What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-02-27 compared with 2023-02-16 · 166 added, 173 removed, 551 unchanged (38% of the section changed)

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The shares we issue are subject to various restrictions, including a minimum holding period of two years and customary transfer restrictions for shares acquired in a private placement.

On October 28, 2022, we issued 60 shares of our common stock to the distributor in respect of product sales that occurred in the quarter ended September 30, 2022.

During the quarter ended December 31, 2023, we issued 2,000 shares of our common stock to the distributor in respect of product sales that occurred in the quarter ended September 30, 2023.

We offered and sold these shares in reliance upon the exemption from the registration set forth under Section 4(a)(2) of the Securities Act, and the regulations promulgated thereunder relating to sales by an issuer not involving any public offering, and in reliance on similar exemptions under applicable state laws.

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Russell 2000 Index $ 100.00 $ 124.38 $ 147.61 $ 167.82 $ 131.64 $ 151.51

Selected Financial Data

The selected statements of operations, balance sheet, and other data presented below should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report.

The selected statements of operations and balance sheet data are derived from our audited consolidated financial statements included elsewhere in this report and our previously audited financial statements that are not included herein.

Our historical results are not necessarily indicative of the results to be expected in any future period.

Year Ended December 31,

2022 2021 2020 2019 2018

(in thousands)

Consolidated statements of operations data:

Subscription business $ 596,610 $ 494,862 $ 387,732 $ 321,163 $ 263,738

Other business 308,569 204,129 114,296 62,773 40,218

Total revenue 905,179 698,991 502,028 383,936 303,956

Cost of revenue:

Subscription business (1)

497,684 407,664 314,875 262,139 215,992

Other business 285,310 186,981 105,252 56,873 36,598

Total cost of revenue 782,994 594,645 420,127 319,012 252,590

Operating expenses:

Technology and development (1)

25,133 16,866 9,947 7,025 5,796

General and administrative (1)

39,379 31,893 21,847 18,384 17,104

New pet acquisition expense (1)

89,500 78,647 47,837 35,451 24,999

Depreciation and amortization 10,921 11,965 7,071 5,632 4,512

Total operating expenses 164,933 139,371 86,702 66,492 52,411

Loss from investment in joint venture (253) (171) (126) (352) —

Operating loss (43,001) (35,196) (4,927) (1,920) (1,045)

Interest expense 4,267 10 1,381 1,349 1,198

Other expense (income), net (3,072) 14 (581) (1,629) (1,309)

Loss before income taxes (44,196) (35,220) (5,727) (1,640) (934)

Income tax expense (benefit) 476 310 113 169 (7)

Net loss $ (44,672) $ (35,530) $ (5,840) $ (1,809) $ (927)

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

Year Ended December 31,

2022 2021 2020 2019 2018

(in thousands)

Cost of revenue $ 6,484 $ 7,148 $ 1,586 $ 1,050 $ 927

Technology and development 4,742 3,056 3,795 364 209

General and administrative 12,831 8,862 2,773 3,312 2,304

New pet acquisition expense 9,336 9,160 758 2,120 1,335

Total stock-based compensation expense $ 33,393 $ 28,226 $ 8,912 $ 6,846 $ 4,775

2022 2021 2020 2019 2018

(in thousands)

Consolidated balance sheet data:

Cash and cash equivalents $ 65,605 $ 87,400 $ 139,878 $ 29,168 $ 26,552

Short-term investments 156,804 126,012 89,862 69,732 54,559

Working capital 179,480 167,258 186,628 67,196 54,773

Total assets 671,627 562,582 498,250 257,200 207,510

Current and long-term debt 69,457 — — 26,086 12,862

Total liabilities 366,330 230,382 158,311 120,440 78,337

Common stock and additional paid-in capital 499,694 466,792 439,007 232,731 219,838

Accumulated deficit (171,562) (126,890) (91,360) (85,520) (83,711)

Total stockholders' equity 305,297 332,200 339,939 136,760 129,173

Year Ended December 31,

2022 2021 2020 2019 2018

Other operational data (1) :

Total Business:

Total pets enrolled (at period end) 1,537,573 1,176,778 862,928 646,728 521,326

Subscription Business:

Total subscription pets enrolled 869,862 704,333 577,957 494,026 430,770

Monthly average revenue per pet $ 63.82 $ 63.56 $ 60.37 $ 57.52 $ 54.34

Lifetime value of a pet, including fixed expenses $ 641 $ 717 $ 653 $ 523 $ 449

Average pet acquisition cost (PAC) (2)

$ 289 $ 287 $ 247 $ 212 $ 164

Average monthly retention 98.69 % 98.74 % 98.71 % 98.58 % 98.6 %

(1) For more information about how we calculate total pets enrolled, total subscription pets enrolled, monthly average revenue per pet, lifetime value of a pet, including fixed expenses, average pet acquisition cost and average monthly retention, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics.”

(2) Average pet acquisition cost is calculated in part based on net acquisition cost, a non-GAAP financial measure.

For more information about net acquisition cost and a reconciliation of new pet acquisition expense to net acquisition cost, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

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Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

We provide medical insurance for cats and dogs throughout the United States, Canada, Europe, Puerto Rico, and Australia.

We provide medical insurance for cats and dogs in the United States, Canada, Continental Europe, and Australia.

Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level.

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subscription business and other business.

We generate revenue in our subscription business segment primarily by subscription fees from our direct-to-consumer products.

