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): February 13, 2020
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)

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):

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

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

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

		
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	
Securities registered pursuant to Section 12(b) of the Act:

			
Title of each class	Trading Symbol	Name of each exchange on which registered	
Common stock, $0.00001 par value per share	TRUP	The NASDAQ Stock Market LLC	

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 ☐
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. ☐

Item 2.02     Results of Operations and Financial Condition.
On February 13, 2020, Trupanion, Inc. (the "Company") is issuing a press release and holding a conference call regarding the Company's financial results for the quarter ended December 31, 2019. A copy of the Company's press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
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 February 13, 2020	
 	104	Cover Page Interactive Data File (formatted as Inline XBRL)	

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: February 13, 2020

Exhibit 99.1

Trupanion Reports Fourth Quarter and Full Year 2019 Results

SEATTLE, WA. February 13, 2020 -- Trupanion, Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the fourth quarter and year ended December 31, 2019.

“Over the past two decades, we’ve delivered consistent growth while scaling our operating expenses,” said Darryl Rawlings, Founder and CEO of Trupanion. "The consistency of our growth highlights our recurring revenue, supported by industry leading retention rates, and deep competitive moats. Our moats have taken decades for us to dig and position us to benefit from the growing spotlight on our category.”

2019 Financial and Business Highlights

•	Total revenue was $383.9 million, an increase of 26% compared to 2018.	
		
•	Total enrolled pets (including pets from our other business segment) was 646,728 at December 31, 2019, an increase of 24% over 2018.	
		
•	Subscription business revenue was $321.2 million, an increase of 22% compared to 2018.	
		
•	Subscription enrolled pets was 494,026 at December 31, 2019, an increase of 15% over 2018.	
		
•	Net loss was $(1.8) million, or $(0.05) per basic and diluted share, compared to a net loss of $(0.9) million, or $(0.03) per basic and diluted share, in 2018.	
		
•	Adjusted EBITDA was $10.6 million, compared to adjusted EBITDA of $8.6 million in 2018.	
		
•	Operating cash flow was $16.2 million and free cash flow was $10.8 million in 2019. This compared to operating cash flow of $12.7 million and free cash flow of $8.3 million, which excludes the cash outflow of $52.5 million related to the third quarter 2018 purchase of our headquarters building.	

Fourth Quarter 2019 Financial and Business Highlights

•	Total revenue was $105.5 million, an increase of 28% compared to the fourth quarter of 2018.	
		
•	Subscription business revenue was $86.6 million, an increase of 22% compared to the fourth quarter of 2018.	
		
•	Net income was $0.6 million, or $0.02 per basic and diluted share, compared to a net loss of $(0.3) million, or $(0.01) per basic and diluted share, in the fourth quarter of 2018.	
		
•	Adjusted EBITDA was $3.7 million, compared to adjusted EBITDA of $2.5 million in the fourth quarter of 2018.	
		
•	Operating cash flow was $4.5 million and free cash flow was $2.7 million for the fourth quarter of 2019. This compared to operating cash flow of $3.7 million and free cash flow of $2.6 million in the fourth quarter of 2018.	

1

Revenue by Quarter

Conference Call
Trupanion’s management will host a conference call today to review its fourth quarter 2019 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 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: 13698321.

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.

2

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 the Canadian currency exchange rate; the ability to protect our proprietary and member information; the ability to maintain our culture and team; 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; the ability to recognize benefits from investments in new solutions and enhancements to Trupanion’s technology platform and website; and our ability to retain key personnel.

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, 2018 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 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.

3

Changes in Presentation of Key Operating Metrics
Trupanion presents various key operating metrics that managements uses to assess the company’s performance. Starting with the year ended December 31, 2019, Trupanion has updated its calculation of lifetime value of a pet (LVP) to include general and administrative and technology expenses, now referred to as lifetime value of a pet, including fixed expenses. This change was made in order to provide a more fulsome metric when calculating the estimated payback period for pet acquisition spend. For further discussion of the key operating metrics Trupanion uses, including a reconciliation between its historical presentation of LVP and its new presentation of lifetime value of a pet, including fixed expenses, please refer to Trupanion’s Annual Report on Form 10-K for the year ended December 31, 2019.

