		
o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company  x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  x

Item 2.02     Results of Operations and Financial Condition.
On November 8th, 2018, Trupanion, Inc. (the “Company”) issued a press release and will hold a conference call regarding the Company's financial results for the third quarter ended September 30, 2018. A copy of the Company's press release is attached hereto as Exhibit 99.1.
The information furnished with this report, including Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Exchange Act or under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.
Item 9.01     Financial Statements and Exhibits.

			
(d)	Exhibits	 	
 	 	 	
 	Exhibit No.	Description	
 	Exhibit 99.1	Press release issued by Trupanion, Inc. dated November 8, 2018	

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	

TRUPANION, INC.	
 	 	
By:	/s/ Tricia Plouf	
 	Name: Tricia Plouf	
 	Title: Chief Financial Officer	
Date: November 8, 2018

Exhibit 99.1

Trupanion Reports Third Quarter 2018 Results
SEATTLE, WA. November 8, 2018 --  Trupanion , Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the third quarter ended September 30, 2018.
“Performance in the third quarter was particularly strong, led by continued success in growing same store sales, improving conversion rates and scaling fixed expenses. We also made meaningful strides in claims automation, which improves the overall customer experience and helps grow the volume of organic referrals,” said Darryl Rawlings, CEO of Trupanion. “These strategic initiatives will remain a long-term focus, as will building greater awareness of Trupanion and the benefits of high-quality medical insurance for pets, through strong relationships with veterinarians across North America.”

Third Quarter 2018 Financial and Business Highlights

•	Total revenue of $78.2 million, an increase of 24% compared to the third quarter of 2017.	
		
•	Total enrolled pets (including pets from our other business segment) was 497,942 at September 30, 2018, an increase of 23% over September 30, 2017.	
		
•	Subscription business revenue of $67.4 million, an increase of 19% compared to the third quarter of 2017.	
		
•	Subscription enrolled pets was 416,527 at September 30, 2018, an increase of 16% over September 30, 2017.	
		
•	Net income of $1.2 million, or $0.04 per basic share and $0.03 per diluted share, compared to net income of $0.4 million, or $0.01 per basic and diluted share, in the third quarter of 2017.	
		
•	Adjusted EBITDA of $3.7 million, compared to adjusted EBITDA of $2.4 million in the third quarter of 2017.	
		
•	Operating cash flow of $4.2 million and free cash flow of $(46.1) million in the third quarter of 2018. Excluding the cash outflow of $49.3 million related to the purchase of our headquarters building, free cash flow was $3.2 million. This compared to free cash flow in the third quarter of 2017 of $2.0 million, which included operating cash flow of $3.0 million.	

Year-to-date 2018 Financial and Business Highlights

•	Total revenue of $221.3 million, an increase of 26% compared to the first nine months of 2017.	
		
•	Subscription business revenue of $192.8 million, an increase of 21% compared to the first nine months of 2017.	
		
•	Net loss of $(0.7) million, or $(0.02) per basic and diluted share, compared to net loss of $(0.7) million, or $(0.02) per basic and diluted share, in the first nine months of 2017.	
		
•	Adjusted EBITDA of $6.1 million, compared to adjusted EBITDA of $4.3 million in the first nine months of 2017.	
		
•	Operating cash flow of $9.0 million and free cash flow of $(46.8) million for the first nine months of 2018. Excluding the cash outflow of $52.5 million related to the purchase of our headquarters building, which closed in the third quarter of 2018, free cash flow was $5.7 million. This compared to free cash flow in the first nine months of 2017 of $4.4 million, which included operating cash flow of $6.7 million.	

Revenue by Quarter -

Conference Call
Trupanion’s management will host a conference call today to review its third quarter 2018 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 http://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, one hour 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: 13683609.

About Trupanion
Trupanion is a leader in medical insurance for cats and dogs throughout the United States and Canada. For almost 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. 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. 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 execute its business plans. 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 currency exchange rates; the ability to protect our proprietary and member information; the ability to maintain our culture and team, including key personnel; 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 continue key contractual relationships with third parties; third-party claims including litigation and regulatory actions; and the ability to recognize benefits from investments in new solutions and enhancements to Trupanion’s technology platform and website.

