What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-02-27 compared with 2023-02-16 · 83 added, 36 removed, 223 unchanged (35% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective.

Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K.

Based on such evaluation, our CEO and CFO have concluded that as of December 31, 2023, the disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting, described below.

Notwithstanding the identified material weaknesses described below, management does not believe that these material weaknesses had an adverse effect on our reported operating results or financial condition and management has determined that the financial statements and other information included in this report and other periodic filings present fairly in all material respects our financial condition, results of operations, and cash flows at and for the periods presented in accordance with U.S.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Management has assessed the effectiveness of its internal control over financial reporting as of December 31, 2022 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

As a result of this assessment, management concluded that, as of December 31, 2022, its internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

generally accepted accounting principles.

Ernst & Young has independently assessed the effectiveness of the Company's internal control over financial reporting and its report is included below.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

GAAP and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;

(2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013).

As a result of this assessment, management concluded that, as of December 31, 2023, its internal control over financial reporting was not effective because management identified material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We noted a material weakness related to the design of information technology general controls (ITGCs) in the areas of user access and program change-management over certain information technology (IT) systems related to revenue, veterinary invoice expense, accounts receivable, reserve for veterinary invoices and deferred revenue in our subscription business segment.

We believe that these control deficiencies were a result of:

(1) risk-assessment processes that were inadequate to identify and assess the scope of IT systems that could impact internal controls over financial reporting;

and (2) IT control processes lacking sufficient documentation around the affected systems.

Process level controls (business and automated) that are dependent on the affected IT environments were also deemed ineffective.

We also noted a material weakness related to the processing of transactions performed by an unaffiliated general agent related to revenue, veterinary invoice expense, accounts receivable, reserve for veterinary invoices and deferred revenue accounts within our other business segment.

The Company had not sufficiently evaluated the design of processes and controls over such transactions, including ITGCs and process level controls.

These material weaknesses did not result in any material misstatements to the financial statements in this Form 10-K, and we have not identified any changes required to our previously issued financial statements.

We have completed substantive procedures for the year ended December 31, 2023.

Based on these procedures, management believes that our consolidated financial statements included in this Form 10-K have been prepared in accordance with U.S.

Our CEO and CFO have certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-K, fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented in this Form 10-K.

Ernst & Young LLP has issued an unqualified opinion on our financial statements, which is included in Item 8 of this Form 10-K.

In addition, Ernst & Young LLP has issued a report on our internal control over financial reporting as of December 31, 2023, and its report appears below.

Planned Material Weakness Remediation Activities

Management has been, and intends to continue, implementing measures designed to remediate the control deficiencies contributing to the material weaknesses described above.

The remediation actions for the material weakness related to the design of ITGCs in the areas of user access and program change-management over certain information technology include:

(1) enhancing our IT compliance oversight function and expanding our team members with experience designing and implementing ITGCs;

(2) developing a training program addressing ITGCs and policies, including educating control owners about the principles and requirements of each control, with a focus on those related to user access and change-management over IT systems;

(3) developing and maintaining documentation underlying ITGCs to promote knowledge transfer upon IT personnel and function changes;

(4) developing enhanced risk assessment procedures and controls related to changes in IT systems;

(5) implementing an IT management review and testing plan to monitor ITGCs;

and (6) enhanced quarterly reporting on the remediation measures to the Audit Committee of our board of directors.

With respect to the material weakness related to the processing of transactions performed by an unaffiliated general agent, we are developing our remediation plan.

A material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Until management has concluded that we have remediated the material weaknesses, we intend to continue completing additional substantive procedures sufficient for management to believe that our consolidated financial statements have been prepared in accordance with U.S.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except for changes relating to the material weaknesses identified above, there have been no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(f) or 15d-15(f) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

5 unchanged sentences

We have audited Trupanion, Inc.’s internal control over financial reporting as of December 31, 2023 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Trupanion, Inc.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 , based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021 , the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022 , and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated February 16, 2023 expressed an unqualified opinion thereon.

In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, Trupanion, Inc.

(the Company) has not maintained effective internal control over financial reporting as of December 31, 2023 , based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management's assessment.

Management has identified a material weakness related to the design of information technology general controls (ITGCs) in the areas of user access and program change-management over certain information technology (IT) systems and related process controls related to revenue, veterinary invoice expense, accounts receivable, reserve for veterinary invoices and deferred revenue in the subscription business segment.

Management has also identified a material weakness related to inadequate design of ITGC and process level controls over the processing of transactions performed by an unaffiliated general agent related to revenue, veterinary invoice expense, accounts receivable, reserve for veterinary invoices and deferred revenue accounts within the other business segment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022 , the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023 , and the related notes and financial statement schedule listed in the Index at Item 15(a)(2).

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated February 26, 2024, which expressed an unqualified opinion thereon.

Basis for Opinion

10 unchanged sentences

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

5 unchanged sentences

Other Information

Rule 10b5-1 Plan

During the three months ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted or terminated, including by modification, a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

21 unchanged sentences

Exhibit Exhibit Filing Date Herewith

Restated Certificate of Incorporation of the Registrant.

10-Q 001-36537 3.1 8/28/2014

Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant.

Amended and Restated Certificate of Incorporation of Trupanion, Inc.

8-K 001-36537 3.1 6/12/2023

Amended and Restated Bylaws of the Registrant.

Amended and Restated Bylaws of Trupanion, Inc.

8-K 001-36537 3.2 6/12/2023

Description of Capital Stock

10-K 001-36537 4.1 2/14/2020

Form of Common Stock Certificate.

