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Shares of Trupanion (NASDAQ: TRUP) plunged 35% on Friday after an accounting controls warning overshadowed better-than-expected preliminary fourth-quarter results from the pet insurance provider.

Trupanion's strong Q4 eclipsed by "material weaknesses" warning

Trupanion says its preliminary fourth-quarter 2023 revenue grew 20% year over year to $295.9 million, translating to a net loss of $2.2 million, or $0.05 per share (narrowed from a loss of $0.23 per share in the same year-ago period). By comparison, most analysts were modeling a net loss of $0.18 per share on revenue of $291 million.

Within Trupanion's top line, subscription business revenue grew 21% to $191.5 million, fueled by a 14% increase in enrolled pets to 991,426. Trupanion also generated positive free cash flow of $13.5 million during the quarter, compared to negative free cash flow of $4.5 million in last year's Q4.

Within its preliminary earnings release, however, Trupanion warned that when it files its upcoming 2023 annual report, it "expects to report two material weaknesses in internal controls" stemming from an ongoing audit of its full-year results. More specifically, Trupanion has discovered weaknesses within its information technology controls and internal controls over financial reporting within its "other" business segment.

On Trupanion's underwhelming outlook

Trupanion pledged to provide additional information on those material weaknesses when it files its 2023 Annual Report on Form 10-K with the U.S. Securities and Exchange Commission.

In the meantime, for full-year 2024, however, Trupanion issued guidance calling for revenue of $1.241 billion to $1.273 billion, assuming subscription revenue ranging from $842 million to $862 million. That's well above consensus estimates calling for full-year 2024 revenue of $1.24 billion.

In the end, Trupanion's material weaknesses warning might prove immaterial to its actual results. But, in the meantime, this casts doubt on the reliability of Trupanion's financial reporting, and it's no surprise to see shares pulling back hard until investors receive more details on the issue.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Trupanion. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.