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, 2017 and any subsequently filed reports on Forms 10-Q and 8-K. All documents are available through the SEC’s Electronic Data Gathering Analysis and Retrieval system at www.sec.gov or the Investor Relations section of Trupanion’s website at http://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 sales and marketing 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 sales and marketing expenses. 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 September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
 	(unaudited)	
Revenue:	 	 	 	 	 	 	 	
Subscription business	$	67,421		 	$	56,493		 	$	192,805		 	$	159,363		
Other business	10,743		 	6,625		 	28,511		 	16,759		
Total revenue	78,164		 	63,118		 	221,316		 	176,122		
Cost of revenue:	 	 	 	 	 	 	 	
Subscription business (1)	54,753		 	45,215		 	158,100		 	129,052		
Other business	9,667		 	6,096		 	26,055		 	15,757		
   Total cost of revenue (2)	64,420		 	51,311		 	184,155		 	144,809		
Gross profit:	 	 	 	 	 	 	 	
Subscription business	12,668		 	11,278		 	34,705		 	30,311		
Other business	1,076		 	529		 	2,456		 	1,002		
Total gross profit	13,744		 	11,807		 	37,161		 	31,313		
Operating expenses:	 	 	 	 	 	 	 	
Technology and development (1)	2,299		 	2,471		 	6,761		 	7,196		
General and administrative (1)	4,174		 	4,017		 	13,242		 	12,274		
Sales and marketing (1)	6,365		 	4,862		 	18,005		 	13,323		
Total operating expenses	12,838		 	11,350		 	38,008		 	32,793		
Operating income (loss)	906		 	457		 	(847	)	 	(1,480	)	
Interest expense	336		 	124		 	887		 	370		
Other (income) expense, net	(628	)	 	(99	)	 	(1,071	)	 	(1,239	)	
Income (loss) before income taxes	1,198		 	432		 	(663	)	 	(611	)	
Income tax (benefit) expense	(7	)	 	26		 	(11	)	 	54		
Net income (loss)	$	1,205		 	$	406		 	$	(652	)	 	$	(665	)	
 	 	 	 	 	 	 	 	
Net income (loss) per share:	 	 	 	 	 	 	 	
   Basic	$	0.04		 	$	0.01		 	$	(0.02	)	 	$	(0.02	)	
Diluted	$	0.03		 	$	0.01		 	$	(0.02	)	 	$	(0.02	)	
Weighted average common shares outstanding:	 	 	 	 	 	 	 	
Basic	33,129,416		 	30,037,282		 	31,376,239		 	29,500,958		
Diluted	36,385,360		 	33,113,981		 	31,376,239		 	29,500,958		
 	 	 	 	 	 	 	 	
(1) Includes stock-based compensation expense as follows:	Three Months Ended September 30,	 	Nine Months Ended September 30,	
		 		
 	2018	 	2017	 	2018	 	2017	
Cost of revenue	$	249		 	$	170		 	$	698		 	$	432		
Technology and development	58		 	57		 	167		 	166		
General and administrative	634		 	503		 	1,708		 	1,416		
Sales and marketing	358		 	165		 	980		 	550		
Total stock-based compensation expense	$	1,299		 	$	895		 	$	3,553		 	$	2,564		
 	 	 	 	 	 	 	 	
(2) The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:	
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Veterinary invoice expense	$	54,303		 	$	43,453		 	$	156,196		 	$	123,649		
Other cost of revenue	10,117		 	7,858		 	27,959		 	21,160		
     Total cost of revenue	$	64,420		 	$	51,311		 	$	184,155		 	$	144,809		

	
								
Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)	
 	September 30, 2018	 	December 31, 2017	
 	(unaudited)	 	 	
Assets	 	 	 	
Current assets:	 	 	 	
Cash and cash equivalents	$	34,677		 	$	25,706		
Short-term investments	39,422		 	37,590		
Accounts and other receivables	31,985		 	20,367		
Prepaid expenses and other assets	4,184		 	2,895		
Total current assets	110,268		 	86,558		
Restricted cash	1,400		 	600		
Long-term investments, at fair value	3,545		 	3,237		
Property and equipment, net	69,998		 	7,868		
Intangible assets, net	8,084		 	4,972		
Other long-term assets	6,580		 	2,624		
Total assets	$	199,875		 	$	105,859		
Liabilities and stockholders’ equity	 	 	 	
Current liabilities:	 	 	 	
Accounts payable	$	2,163		 	$	2,716		
Accrued liabilities and other current liabilities	12,006		 	7,660		
Reserve for veterinary invoices	14,216		 	12,756		
Deferred revenue	32,848		 	22,734		
Total current liabilities	61,233		 	45,866		
Long-term debt	8,604		 	9,324		
Deferred tax liabilities	1,002		 	1,002		
Other liabilities	1,174		 	1,233		
Total liabilities	72,013		 	57,425		
Stockholders’ equity:	 	 	 	
Common stock: $0.00001 par value, 100,000,000 shares authorized; 34,171,653 and 33,415,668 shares issued and outstanding at September 30, 2018; 30,778,796 and 30,121,496 shares issued and outstanding at December 31, 2017	—		 	—		
Preferred stock: $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding	—		 	—		
Additional paid-in capital	217,833		 	134,511		
Accumulated other comprehensive loss	(334	)	 	(92	)	
Accumulated deficit	(83,436	)	 	(82,784	)	
Treasury stock, at cost: 755,985 shares at June 30, 2018 and 657,300 shares at December 31, 2017	(6,201	)	 	(3,201	)	
Total stockholders’ equity	127,862		 	48,434		
Total liabilities and stockholders’ equity	$	199,875		 	$	105,859		

	
																
Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)	
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
 	(unaudited)	
Operating activities	 	 	 	 	 	 	 	
Net income (loss)	$	1,205		 	$	406		 	$	(652	)	 	$	(665	)	
Adjustments to reconcile net income (loss) to cash provided by operating activities:	 	 	 	 	 	 	 	
Depreciation and amortization	1,136		 	1,095		 	3,027		 	3,208		
Stock-based compensation expense	1,299		 	895		 	3,553		 	2,564		
Gain on sale of equity method investment	—		 	—		 	—		 	(1,036	)	
Other, net	(275	)	 	187		 	(237	)	 	243		
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	
Accounts and other receivables	(3,424	)	 	(3,196	)	 	(11,592	)	 	(10,164	)	
Prepaid expenses and other assets	269		 	(114	)	 	(549	)	 	(297	)	
Accounts payable, accrued liabilities, and other liabilities	1,282		 	1,209		 	3,849		 	2,122		
Reserve for veterinary invoices	191		 	380		 	1,484		 	1,639		
Deferred revenue	2,472		 	2,146		 	10,133		 	9,075		
Net cash provided by operating activities	4,155		 	3,008		 	9,016		 	6,689		
Investing activities	 	 	 	 	 	 	 	
Purchases of fixed maturity investment securities	(9,181	)	 	(5,809	)	 	(29,567	)	 	(20,704	)	
Maturities of fixed maturity investment securities	12,390		 	4,166		 	27,405		 	15,878		
Purchases of other investments	(3,000	)	 	—		 	(3,000	)	 	—		
Acquisition of lease intangibles, related to corporate real estate acquisition	(2,959	)	 	—		 	(2,959	)	 	—		
Proceeds from sale of equity method investment	—		 	—		 	—		 	1,402		
Purchases of property and equipment	(50,236	)	 	(983	)	 	(55,856	)	 	(2,247	)	
Other investments	(965	)	 	(9	)	 	(852	)	 	(2,762	)	
Net cash used in investing activities	(53,951	)	 	(2,635	)	 	(64,829	)	 	(8,433	)	
Financing activities	 	 	 	 	 	 	 	
Proceeds from public offering of common stock, net of offering costs	(196	)	 	—		 	65,690		 	—		
Proceeds from exercise of stock options	1,216		 	435		 	2,872		 	2,082		
Shares withheld to satisfy tax withholding	(1,839	)	 	(1,170	)	 	(1,839	)	 	(1,170	)	
Proceeds from exercise of warrants	—		 	—		 	300		 	—		
Proceeds from debt financing, net of financing fees	(61	)	 	961		 	9,189		 	2,420		
Repayment of debt financing	(10,000	)	 	—		 	(10,000	)	 	—		
Other financing	(179	)	 	(209	)	 	(535	)	 	(412	)	
Net cash (used in) provided by financing activities	(11,059	)	 	17		 	65,677		 	2,920		
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net	108		 	255		 	(93	)	 	436		
Net change in cash, cash equivalents, and restricted cash	(60,747	)	 	645		 	9,771		 	1,612		
Cash, cash equivalents, and restricted cash at beginning of period	96,824		 	25,204		 	26,306		 	24,237		
Cash, cash equivalents, and restricted cash at end of period	$	36,077		 	$	25,849		 	$	36,077		 	$	25,849		

