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Item 2. Management’s Discussion and Analysis

2025-05-01 compared with 2024-11-01 · 142 added, 256 removed, 344 unchanged (54% of the section changed)

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

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

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.

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

Through our data-driven, vertically-integrated approach, we develop and offer high-value medical insurance products, priced to take into account 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 aggregated reporting segments:

We operate in two reporting segments:

subscription business and other business.

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

We 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 average revenue per pet products marketed under the brand names, Furkin and PHI Direct.

We are the underwriter and provide a full suite of services and support for these products.

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 certain countries in Continental Europe, which have been underwritten by third-parties who pay us commissions we recognize as revenue.

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

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

This business segment has a different margin profile than our subscription segment and includes revenue from underwriting 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 that may impact the revenue contribution due to a partner or partners rolling off to other underwriters.

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

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 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” create relationships with veterinary hospital teams through face-to-face visits.

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 generates revenue from other product offerings, primarily by underwriting policies on behalf of 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 as an underwriter for Pets Best Insurance Services ("Pets Best"), a third-party insurance provider 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 year to date values as well as each of the last eight fiscal quarters.

Nine Months Ended September 30,

Total Business:

Total pets enrolled (at period end) 1,688,903 1,712,177

Subscription Business:

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

Monthly average revenue per pet $ 71.94 $ 64.63

Lifetime value of a pet, including fixed expenses $ 493 $ 428

Average pet acquisition cost (PAC) $ 227 $ 232

Average monthly retention 98.29 % 98.55 %

The following table sets forth total enrolled pets in our subscription and our other business segment and key operating metrics for our subscription business for each of the last eight fiscal quarters.

Three Months Ended

30, 2024 Jun.

30, 2024 Mar.

31, 2025 Dec.

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31, 2024 Dec.

31, 2023 Sep.

30, 2023 Jun.

Total Business:

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Monthly average revenue per pet $ 77.53 $ 76.02 $ 74.27 $ 71.72 $ 69.79 $ 67.07 $ 65.82 $ 64.41

Lifetime value of a pet, including fixed expenses $ 493 $ 450 $ 428 $ 419 $ 428 $ 470 $ 541 $ 641

Average pet acquisition cost (PAC) $ 267 $ 261 $ 243 $ 231 $ 207 $ 217 $ 212 $ 236

Average monthly retention 98.28 % 98.25 % 98.29 % 98.34 % 98.41 % 98.49 % 98.55 % 98.61 %

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 subscription fees 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 and 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.

Total subscription pets enrolled.

Total subscription pets enrolled reflects the number of pets in active memberships at the end of each period presented.

Total subscription pets enrolled reflects the number of pets in active memberships in our subscription business segment at the end of each period presented.

We monitor total subscription pets enrolled because it provides an indication of the growth of our subscription 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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We exclude stock-based compensation expense because the amount varies from period to period based on number of awards issued and market-based valuation inputs.

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.

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

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

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

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

As such, our average monthly retention rate as of March 31, 2025 is an average of each month’s retention from April 1, 2024 through March 31, 2025.

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

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

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

Nine Months Ended September 30,

Veterinary invoice expense $ 703,485 $ 613,316

Stock-based compensation expense (1)

(2,535) (2,565)

Other business cost of paying veterinary invoices (4)

(239,342) (210,286)

Subscription cost of paying veterinary invoices (non-GAAP) $ 461,608 $ 400,465

% of subscription revenue 73.4 % 76.8 %

Other cost of revenue $ 119,017 $ 108,480

Stock-based compensation expense (1)

(1,479) (1,158)

Other business variable expenses (4)

(57,713) (56,455)

Subscription variable expenses (non-GAAP) $ 59,825 $ 50,867

% of subscription revenue 9.5 % 9.8 %

Technology and development expense $ 23,083 $ 15,434

General and administrative expense 46,903 46,817

Stock-based compensation expense (1)

(14,465) (16,072)

Non-recurring transaction or restructuring expenses (2)

Development expenses (3)

(4,307) (3,417)

Fixed expenses (non-GAAP) $ 51,214 $ 38,587

% of total revenue 5.4 % 4.7 %

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

Stock-based compensation expense (1)

(5,426) (5,433)

Other business pet acquisition expense (4)

Subscription acquisition cost (non-GAAP) $ 47,568 $ 54,627

% of subscription revenue 7.6 % 10.5 %

(1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.

