What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-27 compared with 2024-02-27 · 141 added, 156 removed, 803 unchanged (27% of the section changed)

16 unchanged sentences

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2024 expressed an adverse opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

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Description of the Matter The Company’s reserve for veterinary invoices totaled $51.6 million as of December 31, 2024.

As discussed in Note 1 and Note 10 to the financial statements, the Company’s reserve for veterinary invoices is based on an actuarial analysis of the Company’s historical experience where the Company makes assumptions to estimate the amount the Company will pay for veterinary invoices that haven't been processed or received but that are dated as of, or prior to, its balance sheet date.

The estimate of veterinary invoice reserves is subject to a number of variables, including historical trends involving payment patterns and amounts.

Auditing the Company’s reserve for veterinary invoices is complex and required the involvement of our actuarial specialists due to the sensitivity of the estimated reserve to management's assumptions.

Estimating the ultimate cost to settle the veterinary invoice reserve is subjective due to the possibility that the actual veterinary invoice payments may not be comparable to historical trends experienced by the Company.

How We Addressed the Matter in Our Audit To evaluate the reserve for veterinary invoices, our audit procedures included, among others, testing the completeness and accuracy of the historical veterinary paid invoice data used in management's actuarial projections.

We involved our actuarial specialists to assist in our evaluation of management’s methodologies and assumptions used in the calculation of the reserve and compared the Company’s recorded reserve to a range of reasonable estimates developed independently by our actuarial specialists.

As discussed in Note 1 and Note 9 to the consolidated financial statements, the reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary claims that have been incurred but not yet paid as of the reporting date.

The reserve also includes the Company's estimate of related internal processing costs.

The Company’s reserve for veterinary invoices is based on an actuarial analysis of observed claim settlement patterns including, but not limited to, the number of veterinary invoices the Company expects 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.

Auditing the Company’s reserve for veterinary invoices was complex and required the involvement of our actuarial specialists due to the sensitivity of the estimated reserve to management’s assumptions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the process for estimating the reserve for veterinary invoices.

For example, we tested management review controls over the review and approval of methods and assumptions used in estimating the reserve for veterinary invoices.

To test the reserve for veterinary invoices, our audit procedures included, among others, testing the completeness and accuracy of the data used in the actuarial analyses by testing reconciliations of the underlying historical veterinary paid invoice data recorded in the source systems to the Company’s actuarial analyses, and comparing a sample of paid veterinary invoices to source documentation.

With the assistance of EY actuarial specialists, we evaluated the appropriateness of the actuarial methods and assumptions used to estimate veterinary invoice reserves by comparing such methods and assumptions to our expectations of those used for the specific type of insurance, current and historical invoice payment patterns.

We also compared management’s recorded reserves to a range of reasonable reserve estimates calculated independently by our EY actuarial specialists.

Additionally, we performed a hindsight analysis of the prior period estimates of the reserve for veterinary invoices using subsequent claims development.

/s/ Ernst & Young LLP

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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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Other comprehensive income (loss), net of taxes ( 3,015 ) 6,704 ( 9,378 )

Comprehensive income (loss) $ ( 37,989 ) $ ( 54,050 ) $ ( 35,524 )

Comprehensive loss $ ( 12,648 ) $ ( 37,989 ) $ ( 54,050 )

Trupanion, Inc.

4 unchanged sentences

Short-term investments 147,089 129,667

Accounts and other receivables, net of allowance for credit loss of $ 1,085 at December 31, 2023 and $ 540 at December 31, 2022

Accounts and other receivables, net of allowance for credit losses of $ 1,117 at December 31, 2024 and $ 1,085 at December 31, 2023

274,031 267,899

43 unchanged sentences

Stock-based compensation expense — — 35,026 — — — 35,026

Repurchases of common stock ( 95,021 ) — — — — ( 5,755 ) ( 5,755 )

Other comprehensive income (loss) — — — — ( 9,378 ) — ( 9,378 )

22 unchanged sentences

Stock-based compensation expense 33,432 33,161 33,393

Goodwill impairment charges 5,299 — —

Other, net ( 1,748 ) 1,347 1,051

26 unchanged sentences

Supplemental disclosures

Income taxes paid (refund) $ 611 $ 2,498 $ 282

Income taxes paid $ 546 $ 611 $ 2,498

Interest paid 13,191 12,100 3,353

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Trupanion, Inc.

(collectively with its wholly-owned subsidiaries, the "Company") provides medical insurance for cats and dogs in the United States, Canada, Continental Europe, and Australia.

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

(collectively with its wholly-owned subsidiaries, the "Company") provides 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.

Basis of Presentation

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Premiums or discounts on fixed maturity securities are amortized or accreted over the life of the security and included in interest income.

There were $ 0.3 million in realized gains and $ 0.9 million in realized losses on sales of fixed maturity securities during the year ended December 31, 2023, and no realized gains or losses on sales of fixed maturity securities during the years ended December 31, 2022 and 2021.

