What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-08-09 · 139 added, 125 removed, 461 unchanged (36% of the section changed)

5 unchanged sentences

subscription business and other business.

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

We generate revenue in our subscription business segment primarily from insurance premium payments, which we refer to as 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.

2 unchanged sentences

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.

Within our subscription business segment, we also offer products in certain countries in Continental Europe, which have been underwritten by third-parties who pay us commissions we recognize as revenue.

Going forward our intent is to underwrite these products similar to our core Trupanion subscription products.

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.

1 unchanged sentence

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 that may impact the revenue contribution due to a partner or partners rolling off to the new underwriters.

Over time, it is reasonable to expect changes to this segment that may impact the revenue contribution due to a partner or partners rolling off to other 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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The following tables set forth total pets enrolled and key operating metrics for our subscription business for year to date values as well as each of the last eight fiscal quarters.

Six Months Ended June 30,

Nine Months Ended September 30,

Total Business:

7 unchanged sentences

Three Months Ended

30, 2024 Jun.

30, 2024 Mar.

4 unchanged sentences

31, 2023 Dec.

31, 2022 Sep.

Total Business:

7 unchanged sentences

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.

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

Total pets enrolled.

24 unchanged sentences

Average monthly retention is measured as the monthly retention rate of enrolled subscription pets for each applicable period averaged over the 12 months prior to the period end date.

As such, our average monthly retention rate as of June 30, 2024 is an average of each month’s retention from July 1, 2023 through June 30, 2024.

As such, our average monthly retention rate as of September 30, 2024 is an average of each month’s retention from October 1, 2023 through September 30, 2024.

We calculate monthly retention as the number of pets that remain after subtracting all pets that cancel during a month, including pets that enroll and cancel within that month, divided by the total pets enrolled at the beginning of that month.

13 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Veterinary invoice expense $ 703,485 $ 613,316

7 unchanged sentences

Stock-based compensation expense (1)

(1,479) (1,158)

Other business variable expenses (4)

19 unchanged sentences

We account for such expense as stock-based compensation in accordance with GAAP, but we do not include it in any non-GAAP adjustments.

Stock-based compensation associated with bonuses was approximately $1.1 million for the six months ended June 30, 2024.

Stock-based compensation associated with bonuses was approximately $1.3 million and $0.6 million for the nine months ended September 30, 2024 and 2023, respectively.

(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.

2 unchanged sentences

Three Months Ended

30, 2024 Jun.

30, 2024 Mar.

4 unchanged sentences

31, 2023 Dec.

31, 2022 Sep.

Veterinary invoice expense $ 238,814 $ 231,102 $ 233,569 $ 217,739 $ 212,441 $ 206,738 $ 194,137 $ 176,083

31 unchanged sentences

We account for such expense as stock-based compensation in accordance with GAAP, but we do not include it in any non-GAAP adjustments.

Stock-based compensation associated with bonuses was approximately $0.3 million for the three months ended June 30, 2024.

Stock-based compensation associated with bonuses was approximately $0.2 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively.

5 unchanged sentences

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

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 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 subscription fees 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.

The following table reconciles GAAP new pet acquisition expense to non-GAAP net acquisition cost (in thousands) for the six months ended June 30, 2024 and 2023 and for each of the last eight fiscal quarters:

Six Months Ended June 30,

The following table reconciles GAAP new pet acquisition expense to non-GAAP net acquisition cost (in thousands) for the nine months ended September 30, 2024 and 2023 and for each of the last eight fiscal quarters:

Nine Months Ended September 30,

New pet acquisition expense $ 53,025 $ 60,183

5 unchanged sentences

Three Months Ended

30, 2024 Jun.

30, 2024 Mar.

4 unchanged sentences

31, 2023 Dec.

31, 2022 Sep.

New pet acquisition expense $ 18,308 $ 17,874 $ 16,843 $ 17,189 $ 17,772 $ 20,769 $ 21,642 $ 22,457

11 unchanged sentences

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.

