What changed in this filing

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Item 1. Financial Statements

2021-04-30 compared with 2020-10-30 · 105 added, 164 removed, 310 unchanged (46% of the section changed)

3 unchanged sentences

(in thousands, except share data)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Revenue $ 154,685 $ 111,301

1 unchanged sentence

Veterinary invoice expense (1)

109,870 79,640

Other cost of revenue (1)

Gross profit 20,589 17,445 58,308 47,190

23,715 13,809

Total cost of revenue 133,585 93,449

Operating expenses:

2 unchanged sentences

Sales and marketing (1)

19,704 10,442

Depreciation and amortization 3,093 1,381

Total operating expenses 33,744 18,803

Gain (loss) from investment in joint venture ( 85 ) ( 59 )

Operating (loss) income ( 2,257 ) 843 ( 1,758 ) ( 2,553 )

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

Interest expense ( 2 ) 379

Other income, net ( 62 ) ( 282 )

(Loss) income before income taxes ( 2,532 ) 800 ( 2,269 ) ( 2,433 )

Income tax expense 26 18 69 12

Net (loss) income $ ( 2,558 ) $ 782 $ ( 2,338 ) $ ( 2,445 )

Net (loss) income per share:

Basic $ ( 0.07 ) $ 0.02 $ ( 0.07 ) $ ( 0.07 )

Diluted $ ( 0.07 ) $ 0.02 $ ( 0.07 ) $ ( 0.07 )

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

Income tax (benefit) expense ( 217 ) 26

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

Net loss per share:

Basic and diluted $ ( 0.31 ) $ ( 0.03 )

Weighted average shares of common stock outstanding:

Basic 35,426,742 34,876,782 35,193,317 34,593,345

Diluted 35,426,742 36,399,136 35,193,317 34,593,345

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

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

Veterinary invoice expense $ 2,299 $ 178

Other cost of revenue 935 90

Technology and development 664 100

General and administrative 1,819 729

Sales and marketing 2,731 556

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net (loss) income $ ( 2,558 ) $ 782 $ ( 2,338 ) $ ( 2,445 )

Three Months Ended March 31,

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

Other comprehensive income (loss):

Foreign currency translation adjustments 618 ( 630 )

Net unrealized gain on available-for-sale debt securities — — 1 19

Net unrealized gain (loss) on available-for-sale debt securities — ( 5 )

Other comprehensive income (loss), net of taxes 618 ( 635 )

Comprehensive (loss) income $ ( 2,359 ) $ 683 $ ( 2,478 ) $ ( 2,198 )

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

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(in thousands, except share data)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Assets (unaudited)

10 unchanged sentences

Other long-term assets 16,468 16,557

Goodwill 33,327 33,045

Total assets $ 513,698 $ 498,250

6 unchanged sentences

Total current liabilities 169,674 150,399

Long-term debt 29,839 26,086

Deferred tax liabilities 4,477 4,705

4 unchanged sentences

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

36,511,705 and 35,578,540 shares issued and outstanding at September 30, 2020;

40,989,571 and 40,056,406 issued and outstanding at March 31, 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 September 30, 2020 and 929,865 shares at December 31, 2019 ( 10,779 ) ( 10,701 )

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

Total stockholders’ equity 336,077 339,939

6 unchanged sentences

Shares Amount

Balance at July 1, 2020 35,246,292 $ — $ 238,077 $ ( 85,300 ) $ ( 89 ) $ ( 10,779 ) $ 141,909

Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 332,248 — 2,260 — — — 2,260

Stock-based compensation expense — — 2,488 — — — 2,488

Other comprehensive income (loss) — — — — 199 — 199

Net income (loss) — — — ( 2,558 ) — — ( 2,558 )

Balance at September 30, 2020 35,578,540 $ — $ 242,825 $ ( 87,858 ) $ 110 $ ( 10,779 ) $ 144,298

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

Shares Amount

Balance at July 1, 2019 34,782,324 $ — $ 229,069 $ ( 86,938 ) $ ( 407 ) $ ( 10,701 ) $ 131,023

Exercise of warrants, net — — — — — — —

Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 153,498 — ( 753 ) — — — ( 753 )

Stock-based compensation expense — — 1,893 — — — 1,893

Other comprehensive income (loss) — — — — ( 99 ) — ( 99 )

Net income (loss) — — — 782 — — 782

Balance at September 30, 2019 34,935,822 $ — $ 230,209 $ ( 86,156 ) $ ( 506 ) $ ( 10,701 ) $ 132,846

See accompanying notes to the consolidated financial statements.