There were $ 0.4 million in realized gains and $ 0.3 million in realized losses on sales of fixed maturity securities during the year ended December 31, 2024, $ 0.3 million in realized gains and $ 0.9 million in realized losses on sales of fixed maturity securities during the year ended December 31, 2023, and no realized gains or losses on sales of fixed maturity securities during the years ended December 31, 2022.

Each reporting period, the Company evaluates whether declines in fair value of its investments below carrying value are the result of expected credit losses.

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Acquired finite-lived intangibles are amortized on a straight-line basis over the estimated useful lives of the assets.

The Company has recognized no impairment loss on goodwill and indefinite-lived intangible assets for the years ended December 31, 2023, 2022, and 2021.

The Company recognized impairment charges on goodwill totaling $ 5.2 million during the year ended December 31, 2024, and no goodwill impairment charges in the years ended December 31, 2023 and 2022.

The Company recognized no impairment on indefinite-lived intangible assets during the years ended December 31, 2024, 2023, and 2022.

See Note 4 to these financial statements for further details on goodwill and related impairment charges.

Asset Impairment

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Reserve for Veterinary Invoices

Reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that are dated as of, or prior to, its balance sheet date.

Reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary claims that have been incurred but not yet paid as of the reporting date.

The reserve also includes the Company's estimate of related internal processing costs.

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These policies are typically annual policies for which revenue is recognized pro-rata over the twelve-month policy period.

Deferred revenue also consists of subscription fees received or billed in advance of the subscription services within the Company's subscription business.

Deferred revenue also consists of subscription payments received or billed in advance of the subscription services within the Company's subscription business.

Revenue Recognition

The Company generates revenue primarily from subscription fees and through underwriting policies for unaffiliated general agents.

Revenue is recognized pro-rata over the term of the customer contracts.

The Company generates revenue primarily from subscription payments and through underwriting policies for unaffiliated general agents.

For the year ended December 31, 2024, premiums from policies sourced by general agents accounted for 32 % of our total revenue, and one general agent sourced members whose premiums accounted for over 10% of our total revenue.

Revenue is recognized pro-rata over the terms of the customer contracts.

Veterinary Invoice Expense

Veterinary invoice expense includes the Company’s 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.

The Company also accrues for veterinary invoices that have been incurred but not yet received or paid and the estimated cost of processing these invoices.

The Company also accrues for veterinary claims that have been incurred but not yet paid and the estimated cost of processing these invoices.

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

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Other Expense (Income), Net

Other income, net, was $ 7.7 million, $ 3.1 million, and nil , including interest income of $ 9.0 million, $ 3.0 million, and $ 0.3 million offset by credit losses of $ 1.7 million, nil , and nil for the years ended December 31, 2023, 2022, and 2021, respectively.

Advertising costs are expensed as incurred, with the exception of television advertisements, which are expensed the first time each advertisement is aired.

Other income, net, totaled $ 14.4 million, $ 7.7 million, and $ 3.1 million, including interest income of $ 12.4 million, $ 9.0 million, and $ 3.0 million for the years ended December 31, 2024, 2023, and 2022.

In 2023 other income was offset by a credit loss of $ 1.7 million related to the Company's preferred stock investment (refer to Note 6, Other Investments).

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

Advertising costs are expensed as incurred.

Advertising costs amounted to $ 13.3 million, $ 16.9 million and $ 25.5 million, in the years ended December 31, 2024, 2023 and 2022, respectively.

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The fair value of restricted stock awards and restricted stock units is the common stock price as of the measurement date.

The fair value of stock options is estimated on the measurement date using the Black-Scholes option-pricing model that requires management to apply judgment and make estimates, including:

• Expected volatility —The Company estimates the expected volatility based on the historical volatility of a representative group of publicly traded companies with similar characteristics to the Company, and its own historical volatility;

• Expected term for awards granted to employees —The Company has based its expected term for awards issued to employees on the simplified method, as permitted by the SEC Staff Accounting Bulletin Topic 14, Share-Based Payment;

• Risk-free interest rate —The risk-free interest rate is based on the yields of U.S.

Treasury securities with maturities similar to the expected term of the options;

• Expected dividend yield —The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future.

Consequently, the Company uses an expected dividend yield of zero.

Stock-based compensation expense for stock options, restricted stock awards, and restricted stock units is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award.

Stock-based compensation expense for stock options and restricted stock units is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award.

The Company recognizes forfeitures when they occur.

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Reclassifications

Certain reclassifications have been made to prior-year amounts to conform to current-year reporting classifications.

These reclassifications had no impact on net earnings, total assets, total liabilities, or total shareholders' equity.

Certain presentation reclassifications have been made to prior-year deferred tax amounts disclosed within Note 16 of these financial statements to conform to current-year reporting classifications.

These reclassifications had no impact on net earnings, total assets, total liabilities, total shareholders' equity, or cash flows.

Insurance Operations

Effective January 1, 2015, the Company formed a segregated account in Bermuda as part of Wyndham Insurance Company (SAC) Limited (WICL) and entered into a revised fronting and reinsurance arrangement with Omega General Insurance Company (Omega) to include its newly formed segregated account.