4

	
																
Trupanion, Inc.
Consolidated Statements of Operations
(in thousands, except share data)	
 	Three Months Ended December 31,	 	Year Ended December 31,	
 	2019	 	2018	 	2019	 	2018	
 	(unaudited)	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	
Subscription business	$	86,592		 	$	70,933		 	$	321,163		 	$	263,738		
Other business	18,891	 	11,707	 	62,773	 	40,218	
Total revenue	105,483		 	82,640		 	383,936		 	303,956		
Cost of revenue:	 	 	 	 	 	 	 	
Subscription business(1)	70,718		 	57,892		 	262,139		 	215,992		
Other business	17,031		 	10,543		 	56,873		 	36,598		
   Total cost of revenue(2)	87,749		 	68,435		 	319,012		 	252,590		
Gross profit:	 	 	 	 	 	 	 	
Subscription business	15,874		 	13,041		 	59,024		 	47,746		
Other business	1,860		 	1,164		 	5,900		 	3,620		
Total gross profit	17,734		 	14,205		 	64,924		 	51,366		
Operating expenses:	 	 	 	 	 	 	 	
Technology and development(1)	2,556		 	2,487		 	10,074		 	9,248		
General and administrative(1)	5,312		 	4,922		 	20,967		 	18,164		
Sales and marketing(1)	9,212		 	6,994		 	35,451		 	24,999		
Total operating expenses	17,080		 	14,403		 	66,492		 	52,411		
Gain (loss) from investment in joint venture	(21	)	 	—		 	(352	)	 	—		
Operating income (loss)	633		 	(198	)	 	(1,920	)	 	(1,045	)	
Interest expense	375		 	311		 	1,349		 	1,198		
Other income, net	(535	)	 	(238	)	 	(1,629	)	 	(1,309	)	
Loss before income taxes	793		 	(271	)	 	(1,640	)	 	(934	)	
Income tax expense (benefit)	157		 	4		 	169		 	(7	)	
Net income (loss)	$	636		 	$	(275	)	 	$	(1,809	)	 	$	(927	)	
 	 	 	 	 	 	 	 	
Net income (loss) per share:	 	 	 	 	 	 	 	
Basic	$	0.02		 	$	(0.01	)	 	$	(0.05	)	 	$	(0.03	)	
Diluted	0.02		 	(0.01	)	 	(0.05	)	 	(0.03	)	
Weighted average common shares outstanding:	 	 	 	 	 	 	 	
Basic	34,876,438		 	33,716,975		 	34,645,345		 	31,961,192		
Diluted	36,354,620		 	33,716,975		 	34,645,345		 	31,961,192		
 	 	 	 	 	 	 	 	
(1)Includes stock-based compensation expense as follows:	Three Months Ended December 31,	 	Year Ended December 31,	
		 		
 	2019	 	2018	 	2019	 	2018	
Cost of revenue	$	267		 	$	230		 	$	1,050		 	$	927		
Technology and development	97		 	42		 	364		 	209		
General and administrative	860		 	595		 	3,312		 	2,304		
Sales and marketing	547		 	355		 	2,120		 	1,335		
Total stock-based compensation expense	$	1,771		 	$	1,222		 	$	6,846		 	$	4,775		
 	 	 	 	 	 	 	 	
(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,	
 	2019	 	2018	 	2019	 	2018	
Veterinary invoice expense	$	74,646		 	$	58,343		 	$	270,947		 	$	214,539		
Other cost of revenue	13,103		 	10,092		 	48,065		 	38,051		
     Total cost of revenue	$	87,749		 	$	68,435		 	$	319,012		 	$	252,590		

5

	
								
Trupanion, Inc.
Consolidated Balance Sheets
(in thousands, except share data)	
 	December 31, 2019	 	December 31, 2018	
 	 	 	 	