We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products.

We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our new pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.

We generate revenue in our other business segment primarily by underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand.

We do not undertake the marketing efforts for these policies and have a business-to-business relationship with these third parties.

Our other business segment also includes revenue from other products and software solutions that have a different margin profile from our subscription business.

Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties, and, in Canada, low and medium ARPU products marketed under the brand names Furkin and PHI Direct.

We provide a full suite of services and support for these products and they are designed to align with the target margin profile of our subscription business segment.

Within our subscription business segment we also offer products in Continental Europe, which are currently underwritten using third-party underwriters.

Our other business segment is comprised of revenue from other product offerings, with third parties with whom we generally have a business-to-business relationship.

This business segment has a different margin profile than our subscription segment and includes revenue from writing policies on behalf of third parties and revenue from other products and insurance software solutions.

This segment of our business is not part of our core business strategy and generally has a lower margin.

Over time it is reasonable to expect changes to this segment which may impact the revenue contribution due to a partner or partners rolling off to new underwriters.

We generate leads for our subscription business segment from a diverse set of member acquisition channels, which we then convert into members through our contact center, website and other direct-to-consumer activities.

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We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.

Our Response to the COVID-19 Pandemic

We have not experienced a material adverse impact on our business due to COVID-19, but we continue to monitor conditions closely and adapt our operations to meet federal, state and local guidance.

Our focus remains on promoting employee health and safety, serving our members and ensuring business continuity.

Our Seattle headquarters is now open for those who want to work in that office, in compliance with applicable regulations and guidance.

The impacts of COVID-19 and related economic conditions on our results are highly uncertain and in many ways outside of our control.

The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult, if possible, to anticipate.

For additional details, see the section titled "Risk Factors."

Key Operating Metrics

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Average monthly retention 98.49 % 98.55 % 98.61 % 98.65 % 98.69 % 98.71 % 98.74 % 98.75 %

Total pets enrolled and total subscription pets enrolled include pet enrollments in European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker.

Per pet metrics, however, exclude these European policies, as their revenue is currently earned from commissions, as opposed to the gross underwriting premiums earned by the remainder of our subscription business.

Total pets enrolled.

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Total subscription pet months in a period represents the sum of all subscription pets enrolled for each month during the period.

We exclude revenue from our managing general agent product lines because their ARPU is representative of commission earnings versus underwriting premiums.

We monitor monthly average revenue per pet because it is an indicator of the per pet unit economics of our subscription business.

* Total pets enrolled and total subscription pets enrolled metrics include managing general agent pets acquired.

† Excluding activity relating to managing general agent policies.

Lifetime value of a pet, including fixed expenses.

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Average pet acquisition cost (PAC) is calculated as net acquisition cost divided by the total number of new subscription pets enrolled in that period.

Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as new pet acquisition expense, excluding stock-based compensation expense, other business segment expense and managing general agent expense, offset by sign-up fee revenue.

We exclude stock-based compensation expense because the amount varies from period to period based on number of awards issued and market-based valuation inputs.

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We exclude other business segment pet acquisition expense because that does not relate to subscription enrollments.

We exclude managing general agent pet acquisition expense because the ARPU of these products is representative of commission earnings versus underwriting premiums.

We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.

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We monitor average monthly retention because it provides a measure of member satisfaction and allows us to calculate the implied average subscriber life in months.

† Excluding activity relating to managing general agent policies.

Non-GAAP Financial Measures

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We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes.

We believe that these non-GAAP financial measures, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance.

We believe that these non-GAAP financial measures, when taken collectively, may be helpful to investors in providing consistency and comparability with past financial performance.

However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for, the directly comparable financial measures prepared in accordance with GAAP.

We calculate these non-GAAP financial measures by excluding certain non-cash or non-recurring expenses.

We exclude business combination transaction cost as it is non-recurring and not indicative of our operating performance.

We exclude non-recurring transactions and restructuring expenses as they are not indicative of our operating performance.

We exclude stock-based compensation as it is non-cash in nature.

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We define non-GAAP development expenses as operating expenses incurred to develop new products and offerings that are pre-revenue.

We define non-GAAP fixed expenses as the total of technology and development expense and general and administrative expense, less stock-based compensation expense, business combination transaction cost, and development expenses related to exploring and developing new products and offerings that are in the pre-revenue stage.

We define non-GAAP fixed expenses as the total of technology and development expense and general and administrative expense, less stock-based compensation expense, non-recurring transaction and restructuring expense, and development expenses related to exploring and developing new products and offerings that generally are in the pre-revenue stage or not at scale.

The following tables present the reconciliation of our non-GAAP financial measures from corresponding GAAP measures for the periods presented (in thousands):

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(19,869) (17,135) (11,918)

Business combination transaction costs (372) (82) (522)

Non-recurring transaction or restructuring expenses (2)

(4,175) (372) (82)

Development expenses (3)

(5,100) (7,789) (3,719)

Fixed expenses (non-GAAP) $ 52,466 $ 39,216 $ 33,040

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Stock-based compensation associated with bonuses was approximately $1.3 million for the year ended December 31, 2023.

(2) Consists of business acquisition transaction expenses, severance and legal costs due to certain executive departures, and a $3.8 million non-recurring settlement of accounts receivable in the first quarter of 2023 related to uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.

(3) As we enter the next phase of our growth, we expect to invest in initiatives that are pre-revenue, including adding new products and international expansion.