Effective January 1, 2015, the Company formed a segregated account in Bermuda as part of Wyndham Insurance Company (SAC) Limited (WICL) and entered into a revised fronting and reinsurance arrangement with Accelerant Insurance Company of Canada, formerly known as Omega General Insurance Company, to include its newly formed segregated account.

The Company maintains all risk with the business written in Canada and consolidates the entity in its financial statements.

Dividends are allowed subject to the Segregated Accounts Company Act of 2000, which allows for dividends only to the extent that the entity 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.

For the Company’s Canadian business, all plans are written by Omega and the risk is assumed by the Company through a fronting and reinsurance agreement.

For the Company’s Canadian business, all plans are written by Accelerant and the risk is assumed by the Company through a fronting and reinsurance agreement.

Premiums are recognized and earned pro rata over the terms of the related customer contracts.

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Cash designated for the purpose of paying claims related to this reinsurance agreement was $ 7.2 million and $ 11.2 million at December 31, 2024 and 2023, respectively.

In addition, as required by the Office of the Superintendent of Financial Institutions regulations related to the Company’s reinsurance agreement with Omega, the Company is required to fund 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 addition, as required by the Office of the Superintendent of Financial Institutions regulations related to the Company’s reinsurance agreement with Accelerant, the Company is required to fund 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 balance was CAD $ 19.9 million and the Company was in compliance with all requirements.

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This ASU enhances disclosures about significant segment expenses, allows for multiple measures of a segment's profit or loss, and requires additional disclosures about the Chief Operating Decision Maker.

The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within that reporting period, with early adoption permitted.

As of year-end, the Company is still evaluating the impact on its consolidated financial statements.

The Company adopted ASU 2023-07 for the fiscal year ended December 31, 2024.

In December 2023, the FASB issued ASU 2023-09 which improves and expands upon the income tax disclosures, primarily related to the rate reconciliation and income taxes paid information.

1 unchanged sentence

As of year-end, the Company is still evaluating the impact on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 which requires that public business entities disclose additional information about specific expense categories in the notes to the financial statements at interim and annual reporting periods.

The ASU is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

As of year-end, the Company is still evaluating the impact on its consolidated financial statements.

Net Loss per Share

6 unchanged sentences

Stock options 347,334 408,970 629,650

Restricted stock awards and restricted stock units 714,382 1,112,552 1,087,627

Business Combinations

On November 16, 2022, the Company acquired 100% of voting equity interest in Royal Blue s.r.o., the parent company of PetExpert, a veterinary-centric, managing general agent for pet insurance with operations in the Czech Republic, Slovakia, and Belgium for approximately $ 12.3 million in net cash.

The acquisition provides the Company with a foothold in Europe, allowing for expansion within different countries within the region.

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

The Company incurred $ 0.2 million of acquisition-related costs that were recorded in general and administrative expenses.

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

The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill.

The application of the purchase method of accounting resulted in the recognition of intangible assets, the estimated fair values of which involved a discounted cash flow model and certain assumptions and estimates, including but not limited to, revenue growth rates and margins, attrition rates, and discount rates.

These estimates are inherently uncertain and unanticipated events and circumstances may occur which could affect the accuracy or validity of estimates used in purchase accounting.

The purchase price allocation recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

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

Current assets, net of cash acquired $ 295

Property and equipment and other long-term assets 27

Amortizable intangible assets 5,121

Goodwill 9,541

Current liabilities and short-term loan ( 1,677 )

Deferred tax liability and other liabilities ( 1,056 )

Total consideration transferred, net of cash acquired $ 12,251

The Company acquired intangible assets which included developed technologies and customer relationships with an estimated useful life of 5.0 years.

The goodwill recognized is attributable primarily to going concern value such as assembled workforce, future technology development, future customers, and expected synergies from incorporating the operations into the Company’s portfolio.

It has been assigned to the subscription business segment.

None of the goodwill associated with this acquisition is expected to be deductible for income tax purposes.

As of the acquisition date, the Company assumed a credit agreement entered into by PetExpert in 2021 that provides for a revolving line of credit.

This line of credit was due and paid in full in May 2023.

On August 31, 2022, the Company completed an acquisition of 100% of the equity of Smart Paws GmbH (Smart Paws), a managing general agent for pet insurance with operations in Germany and Switzerland, for approximately $ 2.8 million in net cash.

The acquisition of Smart Paws provides the Company with a foothold in Europe, allowing for expansion within different countries within the region.

The Company incurred $ 0.1 million of acquisition related costs that were included in general and administrative expenses during the year ended December 31, 2022.

The Company acquired a definite-lived intangible asset valued at $ 1.1 million with an estimated useful life of 5.0 years.

Goodwill of $ 2.6 million was recognized as a result of the acquisition and attributable primarily to going concern value such as assembled workforce, future customers, and expected synergies from incorporating the operations into the Company’s portfolio.

None of the goodwill associated with this acquisition is expected to be deductible for income tax purposes.

