What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-02-27 compared with 2024-02-27 · 155 added, 129 removed, 588 unchanged (33% of the section changed)

36 unchanged sentences

Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 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, 2023.

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

We provide medical insurance for cats and dogs in the United States, Canada, certain countries in 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.

Our growing and loyal membership base provides us with highly predictable and recurring revenue.

We operate in two business segments:

We operate in two reporting segments:

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 through insurance premiums, which we refer to as subscription payments 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.

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.

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

We either directly underwrite or assume full insurance risk for these products through reinsurance arrangements.

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.

Within this segment, we also offer products in certain countries in Continental Europe, which are currently underwritten by third parties who pay us commissions that we recognize as revenue.

Going forward our intent is to assume full insurance risk for these products, either through direct underwriting or reinsurance arrangements.

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

These channels include leads from third-parties such as veterinarians and referrals from existing members.

Veterinary hospitals represent our largest referral source.

We engage our “Territory Partners” to have face-to-face visits with veterinarians and their staff.

Territory Partners are dedicated to cultivating direct veterinary relationships and building awareness of the benefits of high quality medical insurance to veterinarians and their clients.

Veterinarians then educate pet owners, who visit our website or call our contact center to learn more about, and potentially enroll in, Trupanion.

Our “Territory Partners” travel through their territories to have face-to-face visits with veterinarians and their staff.

Territory Partners are dedicated to cultivating direct veterinary relationships and helping those veterinarians understand the benefits of high-quality medical insurance.

Veterinarians then educate pet parents, who visit our website or call our contact center to learn more about, and potentially enroll in, a Trupanion product.

We also receive a significant number of new leads from existing members adding pets and referring their friends and family members.

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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 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, and targets, a lower margin profile than our subscription segment and is not part of our core business strategy.

The largest source of revenue within this segment is from our long-standing contractual relationship with Pets Best, a third-party partner we have worked with since 2015.

Key Operating Metrics

The following tables set forth total pets enrolled and key operating metrics for our subscription business for the years ended December 31, 2023, 2022 and 2021, and for each of the last eight fiscal quarters.

The following tables set forth total enrolled pets in our subscription and our other business segment and key operating metrics for our subscription business for the years ended December 31, 2024, 2023 and 2022, and for each of the last eight fiscal quarters.

Year Ended December 31,

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Monthly average revenue per pet $ 72.98 $ 65.26 $ 63.82

Lifetime value of a pet, including fixed expenses $ 419 $ 641 $ 717

Average pet acquisition cost (PAC) $ 235 $ 228 $ 289

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Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

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31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

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Monthly average revenue per pet $ 76.02 $ 74.27 $ 71.72 $ 69.79 $ 67.07 $ 65.82 $ 64.41 $ 63.58

Lifetime value of a pet, including fixed expenses $ 419 $ 428 $ 470 $ 541 $ 641 $ 673 $ 713 $ 730

Average pet acquisition cost (PAC) $ 261 $ 243 $ 231 $ 207 $ 217 $ 212 $ 236 $ 247

Average monthly retention 98.25 % 98.29 % 98.34 % 98.41 % 98.49 % 98.55 % 98.61 % 98.65 %

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 and total subscription pets enrolled include certain 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 subscription payments earned by the remainder of our subscription business.

Total pets enrolled.

Total pets enrolled reflects the number of subscription pets or pets enrolled in one of the insurance products offered in our other business segment at the end of each period presented.

Total pets enrolled reflects the number of pets enrolled in one of the insurance products offered in our subscription business segment and our other business segment at the end of each period presented.

We monitor total pets enrolled because it provides an indication of the growth of our consolidated business.

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

Lifetime value of a pet, including fixed expenses.

Lifetime value of a pet, including fixed expenses, is calculated based on subscription revenue less cost of revenue from our subscription business segment for the 12 months prior to the period end date excluding stock-based compensation expense related to cost of revenue from our subscription business segment, sign-up fee revenue and the change in deferred revenue between periods.