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 and $0.6 million for the nine months ended September 30, 2024 and 2023, respectively.

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

(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.

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

Three Months Ended

30, 2024 Jun.

30, 2024 Mar.

31, 2025 Dec.

3 unchanged sentences

31, 2024 Dec.

31, 2023 Sep.

30, 2023 Jun.

Veterinary invoice expense $ 247,450 $ 245,663 $ 238,814 $ 231,102 $ 233,569 $ 217,739 $ 212,441 $ 206,738

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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 $0.2 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively.

Stock-based compensation associated with bonuses was approximately $0.3 million for the three months ended March 31, 2025.

(2) Consists of business acquisition transaction expenses, severance and legal costs due to certain executive departures.

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

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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 subscription fees earned by the remainder of our subscription business.

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

Nine Months Ended September 30,

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

Net of sign-up fee revenue (3,155) (3,492)

Stock-based compensation expense (5,426) (5,433)

Other business pet acquisition expense (31) (123)

Pet acquisition expense for commission-based policies (2,220) (2,641)

Net acquisition cost $ 42,193 $ 48,494

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.

The following table reconciles GAAP new pet acquisition expense to non-GAAP net acquisition cost (in thousands) for each of the last eight fiscal quarters:

Three Months Ended

30, 2024 Jun.

30, 2024 Mar.

31, 2025 Dec.

3 unchanged sentences

31, 2024 Dec.

31, 2023 Sep.

30, 2023 Jun.

New pet acquisition expense $ 20,516 $ 18,354 $ 18,308 $ 17,874 $ 16,843 $ 17,189 $ 17,772 $ 20,769

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Components of Operating Results

We operate in two aggregated reporting 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.

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 have been underwritten by third-parties who pay us commissions we recognize as revenue.

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

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.

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

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

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

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.

This business segment has, and targets, a different margin profile than our subscription business 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 insurance provider 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 some 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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Other cost of revenue

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 subscription business segment includes direct and indirect member service expenses, Territory Partner fees per member renewal, payment processing fees and premium tax expenses.

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

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Gain (loss) from investment in joint venture

Gain (loss) from investment in joint venture consists of the share of income and losses from our equity method investment in a joint venture, as well as income and expenses associated with administrative services provided to the joint venture.

Gain (loss) from investment in joint venture consists of the share of income and losses from our equity method investment in a joint venture in Australia, as well as income and expenses associated with administrative services provided to the joint venture.

In March 2025, we restructured this relationship from a joint venture to a brand license and services arrangement.

Stock-based compensation

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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.

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

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.

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

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

2024 2023 2024 2023

Three Months Ended March 31,

(in thousands)

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Technology and development (1)

7,933 5,302 23,083 15,434

General and administrative (1)

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Total operating expenses 52,271 42,261

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

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

Loss from investment in joint venture (305) (103)

Operating loss (1,473) (6,137)

Interest expense 3,211 3,596

Other (income), net (3,240) (2,843)

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

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

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

Loss before income taxes (1,444) (6,890)

Income tax (benefit) expense 39 (38)

Net loss $ (1,483) $ (6,852)

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

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

2024 2023 2024 2023

Three Months Ended March 31,

(in thousands)

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Total stock-based compensation expense $ 9,830 $ 8,152

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

2024 2023 2024 2023

Three Months Ended March 31,

(as a percentage of revenue)

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Total operating expenses 15 14

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

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

Loss from investment in joint venture — —

Operating loss — (2)

Interest expense 1 1

Other income, net (1) (1)

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

Income tax expense (benefit) — — — —

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

Loss before income taxes — (2)

Income tax (benefit) expense — —

Net loss — % (2) %

Stock-based compensation expense:

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

2024 2023 2024 2023

Three Months Ended March 31,

(as a percentage of revenue)

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Total stock-based compensation expense 2 % 2 %

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

2024 2023 2024 2023

Three Months Ended March 31,

(as a percentage of subscription revenue)

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Subscription business cost of revenue 81 86

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

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

2024 2023 2024 2023

Comparison of the Three Months Ended March 31, 2025 and 2024

Three Months Ended March 31, % Change

(in thousands, except percentages, pet and per pet data)

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Average monthly retention 98.28 % 98.41 %

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

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

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

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

Total revenue increased by $35.9 million, or 12%, to $342.0 million for the three months ended March 31, 2025.