The results of PetExpert and Smart Paws operations have been included in the consolidated financial statements since the acquisition date, but were immaterial to the Company's consolidated financial statements.

Restricted stock units 970,739 714,382 1,112,552

Property, Equipment, and Internal-Use Software, Net

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Goodwill arises from business acquisitions in which the purchase price exceeds the fair value of tangible and intangible assets acquired less assumed liabilities.

The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment.

The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired.

If through qualitative assessment it is determined that it is more likely than not that goodwill or indefinite-lived assets are not impaired, no further testing is required.

If it is determined more likely than not that goodwill or indefinite-lived assets are impaired, the Company’s impairment testing continues with the estimation of reporting unit fair value using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level.

Estimates of fair value are based on the best information available to the Company as of the assessment date.

The Company has identified reporting units in conjunction with its annual goodwill impairment testing date during the fourth quarter of 2024.

All of the Company’s goodwill has been assigned to three separate reporting units within our Subscription Business reportable segment:

Trupanion Core – North America, Smart Paws, and PetExpert.

The following is a summary of goodwill by reportable segment for the years ended December 31, 2024 and 2023 (in thousands):

1 unchanged sentence

Balance as of January 1, 2023 $ 41,983 $ — $ 41,983

Acquisitions 12,159 — 12,159

Effects of foreign currency 1,730 — 1,730

Balance as of December 31, 2023 43,713 — 43,713

Impairment charges ( 5,229 ) — ( 5,229 )

Effects of foreign currency ( 1,513 ) — ( 1,513 )

Balance as of December 31, 2024 $ 36,971 $ — $ 36,971

In the fourth quarter of 2024, the Company performed its annual goodwill impairment test for all three reporting units with assigned goodwill and recognized impairment charges of $2.7 million and $2.5 million on the goodwill of Smart Paws and PetExpert, respectively, based on the fair value assessments performed after circumstances indicated that the goodwill of these reporting units more likely than not had become impaired.

These circumstances primarily related to the Company’s decision to slow expansion efforts as the Company focuses capital allocation on reporting units operating within the Company's stated financial guardrails.

Following these impairment charges, no goodwill remains for Smart Paws and $6.7 million of goodwill remains for PetExpert, which could be further impaired in the future if this reporting unit fails to meet its revised financial projections.

The Company determined that the Trupanion Core – North America reporting unit was not at risk of goodwill impairment as of December 31, 2024 and 2023.

The following table presents the detail of intangible assets other than goodwill for the periods presented (in thousands):

Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Useful Life Remaining as of December 31, 2023

Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Remaining Useful Life as of December 31, 2024

December 31, 2024:

Licenses $ 4,773 $ — $ 4,773 N/A

Leases 848 ( 848 ) — —

Trade name 1,271 ( 531 ) 740 5.8

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Amortization expense associated with intangible assets was $ 5.3 million, $ 5.7 million, and $ 4.8 million for the years ended December 31, 2024, 2023, and 2022, respectively.

As of December 31, 2023, expected amortization expense relating to purchased intangible assets for each of the next five years and thereafter is as follows (in thousands):

As of December 31, 2024, expected amortization expense relating to definite-lived intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year ending December 31:

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All available-for-sale securities are considered short-term in nature, with the exception of certain long-term investments that are being held for statutory requirements.

Held-to-maturity securities are classified as short-term versus long-term investments based on the effective maturity dates.

The amortized cost, gross unrealized holding gains and losses, and estimates of fair value of long-term and short-term investments by major security type and class of security were as follows as of December 31, 2023 and 2022 (in thousands):

Held-to-maturity securities are classified as short-term versus long-term investments based on their maturity dates.

The amortized cost, gross unrealized holding gains and losses, and estimated fair value of long-term and short-term investments by major security type and class of security were as follows as of December 31, 2024 and 2023 (in thousands):

As of December 31, 2024

Long-term investments:

Available-for-sale investments

Foreign deposits $ 11,869 $ — $ — $ 11,869

$ 11,869 $ — $ — $ 11,869

Held-to-maturity investments

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Other asset-backed securities 12,422 67 ( 53 ) 12,436

Municipal bond 1,000 — ( 6 ) 994

Corporate bonds 36,404 332 ( 123 ) 36,613

3 unchanged sentences

Certificates of deposit 12,298 — — 12,298

government funds 41,192 — — 41,192

$ 25,477 $ 21 $ ( 15 ) $ 25,483

6 unchanged sentences

Available-for-sale collateralized:

Mortgage-backed securities and collateralized mortgage obligations $ 10,460 $ 10,454

Other asset-backed securities 12,422 12,436

Due under one year $ 3,823 $ 3,837

Due after one year through five years 20,691 20,865

Due after five years through ten years 3,614 3,565

Due after ten years 278 285

$ 28,406 $ 28,552

3 unchanged sentences

$ 12,996 $ 13,010

The Company does not expect any credit losses from its held-to-maturity investments, considering the composition of the investment portfolio and the credit loss history of these investments.

For available-for-sale investments, the Company determined that there were unrealized losses of $ 0.3 million and $ 0.8 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, $ 18.9 million in available-for-sale investments have been in a loss position for more than twelve months, with total unrealized losses of $ 0.2 million.

As of December 31, 2023, $ 25.9 million available-for-sale investments have been in a loss position for less than twelve months, with total unrealized losses of $ 0.1 million.

As of December 31, 2022, no available-for-sale investments had been in a loss position for more than twelve months.

As of December 31, 2022, $ 76.3 million available-for-sale investments had been in a loss position for less than twelve months, with total unrealized losses of $ 0.8 million.

These losses relate to interest rate changes.

The following tables present the gross unrealized losses and related fair values for the Company's investment in available-for-sale securities, grouped by duration of time in a continuous unrealized loss position as of December 31, 2024 and December 31, 2023 (in thousands):

Less than 12 Months 12 Months or More Total

Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

As of December 31, 2024

treasury securities $ 27,769 $ (202) $ — $ — $ 27,769 $ (202)

Mortgage-backed securities and collateralized mortgage obligations 1,538 (20) 1,359 (40) 2,897 (60)

Other asset-backed securities 186 (1) 1,737 (7) 1,923 (8)

Corporate bonds 6,461 (40) 736 (3) 7,197 (43)

Total $ 35,954 $ (263) $ 3,832 $ (50) $ 39,786 $ (313)

Less than 12 Months 12 Months or More Total

Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

As of December 31, 2023

treasury securities $ 20,772 $ (64) $ — $ — $ 20,772 $ (64)

Mortgage-backed securities and collateralized mortgage obligations 2,385 (4) 2,220 (71) 4,605 (75)

Other asset-backed securities 1,486 (1) 4,986 (52) 6,472 (53)

Corporate bonds 1,178 (1) 11,491 (122) 12,669 (123)

Total $ 25,821 $ (70) $ 18,697 $ (245) $ 44,518 $ (315)

Unrealized losses on available-for-sale investments relate to interest rate changes.

The Company does not expect any credit losses from its available-for-sale investments, considering the composition of the investment portfolio and the credit rating of these investments.

For those securities, the Company determined it is not likely to, and does not intend to, sell prior to a potential recovery.

For those securities, the Company determined it is not likely to, and does not intend to, sell prior to a potential recovery of the cost basis.

The Company does not expect any credit losses from its held-to-maturity investments, considering the composition of the investment portfolio and the credit loss history of these investments.

Proceeds from the sales of fixed maturities classified as available-for-sale were $ 77.1 million and $ 114.7 million during the years ended December 31, 2024 and 2023, respectively.

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The Company provided $ 0.3 million and $ 0.4 million of these services for the years ended December 31, 2024 and 2023, respectively.

Allowance for Credit Loss

Allowance for Credit Losses

The Company regularly evaluates its investments for expected credit losses.

2 unchanged sentences

Such evaluations are revised as conditions change and new information becomes available.

Based on these considerations, the Company has established an allowance for credit losses related to its investment in the preferred stock of a variable interest entity.

Based on these considerations, the Company established an allowance for credit losses related to its investment in the preferred stock of Baystride, Inc in 2023.

This credit loss allowance was reversed in 2024 as the fair value of the Company's investment in Baystride, Inc.

was determined to have recovered to an amount above the original investment amount.

The following table presents a rollforward of the allowance for credit losses for this investment.

Balance as of January 1, 2022 $ —

(Addition to) allowance for credit losses —

Balance as of December 31, 2022 —

(Addition to) allowance for credit losses ( 1,674 )

Balance as of December 31, 2023 $ ( 1,674 )

Balance at beginning of period $ ( 1,674 ) $ —

Recovery of (addition to) allowance for credit losses 1,674 ( 1,674 )

Balance at end of period $ — $ ( 1,674 )

Investment in Joint Venture

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Corporate bonds 35,623 — 35,623 —

Foreign deposits 11,869 11,869 — —

Treasury securities 70,291 — 70,291 —

9 unchanged sentences

Foreign deposits 11,869 11,869 — —

Municipal bond 994 — 994 —

Treasury securities 44,687 — 44,687 —

13 unchanged sentences

The following table presents the change in fair value of the Company’s investment carried at fair value and classified as Level 3 as of December 31, 2024 (in thousands):

Preferred Stock Investment

Balance as of January 1, 2021 $ 7,949

Balance at beginning of period $ 5,326 $ 4,115

Unrealized gain included in other comprehensive income (loss) 916 —

Balance as of December 31, 2021 $ 8,442

Unrealized loss included in other comprehensive income (loss) ( 4,327 )

Balance as of December 31, 2022 $ 4,115

Reversal of cumulative unrealized loss included in other comprehensive income (loss) — 2,885

Credit loss included in earnings ( 1,674 )

Balance as of December 31, 2023 $ 5,326

Recovery of (increase in) credit loss included in earnings 1,674 ( 1,674 )

Balance at end of period $ 7,916 $ 5,326

Fair Value Disclosures - Other Assets and Liabilities

The Company's other long-term assets balance also included notes receivable of $ 6.8 million and $ 9.3 million as of December 31, 2023 and 2022, respectively, recorded at their estimated collectible amount.