These development expenses are costs related to product exploration and development that are pre-revenue and historically have been insignificant.

Three Months Ended

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(3,797) (3,754) (3,497) (8,821) (5,019) (4,805) (4,085) (3,226)

Business combination transaction costs (193) (179) — — — — — (82)

Non-recurring transaction or restructuring expenses (2)

— (8) (65) (4,102) (193) (179) — —

Development expenses (3)

(1,683) (1,594) (925) (898) (2,084) (2,435) (2,012) (1,258)

Fixed expenses (non-GAAP) $ 13,879 $ 12,610 $ 13,881 $ 12,096 $ 10,131 $ 9,448 $ 9,526 $ 10,111

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Stock-based compensation associated with bonuses was approximately $0.7 million for the three months ended December 31, 2023.

(3) As we enter the next phase of our growth, we expect to invest in initiatives that are pre-revenue, including adding new products and international expansion.

These development expenses are costs related to product exploration and development that are pre-revenue and historically have been insignificant.

When determining our PAC, we calculate net acquisition cost for a more comparable metric across periods.

Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as GAAP new pet acquisition expense, excluding stock-based compensation expense, other business segment expense, and managing general agent expense, offset by sign-up fee revenue.

Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as GAAP new pet acquisition expense, excluding stock-based compensation expense, other business segment expense, and pet acquisition expense for commission-based policies, offset by sign-up fee revenue.

We exclude stock-based compensation expense because the amount varies from period to period based on the number of awards issued and market-based valuation inputs.

We exclude other business segment pet acquisition expense because it does not relate to subscription enrollments.

We exclude managing general agent pet acquisition expense because the ARPU of these products is representative of commission earnings versus underwriting premiums.

We exclude pet acquisition expense for commission-based policies because the revenue of these products is earned from commissions from a third party underwriter, as opposed to the gross underwriting premiums earned by the remainder of our subscription business.

We offset sign-up fee revenue because it is a one-time charge to new members collected at the time of enrollment used to partially offset initial setup costs, which are included in new pet acquisition expenses.

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Other business pet acquisition expense (200) (541) (499)

Pet acquisition expense for managing general agent policies (443) — —

Pet acquisition expense for commission-based policies (3,443) (443) —

Net acquisition cost $ 62,202 $ 74,416 $ 64,034

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Other business pet acquisition expense (77) (10) (62) (51) (65) (181) (186) (109)

Pet acquisition expense for managing general agent policies (443) — — — — — — —

Pet acquisition expense for commission-based policies (802) (826) (888) (927) (443) — — —

Net acquisition cost $ 13,708 $ 14,173 $ 16,908 $ 17,413 $ 18,679 $ 18,806 $ 18,943 $ 17,988

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subscription business and other business.

Our subscription business segment primarily relates to subscription fees from our direct-to-consumer products.

Our other business segment includes revenue from other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription business segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.

We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products.

We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.

Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium ARPU products marketed under the brand names Furkin and PHI Direct.

We provide a full suite of services and support for these products and they are designed to align with the target margin profile of our subscription business segment.

Within our subscription business segment we also offer products in Continental Europe, which are currently underwritten using third-party underwriters.

Our other business segment is comprised of revenue from other product offerings with third parties with whom we generally have a business-to-business relationship.

This business segment has different margin profile than our subscription segment and includes revenue from writing policies on behalf of third parties and revenue from other products and insurance software solutions.

We generate revenue in our subscription business segment primarily from subscription fees for our pet medical insurance.

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Membership may be canceled at any time without penalty, and we issue a refund for the unused portion of the canceled membership.

We also generate a portion of our subscription business segment revenue through commissions earned in our European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker.

We generate revenue in our other business segment primarily from writing policies on behalf of third parties where we do not undertake the direct consumer marketing.

This segment also includes revenue from other products and software solutions that have a different margin profile from our subscription business.

This segment also includes revenue from other products and insurance software solutions that have a different margin profile from our subscription business.

Cost of Revenue

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Veterinary invoice expense

Veterinary invoice expense includes our costs to review veterinary invoices, administer the payments, and provide member services, and other operating expenses directly or indirectly related to this process.

We also accrue for veterinary invoices that have been incurred but not yet received.

This also includes amounts paid by unaffiliated general agents, and an estimate of amounts incurred and not yet paid for our other business segment.

Veterinary invoice expense includes our costs to review and pay veterinary invoices, administer the payments, and provide member services, and other operating expenses directly or indirectly related to this process.

We also accrue for veterinary invoices that have been incurred but not yet received and for the estimated internal costs of processing those invoices.

This also includes amounts paid by unaffiliated general agents on our behalf, and an estimate of amounts incurred and not yet paid for our other business segment.

Other cost of revenue

Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner renewal fees, credit card transaction fees and premium tax expenses.

Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner renewal fees, payment processing fees and premium tax expenses.

Other cost of revenue for the other business segment includes the commissions we pay to unaffiliated general agents, costs to administer the programs in the other business segment and premium taxes on the sales in this segment.

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Technology and development expenses primarily consist of personnel costs and related expenses for our technology staff, which includes information technology development and infrastructure support, including third-party services.

It also includes expenses associated with development of new products and offerings.

It also includes expenses associated with development in new geographies and new products and offerings.

General and administrative

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New pet acquisition expense

New pet acquisition expenses primarily consist of costs, including employee compensation, to educate veterinarians and consumers about the benefits of Trupanion, to generate leads and to convert leads into enrolled pets, as well as print, online and promotional advertising costs.