Within our subscription business segment, we also offer products in Continental Europe, which have been underwritten by third-parties who pay us commissions we recognize as revenue.

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.

1 unchanged sentence

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

Fees are paid at the beginning of each subscription period.

We also generate an immaterial amount of revenue in this segment in the form of one-time sign-up fees charged to members at enrollment.

Subscription fees are paid at the beginning of each subscription period.

In most cases, our members authorize us to directly charge their credit card, debit card or bank account through automatic funds transfer.

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The period-to-period comparison of financial results is not necessarily indicative of future results.

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

17 unchanged sentences

Total operating expenses 47,599 38,728 135,553 131,879

Loss from investment in joint venture (47) (73) (150) (144)

Operating loss (5,471) (13,090) (11,608) (37,576)

Gain (loss) from investment in joint venture (34) 4 (184) (140)

Operating income (loss) 1,746 (3,491) (9,862) (41,067)

Interest expense 3,820 3,053 11,071 8,380

Other income, net (3,538) (2,465) (9,601) (6,445)

Loss before income taxes (5,906) (13,952) (12,796) (38,923)

Income tax benefit (44) (238) (82) (429)

Net loss $ (5,862) $ (13,714) $ (12,714) $ (38,494)

Income (loss) before income taxes 1,464 (4,079) (11,332) (43,002)

Income tax expense (benefit) 39 (43) (43) (472)

Net income (loss) $ 1,425 $ (4,036) $ (11,289) $ (42,530)

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

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

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Total stock-based compensation expense $ 8,340 $ 6,892 $ 25,138 $ 25,860

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

8 unchanged sentences

Total operating expenses 15 14 14 16

Loss from investment in joint venture — — — —

Operating loss (2) (5) (2) (7)

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

Operating income (loss) 1 (1) (1) (5)

Interest expense 1 1 1 1

Other income, net (1) (1) (1) (1)

Loss before income taxes (2) (5) (2) (7)

Income tax benefit — — — —

Net loss (2) % (5) % (2) % (7) %

Income (loss) before income taxes — (1) (1) (5)

Income tax expense (benefit) — — — —

Net income (loss) — % (1) % (1) % (5) %

Stock-based compensation expense:

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

5 unchanged sentences

Total stock-based compensation expense 3 % 2 % 3 % 3 %

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

2 unchanged sentences

Subscription business cost of revenue 81 86 84 87

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

11 unchanged sentences

Average monthly retention 98.29 % 98.55 % 98.29 % 98.55 %

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

Total revenue increased by $44.2 million, or 16%, to $314.8 million for the three months ended June 30, 2024.

Revenue from our subscription business segment increased by $35.4 million, or 20%, to $208.6 million for the three months ended June 30, 2024.

This increase was primarily driven by an 8% increase in total subscription pet months (the sum of pet months for each month during a period) for policies underwritten by Trupanion and a 11% increase in monthly average revenue per pet.

Revenue from our other business segment increased by $8.9 million, or 9%, to $106.2 million, for the three months ended June 30, 2024.

This increase was primarily driven by a 16% increase in monthly average revenue per pet in this segment, offset by a 6% decrease in pet months in this segment.

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

Total revenue increased by $94.0 million, or 18%, to $620.9 million for the six months ended June 30, 2024.

Revenue from our subscription business segment increased by $71.3 million, or 21%, to $409.8 million for the six months ended June 30, 2024.

This increase was primarily due to an 10% increase in subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion and a 11% increase in monthly average revenue per pet.

Revenue from our other business segment increased by $22.7 million, or 12%, to $211.2 million for the six months ended June 30, 2024.

This increase was primarily driven by a 15% increase in monthly average revenue per pet in this segment, offset by a 2% decrease in pet months in this segment.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

Total revenue increased by $41.6 million, or 15%, to $327.5 million for the three months ended September 30, 2024.