Assets	 	 	 	
Current assets:	 	 	 	
Cash and cash equivalents	$	29,168		 	$	26,552		
Short-term investments	69,732		 	54,559		
Accounts and other receivables	54,408		 	31,565		
Prepaid expenses and other assets	5,513		 	5,300		
Total current assets	158,821		 	117,976		
Restricted cash	1,400		 	1,400		
Long-term investments, at fair value	4,323		 	3,554		
Property and equipment, net	70,372		 	69,803		
Intangible assets, net	7,731		 	8,071		
Other long-term assets	14,553		 	6,706		
Total assets	$	257,200		 	$	207,510		
Liabilities and stockholders’ equity	 	 	 	
Current liabilities:	 	 	 	
Accounts payable	$	4,087		 	$	2,767		
Accrued liabilities and other current liabilities	13,798		 	11,347		
Reserve for veterinary invoices	21,194		 	16,062		
Deferred revenue	52,546		 	33,027		
Total current liabilities	91,625		 	63,203		
Long-term debt	26,086		 	12,862		
Deferred tax liabilities	1,118		 	1,002		
Other liabilities	1,611		 	1,270		
Total liabilities	120,440		 	78,337		
Stockholders’ equity:	 	 	 	
Common stock: $0.00001 par value per share, 100,000,000 shares authorized at December 31, 2019 and December 31, 2018, 35,876,882 and 34,947,017 shares issued and outstanding at December 31, 2019; 34,781,121 and 34,025,136 shares issued and outstanding at December 31, 2018	—		 	—		
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized at December 31, 2019 and December 31, 2018, and 0 shares issued and outstanding at December 31, 2019 and December 31, 2018	—		 	—		
Additional paid-in capital	232,731		 	219,838		
Accumulated other comprehensive loss	250		 	(753	)	
Accumulated deficit	(85,520	)	 	(83,711	)	
Treasury stock, at cost: 929,865 shares at December 31, 2019 and 755,985 shares at December 31, 2018	(10,701	)	 	(6,201	)	
Total stockholders’ equity	136,760		 	129,173		
Total liabilities and stockholders’ equity	$	257,200		 	$	207,510		

6

	
																
Trupanion, Inc.
Consolidated Statements of Cash Flows
(in thousands)	
 	Three Months Ended December 31,	 	Year Ended December 31,	
 	2019	 	2018	 	2019	 	2018	
 	(unaudited)	 	 	 	 	
Operating activities	 	 	 	 	 	 	 	
Net income (loss)	$	636		 	$	(275	)	 	$	(1,809	)	 	$	(927	)	
Adjustments to reconcile net loss to cash provided by operating activities:	 	 	 	 	 	 	 	
Depreciation and amortization	1,274		 	1,486		 	5,632		 	4,512		
Stock-based compensation expense	1,771		 	1,222		 	6,846		 	4,775		
Gain on sale of equity method investment	—		 	—		 	—		 	—		
Other, net	(38	)	 	(5	)	 	105		 	(240	)	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	
Accounts and other receivables	(4,190	)	 	344		 	(22,772	)	 	(11,248	)	
Prepaid expenses and other assets	(707	)	 	(2,079	)	 	(432	)	 	(2,628	)	
Accounts payable, accrued liabilities, and other liabilities	1,304		 	682		 	4,110		 	4,531		
Reserve for veterinary invoices	1,872		 	1,956		 	5,059		 	3,440		
Deferred revenue	2,610		 	332		 	19,418		 	10,465		
Net cash provided by operating activities	4,532		 	3,663		 	16,157		 	12,680		
Investing activities	 	 	 	 	 	 	 	
Purchases of investment securities	(20,014	)	 	(23,295	)	 	(65,506	)	 	(52,862	)	
Maturities of investment securities	21,538		 	8,008		 	49,762		 	35,413		
Purchases of other investments	(4,000	)	 	—		 	(4,000	)	 	(3,000	)	
Acquisition of lease intangibles, related to corporate real estate acquisition	—		 	—		 	—		 	(2,959	)	
Purchases of property and equipment	(1,787	)	 	(1,080	)	 	(5,373	)	 	(56,936	)	
Other	(954	)	 	(255	)	 	(2,891	)	 	(1,107	)	
Net cash used in investing activities	(5,217	)	 	(16,622	)	 	(28,008	)	 	(81,451	)	
Financing activities	 	 	 	 	 	 	 	
Proceeds from public offering of common stock, net of offering costs	—		 	—		 	—		 	65,671		
Proceeds from exercise of stock options	727		 	729		 	2,982		 	3,601		
Shares withheld to satisfy tax withholding	(57	)	 	—		 	(1,667	)	 	(1,839	)	
Proceeds from debt financing, net of financing fees	4,000		 	4,242		 	13,167		 	13,431		
Repayment of debt financing	—		 	—		 	—		 	(10,000	)	
Other financing	—		 	581		 	(438	)	 	365		
Net cash provided by financing activities	4,670		 	5,552		 	14,044		 	71,229		
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net	156		 	(718	)	 	423		 	(812	)	
Net change in cash, cash equivalents, and restricted cash	4,141		 	(8,125	)	 	2,616		 	1,646		
Cash, cash equivalents, and restricted cash at beginning of period	26,427		 	36,077		 	27,952		 	26,306		
Cash, cash equivalents, and restricted cash at end of period	$	30,568		 	$	27,952		 	$	30,568		 	$	27,952		