New pet acquisition expense was previously termed “sales and marketing” on the consolidated statement of operations.

This update represents a change in name only.

It does not denote a change in method of accounting.

New pet acquisition expenses primarily consist of costs, including personnel costs, to educate veterinarians and consumers about the benefits of Trupanion, to generate leads and to convert leads into enrolled pets, as well as print, online and promotional advertising costs.

Depreciation and amortization

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Our performance depends on our ability to continue to retain our existing and newly enrolled pets and is impacted by our ability to provide a best-in-class value and member experience.

Our ability to retain enrolled pets depends on a number of factors, including the actual and perceived value of our services and the quality of our member experience, the ease and transparency of the process for reviewing and paying veterinary invoices for our members, and the competitive environment.

In addition, other initiatives across our business may temporarily impact retention and make it difficult for us to improve or maintain this metric.

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Investment in pet acquisition.

We have made and plan to continue to make significant investments to grow our member base.

Our net acquisition cost and the number of new members we enroll depends on a number of factors, including the amount we elect to invest in pet acquisition activities in any particular period in the aggregate and by channel, the frequency of existing members adding a pet or referring their friends or family, the effectiveness of our sales execution and marketing initiatives, changes in costs of media, the mix of our pet acquisition expenditures and the competitive environment.

We have made and may continue to make significant investments to grow our member base.

Our net acquisition cost and the number of new members we enroll depends on a number of factors, including the amount we have available and we elect to invest in pet acquisition activities in any particular period in the aggregate and by channel, the frequency of existing members adding a pet or referring their friends or family, the effectiveness of our sales execution and marketing initiatives, changes in costs of media, the mix of our pet acquisition expenditures and the competitive environment.

Our average pet acquisition cost has in the past significantly varied, and in the future may significantly vary, from period to period based upon specific marketing initiatives and estimated rates of return on pet acquisition spend.

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Our subscription business’s cost-plus model depends on our ability to estimate our operating costs and expenses, including veterinary invoice expenses, and to adjust our pricing to achieve our target returns.

We regularly reevaluate and adjust the price of our subscriptions, with a goal of achieving our targeted payout ratio, subject to the review and approval of applicable state regulators.

This makes it important for us to accurately estimate our costs and to promptly pursue regulatory approval of pricing adjustments.

We may, though, have timing mismatches during which our pricing does not reflect our current expense profile.

We regularly reevaluate and adjust the price of our subscriptions, with a goal of achieving our targeted payout ratio, subject to the review and approval of regulators where applicable.

This makes it important for us to accurately estimate our costs and to promptly implement pricing adjustments, which generally roll onto our book of insured pets over the succeeding twelve months following any applicable regulatory approval.

As a result, we may have timing mismatches during which our pricing does not reflect our current expense profile.

In periods of rapid increases in veterinary invoice expenses, including periods of significant inflation, this timing mismatch may have a significant impact on our margin profile.

Timing of initiatives.

Over time we plan to implement new initiatives to improve our member experience, make modifications to our subscription plan, introduce new coverage plans, pursue pet food or other adjacent opportunities, improve our technology, increase the number of veterinary hospitals using our direct pay software, and find other ways to maintain a strong value proposition for our members.

These initiatives will sometimes be accompanied by price adjustments, in order to compensate for an increase in benefits received by our members.

The implementation of such initiatives may not always coincide with the timing of price adjustments, resulting in fluctuations in revenue and profitability in our subscription business segment.

Geographic mix of sales.

The relative mix of our business between the United States, Canada, and other jurisdictions, and between areas within those geographies, impacts the monthly average revenue per pet we receive.

For example, prices from our plans could vary depending on the relative cost of veterinary care in different countries or areas.

As our mix of business between geographies changes, our metrics, such as our monthly average revenue per pet, and our exposure to foreign exchange fluctuations will be impacted.

As we expand into international markets and continue to explore other opportunities, we expect these effects to increase.

Over time, we plan to implement new initiatives to improve our member experience, make modifications to our subscription plan, introduce new coverage plans, pursue pet food or other adjacent opportunities, improve our technology, increase the number of veterinary hospitals using our patented direct pay software, and find other ways to maintain a strong value proposition for our members.

The implementation of such initiatives could impact our expense profile and result in us incurring expenses that may not always directly coincide with revenue increases, resulting in fluctuations in revenue and profitability in our subscription business segment.

Mix of sales.

The relative mix of our business by geography, pet age, species, breed, and other factors impacts the monthly average revenue per pet we receive.

For example, prices from our plans could vary depending on the relative cost of veterinary care in different countries or areas or whether the pet is a dog or a cat.

As our mix of business between products and geographies changes, our metrics, such as our monthly average revenue per pet, and our exposure to foreign exchange fluctuations will be impacted.

We expect our international business, additional product offerings and "Powered by Trupanion" plans to grow and, in turn, we expect these effects to increase.

Other business segment.

Our other business segment primarily includes other product offerings that generally have a business-to-business relationship.

These products have been, and we expect will be in the future, materially different from our subscription business segment.

Our other business segment primarily includes other product offerings that have been, materially different from those in our subscription business segment.

We expect this difference to continue.

In addition, we expect the growth rate of this segment to be materially different from our subscription business segment.

We do not undertake marketing efforts for and are not the primary interface with the customers of the third parties for whom we write other business segment policies.

Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive.

Accordingly, we cannot control the volume of business, even if a contract is not terminated.

Accordingly, we have limited influence on the volume of business of this segment.

Loss of an entire program via contract termination could result in the associated policies and revenue being lost over a period of 12 to 18 months, which could have a material impact on our results of operations.

We may enter into additional relationships in the future to the extent we believe they will be profitable to us, which could also impact our operating results.

In some cases, we have structured exclusive relationships, but those relationships have been and may continue to be subject to limitations on the number of enrolled pets as to which we will write policies for the third party.

We may enter into additional relationships in this segment in the future, if we believe they will be beneficial, which could impact our operating results.

Results of Operations

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Total operating expenses 171,456 164,933 139,371

Loss from investment in joint venture (253) (171) (126)

Gain (loss) from investment in joint venture (219) (253) (171)

Operating loss (40,659) (43,001) (35,196)

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Loss before income taxes (45,035) (44,196) (35,220)

Income tax expense 476 310 113

Income tax expense (benefit) (342) 476 310

Net loss $ (44,693) $ (44,672) $ (35,530)

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Total operating expenses 15 18 20

Loss from investment in joint venture — — —

Gain (loss) from investment in joint venture — — —

Operating loss (4) (5) (5)

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Loss before income taxes (4) (5) (5)

Income tax expense — — —

Income tax expense (benefit) — — —

Net loss (4) % (5) % (5) %

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Year ended December 31, 2023 compared to year ended December 31, 2022.

Total revenue increased by $206.2 million to $905.2 million for the year ended December 31, 2022, or 29%.

Revenue from our subscription business segment increased by $101.7 million to $596.6 million for the year ended December 31, 2022, or 21%.

This increase was primarily due to a 19% increase in total subscription pets enrolled as of December 31, 2022 compared to a year ago, excluding pets acquired as part of business combinations in 2022.

Average revenue per pet increased by 0.4% year over year, or 1.3% on a constant currency basis.

Revenue from our other business segment increased by $104.4 million to $308.6 million, or 51%, for the year ended December 31, 2022, primarily due to a 41% increase in enrolled pets in this segment.

Total revenue increased by $203.4 million, or 22%, to $1,108.6 million for the year ended December 31, 2023.

Revenue from our subscription business segment increased by $116.3 million, or 19%, to $712.9 million for the year ended December 31, 2023.

This increase was primarily driven by a 17% increase in total subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion and a 2% increase in monthly average revenue per pet.

Revenue from our other business segment increased by $87.1 million to $395.7 million, or 28%, for the year ended December 31, 2023.

This increase was primarily driven by a 24% increase in pet months and a 5% increase in monthly average revenue per pet in this segment.

Cost of Revenue

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Year ended December 31, 2023 compared to year ended December 31, 2022.

Cost of revenue for our subscription business segment was $497.7 million, or 83% of revenue, for the year ended December 31, 2022, compared to $407.7 million, or 82%, of revenue, for the year ended December 31, 2021.

This increase of 22% in subscription cost of revenue was primarily the result of a 19% increase in subscription pets enrolled, excluding pets acquired as part of business combinations, and a 2.5% increase in veterinary invoice expense per pet, or 2.9% on a constant currency basis.

This was attributable to both increased cost and utilization of veterinary care.

Cost of revenue for our other business segment increased by $98.3 million, or 53%, to $285.3 million for the year ended December 31, 2022, primarily due to the increase in enrolled pets in this segment.

Total cost of revenue for our subscription business segment increased $116.0 million, or 23%, to $613.7 million for the year ended December 31, 2023.

This increase was driven by a $106.3 million, or 24%, increase in veterinary invoice expense and a $9.7 million, or 16%, increase in other cost of revenue.

The 24% increase in veterinary invoice expense was driven by a 17% increase in total subscription pet months for policies underwritten by Trupanion and a 7% increase in veterinary invoice expense per pet.

The 16% increase in other cost of revenue was primarily driven by general increases in costs attributable to growth in our membership, in line with revenue growth in this segment.

Subscription business cost of revenue increased from 83% to 86% of revenue year-over-year.

Total cost of revenue for our other business segment increased by $78.6 million, or 28%, to $363.9 million for the year ended December 31, 2023.

The increase was primarily driven by a $75.0 million, or 35%, increase in veterinary invoice expense and a $3.6 million, or 5%, increase in other cost of revenue.

The 35% increase in veterinary invoice expense was primarily driven by a 24% increase in pet months in this segment and a 9% increase in veterinary invoice expense per pet.

The 5% increase in other cost of revenue was primarily driven by general increases in premium-based expenses.

Cost of revenue for the other business segment remained at a constant 92% of revenue year-over-year.

Technology and Development Expenses

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Year ended December 31, 2023 compared to year ended December 31, 2022.

Technology and development expenses increased by $8.3 million, or 49%, to $25.1 million for the year ended December 31, 2022.

The increase was primarily due to increased headcount and $1.7 million increase in associated stock-based compensation.

Additionally, development expense, which totaled $7.8 million or 1% of total revenue, increased $4.1 million year over year as a result of investments in several pre-revenue initiatives.

Technology and development expenses increased from 2% to 3% of total revenue year over year.

Technology and development expenses decreased by $3.7 million, or 15%, to $21.4 million for the year ended December 31, 2023.