Revenue from our subscription business segment increased by $36.1 million, or 20%, to $219.0 million for the three months ended September 30, 2024.

This increase was primarily due to a 13% increase in monthly average revenue per pet and an increase in subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion.

Revenue from our other business segment increased by $5.5 million, or 5%, to $108.5 million, for the three months ended September 30, 2024.

This increase was primarily driven by an 18% increase in monthly average revenue per pet in this segment, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

Total revenue increased by $135.6 million, or 17%, to $948.4 million for the nine months ended September 30, 2024.

Revenue from our subscription business segment increased by $107.4 million, or 21%, to $628.7 million for the nine months ended September 30, 2024.

This increase was primarily due to an 11% increase in monthly average revenue per pet and an increase in subscription pet months for policies underwritten by Trupanion.

Revenue from our other business segment increased by $28.3 million, or 10%, to $319.6 million for the nine months ended September 30, 2024.

This increase was primarily driven by a 16% increase in monthly average revenue per pet in this segment, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party.

Cost of Revenue

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

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Total subscription pets enrolled (at period end) 1,032,042 969,322 6 1,032,042 969,322 6

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

Total cost of revenue for our subscription business segment increased $24.2 million, or 16%, to $175.7 million, for the three months ended June 30, 2024.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

Total cost of revenue for our subscription business segment increased $19.9 million, or 13%, to $177.4 million, for the three months ended September 30, 2024.

This increase was driven by a $16.6 million, or 12%, increase in veterinary invoice expense and a $3.4 million, or 19%, increase in other cost of revenue.

The 12% increase in veterinary invoice expense was driven by an increase in total subscription pet months for policies underwritten by Trupanion and a 5% increase in veterinary invoice expense per pet month.

The 18% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership.

The 19% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership and subscription revenue.

Subscription business cost of revenue decreased from 86% to 81% of revenue year-over-year.

Total cost of revenue for our other business segment increased by $9.1 million, or 10%, to $98.8 million for the three months ended June 30, 2024.

The increase was primarily driven by a $5.9 million, or 34%, increase in other cost of revenue as well as a $3.2 million, or 4%, increase in veterinary invoice expense.

The 34% increase in other cost of revenue was primarily driven by increases in managing general agent ("MGA") and underwriting fees, which reflects higher earned premium and lower loss ratio in the other business segment.

The 4% increase in veterinary invoice expense was primarily driven by a 10% increase in veterinary invoice expense per pet, offset by a 6% decrease in pet months in this segment.

Total cost of revenue for our other business segment increased by $7.5 million, or 8%, to $100.7 million for the three months ended September 30, 2024.

This increase was primarily driven by a $9.8 million, or 13%, increase in veterinary invoice expense offset by a $2.3 million, or 11%, decrease in other cost of revenue.

The 13% increase in veterinary invoice expense was primarily driven by a 27% increase in veterinary invoice expense per pet, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party.

The 11% decrease in other cost of revenue was primarily driven by decreases in managing general agent ("MGA") and underwriting fees which are primarily a reflection of the loss sensitive nature of our MGA arrangements with minimal impact to our other business operating margin.

Cost of revenue for the other business segment increased from 91% to 93% of revenue year-over-year.

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

Total cost of revenue for our subscription business segment increased by $50.3 million, or 17%, to $347.9 million, for the six months ended June 30, 2024.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

Total cost of revenue for our subscription business segment increased by $70.2 million, or 15%, to $525.2 million for the nine months ended September 30, 2024.

This increase was driven by a $61.1 million, or 15%, increase in veterinary invoice expense and a $9.1 million, or 17%, increase in other cost of revenue.

The 17% increase in veterinary invoice expense was driven by a 10% increase in total subscription pet months for policies underwritten by Trupanion and a 7% increase in veterinary invoice expense per pet month.

The 17% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership.