Revenue from our subscription business segment increased by $31.9 million, or 16%, to $233.1 million for the year ended March 31, 2025.

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

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

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

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

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

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

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

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

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

Revenue from our other business segment increased by $3.9 million, or 4%, to $108.9 million for the three months ended March 31, 2025.

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

Cost of Revenue

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

2024 2023 2024 2023

Three Months Ended March 31, % Change

(in thousands, except percentages, pet and per pet data)

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Total subscription pets enrolled (at period end) 1,052,845 1,006,168 5

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

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

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

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

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

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

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

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

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

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

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

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

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

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

Total cost of revenue for our subscription business segment increased by $17.7 million, or 10%, to $189.8 million, for the three months ended March 31, 2025.

This increase was driven by a $15.8 million, or 10%, increase in veterinary invoice expense and a $1.9 million, or 10%, increase in other cost of revenue.

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

The 10% increase in veterinary invoice expense was driven by a 6% increase in veterinary invoice expense per pet and an increase in total subscription pet months for policies underwritten by Trupanion.

The 10% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership and subscription revenue.

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

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

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

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

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

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

Total cost of revenue for our other business segment increased by $3.3 million, or 3%, to $101.0 million for the three months ended March 31, 2025.

This increase was driven by a $5.2 million, or 31%, increase in other cost of revenue partially offset by a $1.9 million, or 2%, decrease in veterinary invoice expense.

The 31% increase in other cost of revenue was primarily driven by increases in managing general agent fees.

The 2% decrease in veterinary invoice expense was primarily driven by an 11% 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.

Cost of revenue for the other business segment remained constant at 93% of revenue year-over-year.

Technology and Development Expenses

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

2024 2023 2024 2023

Three Months Ended March 31, % Change

(in thousands, except percentages)

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Percentage of total revenue 2 % 2 %

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

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

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

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

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

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

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

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

Technology and development expenses increased by $1.1 million, or 16%, to $8.1 million for the three months ended March 31, 2025.

This increase was primarily due to a $0.6 million increase in general compensation and other employee-related expenses, a $0.4 million reduction in capitalized expenditures related to internally developed software projects launched in early 2024, and a $0.3 million increase in development expense, offset by a $0.2 million decrease in infrastructure-related expenses.

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

General and Administrative Expenses

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

2024 2023 2024 2023

Three Months Ended March 31, % Change

(in thousands, except percentages)

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Percentage of total revenue 6 % 5 %

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

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

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

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

General and administrative expenses increased by $5.2 million, or 36%, to $19.9 million for the three months ended March 31, 2025.

This increase was driven by increases of $2.4 million in general compensation and other employee-related expenses, $1.2 million in professional services, and $1.8 million in underwriting fees related to our Canadian business.

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

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

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

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

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

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

New Pet Acquisition Expense

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

2024 2023 2024 2023

Three Months Ended March 31, % Change

(in thousands, except percentages, pet and per pet data)

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Average pet acquisition cost (PAC) $ 267 $ 207 29

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

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

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

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

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

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

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

New pet acquisition expenses as a percentage of revenue was 6% for the nine months ended September 30, 2024 compared to 7% in the same period last year, as we were able to stay disciplined with our discretionary pet acquisition spend, while still managing to grow total enrolled subscription pets by 6%.

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

New pet acquisition expenses increased by $3.7 million, or 22%, to $20.5 million for the three months ended March 31, 2025.

This increase was primarily driven by increased marketing spend as we have begun deploying more capital to acquire new pets in a disciplined manner.

New pet acquisition expense as a percentage of revenue remained constant at 6% as we were able to stay disciplined with our discretionary pet acquisition spend.

Depreciation and Amortization

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

2024 2023 2024 2023

Three Months Ended March 31, % Change

(in thousands, except percentages)

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Percentage of total revenue 1 % 1 %

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

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

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

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

Total Other (Income) Expense, Net

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

2024 2023 2024 2023

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

Depreciation and amortization expense remained constant at $3.8 million, or 1% of revenue for the three months ended March 31, 2025.

Total Other Expense (Income), Net

Three Months Ended March 31, % Change

(in thousands)

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Percentage of total revenue — % — %

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

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

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

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

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

Total other (income) expense, net, increased by $0.8 million to income of less than $0.1 million for the three months ended March 31, 2025, primarily due to an increase in interest income from our investments and a decrease in interest expense.

Stock-Based Compensation

Three months ended March 31, 2025 compared to three months ended March 31, 2024.