This decrease was primarily due to a decrease of $5.0 million in development expense as several initiatives that were pre-revenue in the prior year were launched and have begun generating revenue.

Expenses associated with these initiatives are now recorded within the income statement based on the underlying nature of the expense.

This decrease was partially offset by a $1.1 million increase in general compensation and other employee-related expenses and a $0.9 million increase in IT system hosting expenses.

Technology and development expenses decreased from 3% to 2% of total revenue year over year

General and Administrative Expenses

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General and administrative expenses increased by $20.8 million, or 53%, to $60.2 million for the year ended December 31, 2023.

The increase was primarily due to a $4.0 million increase in stock-based compensation and a $3.1 million increase in compensation expense.

General and administrative expenses decreased from 5% to 4% of total revenue year over year.

The increase in expense was primarily due to a $4.8 million increase in stock-based compensation related to charges after certain executive departures and a $3.8 million increase related to the negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.

Additionally, there was a $6.4 million increase in general compensation and other employee-related expenses, a $2.2 million increase in professional services and consulting expenses, a $1.4 million increase in year-over-year expenses related to a full year of Smart Paws and Pet Expert operations in 2023, and a $0.9 million increase in licensing and regulatory fees.

General and administrative expenses increased from 4% to 5% of total revenue year over year, partially due to certain non-recurring expenses.

New Pet Acquisition Expense

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Year ended December 31, 2023 compared to year ended December 31, 2022.

New pet acquisition expense increased by $10.9 million, or 14%, to $89.5 million, for the year ended December 31, 2022.

This $10.9 million increase was attributable to expenses to generate leads and increase conversion rates.

Specifically, total subscription pets enrolled increased 19%, excluding pets acquired through business combinations, between compared periods.

New pet acquisition expenses as a percentage of revenue was 10% for the year ended December 31, 2022, compared to 11% in the same period last year.

New pet acquisition expense decreased by $12.1 million, or 14%, to $77.4 million for the year ended December 31, 2023.

This decrease was attributable to a decrease in expenses to generate leads and conversion, as we focused on growth in our more efficient channels.

New pet acquisition expense as a percentage of revenue was 7% for the year ended December 31, 2023 compared to 10% in the same period last year, as we were able to stay disciplined with our discretionary pet acquisition spend, while still managing to grow total enrolled subscription pets, excluding those related to managing general agent policies, by 13%.

Depreciation and Amortization

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Year ended December 31, 2023 compared to year ended December 31, 2022.

Depreciation and amortization expense decreased by $1.0 million, or 9%, to $10.9 million for the year ended December 31, 2022.

Depreciation and amortization expense increased by $1.6 million, or 14%, to $12.5 million for the year ended December 31, 2023 primarily driven by the amortization of acquired intangibles.

Total Other Expense (Income), Net

Year Ended December 31, % Change

2023 2022 2021 2023 vs.

2022 2022 vs.

(in thousands, except percentages)

Interest expense $ 12,077 $ 4,267 $ 10 183% 42,570%

Other expense (income), net (7,701) (3,072) 14 151 (22,043)

Total other (income) expense, net $ 4,376 $ 1,195 $ 24 266% 4,879%

Percentage of total revenue — % — % — %

Year ended December 31, 2023 compared to year ended December 31, 2022.

Total other expense (income), net increased by $3.2 million to $4.4 million for the year ended December 31, 2023 primarily due to an increase in interest expense incurred on the Credit Facility, which was partially offset by an increase in interest earned on our investment portfolio.

Stock-Based Compensation

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Stock-based compensation is included in the cost and expense line items in the consolidated statements of operations, discussed above.

Stock-based compensation expense in total was $33.4 million for the year ended December 31, 2022, up from $28.2 million in the prior year period.

Stock-based compensation expense in total was $33.2 million for the year ended December 31, 2023, down from $33.4 million in the prior year period.

The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan.

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2023 2022 2021

Net cash (used in) provided by operating activities $ (8,000) $ 7,458 $ 21,544

Net cash used in investing activities (67,516) (51,913) (76,747)

Net cash (used in) provided by financing activities 60,743 (1,125) 170,848

Net cash provided by (used in) operating activities $ 18,638 $ (8,000) $ 7,458

Net cash provided by (used in) investing activities 7,639 (67,516) (51,913)

Net cash provided by (used in) financing activities 59,126 60,743 (1,125)

Effect of foreign exchange rates on cash, cash equivalents, and restricted cash, net 424 (1,459) 252

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Our primary requirements for liquidity are paying veterinary invoices, funding operations and capital requirements, investing in new member acquisition, investing in enhancements to our member experience, and servicing debt.

We have certain contractual obligations in the normal course of business, including obligations and commitments relating to our Credit Facility, non-cancellable vendor purchase agreements, as well as future payments of veterinary invoice claims.

Refer to Note 10, Reserve for Veterinary Invoices, included in Item 8 of Part II of this 10-K, for further details on anticipated cash outflows.

Our primary sources of liquidity are cash provided by operations and available borrowings from our Credit Facility, under which we have $75.0 million remaining credit as of December 31, 2022.

Most recently, our primary sources of liquidity have been cash provided by operations and available borrowings from our Credit Facility.

We believe these sources are sufficient to fund our operations and capital requirements for the next 12 months.

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Additional financing may not be available to us on acceptable terms, or at all.

As of December 31, 2022, we had $222.4 million in cash, cash equivalents and short-term investments and $75.0 million available under our Credit Facility.