This amount is also reduced by the fixed expenses related to our subscription business, which are the pro-rata portion of general and administrative and technology and development expenses, less stock-based compensation, based on revenues.

This amount, on a per pet basis, is multiplied by the implied average subscriber life in months.

Implied average subscriber life in months is calculated as the quotient obtained by dividing one by one minus the average monthly retention rate.

We monitor lifetime value of a pet, including fixed expenses, to estimate the value we might expect from new pets over their implied average subscriber life in months, if they behave like the average pet in that respective period.

When evaluating the amount of pet acquisition expenses we may want to incur to attract new pet enrollments, we refer to the lifetime value of a pet, including fixed expenses, as well as our estimated internal rate of return calculation for an average pet, which also includes an estimated surplus capital charge, to inform the amount of acquisition spend in relation to the estimated payback period.

Average pet acquisition cost.

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Other business cost of paying veterinary invoices (4)

(324,720) (287,858) (212,857)

Subscription cost of paying veterinary invoices (non-GAAP) $ 621,093 $ 539,747 $ 432,826

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Other business variable expenses (4)

(75,050) (75,756) (72,453)

Subscription variable expenses (non-GAAP) $ 80,733 $ 69,234 $ 58,572

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Other business pet acquisition expense (4)

(39) (200) (541)

Subscription acquisition cost (non-GAAP) $ 64,432 $ 70,172 $ 79,843

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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 $1.3 million for the year ended December 31, 2023.

Stock-based compensation associated with bonuses was approximately $1.5 million and $1.3 million for the years ended December 31, 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.

(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.

(3)Consists of costs related to product exploration and development that are pre-revenue and historically have been insignificant.

(4)Excludes the portion of stock-based compensation expense attributable to the other business segment.

Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

1 unchanged sentence

31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

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Other business cost of paying veterinary invoices (4)

(85,378) (82,507) (75,622) (81,213) (77,572) (72,694) (72,443) (65,149)

Subscription cost of paying veterinary invoices (non-GAAP) $ 159,485 $ 155,477 $ 154,637 $ 151,494 $ 139,282 $ 138,877 $ 133,439 $ 128,149

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Other business variable expenses (4)

(17,336) (18,126) (23,091) (16,498) (19,301) (20,482) (17,230) (18,743)

Subscription variable expenses (non-GAAP) $ 20,909 $ 20,601 $ 19,815 $ 19,407 $ 18,367 $ 17,415 $ 16,797 $ 16,655

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Other business pet acquisition expense (4)

(8) (8) (10) (13) (77) (10) (62) (51)

Subscription acquisition cost (non-GAAP) $ 16,864 $ 16,797 $ 15,798 $ 14,973 $ 15,545 $ 16,083 $ 18,985 $ 19,559

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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 $0.7 million for the three months ended December 31, 2023.

Stock-based compensation associated with bonuses was approximately $0.3 million and $0.7 million for the three months ended December 31, 2024 and 2023, respectively.

(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.

(3) Consists of costs related to product exploration and development that are pre-revenue and historically have been insignificant (4) Excludes the portion of stock-based compensation expense attributable to the other business segment

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

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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 payments 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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Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

1 unchanged sentence

31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

7 unchanged sentences

Components of Operating Results

We operate in two business segments:

We operate in two reporting segments:

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 by subscription payments 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.

Within our subscription business segment we also offer products in certain countries in Continental Europe, which are underwritten by third parties who pay us commissions that 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.

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.

Fees are paid at the beginning of each subscription period.

This business segment has, and targets, a different margin profile than our subscription business segment and includes revenue from writing policies on behalf of third parties and revenue from other pet insurance

The largest source of revenue within this segment is from our long-standing contractual relationship with Pets Best, a third-partner we have worked with since 2015.

Additional products in this segment include the U.S.

Department of Veterans Affairs program and employer-sponsored programs.

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

Subscription payments 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.

Subscription revenue is recognized on a pro rata basis over the enrollment term.