7

	
																																
The following tables set forth our key operating metrics:	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Year Ended December 31,	 	 	 	 	 	 	 	 	 	 	 	 	
 		 	 	 	 	 	 	 	 	 	 	 	 	
 	2019	 	2018	 	 	 	 	 	 	 	 	 	 	 	 	
Total Business:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total pets enrolled (at period end)	646,728		 	521,326		 	 	 	 	 	 	 	 	 	 	 	 	
Subscription Business:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total subscription pets enrolled (at period end)	494,026		 	430,770		 	 	 	 	 	 	 	 	 	 	 	 	
Monthly average revenue per pet	$	57.52		 	$	54.34		 	 	 	 	 	 	 	 	 	 	 	 	
Lifetime value of a pet, including fixed expenses	$	523		 	$	449		 	 	 	 	 	 	 	 	 	 	 	 	
Average pet acquisition cost (PAC)	$	212		 	$	164		 	 	 	 	 	 	 	 	 	 	 	 	
Average monthly retention	98.58	%	 	98.60	%	 	 	 	 	 	 	 	 	 	 	 	 	

 	Three Months Ended	
 	Dec. 31, 2019	 	Sept. 30, 2019	 	Jun. 30, 2019	 	Mar. 31, 2019	 	Dec. 31, 2018	 	Sept. 30, 2018	 	Jun. 30, 2018	 	Mar. 31, 2018	
Total Business:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total pets enrolled (at period end)	646,728		 	613,694		 	577,686		 	548,002		 	521,326		 	497,942		 	472,480		 	446,533		
Subscription Business:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total subscription pets enrolled (at period end)	494,026		 	479,427		 	461,314		 	445,148		 	430,770		 	416,527		 	401,033		 	385,640		
Monthly average revenue per pet	$	58.58		 	$	58.12		 	$	57.11		 	$	56.13		 	$	55.15		 	$	54.55		 	$	53.96		 	$	53.62		
Lifetime value of a pet, including fixed expenses	$	523		 	$	511		 	$	482		 	$	471		 	$	449		 	$	435		 	$	431		 	$	419		
Average pet acquisition cost (PAC)	$	222		 	$	208		 	$	213		 	$	205		 	$	186		 	$	155		 	$	150		 	$	165		
Average monthly retention	98.58	%	 	98.59	%	 	98.57	%	 	98.58	%	 	98.60	%	 	98.61	%	 	98.64	%	 	98.63	%	

8

	
																	
The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):	
 	 	 	 	 	 	 	 	 	
 	Three Months Ended December 31,	 	Year Ended December 31,	 	
 	2019	 	2018	 	2019	 	2018	 	
Net cash provided by operating activities	$	4,532		 	$	3,663		 	$	16,157		 	$	12,680		 	
Purchases of property and equipment	(1,787	)	 	(1,080	)	 	(5,373	)	 	(56,936	)	 	
Free cash flow	$	2,745		 	$	2,583		 	$	10,784		 	$	(44,256	)	 	
Exclude building purchase, net of acquired lease intangibles	—		 	—		 	—		 	52,534		 	
Free cash flow, excluding building purchase, net of acquired lease intangibles	$	2,745		 	$	2,583		 	$	10,784		 	$	8,278		 	

9

	
																																
The following tables reflect the reconciliation of acquisition cost and net acquisition cost to sales and marketing expense (in thousands):	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Year Ended December 31,	 	 	 	 	 	 	 	 	 	 	 	 	
 		 	 	 	 	 	 	 	 	 	 	 	 	