The Company estimates that the carrying value of the notes receivable approximates the fair value.

The Company's other long-term assets balance also included notes receivable of $ 4.3 million and $ 6.8 million as of December 31, 2024 and 2023, respectively, recorded at their estimated recoverable amount.

The Company estimates that the carrying value of the notes receivable approximates their fair value.

The estimated fair value represents a Level 3 measurement within the fair value hierarchy, and is based on market interest rates and the assessed creditworthiness of the third party.

9 unchanged sentences

Reserve for Veterinary Invoices

The reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that haven't been processed or received but that are dated as of, or prior to, its balance sheet date.

The reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary claims that have not been paid prior to the reporting date.

The reserve also includes the Company's estimate of related internal processing costs.

18 unchanged sentences

Reserve at end of period $ 23,084 $ 31,548 $ 21,543

The Company had unfavorable development on veterinary invoice reserves for the subscription business segment of $ 2.8 million for the year ended December 31, 2023, favorable development on veterinary invoice reserves of $ 2.8 million for the year ended December 31, 2022, and favorable development on veterinary invoice reserves of $ 1.4 million for the year ended December 31, 2021, all of which were the result of ongoing analysis of recent payment trends.

The Company had unfavorable development on veterinary invoice reserves of $ 0.5 million for the year ended December 31, 2024, including favorable development of $ 1.2 million attributable to accident year 2023 and unfavorable development of $ 1.7 million attributable to accident year 2022 and prior.

The favorable development for accident year 2023 was primarily driven by faster reporting patterns of claims than initially anticipated.

The unfavorable development for accident year 2022 and prior was driven by higher than expected frequency of claims.

Non-cash expenses are primarily comprised of stock-based compensation for employees performing claims processing related duties.

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

12 unchanged sentences

Reserve at end of period $ 28,551 $ 31,690 $ 22,191

The Company had unfavorable development on veterinary invoice reserves for the other business segment of $ 0.5 million for the year ended December 31, 2023, unfavorable development on veterinary invoice reserves of $ 1.1 million for the year ended December 31, 2022, and favorable development on veterinary invoice reserves of $ 0.2 million for the year ended December 31, 2021, all of which were the result of ongoing analysis of recent payment trends.

The Company had favorable development on veterinary invoice reserves for the other business segment of $ 1.3 million for the year ended December 31, 2024, including favorable development on veterinary invoice reserves of $ 1.1 million attributable to accident year 2023 and favorable development of $ 0.2 million attributable to accident year 2022 and prior.

The favorable development for accident year 2023 and 2022 was driven by faster paid loss development factors than originally estimated for Pets Best, as well as the estimated impact of the roll-off of a portion of the business.

Reserve for veterinary invoices, by year of occurrence

In the following tables, the cumulative number of veterinary invoices represents the total number received as of December 31, 2023, by year the veterinary invoice relates to, referred to as the year of occurrence.

If a pet is injured or becomes ill, multiple trips to the veterinarian may result in several invoices.

Each of these veterinary invoices is included in the cumulative number, regardless of whether the veterinary invoice was paid.

In the following tables, the cumulative veterinary invoice expenses represent the total expense from received invoices as of December 31, 2024, by year the veterinary invoice relates to, referred to as the year of occurrence.

Information for years 2021 through 2023 is provided as required supplementary information.

1 unchanged sentence

The cumulative expenses as of the end of each year are revalued using the currency exchange rate as of December 31, 2024.

Due to variability in internal and external sources of claims data, and the lack of comparability of claim count information between those sources, it is impractical for the Company to disclose claim frequency information.

As such, the cumulative number of veterinary invoices received is not included in the disclosures below.

The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's subscription business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data):

Cumulative veterinary invoice expenses Reserve Cumulative number of veterinary invoices

Cumulative veterinary invoice expenses Reserve

As of December 31, As of December 31,

7 unchanged sentences

The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's other business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data):

Cumulative veterinary invoice expenses Reserve Cumulative number of veterinary invoices

Cumulative veterinary invoice expenses Reserve

As of December 31, As of December 31,

47 unchanged sentences

Stock-Based Compensation

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

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

Stock-based compensation expense recognized in each category of the consolidated statements of operations for the years ended December 31, 2024, 2023 and 2022 was as follows (in thousands):

9 unchanged sentences

Total stock-based compensation $ 33,937 $ 35,296 $ 35,026

As of December 31, 2023, the Company had 714,382 unvested restricted stock units.

Stock-based compensation expense of $ 44.6 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 2.4 years.

In March 2023, two executives terminated employment with the Company and one executive signed a separation agreement effective June 1, 2023.

In conjunction with these departures, the Company accelerated the vesting of certain RSUs as of the termination date and extended the purchase date of certain vested options from 90 to 365 days.

These award modifications resulted in the recognition of $ 4.8 million share-based compensation expense during the year ended December 31, 2023.