Trupanion, Inc.

Consolidated Statements of Stockholders' Equity (Continued)

(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

1 unchanged sentence

Stock-based compensation expense — — 8,611 — — — 8,611

Repurchase of common stock ( 3,300 ) — — — — ( 78 ) ( 78 )

Other comprehensive income (loss) — — — — 618 — 618

Net income (loss) — — — ( 12,448 ) — — ( 12,448 )

Balance at September 30, 2020 35,578,540 $ — $ 242,825 $ ( 87,858 ) $ 110 $ ( 10,779 ) $ 144,298

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

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

1 unchanged sentence

Balance at January 1, 2020 34,947,017 $ — $ 232,731 $ ( 85,520 ) $ 250 $ ( 10,701 ) $ 136,760

Exercise of warrants, net 306,120 — 4,800 — — ( 4,500 ) 300

Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 140,788 — 205 — — — 205

Stock-based compensation expense — — 1,706 — — — 1,706

Repurchase of common stock ( 3,300 ) — — — — ( 78 ) ( 78 )

Other comprehensive income (loss) — — — — ( 635 ) — ( 635 )

Net income (loss) — — — ( 1,133 ) — — ( 1,133 )

Balance at September 30, 2019 34,935,822 $ — $ 230,209 $ ( 86,156 ) $ ( 506 ) $ ( 10,701 ) $ 132,846

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

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

10 unchanged sentences

Deferred revenue 18,324 9,695

Net cash provided by operating activities 17,580 11,625

Net cash (used in) provided by operating activities ( 1,735 ) 2,924

Investing activities

8 unchanged sentences

Borrowings from line of credit, net of financing fees — 3,744

Repayments to line of credit ( 2,500 ) —

Other — ( 78 )

Net cash provided by financing activities 7,275 9,374

Net cash (used in) provided by financing activities ( 643 ) 3,904

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net 230 ( 809 )

4 unchanged sentences

Noncash investing and financing activities:

Issuance of common stock for cashless exercise of warrants $ — $ 4,500

Purchases of property and equipment included in accounts payable and accrued liabilities $ 753 $ 355

5 unchanged sentences

Trupanion, Inc.

(collectively with its wholly-owned subsidiaries, the Company) provides medical insurance for cats and dogs throughout the United States, Canada and Puerto Rico.

(collectively with its wholly-owned subsidiaries, the Company) provides medical insurance for cats and dogs throughout the United States, Canada, Puerto Rico, and Australia.

The Company's data-driven, vertically-integrated approach enables the Company to provide pet owners with products that the Company believes are the highest value medical insurance, priced specifically for each pet’s unique characteristics.

The financial data as of December 31, 2020 was derived from the Company's audited consolidated financial statements.

4 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 and nine months ended September 30, 2020 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 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.

Use of Estimates

2 unchanged sentences

See Note 1 to the audited financial statements included in the 2020 10-K for additional discussion of these estimates and assumptions.

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), using the modified retrospective approach on January 1, 2020.

The ASU replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments.

The new standard did not have a material impact on the Company's consolidated statements of operations, balance sheets, stockholders' equity, or cash flows.

The Company did not record any cumulative-effect adjustment to its retained earnings upon the adoption.

Reclassifications

Depreciation and amortization expenses have been reclassified as a separate line item in the consolidated statement of operations and prior period amounts have been reclassified from their original presentation to conform to the current period presentation.

The Company has elected to present depreciation and amortization expenses as a separate line item to better align with management's view of the Company's operating results.

Net Income (Loss) per Share

2 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 September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Basic earnings per share:

Net (loss) income $ ( 2,558 ) $ 782 $ ( 2,338 ) $ ( 2,445 )

Shares used in computation:

Weighted average shares of common stock outstanding 35,426,742 34,876,782 35,193,317 34,593,345

Basic earnings per share $ ( 0.07 ) $ 0.02 $ ( 0.07 ) $ ( 0.07 )

Diluted earnings per share:

Net (loss) income $ ( 2,558 ) $ 782 $ ( 2,338 ) $ ( 2,445 )

Shares used in computation:

Weighted average shares of common stock outstanding 35,426,742 34,876,782 35,193,317 34,593,345

Stock options — 1,457,486 — —

Restricted stock awards and units — 64,868 — —

Weighted average shares of diluted common stock outstanding 35,426,742 36,399,136 35,193,317 34,593,345

Diluted earnings per share $ ( 0.07 ) $ 0.02 $ ( 0.07 ) $ ( 0.07 )

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 September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Stock options 1,026,605 2,046,395

Restricted stock awards and restricted stock units 1,232,549 506,863

Long-term investments are classified as available-for-sale and reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss).