18 unchanged sentences

10-K 001-36537 10.23 2/14/2020

Quota Share Reinsurance Agreement between Wyndham Insurance Company (SAC) Limited and Omega General Insurance Company, effective January 1, 2023.

Compensation Program for Non-Employee Directors of Trupanion, Inc, as amended on February 22, 2022.

Addendum #11 to Quota Share Reinsurance Agreement between Wyndham Insurance Company (SAC) Limited and Omega General Insurance Company, effective January 1, 2024.

Addendum #1 to Fronting And Administration Agreement between Omega General Insurance Company and Wyndham Insurance Company (Sac) Limited, effective January 1, 2024.

Compensation Program for Non-Employee Directors of Trupanion, Inc, as amended on April 21, 2023.

10-Q 001-36537 10.1 8/4/2023

Compensation Clawback Policy, effective February 11, 2019.

Form of Consulting Agreement.

8-K 001-36537 10.1 4/4/2023

Form of Separation Agreement.

8-K 001-36537 10.2 4/4/2023

Trupanion, Inc.

Employee Severance and Change in Control Plan effective January 29, 2021.

Severance and Change in Control Plan effective July 28, 2023.

10-Q 001-36537 10.2 8/4/2023

Offer Letter dated as of August 24, 2023, by and between the Company and Fawwad Qureshi.

8-K 001-36537 10.1 9/6/2023

16 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Compensation Clawback Policy

101.INS XBRL Instance Document - the instance does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.SCH Inline XBRL Taxonomy Extension Schema With Embedded LinkBase Documents.

104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) X

10 unchanged sentences

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below hereby constitutes and appoints Darryl Rawlings, Gavin Friedman and Drew Wolff, and each of them, as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below hereby constitutes and appoints Darryl Rawlings, Fawwad Qureshi and Chris Kearns, and each of them, as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

3 unchanged sentences

(Principal Executive Officer)

February 16, 2023 /s/ Drew Wolff

February 26, 2024 /s/ Fawwad Qureshi

Fawwad Qureshi

Chief Financial Officer

(Principal Financial and Accounting Officer)

February 26, 2024 /s/ Max Broden

February 26, 2024 /s/ Jacqueline Davidson

Jacqueline Davidson

February 16, 2023 /s/ Michael Doak

February 26, 2024 /s/ Paulette Dodson

Paulette Dodson

February 26, 2024 /s/ Richard Enthoven

Richard Enthoven

February 26, 2024 /s/ Dan Levitan

February 26, 2024 /s/ Murray Low

February 26, 2024 /s/ Betsy McLaughlin

Betsy McLaughlin

February 26, 2024 /s/ Howard Rubin

61 unchanged sentences

Treasury stock, at cost:

1,028,186 and 933,165 shares at December 31, 2022 and 2021

1,028,186 shares at December 31, 2023 and 2022

( 16,534 ) ( 16,534 )

9 unchanged sentences

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

(Income) loss attributable to investments in subsidiaries 19,331 17,501 170

Loss attributable to investments in subsidiaries 39,184 19,331 17,501

Dividends from subsidiaries 14,837 6,942 5,567

Depreciation and amortization 494 289 473

7 unchanged sentences

Advances to and investments in subsidiaries ( 87,198 ) ( 71,671 ) ( 71,721 )

Dividends from subsidiaries 6,942 5,567 4,651

Other investments 1,586 ( 1,598 ) ( 1,755 )

1 unchanged sentence

Financing activities

Issuance of common stock, net of offering costs — — 192,265

Proceeds from debt financing, net of financing fees 59,972 69,138 —

Repayments of debt financing ( 1,225 ) ( 487 ) —

Repurchase of common stock — ( 5,755 ) —

1 unchanged sentence

Taxes paid related to net share settlement of equity awards ( 1,536 ) ( 4,359 ) ( 4,732 )

Proceeds from debt financing, net of financing fees 69,138 — 6,213

Repayments of debt financing ( 487 ) — ( 32,450 )

Other financing — — ( 78 )

Net cash (used in) provided by financing activities 59,866 60,827 ( 1,125 )

8 unchanged sentences

Trupanion, Inc.

received cash dividends from a subsidiary of $ 6.9 million, $ 5.6 million and $ 4.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

received cash dividends from subsidiaries of $ 14.9 million, $ 6.9 million and $ 5.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

These cash dividends were recorded within Trupanion, Inc.'s other income and were eliminated within the consolidated financial statements of Trupanion, Inc.

The Company has made an immaterial presentation error correction within the Condensed Statements of Cash Flows, reclassifying prior years' dividends from subsidiaries from investing to operating activities.

Additional information about Trupanion, Inc.’s accounting policies pertaining to intangible assets, commitments and contingencies, stock-based compensation, stockholders’ equity, and income taxes are set forth in Notes 5, 9, 12, 13, and 17, respectively, to the Consolidated Financial Statements.

Compensation expense related to stock-based transactions, including employee and non-employee stock option awards, restricted stock awards, and restricted stock units, is measured and recognized in the financial statements based on fair value.

Effective January 1, 2023, we entered into an intercompany agreement with a non-insurance subsidiary whereby stock-based compensation costs are allocated to this entity.

For the year ended December 31, 2023, stock-based compensation expenses of $ 28.3 million were included within equity (loss) in undistributed earnings of subsidiaries within the Condensed Statements of Operations and Comprehensive Loss and in advances to and investments in subsidiaries in the Condensed Balance Sheets.

There was no impact to net income as a result of this intercompany agreement.

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 9A. Controls and Procedures