Subscription revenue is recognized on a pro rata basis over the policy term.

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

In addition to subscription payments, we generate a small amount of revenue from charging a one-time sign-up fee to new members collected at the time of enrollment to partially offset initial setup costs.

Sign-up fees are related to Trupanion’s obligation to provide insurance coverage and are recognized over the policy term.

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 insurance software solutions that have a different margin profile from our subscription business.

This segment also includes revenue from other pet insurance products 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 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.

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Other cost of revenue

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 subscription business segment includes direct and indirect member service expenses, Territory Partner fees upon policy renewals, 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.

Operating Expenses

Our operating expenses are classified into four categories:

technology and development, general and administrative, new pet acquisition expense, and depreciation and amortization.

For each category, except depreciation and amortization, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and stock-based compensation expense.

Our operating expenses are classified into five categories:

technology and development, general and administrative, new pet acquisition expense, goodwill impairment charges, and depreciation and amortization.

For each category, except goodwill impairment charges and depreciation and amortization, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and stock-based compensation expense.

Technology and development

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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.

Goodwill impairment charges

Goodwill impairment charges consist of impairment charges taken on goodwill balances arising from acquisitions.

For further details on goodwill impairment charges refer to Note 4, Goodwill and Intangible Assets, included in Item 8 of this report.

Depreciation and amortization

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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 pet 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.

We also regularly test new member acquisition channels and marketing initiatives, which may be more expensive than our traditional marketing channels and may increase our average acquisition costs.

We also regularly test new member acquisition channels and marketing initiatives, which may be more expensive than our traditional marketing channels and may increase our average pet acquisition costs.

We continually assess our pet acquisition activities by monitoring the estimated return on PAC spend both on a detailed level by acquisition channel and in the aggregate.

Timing of price adjustments.

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 regulators where applicable.

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Other 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.

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

In addition, we expect the growth rate and margin profile of this segment to be significantly 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 underwrite other business segment policies.

Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive, including our contractual relationship with Pets Best.

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

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Subscription business 706,851 613,686 497,684

613,686 497,684 407,664

Other business 400,035 363,903 285,310

Total cost of revenue (1)

1,106,886 977,589 782,994

Operating expenses:

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71,379 77,372 89,500

Goodwill impairment charges 5,299 — —

Depreciation and amortization 16,466 12,474 10,921

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New pet acquisition expense 6 7 10

Goodwill impairment charges — — —

Depreciation and amortization 1 1 1

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Revenue from our subscription business segment increased by $143.6 million, or 20%, to $856.5 million for the year ended December 31, 2024.

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.

This increase was primarily due to a 12% 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 $33.5 million, or 8%, to $429.2 million for the year ended December 31, 2024.

This increase was primarily driven by a 17% increase in monthly average revenue per pet in this segment, partially 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

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This increase was driven by a $81.2 million, or 15%, increase in veterinary invoice expense and a $11.9 million, or 17%, 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.

The 15% increase in veterinary invoice expense was driven by an increase in total subscription pet months for policies underwritten by Trupanion and a 7% increase in veterinary invoice expense per pet.

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

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

The primary drivers of this margin improvement were our ongoing pricing actions and continued efficiency gain in our cost of processing claims.

Total cost of revenue for our other business segment increased by $36.1 million, or 10%, to $400.0 million for the year ended December 31, 2024.

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.

The increase was primarily driven by a $36.9 million, or 13%, increase in veterinary invoice expense, partially offset by a $0.7 million, or 1%, decrease in other cost of revenue.

The 13% increase in veterinary invoice expense was primarily driven by a 21% 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 1% decrease in other cost of revenue was primarily driven by decreases in 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

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Year ended December 31, 2024 compared to year ended December 31, 2023.

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

Technology and development expenses increased by $9.9 million, or 46%, to $31.3 million for the year ended December 31, 2024.

This increase was primarily due a $6.8 million reduction in capitalized expenditures related to internally-developed software projects launched in early 2024, a $1.0 million increase in general compensation and other employee-related expenses, a $1.3 million increase in infrastructure-related expenses, and an increase of $0.8 million in development expense.