Short-term investments are classified as held-to-maturity and reported at amortized cost.

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 September 30, 2020 and December 31, 2019 (in thousands):

As of September 30, 2020

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

Long-term investments:

18 unchanged sentences

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

As of September 30, 2020

As of March 31, 2021

Available-for-sale:

6 unchanged sentences

Investment in Variable Interest Entity

In July 2018, the Company purchased $ 3.0 million in preferred stock of a privately held corporation with a complementary business line.

In October 2019, the Company purchased an additional $ 4.0 million in preferred stock upon the exercise of an option by the variable interest entity.

The Company has invested $ 7.0 million in preferred stock of a privately held corporation with a complementary business line.

The Company does not have power over the activities that most significantly impact the economic performance of the variable interest entity and is, therefore, not the primary beneficiary.

The Company has the option to purchase all of the outstanding common shares issued by the variable interest entity on the fifth anniversary of the initial preferred stock purchase.

The Company has the option to purchase all of the outstanding common shares issued by the variable interest entity in 2023 at an amount approximating its expected fair value.

The preferred stock investment in the variable interest entity is accounted for as an available-for-sale debt security and measured at fair value at each balance sheet date.

Additionally, the Company has extended a $ 2.5 million revolving line of credit to the variable interest entity to fund its inventory purchases.

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 September 30, 2020 and December 31, 2019.

The outstanding loan balance under the line of credit was $ 2.5 million as of March 31, 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 $ 1.0 million of these services for both of the nine months ended September 30, 2020 and 2019, respectively, which were recorded against its operating expenses.

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.

Investment in Joint Venture

In September 2018, the Company acquired a non-controlling equity interest in a joint venture, 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 September 30, 2020, the Company has contributed $ 0.5 million AUD.

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.

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.

2 unchanged sentences

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 September 30, 2020

As of March 31, 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 $ 7.6 million as of September 30, 2020, unchanged from December 31, 2019, recorded in other long-term assets on the Company's consolidated balance sheet.

An unrealized gain of $ 0.6 million was recorded in other comprehensive income in the quarter ended December 31, 2019.

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.

Fair Value Disclosures

The Company's other long-term assets balance included notes receivable of $ 5.9 million as of September 30, 2020 and $ 6.1 million as of December 31, 2019, recorded at their estimated collectible amount.

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 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 nine months ended September 30, 2020.

The Company estimates the fair value of long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities.

This is a Level 3 measurement.

Based upon the terms of the debt, the carrying amount of long-term debt approximated fair value at September 30, 2020 and December 31, 2019.

There was no significant activity in Level 3 of the hierarchy during the three months ended March 31, 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 nine months ended September 30, 2020 and the year ended December 31, 2019.

The Company has a revolving line of credit of up to $ 50.0 million, maturing June 2022.

The facility is secured by any and all interests in the Company's assets that are not otherwise restricted.

Interest on the revolving line of credit is payable monthly at the greater of 4.5%, or 0.75% plus the prime rate ( 4.50 % at September 30, 2020).

The credit agreement includes other ancillary services and letters of credit of up to $ 4.5 million.

It also requires a deposit of restricted cash of $ 1.4 million and a minimum cash or investment balance of $ 2.1 million.

The credit agreement requires the Company to comply with various financial and non-financial covenants.

As of September 30, 2020, the Company was in compliance with all financial and non-financial covenants required by the credit agreement.

Borrowings on the revolving line of credit are limited to the lesser of $ 50.0 million or the total amount of cash and securities held by the Company's insurance subsidiaries (American Pet Insurance Company and Wyndham Insurance Company (SAC) Limited Segregated Account AX).

As of September 30, 2020, available borrowing capacity on the line of credit was $ 19.9 million, with an outstanding balance of $ 0.2 million for ancillary services and letters of credit, and borrowings under the facility of $ 30.0 million, recorded net of financing fees of $ 0.1 million.