Stock Options

16 unchanged sentences

Exercised ( 61,136 ) 12.91 1,590

Forfeited ( 6,832 ) 12.80 —

Expired ( 500 ) 14.93 —

Outstanding as of December 31, 2024 347,334 14.30 11,775

1 unchanged sentence

As of December 31, 2024, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 1.7 years.

The fair value of options vested were as follows for the years ended December 31, 2023, 2022, and 2021.

The Company didn't grant any stock options in these three years.

Fair Value of Options Vested

(in thousands)

Restricted Stock Awards and Restricted Stock Units

A summary of the Company’s restricted stock award and restricted stock unit activity for the years ended December 31, 2023, 2022 and 2021 is as follows:

The Company has not granted any new stock options since 2017 and all outstanding options vested prior to January 1, 2022.

Restricted Stock Units

A summary of the Company’s restricted stock unit activity for the years ended December 31, 2024, 2023 and 2022 is as follows:

Shares Weighted Average

13 unchanged sentences

Unvested shares as of December 31, 2024 970,739 $ 37.35

As of December 31, 2024, the Company had 970,739 unvested restricted stock units.

Stock-based compensation expenses of $ 34.3 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 2.2 years.

In March 2023, two executives terminated employment with the Company and one executive signed a separation agreement effective June 1, 2023.

In conjunction with these departures, the Company accelerated the vesting of certain RSUs as of the termination date and extended the purchase date of certain vested options from 90 to 365 days.

These award modifications resulted in the recognition of $ 4.8 million share-based compensation expense during the year ended December 31, 2023.

Stockholders ’ Equity

8 unchanged sentences

In April 2021, the Board approved a share repurchase program, pursuant to which the Company may, between May 2021 and May 2026, repurchase outstanding shares of the Company's common stock.

The Company repurchased no shares during the year ended December 31, 2023.

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

The Company repurchased no shares during the year ended December 31, 2024 and 2023.

Accumulated Comprehensive Income (Loss)

8 unchanged sentences

Balance as of December 31, 2024 $ ( 3,113 ) $ 501 $ ( 2,612 )

The Company has two aggregated reporting segments:

The Company has two reporting segments:

subscription business and other business.

The subscription business segment consists of products that have been created to meet the needs of their distribution channels and have similar target margin profiles.

This segment generates revenue primarily from subscription fees related to the Company's direct-to-consumer products.

The other business segment generates revenue primarily by underwriting policies on behalf of third parties.

The subscription business segment consists of aggregated operating segments with products that have been created to meet the needs of their distribution channels and have similar target margin profiles.

This segment generates revenue primarily from subscription payments related to the Company's direct-to-consumer products.

The other business segment generates revenue primarily by underwriting policies on behalf of third parties and has a different margin profile than the Company's subscription business segment.

The Company does not undertake marketing efforts for these policies and has a business-to-business relationship with these third-parties.

The other business segment also includes other products and insurance software solutions that have a different margin profile from the Company’s subscription business segment.

The Company's chief operating decision maker is our Chief Executive Officer.

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

Revenue, veterinary invoice expense, other cost of revenue, and new pet acquisition expenses are generally directly attributed to each segment.

Revenue, veterinary invoice expense, other cost of revenue, new pet acquisition expenses, and goodwill impairment charges are generally directly attributed to each segment.

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

1 unchanged sentence

The Company does not analyze discrete segment balance sheet information related to long-term assets.

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

O perating loss of the Company’s segments was as follows (in thousands):

Year Ended December 31,

7 unchanged sentences

New pet acquisition expense 71,240 77,172 88,959

Goodwill impairment charges 5,299 — —

Depreciation and amortization 10,970 8,021 7,205

22 unchanged sentences

Dividend Restrictions and Statutory Surplus

The Company’s business operations are conducted through subsidiaries, one of which is an insurance company domiciled in New York, American Pet Insurance Company (APIC), and one of which is a segregated cell business, Wyndham Segregated Account AX, located in Bermuda.

The Company’s business operations are conducted through subsidiaries, one of which is an insurance company domiciled in New York, American Pet Insurance Company (APIC), and three of which are segregated cell businesses, Wyndham Segregated Accounts AX, Trupanion Germany, and Trupanion Switzerland, located in Bermuda.

In 2022, the Company incorporated a new wholly-owned insurance subsidiary, GPIC Insurance Company (GPIC), domiciled in Canada.

6 unchanged sentences

An extraordinary dividend or distribution is generally defined as a dividend or distribution that, in the aggregate in any 12-month period, exceeds the lesser of (i) 10% of surplus as of the preceding December 31 or (ii) the insurer’s adjusted net investment income for the 12-month period immediately preceding the declaration or distribution of the current dividend increased by the excess, if any, of net investment income over dividends declared or distributed during the period commencing thirty-six months prior to the declaration or distribution of the current dividend and ending twelve months prior thereto, and not including realized capital gains.

APIC paid dividends of $ 7.6 million to the Company during the year ended December 31, 2023.

None of the Company's U.S.

insurance subsidiaries paid dividends to the Company during the years ended December 31, 2022 and 2021.