 	2019	 	2018	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing expenses	$	35,451		 	$	24,999		 	 	 	 	 	 	 	 	 	 	 	 	
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	(2,120	)	 	(1,335	)	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisition cost	33,331		 	23,664		 	 	 	 	 	 	 	 	 	 	 	 	
Net of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sign-up fee revenue	(2,957	)	 	(2,587	)	 	 	 	 	 	 	 	 	 	 	 	 	
Other business segment sales and marketing expense	(414	)	 	(377	)	 	 	 	 	 	 	 	 	 	 	 	 	
Net acquisition cost	$	29,960		 	$	20,700		 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three Months Ended	
 	Dec. 31, 2019	 	Sept. 30, 2019	 	Jun. 30, 2019	 	Mar. 31, 2019	 	Dec. 31, 2018	 	Sept. 30, 2018	 	Jun. 30, 2018	 	Mar. 31, 2018	
Sales and marketing expenses	$	9,212		 	$	9,255		 	$	8,757		 	$	8,227		 	$	6,994		 	$	6,365		 	$	5,702		 	$	5,938		
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	(547	)	 	(577	)	 	(567	)	 	(429	)	 	(355	)	 	(358	)	 	(349	)	 	(273	)	
Acquisition cost	8,665		 	8,678		 	8,190		 	7,798		 	6,639		 	6,007		 	5,353		 	5,665		
Net of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sign-up fee revenue	(730	)	 	(790	)	 	(734	)	 	(703	)	 	(655	)	 	(693	)	 	(624	)	 	(616	)	
Other business segment sales and marketing expense	(152	)	 	(94	)	 	(38	)	 	(130	)	 	(102	)	 	(99	)	 	(88	)	 	(87	)	
Net acquisition cost	$	7,783		 	$	7,794		 	$	7,418		 	$	6,965		 	$	5,882		 	$	5,215		 	$	4,641		 	$	4,962		

10

	
																																
The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Year Ended December 31,	 	 	 	 	 	 	 	 	 	 	 	 	
 		 	 	 	 	 	 	 	 	 	 	 	 	
 	2019	 	2018	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	$	(1,809	)	 	$	(927	)	 	 	 	 	 	 	 	 	 	 	 	 	
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	6,846		 	4,775		 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization expense	5,632		 	4,512		 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	(1,681	)	 	(862	)	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	1,349		 	1,198		 	 	 	 	 	 	 	 	 	 	 	 	
Other non-operating expenses	201		 	—		 	 	 	 	 	 	 	 	 	 	 	 	
Income tax expense (benefit)	169		 	(7	)	 	 	 	 	 	 	 	 	 	 	 	 	
Gain from equity method investment	(125	)	 	(107	)	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	$	10,582		 	$	8,582		 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three Months Ended	
 	Dec. 31, 2019	 	Sept. 30, 2019	 	Jun. 30, 2019	 	Mar. 31, 2019	 	Dec. 31, 2018	 	Sept. 30, 2018	 	Jun. 30, 2018	 	Mar. 31, 2018	
Net income (loss)	$	636		 	$	782		 	$	(1,931	)	 	$	(1,296	)	 	$	(275	)	 	$	1,205		 	$	(377	)	 	$	(1,480	)	
Excluding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock-based compensation expense	1,771		 	1,845		 	1,873		 	1,357		 	1,222		 	1,299		 	1,286		 	968		
Depreciation and amortization expense	1,274		 	1,181		 	1,564		 	1,613		 	1,485		 	1,136		 	964		 	927		
Interest income	(516	)	 	(411	)	 	(412	)	 	(342	)	 	(234	)	 	(317	)	 	(179	)	 	(132	)	
Interest expense	375		 	340		 	317		 	317		 	311		 	336		 	332		 	219		
Other non-operating expenses	(22	)	 	122		 	101		 	—		 	—		 	—		 	—		 	—		
Income tax expense (benefit)	157		 	18		 	(46	)	 	40		 	4		 	(7	)	 	91		 	(95	)	
(Gain) loss from equity method investment	—		 	—		 	(125	)	 	—		 	—		 	—		 	(107	)	 	—		
Adjusted EBITDA	$	3,675		 	$	3,877		 	$	1,341		 	$	1,689		 	$	2,513		 	$	3,652		 	$	2,010		 	$	407		

11

Contacts:

Investors:
Laura Bainbridge, Head of Investor Relations
206.607.1929
InvestorRelations@trupanion.com

12