There were no transfers between levels for the three months ended March 31, 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):

Nine Months Ended September 30,

Three Months Ended March 31,

Subscription 2021 2020

10 unchanged sentences

Reserve at end of period $ 20,600 $ 15,738

The Company's reserve for the subscription business segment increased from $ 15.5 million at December 31, 2019 to $ 19.1 million at September 30, 2020.

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.

This change was comprised of $ 83.7 million in expense recorded during the period less $ 80.7 million in payments of veterinary invoices.

The $ 203.1 million in veterinary invoice expense incurred included an adjustment of $ 0.4 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends.

For the nine months ended September 30, 2019, the Company increased prior year reserves by $ 0.6 million as a result of analysis of payment trends.

The $ 83.7 million in veterinary invoice expense incurred included a reduction of $ 0.5 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.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Other Business 2021 2020

10 unchanged sentences

Reserve at end of period $ 9,535 $ 7,124

The Company’s reserve for the other business segment increased from $ 5.7 million at December 31, 2019 to $ 9.8 million at September 30, 2020.

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.

This change was comprised of $ 26.1 million in expense recorded during the period less $ 25.6 million in payments of veterinary invoices.

The $ 26.1 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 nine months ended September 30, 2019, the Company decreased prior year reserves by $ 0.3 million as a result of analysis of 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.

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 September 30, 2020

Subscription As of March 31, 2021

Year of Occurrence

2019 and prior $ 1,758

Other Business As of September 30, 2020

Other Business As of March 31, 2021

Year of Occurrence

1 unchanged sentence

Stock-Based Compensation

Stock-based compensation expense includes stock options, restricted stock awards, and restricted stock units granted to employees and other service providers and has been reported in the Company’s consolidated statements of operations depending on the function performed by the employee or other service provider.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Stock-based compensation expense includes stock options and restricted stock units granted to employees and other service providers and has been reported in the Company’s consolidated statements of operations depending on the function performed by the employee or other service provider.

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

Three Months Ended March 31,

Veterinary invoice expense $ 2,299 $ 178

3 unchanged sentences

Sales and marketing 2,731 556

Total stock-based compensation expense 2,430 1,845 6,310 5,075

Total expensed stock-based compensation 8,448 1,653

Capitalized stock-based compensation 162 53

Total stock-based compensation $ 8,610 $ 1,706

As of September 30, 2020, the Company had 66,956 unvested stock options and 765,825 unvested restricted stock awards and restricted stock units that are expected to vest.

Stock-based compensation expenses of $ 0.4 million related to unvested stock options and $ 20.2 million related to unvested restricted stock awards and restricted stock units are expected to be recognized over a weighted average period of approximately 0.6 years and 2.9 years, respectively.

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.

Stock Options

5 unchanged sentences

Forfeited ( 1,629 ) 15.71 —

Outstanding as of September 30, 2020 1,647,052 9.84 113,740

Exercisable as of September 30, 2020 1,580,096 9.49 109,670

As of September 30, 2020, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 4.3 years and 4.2 years, respectively.

Restricted Stock Awards and Restricted Stock Units

A summary of the Company’s restricted stock award and restricted stock unit activity is as follows:

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.

Restricted Stock Units

A summary of the Company’s restricted stock unit activity is as follows:

Shares Weighted Average

4 unchanged sentences

Forfeited ( 6,349 ) 61.96

Unvested shares as of September 30, 2020 765,825 28.91

The Company leases certain office space and equipment from third parties and recognizes lease expense on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on its consolidated balance sheets.

The Company also leases a portion of its building to third parties and records related rental income within general and administrative expense in the consolidated statements of operations.

These leases have remaining initial lease terms of 2 years to 8 years, some of which give the tenants options to renew the leases for up to an additional 10 years, and options to terminate the leases after 3 years of the initial lease terms, with early termination fees required.

The Company recorded rental income of $ 0.4 million and $ 1.5 million for the three and nine months ended September 30, 2020.

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

Stockholders' Equity

Common Stock and Preferred Stock

As of September 30, 2020, the Company had 100,000,000 shares of common stock authorized and 35,578,540 shares of common stock outstanding.

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.

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 September 30, 2020, 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.

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.

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

The Company is unable to pay dividends to stockholders as of September 30, 2020 due to restrictions in its credit agreements.

Share Repurchase Program

In November 2019, the Company's board of directors approved a share repurchase program, pursuant to which the Company may repurchase up to $ 15.0 million of its outstanding shares over the twelve-month period following the approval.

The Company repurchased 3,300 shares during the nine months ended September 30, 2020.