The Credit Facility is secured by substantially all of our assets and those of our subsidiaries.

In addition, most of the assets in our insurance subsidiaries are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

As of December 31, 2022, total assets and liabilities held outside of our insurance entities were $211.0 million and $103.9 million, respectively, including $7.2 million of cash and cash equivalents that were segregated from other operating funds and held in trust for the payment of veterinary invoices on behalf of our insurance subsidiaries.

For further information, refer to "—Regulation".

As our capital surplus grows relative to the rate of growth of our business, we may also generate cash, via dividends or other methods, from one or more of our underwriting entities.

As of December 31, 2023, we had $277.2 million in cash, cash equivalents and short-term investments, of which $230.6 million was held by our insurance entities.

Outside of insurance entities, we held $46.6 million in cash, cash equivalents and short-term investments with an additional $15.0 million available under our Credit Facility.

Our insurance entities maintained $241.3 million of capital surplus, which was $64.1 million in excess of the estimated risk-based capital requirement of $177.2 million.

The ability to distribute any portion of this estimated $64.1 million excess to our parent company, and the timing of any distribution, may be subject to regulatory limitations.

In April 2021, our board of directors approved a share repurchase program, pursuant to which we may, between May 2021 and May 2026, repurchase outstanding shares of our common stock.

While our board of directors has approved the program, any repurchase activity is subject to quarterly assessment and board approval, based on various factors including available cash, stock price relative to our estimated intrinsic value, forecasted operating results, and available opportunities to otherwise deploy capital for business expansion.

We repurchased 95,021 shares under this program during the year ended December 31, 2022.

While our board of directors has approved the program, any repurchase activity is subject to quarterly assessment and board approval, based on various factors including available cash, our stock price relative to our estimated intrinsic value, forecasted operating results, and available opportunities to deploy capital.

We repurchased no shares under this program during the year ended December 31, 2023.

Operating Cash Flows

We derive operating cash flows primarily from the sale of our subscription plans, which is used to pay veterinary invoices and other cost of revenue.

Additionally, cash is used to support the growth of our business by reinvesting to acquire new pet enrollments, develop new product offerings and to fund projects that improve our members' experience.

Net cash used by operating activities was $8.0 million for the year ended December 31, 2022, compared to $7.5 million net cash provided by operating activities for the year ended December 31, 2021.

The change was primarily driven by increased pet acquisition spend during the current period to drive new pet enrollments and future growth and faster payment of veterinary invoices.

Net cash provided by operating activities was $18.6 million for the year ended December 31, 2023 compared to $8.0 million net cash used by operating activities for the year ended December 31, 2022.

This increase was primarily driven by an increase in cash collections from members, a decrease in acquisition costs, and timing differences in other working capital activities.

Cash increases from working-capital were primarily driven by an increase in our reserve for veterinary invoices.

Changes in accounts receivable and deferred revenue were primarily related to annual policies with monthly payment terms within our other business segment.

Investing Cash Flows

Net cash used in investing activities was $67.5 million for the year ended December 31, 2022, compared to $51.9 million for the year ended December 31, 2021.

The change was primarily related to cash paid for business acquisitions as well as purchases of property, equipment and intangible assets, primarily related to development of internal use software focused on new product initiatives and member experience improvements.

Net cash provided by investing activities was $7.6 million for the year ended December 31, 2023, primarily consisting of $24.3 million in sales and maturities of investment securities, net of purchases, offset by $18.3 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing, and internal policy management improvements.

Net cash used by investing activities was $67.5 million for the year ended December 31, 2022, primarily consisting of $33.8 million in purchases of investment securities, net of sales and maturities, $17.1 million of capital expenditures primarily related to the development of internal-use software, and $15.0 million in net cash paid for business acquisitions.

Financing Cash Flows

Net cash provided by financing activities was $60.7 million for the year ended December 31, 2022, compared to $1.1 million net cash used by financing activities during the same period in the prior year, primarily due to net proceeds from the term loans under the new Credit Facility which closed in March 2022, partially offset by $5.8 million used for the repurchase of shares of our common stock during the period.

Net cash provided by financing activities was $59.1 million for the year ended December 31, 2023, primarily consisting of $60.1 million in proceeds from the Credit Facility, partially offset by $1.7 million in repayments on the Credit Facility.

Net cash provided by financing activities was $60.7 million for the year ended December 31, 2022, primarily consisting of $69.1 million in proceeds from the Credit Facility, partially offset by $5.8 million in repurchases of common stock.

Long-Term Debt

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As of December 31, 2023, we issued term loans totaling $135.0 million under the Credit Facility.

The Credit Facility is secured by substantially all of our assets and those of our subsidiaries.

Refer to Note 11, Debt, included in Item 8 of this report, for further details.

As of December 31, 2023, our insurance entities collectively held $101.0 million in cash and cash equivalents, to be used for operating expenses of our insurance entities, $129.6 million in short-term investments and $268.0 million in other current assets.

Most of the assets in our insurance entities are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

American Pet Insurance Company (APIC)

The majority of our investments are held by our insurance entities to satisfy risk-based capital requirements of the National Association of Insurance Commissioners (NAIC).

The NAIC requirements provide a method for analyzing the minimum amount of risk-based capital (statutory capital and surplus plus other adjustments) appropriate for an insurance company to support its overall business operations, taking into account the risk characteristics of the company’s assets, liabilities and certain other items .