	
																																
The following tables set forth our key operating metrics:	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Nine Months Ended September 30,	 	 	 	 	 	 	 	 	 	 	 	 	
 		 	 	 	 	 	 	 	 	 	 	 	 	
 	2018	 	2017	 	 	 	 	 	 	 	 	 	 	 	 	
Total pets enrolled (at period end)	497,942		 	404,069		 	 	 	 	 	 	 	 	 	 	 	 	
Total subscription pets enrolled (at period end)	416,527		 	359,102		 	 	 	 	 	 	 	 	 	 	 	 	
Monthly average revenue per pet	$	54.06		 	$	51.67		 	 	 	 	 	 	 	 	 	 	 	 	
Lifetime value of a pet (LVP)	$	714		 	$	701		 	 	 	 	 	 	 	 	 	 	 	 	
Average pet acquisition cost (PAC)	$	157		 	$	141		 	 	 	 	 	 	 	 	 	 	 	 	
Average monthly retention	98.61	%	 	98.61	%	 	 	 	 	 	 	 	 	 	 	 	 	

 	Three Months Ended	
 	Sept. 30, 2018	 	Jun. 30, 2018	 	Mar. 31, 2018	 	Dec. 31, 2017	 	Sept. 30, 2017	 	Jun. 30, 2017	 	Mar. 31, 2017	 	Dec. 31, 2016	
Total pets enrolled (at period end)	497,942		 	472,480		 	446,533		 	423,194		 	404,069		 	383,293		 	364,259		 	343,649		
Total subscription pets enrolled (at period end)	416,527		 	401,033		 	385,640		 	371,683		 	359,102		 	346,409		 	334,909		 	323,233		
Monthly average revenue per pet	$	54.55		 	$	53.96		 	$	53.62		 	$	53.17		 	$	52.95		 	$	51.47		 	$	50.50		 	$	49.17		
Lifetime value of a pet (LVP)	$	714		 	$	732		 	$	727		 	$	727		 	$	701		 	$	654		 	$	637		 	$	631		
Average pet acquisition cost (PAC)	$	155		 	$	150		 	$	165		 	$	184		 	$	151		 	$	143		 	$	128		 	$	133		
Average monthly retention	98.61	%	 	98.64	%	 	98.63	%	 	98.63	%	 	98.61	%	 	98.57	%	 	98.58	%	 	98.6	%	

	
																	
The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):	
 	 	 	 	 	 	 	 	 	
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	 	
 	2018	 	2017	 	2018	 	2017	 	
Net cash provided by operating activities	$	4,155		 	$	3,008		 	$	9,016		 	$	6,689		 	
Purchases of property and equipment	(50,236	)	 	(983	)	 	(55,856	)	 	(2,247	)	 	
Free cash flow	$	(46,081	)	 	$	2,025		 	$	(46,840	)	 	$	4,442		 	
Exclude building purchase, net of acquired lease intangibles	49,284		 	—		 	52,534		 	—		 	
Free cash flow, excluding building purchase, net of acquired lease intangibles	$	3,203		 	$	2,025		 	$	5,694		 	$	4,442		 	

	
																		