The Company did not repurchase any shares during the three months ended September 30, 2020 or the year ended December 31, 2019.

The Company has two segments:

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

The Company has two reporting segments:

subscription business and other business.

The subscription business segment includes revenue and expenses related to monthly pet insurance subscriptions marketed directly to consumers, while the other business segment includes all other business that is not directly marketed to consumers.

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

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

Revenue, veterinary invoice expense, other cost of revenue, and sales and marketing expenses are generally directly attributed to each segment.

Other operating expenses, such as technology and development expense and general and administrative expense, are allocated proportionately based on revenue in each segment.

Other operating expenses, such as technology and development expense, general and administrative expense, and depreciation and amortization, are allocated proportionately based on revenue in each segment.

Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss.

1 unchanged sentence

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Subscription business:

2 unchanged sentences

Other cost of revenue 11,811 8,234

Gross profit 18,281 15,843 52,202 43,150

Technology and development 2,733 1,704

1 unchanged sentence

Sales and marketing 19,533 10,279

Depreciation and amortization 2,265 1,111

Subscription business operating income (loss) ( 12,061 ) ( 939 )

3 unchanged sentences

Other cost of revenue 11,904 5,575

Gross profit 2,308 1,602 6,106 4,040

Technology and development 998 416

1 unchanged sentence

Sales and marketing 171 163

Depreciation and amortization 828 270

Other business operating income (loss) ( 583 ) ( 12 )

2 unchanged sentences

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

United States $ 127,759 $ 92,524

Canada 21,001 17,386 58,642 49,476

Canada and other 26,926 18,777

Total revenue $ 154,685 $ 111,301

Substantially all of the Company’s long-lived assets were located in the United States as of September 30, 2020 and December 31, 2019.

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

Business Combination

On October 30, 2020, the Company completed an acquisition of 100% of the equity of Aquarium Software Limited (Aquarium), a U.K.-based insurance software provider, for approximately $ 48.3 million in net cash.

The acquired technology from Aquarium focuses on the pet space and, along with the acquired personnel, is intended to enable the Company to improve its back-end software to help facilitate growth opportunities.

The Company incurred $ 0.6 million acquisition-related costs that were recorded in general and administrative expenses.

The acquisition is recorded using the purchase method of accounting in accordance with ASC 805, Business Combinations, which requires that the assets acquired and liabilities assumed to be recorded at their respective fair values at the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Current assets, net of cash acquired $ 1,469

Property and equipment 171

Amortizable intangible assets 19,512

Goodwill 31,352

Other long-term assets 1,421

Current liabilities ( 1,269 )

Deferred tax liability and other liabilities ( 4,361 )

Total Consideration Transferred, net of cash acquired $ 48,295

The results of Aquarium’s operations have been included in the consolidated financial statements since the acquisition date, but have been immaterial to the Company's consolidated financial statements.

Related Parties

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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 $ 0.6 million and $ 1.7 million of expenses for consulting services provided by the investee during the three and nine months ended September 30, 2020, respectively.

Subsequent Events

On October 26, 2020, the Company entered into a Strategic Alliance Agreement, Shareholder Agreement, and a Stock Purchase Agreement with Aflac Incorporated (“Aflac”).

The Strategic Alliance Agreement sets forth the structure for a distribution alliance between the parties (the “Alliance”).

This includes responsibilities of Aflac relating to brand, access and distribution, responsibilities of the Company relating to marketing, product development and middle and back office functions, the intended go-to-market approach, the economic assumptions, and the intending timing.

The parties have agreed to negotiate in good faith and to act reasonably with each other in order to agree on such terms as are necessary to fully implement the Alliance.

To drive long term alignment, Aflac committed to invest $ 200.0 million cash in exchange for 3,636,364 newly issued shares of the Company's common stock at a price of $ 55 per share, subject to a minimum holding period of three years.

The initial investment of $ 60.0 million closed on October 26, 2020.

The remaining $ 140.0 million is subject to regulatory approvals and is expected to close by the end of 2020.

On October 30, 2020, the Company completed an acquisition of an unaffiliated software company and also completed an asset acquisition for a total purchase price of approximately $ 48.2 million.

The acquired technology in both transactions focuses on the pet space and, along with the acquired personnel, is intended to enable the Company to improve its back-end software to help facilitate growth opportunities, additional products and geographies, as well as enhance its mobile platform.

The initial accounting of these acquisitions has not been completed at the time this Quarterly Report on Form 10-Q is issued.

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.

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