An insurance company found to have insufficient statutory capital based on its risk-based capital ratio may be subject to varying levels of additional regulatory oversight depending on the level of capital inadequacy.

APIC must hold certain capital amounts in order to comply with the statutory regulations and, therefore, we cannot use these amounts for general operating purposes without regulatory approval.

As our business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements also generally will increase, though risk-based capital requirements also take our overall rate of growth into consideration.

Recently, our other business segment growth has slowed and, currently, we expect that to continue, which would reduce our capital requirements.

APIC was required to maintain at least $137.6 million and $142.4 million of risk-based capital as of December 31, 2023 and 2022, respectively.

APIC maintained $199.6 million and $162.2 million of risk-based capital surplus as of December 31, 2023 and 2022, respectively.

The increase of capital surplus at APIC during the year was primarily due to retained earnings from APIC's underwriting profit and a capital contribution of $ 3.8 million, partially offset by an ordinary dividend of $ 7.6 million distributed to the parent entity in December 2023.

ZPIC Insurance Company (ZPIC), QPIC Insurance Company (QPIC), and GPIC Insurance Company (GPIC)

In 2021, we established two new wholly-owned insurance subsidiaries, ZPIC and QPIC, domiciled in Missouri and Nebraska, respectively, and in 2023 we established a new wholly-owned insurance subsidiary, GPIC, domiciled in Canada.

We have funded required statutory capital to each of these new subsidiaries.

As of December 31, 2023, neither ZPIC, QPIC nor GPIC have begun underwriting any insurance policies, accordingly, each of these entities are currently overcapitalized relative to traditional risk-based capital requirements.

We formed these insurance subsidiaries to provide us flexibility as to the insurance entity we use to market and write policies.

Wyndham Insurance Company (SAC) Limited (WICL) Segregated Account AX

WICL Segregated Account AX was established by WICL, with Trupanion, Inc.

as the shareholder, to enter into a reinsurance agreement with Omega General Insurance Company.

All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL, and all shares of the segregated account are owned by Trupanion, Inc.

In February 2023, our parent entity received a dividend of $ 7.3 million from WICL Segregated Account AX as allowed under our agreements with WICL.

As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Omega General Insurance Company, we are required to maintain a Canadian Trust account with the greater of CAD $ 2.0 million or 120 % of unearned Canadian premium plus 20 % of outstanding Canadian claims, including all incurred but not reported claims.

As of December 31, 2023, the account held CAD $ 15.7 million.

Though we are not directly regulated by the Bermuda Monetary Authority (BMA), WICL's regulation and compliance impacts us as it could have an adverse impact on the ability of WICL Segregated Account AX to pay dividends.

WICL is regulated by the BMA under the Insurance Act of 1978 (Insurance Act) and the Segregated Accounts Company Act of 2000.

The Insurance Act imposes on Bermuda insurance companies, solvency and liquidity standards, certain restrictions on the declaration and payment of dividends and distributions, certain restrictions on the reduction of statutory capital, and auditing and reporting requirements, and grants the BMA powers to supervise and, in certain circumstances, to investigate and intervene in the affairs of insurance companies.

Under the Insurance Act, WICL, as a class 3 insurer, is required to maintain available statutory capital and surplus at a level equal to or in excess of a prescribed minimum established by reference to net written premiums and loss reserves.

Under the Bermuda Companies Act 1981, as amended, a Bermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that:

(a) the company is, or would after the payment be, unable to pay its liabilities as they become due;

or (b) the realizable value of the company’s assets would thereby be less than its liabilities.

The Segregated Accounts Company Act of 2000 further requires that dividends out of a segregated account can only be paid to the extent that the cell remains solvent and the value of its assets remain greater than the aggregate of its liabilities and its issued share capital and share premium accounts.

Critical Accounting Policies and Significant Estimates

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Reserve for Veterinary Invoices

We use the paid loss development method (chain-ladder method) to estimate reserves for veterinary invoices for our subscription and for the majority of our other business segment.

We use the chain-ladder method and other actuarial methods to estimate reserves for veterinary invoices for our subscription business and for the majority of our other business segment.

Paid loss development factors are estimated based on historical paid loss triangles.

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To determine the accrual, we make assumptions based on our historical experience, including the number of veterinary invoices we expect to receive, the average cost of those veterinary invoices, the length of time between the date of the veterinary invoice and the date we receive it, and our expected cost to process and administer the payments.

As of each balance sheet date, we reevaluate our reserve and may adjust the estimate for new information.

As of each balance sheet date, we reevaluate our reserve and adjust the estimate for new information.

As of December 31, 2023, our reserve for veterinary invoices was $63.2 million, consisting of $61.0 million for the amount we expect to pay in the future for veterinary invoices dated between January 1, 2023 and December 31, 2023, inclusive of related processing costs, and a reserve of $2.2 million for invoices dated prior to January 1, 2023.

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Our reserve estimate for these expenses was $43.7 million as of December 31, 2022.

As of December 31, 2022, we reevaluated the remaining reserve for those periods prior to December 31, 2021 and recorded an adjustment to our income statement to decrease it by $1.7 million.

As of December 31, 2023, we had unfavorable development on veterinary invoice reserves of $3.3 million for the year ended December 31, 2022.

We determine our deferred tax assets and liabilities based on the differences between the financial reporting and tax basis of assets and liabilities.

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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-K

Item 5. Market for Registrant’s Common Equity