The 15% increase in veterinary invoice expense was driven by an increase in total subscription pet months for policies underwritten by Trupanion and a 6% increase in veterinary invoice expense per pet month.

The 17% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership and subscription revenue.

Subscription business cost of revenue decreased from 87% to 84% of revenue year-over-year.

Total cost of revenue for our other business segment increased by $23.0 million, or 13%, to $196.6 million for the six months ended June 30, 2024.

The increase was primarily driven by a $19.2 million, or 14%, increase in veterinary invoice expense as well as a $3.7 million, or 10%, increase in other cost of revenue.

The 14% increase in veterinary invoice expense was primarily driven by a 16% increase in veterinary invoice expense per pet, offset by a 2% decrease in pet months.

The 10% increase in other cost of revenue was primarily driven by increases in MGA and underwriting fees.

Total cost of revenue for our other business segment increased by $30.5 million, or 11%, to $297.3 million for the nine months ended September 30, 2024.

This increase was primarily driven by a $29.1 million, or 14%, increase in veterinary invoice expense as well as a $1.5 million, or 3%, increase in other cost of revenue.

The 14% increase in veterinary invoice expense was primarily driven by a 20% increase in veterinary invoice expense per pet, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party.

The 3% increase in other cost of revenue was primarily driven by increases in MGA, underwriting, and other premium-based expenses.

Cost of revenue for the other business segment increased from 92% to 93% of revenue year-over-year.

Technology and Development Expenses

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

2 unchanged sentences

Percentage of total revenue 2 % 2 % 2 % 2 %

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

Technology and development expenses increased by $3.0 million, or 57%, to $8.2 million for the three months ended June 30, 2024, primarily due a $1.8 million reduction in capitalized expenditures related to internally-developed software projects launched in early 2024, a $0.9 million increase in development expense, and a $0.4 million increase in infrastructure-related expenses.

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

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

Technology and development expenses increased by $5.0 million, or 50%, to $15.2 million for the six months ended June 30, 2024, primarily due to a $3.5 million reduction in capitalized expenditures related to internally-developed software projects launched in early 2024 and a $1.2 million increase in development expense.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

Technology and development expenses increased by $2.6 million, or 50%, to $7.9 million for the three months ended September 30, 2024.

This increase was primarily due to a $1.7 million decrease in capitalized expenditures related to internally-developed software projects launched in early 2024, a $0.8 million increase in general compensation and other employee-related expenses, including stock-based compensation expense, and a $0.2 million increase in infrastructure-related expenses, partially offset by a $0.1 million decrease in development expense.

Technology and development expenses remained consistent at 2% of total revenue year over year.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

Technology and development expenses increased by $7.6 million, or 50%, to $23.1 million for the nine months ended September 30, 2024.

This increase was primarily due to a $5.3 million reduction in capitalized expenditures related to internally-developed software projects launched in early 2024, a $1.2 million increase in infrastructure-related expenses, and a $1.2 million increase in development expense.

Technology and development expenses remained constant at 2% of total revenue year-over-year.

General and Administrative Expenses

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

2 unchanged sentences

Percentage of total revenue 5 % 4 % 5 % 6 %

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

General and administrative expenses increased by $2.1 million, or 16%, to $15.3 million for the three months ended June 30, 2024.

The increase was primarily due to $1.2 million in property and sales taxes and discretionary related expenses, $0.5 million in underwriting fees related to our Canadian business, and $0.5 million in professional services.

General and administrative expenses remained constant at 5% of total revenue year over year.

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

General and administrative expenses decreased by $4.2 million, or 12%, to $29.9 million for the six months ended June 30, 2024.

The decrease in expense when comparing periods was driven primarily by two charges recorded during the first quarter of 2023, a $4.8 million stock-based compensation charge following certain executive departures and a $3.8 million charge related to the negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.