The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended September 30,	 	Nine Months Ended September 30,	 	
 	 	2018	 	2017	 	2018	 	2017	 	
Veterinary invoice expense	 	$	54,303		 	$	43,453		 	$	156,196		 	$	123,649		 	
Stock-based compensation expense	 	(153	)	 	(101	)	 	(421	)	 	(260	)	 	
Cost of goods	 	$	54,150		 	$	43,352		 	$	155,775		 	$	123,389		 	
% of revenue	 	69.3	%	 	68.7	%	 	70.4	%	 	70.1	%	 	
 	 	 	 	 	 	 	 	 	 	
Other cost of revenue	 	$	10,117		 	$	7,858		 	$	27,959		 	$	21,160		 	
Stock-based compensation expense	 	(96	)	 	(69	)	 	(277	)	 	(172	)	 	
Variable expenses	 	$	10,021		 	$	7,789		 	$	27,682		 	$	20,988		 	
% of revenue	 	12.8	%	 	12.3	%	 	12.5	%	 	11.9	%	 	
 	 	 	 	 	 	 	 	 	 	
Subscription gross profit	 	$	12,668		 	$	11,278		 	$	34,705		 	$	30,311		 	
Stock-based compensation expense	 	249		 	170		 	698		 	432		 	
Non-GAAP subscription gross profit	 	$	12,917		 	$	11,448		 	$	35,403		 	$	30,743		 	
% of subscription revenue	 	19.2	%	 	20.3	%	 	18.4	%	 	19.3	%	 	
 	 	 	 	 	 	 	 	 	 	
Gross profit	 	$	13,744		 	$	11,807		 	$	37,161		 	$	31,313		 	
Stock-based compensation expense	 	249		 	170		 	698		 	432		 	
Non-GAAP gross profit	 	$	13,993		 	$	11,977		 	$	37,859		 	$	31,745		 	
% of revenue	 	17.9	%	 	19.0	%	 	17.1	%	 	18.0	%	 	
 	 	 	 	 	 	 	 	 	 	
Technology and development expense	 	$	2,299		 	$	2,471		 	$	6,761		 	$	7,196		 	
General and administrative expense	 	4,174		 	4,017		 	13,242		 	12,274		 	
Depreciation and amortization expense	 	(1,136	)	 	(1,095	)	 	(3,027	)	 	(3,208	)	 	
Stock-based compensation expense	 	(692	)	 	(560	)	 	(1,875	)	 	(1,582	)	 	
Fixed expenses	 	$	4,645		 	$	4,833		 	$	15,101		 	$	14,680		 	
% of revenue	 	5.9	%	 	7.7	%	 	6.8	%	 	8.3	%	 	
 	 	 	 	 	 	 	 	 	 	
Sales and marketing expense	 	$	6,365		 	$	4,862		 	$	18,005		 	$	13,323		 	
Stock-based compensation expense	 	(358	)	 	(165	)	 	(980	)	 	(550	)	 	
Acquisition cost	 	$	6,007		 	$	4,697		 	$	17,025		 	$	12,773		 	
% of revenue	 	7.7	%	 	7.4	%	 	7.7	%	 	7.3	%	 	

	
																																
The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Nine Months Ended September 30,	 	 	 	 	 	 	 	 	 	 	 	 	
 		 	 	 	 	 	 	 	 	 	 	 	 	