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

General and Administrative Expenses

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General and administrative expenses increased by $3.5 million, or 6%, to $63.7 million for the year ended December 31, 2024.

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.

This increase was driven by increases of $6.6 million in general compensation and other employee-related expenses, $2.7 million in professional services, and $2.3 million in underwriting fees related to our Canadian business.

These increases were offset by two charges that were recorded during the first quarter of 2023 that led to a decrease 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 a negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.

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

New Pet Acquisition Expense

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New pet acquisition expense decreased by $6.0 million, or 8%, to $71.4 million for the year ended December 31, 2024.

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

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 expense as a percentage of revenue was 6% for the year ended December 31, 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, excluding those related to managing general agent policies, by 5%.

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Year ended December 31, 2024 compared to year ended December 31, 2023.

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.

Depreciation and amortization expense increased by $4.0 million, or 32%, to $16.5 million for the year ended December 31, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Total Other Expense (Income), Net

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Year ended December 31, 2024 compared to year ended December 31, 2023.

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.

Total other expense decreased by $4.3 million to $0.1 million for the year ended December 31, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Additionally, in 2023 total other expense included a credit loss of $1.7 million related to our preferred stock investment in Baystride, Inc.

This loss was subsequently determined to be recovered, and was reversed through other expense during the year ended December 31, 2024.

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 $33.2 million for the year ended December 31, 2023, down from $33.4 million in the prior year period.

Stock-based compensation expense in total was $33.4 million for the year ended December 31, 2024, an increase from $33.2 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.

Additionally, the year ended December 31, 2023, included $4.8 million in stock-based compensation as a result of charges taken after certain executive departures.

Quarterly Results of Operations

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Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

1 unchanged sentence

31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

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Subscription business 181,614 177,365 175,740 172,132 158,631 157,444 151,520 146,091

158,631 157,444 151,520 146,091 131,823 128,158 122,440 115,263

Other business 102,770 100,712 98,791 97,762 97,162 93,176 89,673 83,892

Total cost of revenue (1)

284,384 278,077 274,531 269,894 255,793 250,620 241,193 229,983

Operating expenses:

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18,354 18,308 17,874 16,843 17,189 17,772 20,769 21,642

Goodwill impairment charges 5,299 — — — — — — —

Depreciation and amortization 3,924 4,381 4,376 3,785 3,029 2,990 3,253 3,202

9 unchanged sentences

Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

1 unchanged sentence

31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

7 unchanged sentences

Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

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31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

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Monthly average revenue per pet $ 76.02 $ 74.27 $ 71.72 $ 69.79 $ 67.07 $ 65.82 $ 64.41 $ 63.58

Lifetime value of a pet, including fixed expenses $ 419 $ 428 $ 470 $ 541 $ 641 $ 673 $ 713 $ 730

Average pet acquisition cost (PAC) $ 261 $ 243 $ 231 $ 207 $ 217 $ 212 $ 236 $ 247

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Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

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31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

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New pet acquisition expense 5 6 6 6 6 6 8 8

Goodwill impairment charges 2 — — — — — — —

Depreciation and amortization 1 1 1 1 1 1 1 1

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Three Months Ended

31, 2023 Sept.

31, 2024 Sep.

30, 2024 Jun.

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31, 2024 Dec.

31, 2022 Sept.

31, 2023 Sep.

30, 2023 Jun.

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Net change in cash, cash equivalents, and restricted cash $ 28,996 $ 85,827 $ (16,232)

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.

Our primary requirements for liquidity are paying veterinary invoices, funding and growing our operations, funding our 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 invoices.

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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.

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 December 31, 2024, we had $307.4 million in cash, cash equivalents and short-term investments, of which $272.0 million was held by our insurance entities.

Outside of insurance entities, we held $35.4 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.

Our insurance entities maintained $288.0 million of capital surplus.

The ability to distribute any portion of this capital surplus 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.

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Operating Cash Flows

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.

Net cash provided by operating activities was $48.3 million for the year ended December 31, 2024, compared to $18.6 million net cash provided by operating activities for the year ended December 31, 2023.

This increase was primarily driven by improved operating results largely driven by higher revenue and improved Subscription Business margins, 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 period end.

Investing Cash Flows

Net cash used by investing activities was $13.5 million for the year ended December 31, 2024, primarily consisting of $9.7 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing, and internal policy management improvements and $5.8 million in purchases, net of sales and maturities, of investment securities.

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 $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.

Net cash used by financing activities was $4.0 million for the year ended December 31, 2024, primarily consisting of $2.5 million in shares withheld to satisfy tax withholdings and $1.4 million in repayments on the Credit Facility.

Long-Term Debt

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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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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.

As our business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements will also 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 capital requirements.

APIC maintained $245.5 million and $199.6 million of capital surplus as of December 31, 2024 and 2023, respectively.

In July 2024, APIC distributed an ordinary dividend of $ 4.2 million to Trupanion, Inc.

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.

In 2021, we established two new wholly-owned U.S.

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 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.

Due to anticipated lack of use, during the year ended December 31, 2024, we fully dissolved QPIC, which included a distribution of $ 7.0 million of previously required capital to Trupanion, Inc.

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.

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

as the shareholder, to enter into a reinsurance agreement with Accelerant Insurance Company of Canada, formerly known as 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.

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 December 31, 2024, the account held CAD $ 19.9 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.

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 the 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

We enter into long-term contractual obligations and commitments in the normal course of business, consisting primarily of debt obligations and non-cancellable vendor service agreements.

In March 2022, we entered into a credit agreement that provides us with up to $150.0 million of credit, including a $60.0 million initial term loan that was funded at closing and an aggregate $75.0 million of delayed draw term loans funded between December 2022 and September 2023.

Refer to Note 10, Debt, included in Item 8 of Part II of this report, for further details, including interest and future principal repayments.

Critical Accounting Policies and Significant Estimates

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Reserve for Veterinary Invoices

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.

The reserve represents our estimate of the future amount we will pay for veterinary invoices that are dated as of, or prior to, our balance sheet date.

The reserve also includes our estimate of related internal processing costs.

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 adjust the estimate for new information.

The reserve for veterinary invoices represents our estimate of future amounts we will pay for veterinary claims that have been incurred but not yet paid as of the reporting date.

The reserve also includes our best estimate of related internal processing costs.

We use the paid development method and other commonly used 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 measure the pattern of veterinary invoice payments over time and are used to estimate ultimate loss incurred.

These factors are derived from historical paid loss triangles and reflect observed claim settlement patterns and any operational or external changes affecting claim payments including, but not limited to:

• the number of veterinary invoices we expect to receive,

• the average cost of those veterinary invoices,

• the time elapsed between the date of loss and the date of payment,

• the appropriate segmentation between product lines or claim processing method, and

• the expected cost to process and administer claim payments

As of each reporting date, we also utilize subsequent claims payment activities to monitor and reevaluate previously established reserves.

If estimates are determined to be materially different than originally reported, we record “development” in the results of operations in the period the estimates are changed.

Development is unfavorable when losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.

Development is favorable when losses ultimately settle for less than the amount reserved, or subsequent estimates indicate a basis for reducing loss reserves on unresolved claims.

As of December 31, 2024, our reserve for veterinary invoices was $51.6 million, consisting of $49.3 million for the amount we expect to pay in the future for veterinary invoices dated between January 1, 2024 and December 31, 2024, inclusive of related processing costs, and a reserve of $2.3 million for invoices dated prior to January 1, 2024.

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As of December 31, 2024, we had unfavorable development on veterinary invoice reserves of $0.8 million for the year ended December 31, 2023.

Refer to Note 9, Reserve for Veterinary Invoices, in Item 8 of Part II of this report, for further details.

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