These decreases in expense period over period were partially offset by increases of $1.8 million in property and sales taxes and discretionary related expenses, $1.1 million in underwriting fees related to our Canadian business, $1.1 million in professional services, and $0.5 million in general compensation and other employee-related expenses.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

General and administrative expenses increased by $4.3 million, or 34%, to $17.0 million for the three months ended September 30, 2024.

This increase was primarily due to $2.0 million in general compensation and other employee-related expenses, including stock-based compensation expense, $1.5 million in professional services, and $0.6 million in underwriting fees related to our Canadian operations.

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

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

General and administrative expenses increased by $0.1 million, or 0%, to $46.9 million for the nine months ended September 30, 2024.

Two charges were recorded during the first quarter of 2023 that led to decreases in expense when comparing periods, a $4.8 million stock-based compensation charge following certain executive departures and a $3.8 million charge related to the negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.

These decreases in expense were offset by increases of $3.9 million in general compensation and other employee-related expenses, $2.7 million in professional services, and $1.7 million in underwriting fees related to our Canadian operations.

General and administrative expenses decreased from 6% to 5% of total revenue year-over-year.

New Pet Acquisition Expense

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

5 unchanged sentences

Average pet acquisition cost (PAC) $ 243 $ 212 15 $ 227 $ 232 (2)

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

New pet acquisition expenses decreased by $2.9 million, or 14%, to $17.9 million for the three months ended June 30, 2024.

The decrease was primarily due to a decrease in expenses related to generating leads and driving conversion, as we focused on growth in our more efficient channels.

New pet acquisition as a percentage of revenue was 6% for the three months ended June 30, 2024 compared to 8% 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 by 8%.

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

New pet acquisition expenses decreased by $7.7 million, or 18%, to $34.7 million for the six months ended June 30, 2024.

This decrease was primarily due to a decrease in expenses related to generating leads and driving conversion, as we focused on growth in our more efficient channels.

New pet acquisition expenses as a percentage of revenue was 6% for the six months ended June 30, 2024 compared to 8% 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 by 8%.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

New pet acquisition expenses increased by $0.5 million, or 3%, to $18.3 million for the three months ended September 30, 2024.

The increase was primarily driven by expanded external marketing spend during the third quarter of 2024 for purposes of generating leads and driving conversion.

New pet acquisition as a percentage of revenue remained constant at 6% of total revenue year over year.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

New pet acquisition expenses decreased by $7.2 million, or 12%, to $53.0 million for the nine months ended September 30, 2024.

This decrease was primarily due to a decrease in expenses related to generating leads and driving conversion, particularly in the first half of 2024, as we focused on growth in our more efficient channels.

New pet acquisition expenses as a percentage of revenue was 6% for the nine months ended September 30, 2024 compared to 7% 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 by 6%.

Depreciation and Amortization

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

2 unchanged sentences

Percentage of total revenue 1 % 1 % 1 % 1 %

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

Depreciation and amortization expense increased by $1.1 million, or 35%, to $4.4 million for the three months ended June 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

Depreciation and amortization expense increased by $1.7 million, or 26%, to $8.2 million for the six months ended June 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

Depreciation and amortization expense increased by $1.4 million, or 47%, to $4.4 million for the three months ended September 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

Depreciation and amortization expense increased by $3.1 million, or 33%, to $12.5 million for the nine months ended September 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Total Other (Income) Expense, Net

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2024 2023 2024 2023

4 unchanged sentences

Percentage of total revenue — % — % — % — %

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

Total other (income) expense, net decreased by $0.4 million to $0.4 million for the three months ended June 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

Total other (income) expense, net decreased by $0.2 million to $1.2 million for the six months ended June 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

Total other (income) expense, net decreased by $0.3 million to $0.3 million for the three months ended September 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

Total other (income) expense, net decreased by $0.5 million to $1.5 million for the nine months ended September 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Stock-Based Compensation

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

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

Stock-based compensation increased by $2.0 million, or 30%, to $8.6 million for the three months ended June 30, 2024.

Three months ended September 30, 2024 compared to three months ended September 30, 2023.