 	2018	 	2017	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing expenses	$	18,005		 	$	13,323		 	 	 	 	 	 	 	 	 	 	 	 	
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	(980	)	 	(550	)	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisition cost	17,025		 	12,773		 	 	 	 	 	 	 	 	 	 	 	 	
Net of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sign-up fee revenue	(1,933	)	 	(1,061	)	 	 	 	 	 	 	 	 	 	 	 	 	
Other business segment sales and marketing expense	(275	)	 	(162	)	 	 	 	 	 	 	 	 	 	 	 	 	
Net acquisition cost	$	14,817		 	$	11,550		 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three Months Ended	
 	Sept. 30, 2018	 	Jun. 30, 2018	 	Mar. 31, 2018	 	Dec. 31, 2017	 	Sept. 30, 2017	 	Jun. 30, 2017	 	Mar. 31, 2017	 	Dec. 31, 2016	
Sales and marketing expenses	$	6,365		 	$	5,702		 	$	5,938		 	$	5,781		 	$	4,862		 	$	4,372		 	$	4,089		 	$	3,951		
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	(358	)	 	(349	)	 	(273	)	 	(172	)	 	(165	)	 	(198	)	 	(187	)	 	(113	)	
Acquisition cost	6,007		 	5,353		 	5,665		 	5,609		 	4,697		 	4,174		 	3,902		 	3,838		
Net of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sign-up fee revenue	(693	)	 	(624	)	 	(616	)	 	(550	)	 	(558	)	 	(517	)	 	(544	)	 	(526	)	
Other business segment sales and marketing expense	(99	)	 	(88	)	 	(87	)	 	(56	)	 	(51	)	 	(63	)	 	(48	)	 	(62	)	
Net acquisition cost	$	5,215		 	$	4,641		 	$	4,962		 	$	5,003		 	$	4,088		 	$	3,594		 	$	3,310		 	$	3,250		

	
																																
The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Nine Months Ended September 30,	 	 	 	 	 	 	 	 	 	 	 	 	
 		 	 	 	 	 	 	 	 	 	 	 	 	
 	2018	 	2017	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	$	(652	)	 	$	(665	)	 	 	 	 	 	 	 	 	 	 	 	 	
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	3,553		 	2,564		 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization expense	3,027		 	3,208		 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	(628	)	 	(224	)	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	887		 	370		 	 	 	 	 	 	 	 	 	 	 	 	
Income tax (benefit) expense	(11	)	 	54		 	 	 	 	 	 	 	 	 	 	 	 	
Gain from equity method investment	(107	)	 	(1,029	)	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	$	6,069		 	$	4,278		 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three Months Ended	
 	Sept. 30, 2018	 	Jun. 30, 2018	 	Mar. 31, 2018	 	Dec. 31, 2017	 	Sept. 30, 2017	 	Jun. 30, 2017	 	Mar. 31, 2017	 	Dec. 31, 2016	
Net income (loss)	$	1,205		 	$	(377	)	 	$	(1,480	)	 	$	(838	)	 	$	406		 	$	411		 	$	(1,482	)	 	$	(1,723	)	
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	1,299		 	1,286		 	968		 	855		 	895		 	888		 	781		 	731		
Depreciation and amortization expense	1,136		 	964		 	927		 	1,024		 	1,095		 	1,077		 	1,036		 	1,229		
Interest income	(317	)	 	(179	)	 	(132	)	 	(3	)	 	(97	)	 	(76	)	 	(51	)	 	(41	)	
Interest expense	336		 	332		 	219		 	163		 	124		 	109		 	137		 	81		
Income tax (benefit) expense	(7	)	 	91		 	(95	)	 	(482	)	 	26		 	4		 	24		 	7		
(Gain) loss from equity method investment	—		 	(107	)	 	—		 	—		 	—		 	(1,036	)	 	7		 	18		
Adjusted EBITDA	$	3,652		 	$	2,010		 	$	407		 	$	719		 	$	2,449		 	$	1,377		 	$	452		 	$	302		

	
																
The following table reflects the reconciliation of net income (loss), excluding gain on equity method investment, to net income (loss):	
 	 	 	 	 	 	 	 	
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 		 		
 	2018	 	2017	 	2018	 	2017	
Net income (loss)	$	1,205		 	$	406		 	$	(652	)	 	$	(665	)	
Excluding:	 	 	 	 	 	 	 	
Gain on equity method investment	—		 	—		 	(107	)	 	(1,036	)	
Net income (loss), excluding gain on equity method investment	$	1,205		 	$	406		 	$	(759	)	 	$	(1,701	)	

Contacts : 

Investors:
Laura Bainbridge, Addo Investor Relations
310.829.5400
InvestorRelations@trupanion.com
Media:
Scott Janzen, Trupanion Director of Communications
888.612.1138 ext 3450
scott.janzen@trupanion.com