The Company's insurance subsidiary in Bermuda is regulated by the Bermuda Monetary Authority.

APIC paid dividends of $ 4.2 million and $ 7.6 million to the Company during the years ended December 31, 2024 and 2023, respectively, and no dividends during the year ended December 31, 2022.

The Company's insurance subsidiaries in Bermuda are regulated by the Bermuda Monetary Authority.

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

4 unchanged sentences

Per our contractual agreements with Wyndham Insurance Company (SAC) Limited, the allowable dividend is equivalent to the positive undistributed profit attributable to the shares.

This insurance subsidiary paid the Company a dividend of $ 7.3 million, $ 6.9 million, and $ 5.6 million during the years ended December 31, 2023, 2022 and 2021, respectfully.

Wyndham Segregated Account AX paid the Company a dividend of $ 8.6 million, $ 7.3 million, and $ 6.9 million during the years ended December 31, 2024, 2023 and 2022, respectfully.

The statutory net income for 2024, 2023 and 2022 and statutory capital and surplus at December 31, 2024, 2023 and 2022, for APIC were as follows (in thousands):

3 unchanged sentences

Statutory capital and surplus $ 245,484 $ 199,613 $ 162,232

As of December 31, 2023, APIC maintained $ 199.6 million of statutory capital and surplus which was above the required amount of $ 137.6 million of statutory capital and surplus to avoid additional regulatory oversight.

As of December 31, 2024, APIC maintained $ 245.5 million of statutory capital and surplus which was above the company action level risk-based capital requirement of $ 105.3 million.

During the year ended December 31, 2024, the Company funded $ 1.1 million and $ 0.2 million of statutory capital to APIC and ZPIC, respectively, and no capital to GPIC.

During the year ended December 31, 2023, the Company funded $ 3.8 million, $ 0.2 million and CAD $ 8.5 million of statutory capital to APIC, ZPIC and GPIC, respectively.

During the year ended December 31, 2022, the Company funded $ 8.0 million and $ 7.8 million of statutory capital to ZPIC and QPIC, respectively.

ZPIC, QPIC and GPIC will each be required to maintain a level of surplus as determined by their respective domiciliary regulators.

As of December 31, 2023, neither ZPIC, QPIC nor GPIC has begun underwriting any insurance policies.

ZPIC and GPIC will each be required to maintain a level of surplus as determined by their respective domiciliary regulators.

During 2024, the Company fully dissolved QPIC, which included total distributions of $ 7.0 million of previously required capital to Trupanion, Inc.

As of December 31, 2024, the Company had $ 11.5 million on deposit with various states in which it is licensed to write policies.

4 unchanged sentences

Foreign ( 8,880 ) ( 4,016 ) ( 402 )

$ ( 45,035 ) $ ( 44,196 ) $ ( 35,220 )

Total $ ( 9,638 ) $ ( 45,035 ) $ ( 44,196 )

The components of income tax expense (benefit) were as follows (in thousands):

3 unchanged sentences

Foreign 610 464 814

456 896 2,124

federal & state ( 48 ) 7 11

11 unchanged sentences

Credits 1.2 0.3 0.3

Goodwill impairment ( 13.4 ) — —

Effective income tax rate — % 0.8 % ( 1.1 ) %

20 unchanged sentences

federal, U.S.

state, and foreign net operating loss carryforwards of $ 71.2 million (tax-effected) and U.S.

state, and foreign net operating loss carryforwards of $ 67.1 million (tax-effected, net of federal benefit) and U.S.

federal income tax credits of $ 1.3 million.

10 unchanged sentences

State, and a portion of its foreign deferred tax assets as of December 31, 2024, 2023, and 2022 because the Company’s management has determined that it is more likely than not that these assets will not be fully realized.

For the year ended December 31, 2023, the Company recognized a net increase of $ 7.7 million in valuation allowance against its net deferred tax assets associated with U.S.

For the year ended December 31, 2024, the Company recognized a net decrease of $ 1.1 million in valuation allowance against its net deferred tax assets associated with U.S.

federal and certain foreign and U.S.

state jurisdictions, primarily attributable to current year activity.

state jurisdictions, primarily attributable the utilization of net operating losses in certain jurisdictions.

The Company is open to examination by the U.S.

22 unchanged sentences

As of December 31, 2024, the Company has made no matching contributions to the 401(k) plan.

Related Parties

In August 2018, the Company invested $ 0.3 million in a limited liability entity in exchange for a 17.5 % ownership interest.

The investee is considered to be a related party, as the Company has the ability to exercise significant influence over the investee.

In February 2020, the Company entered into a service agreement with the investee, under which the Company incurred $ 2.2 million and $ 3.5 million of expenses for consulting services provided by the investee related to pet acquisition during the years ended December 31, 2023 and 2022, respectively, recorded as new pet acquisition expense on the Company's consolidated statement of operations.

The Company instituted a 401(k) match effective January 1, 2025, wherein employee contributions will be matched up to 1% of eligible compensation.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data