Stock-based compensation increased by $1.4 million, or 21%, to $8.3 million for the three months ended September 30, 2024.

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.

Six months ended June 30, 2024 compared to six months ended June 30, 2023.

Stock-based compensation decreased by $2.2 million, or 11%, to $16.8 million for the six months ended June 30, 2024.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

Stock-based compensation decreased by $0.7 million, or 3%, to $25.1 million for the nine months ended September 30, 2024.

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.

Additionally, the six months ended June 30, 2023 included $4.8 million in stock-based compensation as a result of charges after certain executive departures.

Additionally, the nine months ended September 30, 2023 included $4.8 million in stock-based compensation as a result of charges after certain executive departures.

Liquidity and Capital Resources

The following table summarizes our cash flows for the periods indicated (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by (used in) operating activities $ 24,585 $ 1,131

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

As we continue to grow and consider strategic opportunities, however, we may explore additional financing to fund our operations and growth or to meet capital requirements.

As we continue to grow and consider strategic opportunities, however, we may explore additional financing to fund our operations and growth or for strategic purposes.

Financing could include equity, equity-linked, or debt financing.

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

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 June 30, 2024, the Company had $277.2 million in cash, cash equivalents and short-term investments, of which $244.1 million was held by the Company's insurance entities.

Outside of our insurance entities, we held $33.2 million in cash, cash equivalents and short-term investments with an additional $15.0 million available under our Credit Facility.

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

As of September 30, 2024, we had $293.1 million in cash, cash equivalents and short-term investments, of which $256.7 million was held by our insurance entities.

Outside of our insurance entities, we held $36.4 million in cash, cash equivalents and short-term investments.

We also had an additional $15.0 million available under our Credit Facility.

Our insurance entities maintained $274.6 million of capital surplus, which was $139.9 million in excess of the estimated risk-based capital requirement of $134.7 million.

The ability to distribute any portion of this estimated $130.3 million excess to our parent company, and the timing of any distribution, may be subject to regulatory limitations.

The ability to distribute any portion of this estimated $139.9 million excess to our parent company, and the timing of any distribution, may be subject to regulatory limitations and may be delayed or limited from time to time.

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, 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 six months ended June 30, 2024.

We repurchased no shares under this program during the nine months ended September 30, 2024.

Operating Cash Flows

Net cash provided by operating activities was $9.3 million for the six months ended June 30, 2024, compared to $10.3 million net cash used in operating activities for the six months ended June 30, 2023.

This increase was primarily driven by an increase in premium collection from members as our pricing actions flow through and a decrease in acquisition costs offset by timing differences in other working capital activities.

Net cash provided by operating activities was $24.6 million for the nine months ended September 30, 2024, compared to $1.1 million net cash provided by operating activities for the nine months ended September 30, 2023.

This increase was primarily driven by expansion in our subscription operating margin and a decrease in acquisition costs offset by timing differences in other working capital activities.

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

Changes in our reserve for veterinary invoices are driven by multiple factors, including ongoing analysis of claims frequency and severity as well as changes in claims inventory at each period end.

Investing Cash Flows

Net cash used in investing activities was $30.5 million for the six months ended June 30, 2024, primarily consisting of purchases of investment securities of $81.2 million as well as $5.9 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements, partially offset by $55.7 million in sales and maturities of investment securities.

Net cash provided by investing activities was $28.4 million for the six months ended June 30, 2023, primarily consisting of $117.7 million in sales and maturities of investment securities, offset by $79.9 million of purchases of investments and $9.9 million of capital expenditures.

Net cash used in investing activities was $31.9 million for the nine months ended September 30, 2024, primarily consisting of purchases of investment securities of $25.6 million, net of maturities, as well as $7.9 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 provided by investing activities was $25.1 million for the nine months ended September 30, 2023, primarily consisting of $38.0 million in maturities of investment securities, net of purchases, offset by $14.3 million of capital expenditures primarily related to the development of internal-use software focused on member experience improvements.

Financing Cash Flows

Net cash used in financing activities was $1.2 million for the six months ended June 30, 2024, primarily consisting of $0.7 million in repayments on the Credit Facility.

Net cash provided by financing activities was $33.7 million for the six months ended June 30, 2023, primarily consisting of $35.1 million in proceeds from the Credit Facility.

Net cash used in financing activities was $2.3 million for the nine months ended September 30, 2024, primarily consisting of $1.0 million in repayments on the Credit Facility, as well as $1.4 million in shares withheld to satisfy tax withholding.

Net cash provided by financing activities was $58.6 million for the nine months ended September 30, 2023, primarily consisting of $60.1 million in proceeds from the Credit Facility, offset by $1.4 million in repayments on the Credit Facility.

Long-Term Debt

Our Credit Facility provides us with up to $ 150.0 million of credit.

As of June 30, 2024, we issued term loans totaling $135.0 million under the Credit Facility.

As of September 30, 2024, 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 8, Debt, included in Item 1 of Part I of this report, for further details.

As of June 30, 2024, our insurance entities collectively held $91.2 million in cash and cash equivalents, to be used for operating expenses for our insurance entities, $152.8 million in short-term investments and $284.4 million in other current assets.

As of September 30, 2024, our insurance entities collectively held $101.2 million in cash and cash equivalents to be used for operating expenses for our insurance entities, $155.5 million in short-term investments and $288.0 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 majority of our investments are held by our insurance entities to satisfy risk-based capital requirements of our regulators based on requirements published by 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 .

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

APIC was required to maintain at least $99.0 million and $137.6 million of risk-based capital as of June 30, 2024 and December 31, 2023, respectively.

APIC was required to maintain at least $99.1 million and $137.6 million of risk-based capital as of September 30, 2024 and December 31, 2023, respectively.

In July 2024, APIC distributed an ordinary dividend of $4.1 million to Trupanion, Inc.

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insurance subsidiaries, ZPIC and QPIC, domiciled in Missouri and Nebraska, respectively, and in 2022, 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 June 30, 2024, 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

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

As of September 30, 2024, neither ZPIC, QPIC nor GPIC have begun underwriting any insurance policies.

Due to anticipated lack of use, during the quarter ended September 30, 2024, we began the dissolution process for QPIC, which included a distribution of $4.4 million of previously required capital to Trupanion, Inc.

We intend to fully dissolve QPIC and distribute remaining capital of $3.4 million to Trupanion, Inc.

upon receiving necessary regulatory approvals.

Wyndham Insurance Company (SAC) Limited ("WICL") Segregated Account AX, Wyndham Insurance Company (SAC) Limited Segregated Account Trupanion Germany, and Wyndham Insurance Company (SAC) Limited Segregated Account Trupanion Switzerland

WICL is domiciled in Bermuda and regulated by the Bermuda Monetary Authority ("BMA").

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

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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 April 2024, our parent company received a dividend of $8.6 million from WICL Segregated Account AX as allowed under our agreements with WICL.

In April 2024, our parent company received a dividend of $8.6 million from WICL Segregated Account AX as permitted under our agreements with WICL.

As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Accelerant Insurance Company of Canada, 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 June 30, 2024, the account held CAD $17.9 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.

As of September 30, 2024, the account held CAD $19.0 million.

WICL Segregated Account Trupanion Germany and WICL Segregated Account Trupanion Switzerland were established in the third quarter of 2024 by WICL, with Trupanion, Inc.

as the shareholder, for purposes of entering into reinsurance agreements with underwriters in Germany and Switzerland, respectively.

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

Though we are not directly regulated by BMA, WICL's regulation and compliance impacts us as it could have an adverse impact on our ability to secure dividends from our WICL segregated accounts.

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

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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.

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 account 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.

Contractual Obligations

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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-Q

Item 2. Management’s Discussion and Analysis