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

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

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

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

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

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

Stock-based compensation expense increased from $8.2 million to $9.8 million for the three months ended March 31, 2025.

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

Liquidity and Capital Resources

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

Nine Months Ended September 30,

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

Net cash provided by (used in) investing activities (31,914) 25,086

Net cash provided by (used in) financing activities (2,283) 58,557

Three Months Ended March 31,

Net cash provided by operating activities $ 15,964 $ 2,434

Net cash used in investing activities (8,973) (2,737)

Net cash used in financing activities (459) (286)

Effect of foreign exchange rates on cash, cash equivalents, and restricted cash, net (52) (313)

Net change in cash, cash equivalents and restricted cash $ 6,480 $ (902)

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.

Refer to Note 7, Reserve for Veterinary Invoices, included in Item 1 of Part I of this report, for further details on anticipated cash outflows.

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

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

Most recently, our primary source of liquidity has been cash provided by our operations.

We believe our operating cash flow is 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 for strategic purposes.

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

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

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

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

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

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

As of March 31, 2025, we had $321.8 million in cash, cash equivalents and short-term investments, of which $273.0 million was held by our insurance entities.

Outside of insurance entities, we held $48.8 million in cash, cash equivalents and short-term investments with an additional $15.0 million available under our Credit Facility.

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

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

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

We repurchased no shares under this program during the three months ended March 31, 2025.

Operating Cash Flows

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

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

Net cash provided by operating activities was $16.0 million for the three months ended March 31, 2025, compared to $2.4 million for the three months ended March 31, 2024.

This increase was primarily driven by improved operating results largely driven by higher revenue, improved Subscription Business margins, and timing differences in other working capital activities.

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

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

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 in investing activities was $31.9 million for the nine months ended September 30, 2024, primarily consisting of purchases of investment securities of $25.6 million, net of maturities, as well as $7.9 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements.

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

Net cash used by investing activities was $9.0 million for the three months ended March 31, 2025, primarily consisting of $40.9 million in purchases of investments, partially offset by $33.2 million in proceeds on maturities and sales of investments, and $1.9 million of capital expenditures mainly related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements.

Net cash used in investing activities was $2.7 million for the three months ended March 31, 2024, primarily consisting of $3.1 million of capital expenditures mainly related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements.

Financing Cash Flows

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

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

Net cash used by financing activities was $0.5 million for the three months ended March 31, 2025, consisting of $1.0 million in proceeds from the exercise of stock options, partially offset by $0.9 million in shares withheld to satisfy tax withholdings, and $0.3 million in repayments on the Credit Facility.

Net cash used in financing activities was $0.3 million for the three months ended March 31, 2024, primarily consisting of $0.3 million in repayments on the Credit Facility.

Long-Term Debt

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

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

As of March 31, 2025, we issued term loans totaling $135.0 million under the Credit Facility.

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

Refer to Note 8, Debt, included in Item 1 of Part I of this report, for further details.

As of September 30, 2024, our insurance entities collectively held $101.2 million in cash and cash equivalents to be used for operating expenses for our insurance entities, $155.5 million in short-term investments and $288.0 million in other current assets.

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

As of March 31, 2025, our insurance entities collectively held $117.7 million in cash and cash equivalents, to be used for operating expenses of our insurance entities, $155.3 million in short-term investments and $287.6 million in other current assets.

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

American Pet Insurance Company ("APIC")

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

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

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

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

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.

ZPIC Insurance Company ("ZPIC") and GPIC Insurance Company ("GPIC")

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

insurance subsidiary, ZPIC, domiciled in Missouri, 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.

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

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

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

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

upon receiving necessary regulatory approvals.

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

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

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

In March 2025, our parent company received a dividend of $15.6 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 September 30, 2024, the account held CAD $19.0 million.

As of March 31, 2025, the account held CAD $20.4 million.

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

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

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

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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Contractual Obligations

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

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 8, Debt, included in Item 1 of Part I of this report, for further details, including interest and future principal payments.

Critical Accounting Estimates

Refer to Note 8, Debt, included in Item 1 of Part I of this report, for further details, including interest and future principal repayments.

Critical Accounting Policies and Significant Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods.

Critical accounting estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Generally, we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances.

Actual results may differ from these estimates.

There have been no material changes to our critical accounting estimates as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

There have been no material changes to our critical accounting policies or estimates as compared to those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis