TRUPANION, INC. 10-Q

Item 1. Financial Statements TRUPANION, INC. Condensed Consolidated Statements of Operations (in thousands, except share data) (unaudited) Three Months Ended March 31, 2025 2024 Revenue $ 341,975 $ 306,121 Cost of revenue: Veterinary invoice expense (1) 247,450 233,569 Other cost of revenue (1) 43,422 36,325 Total cost of revenue 290,872 269,894 Operating expenses: Technology and development (1) 8,072 6,960 General and administrative (1) 19,892 14,673 New pet acquisition expense (1) 20,516 16,843 Depreciation and amortization 3,791 3,785 Total operating expenses 52,271 42,261 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 ) Loss before income taxes ( 1,444 ) ( 6,890 ) Income tax (benefit) expense 39 ( 38 ) Net loss $ ( 1,483 ) $ ( 6,852 ) Net loss per share: Basic and diluted $ ( 0.03 ) $ ( 0.16 ) Weighted average shares of common stock outstanding: Basic and diluted 42,775,955 41,917,094 (1) Includes stock-based compensation expense as follows: Veterinary invoice expense $ 770 $ 924 Other cost of revenue 489 466 Technology and development 1,151 1,254 General and administrative 4,528 3,449 New pet acquisition expense 2,892 2,059 See accompanying notes to the condensed consolidated financial statements. 1 TRUPANION, INC. Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) (unaudited) Three Months Ended March 31, 2025 2024 Net loss $ ( 1,483 ) $ ( 6,852 ) Other comprehensive income (loss): Foreign currency translation adjustments 1,352 ( 1,332 ) Net unrealized gain (loss) on available-for-sale investments 545 ( 652 ) Other comprehensive income (loss), net of taxes 1,897 ( 1,984 ) Comprehensive income (loss) $ 414 $ ( 8,836 ) See accompanying notes to the condensed consolidated financial statements. 2 TRUPANION, INC. Condensed Consolidated Balance Sheets (in thousands, except share data) March 31, 2025 December 31, 2024 Assets (unaudited) Current assets: Cash and cash equivalents $ 166,308 $ 160,295 Short-term investments 155,508 147,089 Accounts and other receivables, net of allowance for credit losses of $ 1,046 at March 31, 2025 and $ 1,117 at December 31, 2024 290,104 274,031 Prepaid expenses and other assets 16,417 15,912 Total current assets 628,337 597,327 Restricted cash 39,702 39,235 Long-term investments 376 373 Property, equipment, and internal-use software, net 101,938 102,191 Intangible assets, net 12,130 13,177 Other long-term assets 16,356 17,579 Goodwill 38,323 36,971 Total assets $ 837,162 $ 806,853 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 9,681 $ 11,532 Accrued liabilities and other current liabilities 36,907 33,469 Reserve for veterinary invoices 54,042 51,635 Deferred revenue 267,357 251,640 Long-term debt - current portion 1,350 1,350 Total current liabilities 369,337 349,626 Long-term debt 127,526 127,537 Deferred tax liabilities 1,884 1,946 Other liabilities 4,742 4,476 Total liabilities 503,489 483,585 Stockholders’ equity: Common stock: $ 0.00001 par value per share, 100,000,000 shares authorized; 43,804,141 and 42,775,955 issued and outstanding at March 31, 2025; 43,516,631 and 42,488,445 shares issued and outstanding at December 31, 2024 — — Preferred stock: $ 0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding — — Additional paid-in capital 578,293 568,302 Accumulated other comprehensive income (loss) ( 715 ) ( 2,612 ) Accumulated deficit ( 227,371 ) ( 225,888 ) Treasury stock, at cost: 1,028,186 shares at March 31, 2025 and December 31, 2024 ( 16,534 ) ( 16,534 ) Total stockholders’ equity 333,673 323,268 Total liabilities and stockholders’ equity $ 837,162 $ 806,853 See accompanying notes to the condensed consolidated financial statements. 3 Trupanion, Inc. Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) (unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Stockholders' Equity Shares Amount Balance at January 1, 2025 42,488,445 $ — $ 568,302 $ ( 2,612 ) $ ( 225,888 ) $ ( 16,534 ) $ 323,268 Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 287,510 — 112 — — — 112 Stock-based compensation expense — — 9,879 — — — 9,879 Other comprehensive income — — — 1,897 — — 1,897 Net loss — — — — ( 1,483 ) — ( 1,483 ) Balance at March 31, 2025 42,775,955 $ — $ 578,293 $ ( 715 ) $ ( 227,371 ) $ ( 16,534 ) $ 333,673 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Stockholders' Equity Shares Amount Balance at January 1, 2024 41,858,866 $ — $ 536,108 $ 403 $ ( 216,255 ) $ ( 16,534 ) $ 303,722 Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 145,753 — 127 — — — 127 Stock-based compensation expense — — 8,358 — — — 8,358 Other comprehensive loss — — — ( 1,984 ) — — ( 1,984 ) Net loss — — — — ( 6,852 ) — ( 6,852 ) Balance at March 31, 2024 42,004,619 $ — $ 544,593 $ ( 1,581 ) $ ( 223,107 ) $ ( 16,534 ) $ 303,371 See accompanying notes to the condensed consolidated financial statements. 4 TRUPANION, INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended March 31, 2025 2024 Operating activities Net loss $ ( 1,483 ) $ ( 6,852 ) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization 3,791 3,785 Stock-based compensation expense 9,830 8,152 Other, net 349 ( 202 ) Changes in operating assets and liabilities: Accounts and other receivables ( 15,965 ) ( 10,718 ) Prepaid expenses and other assets ( 204 ) 287 Accounts payable, accrued liabilities, and other liabilities 1,527 ( 5,131 ) Reserve for veterinary invoices 2,407 ( 885 ) Deferred revenue 15,712 13,998 Net cash provided by operating activities 15,964 2,434 Investing activities Purchases of investment securities ( 40,875 ) ( 19,193 ) Maturities and sales of investment securities 33,242 19,005 Purchases of property, equipment, and internal-use software ( 1,928 ) ( 3,065 ) Other 588 516 Net cash used in investing activities ( 8,973 ) ( 2,737 ) Financing activities Repayment of debt financing ( 338 ) ( 338 ) Proceeds from exercise of stock options 1,024 372 Shares withheld to satisfy tax withholding ( 915 ) ( 245 ) Other ( 230 ) ( 75 ) Net cash used in financing activities ( 459 ) ( 286 ) Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net ( 52 ) ( 313 ) Net change in cash, cash equivalents, and restricted cash 6,480 ( 902 ) Cash, cash equivalents, and restricted cash at beginning of period 199,530 170,464 Cash, cash equivalents, and restricted cash at end of period $ 206,010 $ 169,562 Supplemental disclosures Noncash investing and financing activities: Purchases of property, equipment, and internal-use software included in accounts payable and accrued liabilities $ 803 $ 694 See accompanying notes to the condensed consolidated financial statements. 5 TRUPANION, INC. Notes to the Condensed Consolidated Financial Statements (unaudited) 1. Nature of Operations and Significant Accounting Policies Description of Business and Basis of Presentation Trupanion, Inc. (collectively with its wholly-owned subsidiaries, the "Company") provides medical insurance for cats and dogs in the United States, Canada, and certain countries in Continental Europe. Through its data-driven, vertically-integrated approach, the Company develops and offers high-value medical insurance products, priced to take into account each pet's unique characteristics and coverage level. The financial data as of December 31, 2024 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive income (loss), stockholders' equity and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (SEC) on February 27, 2025 (the 2024 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2024 10-K. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 1 to the audited financial statements included in the 2024 10-K for additional discussion of these estimates and assumptions. Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, which improves and expands upon annual income tax disclosures, primarily relating to rate reconciliation and income taxes paid information. The ASU is effective for the Company for the fiscal year ending December 31, 2025. The Company is currently evaluating the impact of adopting ASU 2023-09. In November 2024, the FASB issued ASU 2024-03, which requires 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. The Company is still evaluating the impact of this ASU on its consolidated financial statements. 2. Net Loss per Share Basic net loss per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated using the weighted average number of shares of common stock plus, when dilutive, potential shares of common stock outstanding using the treasury-stock method. Potential shares of common stock outstanding include stock options and unvested restricted stock units. The following potentially dilutive equity securities were not included in the diluted earnings per share of common stock calculation because they would have had an antidilutive effect: Three Months Ended March 31, 2025 2024 Stock options 267,452 386,312 Restricted stock units 1,472,290 1,262,794 6 3. Investments Available-for sale securities are classified as short-term versus long-term investments based on whether they represent the investment of funds available for current operations. Currently, all available-for-sale securities are considered short-term in nature. 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 March 31, 2025 and December 31, 2024 (in thousands): Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value As of March 31, 2025 Long-term investments: Held-to-maturity investments U.S. treasury securities $ 376 $ — $ — $ 376 $ 376 $ — $ — $ 376 Short-term investments: Available-for-sale investments U.S. treasury securities $ 64,218 $ 487 $ ( 45 ) $ 64,660 Mortgage-backed securities and collateralized mortgage obligations 16,530 127 ( 34 ) 16,623 Other asset-backed securities 16,832 120 ( 6 ) 16,946 Corporate bonds 37,238 403 ( 6 ) 37,636 $ 134,818 $ 1,137 $ ( 91 ) $ 135,865 Held-to-maturity investments U.S. treasury securities $ 10,661 $ 6 $ — $ 10,667 Certificates of deposit 8,982 — — 8,982 $ 19,643 $ 6 $ — $ 19,649 Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value As of December 31, 2024 Long-term investments: Held-to-maturity investments U.S. treasury securities $ 373 $ — $ ( 1 ) $ 372 $ 373 $ — $ ( 1 ) $ 372 Short-term investments: Available-for-sale investments U.S. treasury securities $ 70,175 $ 318 $ ( 202 ) $ 70,291 Mortgage-backed securities and collateralized mortgage obligations 12,576 80 ( 60 ) 12,596 Other asset-backed securities 15,830 134 ( 8 ) 15,956 Corporate bonds 35,382 284 ( 43 ) 35,623 $ 133,963 $ 816 $ ( 313 ) $ 134,466 Held-to-maturity investments U.S. treasury securities $ 10,591 $ 16 $ ( 1 ) $ 10,606 Certificates of deposit 2,032 — — 2,032 $ 12,623 $ 16 $ ( 1 ) $ 12,638 7 Future maturities of investments classified as available-for-sale and held-to-maturity are as follows (in thousands): As of March 31, 2025 Amortized Cost Fair Value Available-for-sale: Due under one year $ 1,170 $ 1,176 Due after one year through five years 100,286 101,120 $ 101,456 $ 102,296 Available-for-sale collateralized: Due under one year $ 2,551 $ 2,560 Due after one year through five years 22,051 22,241 Due after five years through ten years $ 8,495 $ 8,495 Due after ten years $ 265 $ 273 $ 33,362 $ 33,569 Held-to-maturity: Due under one year $ 19,643 $ 19,649 Due after one year through five years 376 376 $ 20,019 $ 20,025 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 March 31, 2025 and December 31, 2024 (in thousands): Less than 12 Months 12 Months or More Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss As of March 31, 2025 U.S. Treasury securities $ 11,763 $ ( 45 ) $ — $ — $ 11,763 $ ( 45 ) Mortgage-backed securities and collateralized mortgage obligations 962 ( 8 ) 1,255 ( 26 ) 2,217 ( 34 ) Other asset-backed securities 1,001 ( 2 ) 1,510 ( 4 ) 2,511 ( 6 ) Corporate bonds 2,008 ( 6 ) — — 2,008 ( 6 ) Total $ 15,734 $ ( 61 ) $ 2,765 $ ( 30 ) $ 18,499 $ ( 91 ) Less than 12 Months 12 Months or More Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss As of December 31, 2024 U.S. 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 ) 8 Unrealized losses on available-for-sale investments relate to interest rate changes. The Company does not expect material 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 of the cost basis. The Company does not expect material 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 $ 29.6 million and $ 15.1 million during the three months ended March 31, 2025 and 2024, respectively. 4. Other Investments The Company has invested $ 7.0 million in the preferred stock of a variable interest entity, Baystride, Inc. ("Baystride"), a U.S.-based privately held corporation operating in the pet food industry. The Company does not have power over the activities that most significantly impact the economic performance of the entity and is, therefore, not the primary beneficiary. The Company has the option to purchase all of the outstanding common stock issued by the entity in August 2027 at an amount approximating its expected fair value. The preferred stock investment in the entity is redeemable, and therefore, is accounted for as an available-for-sale debt security, and measured at fair value at each balance sheet date — see Note 5. Additionally, the Company has extended a $ 7.0 million revolving line of credit to Baystride to fund its inventory purchases, which will increase annually by $ 2.0 million until the note’s maturity in 2027. Borrowing amounts are subject to limitations based on Baystride’s forecasted revenues and inventory balances. The Company's investment and amounts loaned under the line of credit are recorded in other long-term assets on its consolidated balance sheet. The outstanding loan balance under the line of credit, including accrued interest, was $ 1.0 million and $ 1.6 million as of March 31, 2025 and December 31, 2024, respectively. The Company has also entered into a series of agreements to provide ancillary services to, and receive reimbursement from, Baystride at cost. The Company provided $ 0.1 million of these services for each of the three months ended March 31, 2025 and 2024. Allowance for Credit Losses The Company regularly evaluates its investments for expected credit losses. The Company considers past events, current conditions, and reasonable and supportable forecasts in estimating an allowance for credit losses. Additionally, the Company considers the ultimate collection of cash flows from its investments and whether the Company has the intent to sell, or if it is more likely than not the Company would be required to sell the security prior to recovery of its amortized cost. Such evaluations are revised as conditions change and new information becomes available. Based on these considerations, the Company established an allowance for credit losses in 2023 related to its investment in the Baystride preferred stock. This credit loss allowance was reversed in the fourth quarter of 2024 as the fair value of the Company's investment in Baystride. 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 (in thousands). Three Months Ended March 31, 2025 2024 Balance at the beginning of the period $ — $ ( 1,674 ) Recovery of (addition to) allowance for credit losses — — Balance as of the end of the period $ — $ ( 1,674 ) 9 5. Fair Value Fair Value Disclosures - Investments The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands): As of March 31, 2025 Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 98,256 $ 98,256 $ — $ — Fixed maturities: Mortgage-backed securities and collateralized mortgage obligations 16,623 — 16,623 — Other asset-backed securities 16,946 — 16,946 — Corporate bonds 37,636 — 37,636 — U.S. Treasury securities 64,660 — 64,660 — Preferred stock investment 7,916 — — 7,916 Total $ 242,037 $ 98,256 $ 135,865 $ 7,916 As of December 31, 2024 Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 91,534 $ 91,534 $ — $ — Fixed maturities: Mortgage-backed securities and collateralized mortgage obligations 12,596 — 12,596 — Other asset-backed securities 15,956 — 15,956 — Corporate bonds 35,623 — 35,623 — U.S. Treasury securities 70,291 — 70,291 — Preferred stock investment 7,916 — — 7,916 Total $ 233,916 $ 91,534 $ 134,466 $ 7,916 The Company measures the fair value of money market funds, classified as Level 1, based on quoted prices in active markets for identical assets. The fair values of the Company's fixed maturity investments classified as Level 2 are based on either recent trades in inactive markets or quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. Held-to-maturity investments are carried at amortized cost and the fair value and changes in unrealized gains and losses are disclosed in Note 3, Investments. The fair value of these investments is determined in the same manner as available-for-sale securities and are considered either a Level 1 or Level 2 measurement. The Company's preferred stock investment (see Note 4) is accounted for as an available-for-sale debt security, and measured at fair value at each balance sheet date. The estimated fair value of the preferred stock investment is a Level 3 measurement, and is based on certain unobservable inputs such as the value of the underlying enterprise, volatility, time to liquidity, and market interest rates. Significant changes in any of these unobservable inputs would result in a change in the fair value measurement. The estimated fair value was $ 7.9 million as of March 31, 2025, unchanged from December 31, 2024. The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers between levels for the three months ended March 31, 2025 and the year ended December 31, 2024. There was no change in the fair value of the Company's preferred stock investment classified as Level 3 during the three months ended March 31, 2025 or 2024. 10 Fair Value Disclosures - Other Assets and Liabilities The Company's other long-term assets balance also included notes receivable of $ 3.7 million and $ 4.3 million as of March 31, 2025 and December 31, 2024, respectively, recorded at their estimated collectible amount. The Company estimates that the carrying value of the notes receivable approximates the 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. The Company estimates the fair value of long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement. Based upon the terms of the debt, the carrying amount of long-term debt approximated fair value at March 31, 2025. 6. Commitments and Contingencies Legal Proceedings From time to time the Company is or may become subject to various legal proceedings arising in the ordinary course of business, including proceedings against members, other entities or regulatory bodies. Estimated liabilities are recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. At this time, the Company does not believe any such matters to be material individually or in the aggregate. These views are subject to change following the outcome of future events or the results of future developments. 7. Reserve for Veterinary Invoices The reserve for veterinary invoices is an estimate of the future amount the Company will pay for insurance claims that have not been paid prior to the reporting date. The reserve also includes the Company's estimate of related internal processing costs. The reserve estimate involves actuarial projections and is based on management's assessment of facts and circumstances currently known, and assumptions about anticipated patterns. The Company uses generally accepted actuarial methodologies, such as paid loss development methods, in estimating the amount of the reserve for veterinary invoices. The reserve is made for each of the Company's segments, subscription and other business, and is continually refined as the Company receives and pays veterinary invoices. Changes in management's assumptions and estimates may have a relatively large impact on the reserve and associated expense. Reserve for veterinary invoices Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands): Three Months Ended March 31, Subscription 2025 2024 Reserve at beginning of year $ 23,084 $ 31,549 Veterinary invoices during the period related to: Current year 166,452 151,793 Prior years 1,729 563 Total veterinary invoice expense 168,181 152,356 Amounts paid during the period related to: Current year 146,976 128,639 Prior years 17,870 24,386 Total paid 164,846 153,025 Non-cash expenses 832 864 Reserve at end of period $ 25,587 $ 30,016 The Company had unfavorable development on veterinary invoice reserves of $ 1.7 million for the three months ended March 31, 2025, including unfavorable development of $1.2 million attributable to accident year 2024 and unfavorable development of $0.5 million attributable to accident year 2023 and prior. The unfavorable development for accident year 2024 was primarily driven by a slower pattern of claims reported by members than initially anticipated. The unfavorable development for accident year 2023 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. 11 Summarized below are the changes in total liability for the Company's other business segment (in thousands): Three Months Ended March 31, Other Business 2025 2024 Reserve at beginning of year $ 28,551 $ 31,690 Veterinary invoices during the period related to: Current year 83,822 80,876 Prior years ( 4,553 ) 337 Total veterinary invoice expense 79,269 81,213 Amounts paid during the period related to: Current year 61,307 55,059 Prior years 18,058 25,585 Total paid 79,365 80,644 Non-cash expenses — — Reserve at end of period $ 28,455 $ 32,259 The Company had favorable development on veterinary invoice reserves for the other business segment of $ 4.6 million for the three months ended March 31, 2025, including favorable development on veterinary invoice reserves of $4.4 million attributable to accident year 2024 and favorable development of $0.2 million attributable to accident year 2023 and prior. The favorable development for all periods was driven by lower frequency and severity than expected. Reserve for veterinary invoices, by year of occurrence In the following tables, the reserve for veterinary invoices for each segment is presented as the amount (in thousands) by the year to which the veterinary invoice relates, referred to as the year of occurrence. Subscription As of March 31, 2025 Year of Occurrence 2023 and prior $ 541 2024 6,402 2025 18,644 $ 25,587 Other Business As of March 31, 2025 Year of Occurrence 2023 and prior $ 671 2024 5,269 2025 22,515 $ 28,455 8. Debt On March 25, 2022 , the Company entered into a credit agreement with Piper Sandler Finance, LLC, acting as the administrative agent, that provides the Company with $ 150.0 million in credit (the Credit Facility) consisting of: (a) an initial term loan in an aggregate principal amount of $ 60.0 million (Initial Term Loan), which was funded at closing; 12 (b) commitments for delayed draw term loans in an aggregate principal amount not in excess of $ 75.0 million (Delayed Draw Term Loans, and together with the Initial Term Loan, the Term Loans), which may be drawn from time to time until September 25, 2023 . On December 29, 2022, February 17, 2023, and September 21, 2023, the Company borrowed Delayed Draw Term loans of $ 15.0 million, $ 35.0 million, and $ 25.0 million, respectively; and (c) commitments for revolving loans in an aggregate principal amount at any time outstanding not in excess of $ 15.0 million (Revolving Loans), which may be drawn at any time prior to March 25, 2027 . The Credit Facility bears interest at a floating base rate plus an applicable margin. The stated interest rate as of March 31, 2025 was approximately 9.45 % for the original $ 60.0 million term loan and for the aggregate $ 75.0 million term loans. The Company incurred total debt issuance cost of approximately $ 5.9 million, which is reported in the consolidated balance sheet as a direct reduction from the carrying amount of the Credit Facility, and is amortized as interest expense over the term of five years. The Credit Facility is secured by substantially all assets of the Company and its subsidiaries. Proceeds from the Credit Facility may be used for permitted acquisitions and investments, working capital and other general corporate purposes. The Credit Agreement contains financial and other covenants . As of March 31, 2025, the Company was in compliance with all financial and other covenants . To the extent not previously paid, the Initial Term Loan is due and payable on March 25, 2027 , the Delayed Draw Term Loans are due and payable on the earlier of the five-year anniversary of their initial funding or March 25, 2028 , and Revolving Loans are due and payable on March 25, 2027 . The Company must repay 0.25 % of any then-outstanding Term Loans, together with accrued and unpaid interest, on a quarterly basis. Future principal payments on outstanding borrowings as of March 31, 2025 are as follows (in thousands): Year Ending December 31, March 31, 2025 2025 $ 1,012 2026 1,350 2027 72,113 2028 57,125 Total $ 131,600 13 9. Stock-Based Compensation 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 was as follows (in thousands): Three Months Ended March 31, 2025 2024 Veterinary invoice expense $ 770 $ 924 Other cost of revenue 489 466 Technology and development 1,151 1,254 General and administrative 4,528 3,449 New pet acquisition expense 2,892 2,059 Total expensed stock-based compensation 9,830 8,152 Capitalized stock-based compensation 49 206 Total stock-based compensation $ 9,879 $ 8,358 Stock Options The following table presents information regarding stock options granted, exercised, and forfeited for the period presented: Number of Options Weighted Average Exercise Price per Share Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2024 347,334 $ 14.30 $ 11,775 Granted — — — Exercised ( 78,536 ) 13.09 1,626 Forfeited ( 1,346 ) 11.87 — Outstanding as of March 31, 2025 267,452 14.67 6,038 Exercisable as of March 31, 2025 267,452 $ 14.67 $ 6,038 As of March 31, 2025, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 1.6 years. The Company has not granted any new stock options since 2017 and all outstanding options vested prior to January 1, 2022. Restricted Stock Units The following table presents information regarding restricted stock units granted, exercised and forfeited for the period presented: Number of Shares Weighted Average Grant Date Fair Value per Share Unvested shares as of December 31, 2024 970,739 $ 37.35 Granted 750,173 45.95 Vested ( 233,855 ) 42.81 Forfeited ( 14,767 ) 36.78 Unvested shares as of March 31, 2025 1,472,290 $ 40.88 Stock-based compensation expenses of $ 58.3 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 2.0 years. 14 10. Stockholders' Equity Common Stock and Preferred Stock As of March 31, 2025, the Company had 100,000,000 shares of common stock authorized and 42,775,955 shares of common stock outstanding. Holders of common stock are entitled to one vote on each matter properly submitted to the stockholders of the Company except those related to matters concerning possible outstanding preferred stock. At March 31, 2025, the Company had 10,000,000 shares of undesignated preferred stock authorized for future issuance and did not have any outstanding shares of preferred stock. The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company (the Board), whenever funds are legally available. These rights are subordinate to the dividend rights of holders of any senior classes of stock outstanding at the time. The Company does not intend to declare or pay any cash dividends in the foreseeable future. Share Repurchase Program 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 three months ended March 31, 2025 and 2024, respectively. 11. Accumulated Comprehensive Income (Loss) A summary of the components of accumulated other comprehensive income (loss) is as follows (in thousands): For the three months ended March 31, 2025 Foreign Currency Translation Net Unrealized Gain (Loss) on Available-for-Sale Securities Total Balance as of January 1, 2025 $ ( 3,113 ) $ 501 $ ( 2,612 ) Other comprehensive income 1,352 545 1,897 Balance as of March 31, 2025 $ ( 1,761 ) $ 1,046 $ ( 715 ) For the three months ended March 31, 2024 Foreign Currency Translation Net Unrealized Gain (Loss) on Available-for-Sale Securities Total Balance as of January 1, 2024 $ ( 76 ) $ 479 $ 403 Other comprehensive loss ( 1,332 ) ( 652 ) ( 1,984 ) Balance as of March 31, 2024 $ ( 1,408 ) $ ( 173 ) $ ( 1,581 ) 15 12. Segments The Company has two reporting segments: subscription business and other business. The subscription business segment generates revenue primarily from subscription payments related to the Company's direct-to-consumer products. The other business segment generates revenue from other product offerings, primarily by underwriting policies on behalf of third parties with whom the Company has a business-to-business relationship. The other business segment has, and targets, a lower 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 Company's chief operating decision maker is its 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. 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. Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss. The Company does not analyze discrete segment balance sheet information related to long-term assets. Operating income (loss) of the Company’s segments was as follows (in thousands): Three Months Ended March 31, 2025 2024 Subscription business: Revenue $ 233,064 $ 201,134 Veterinary invoice expense 168,181 152,356 Other cost of revenue 21,664 19,776 Technology and development 5,501 4,573 General and administrative 13,557 9,641 New pet acquisition expense 20,512 16,826 Depreciation and amortization 2,584 2,487 Subscription business operating income (loss) 1,065 ( 4,525 ) Other business: Revenue 108,911 104,987 Veterinary invoice expense 79,269 81,213 Other cost of revenue 21,758 16,549 Technology and development 2,571 2,387 General and administrative 6,335 5,032 New pet acquisition expense 4 17 Depreciation and amortization 1,207 1,298 Other business operating loss ( 2,233 ) ( 1,509 ) 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 ) Loss before income taxes $ ( 1,444 ) $ ( 6,890 ) 16 The following table presents the Company’s revenue by geographic region of the member (in thousands): Three Months Ended March 31, 2025 2024 United States $ 285,824 $ 255,974 Canada and other 56,150 50,147 Total revenue $ 341,975 $ 306,121 Substantially all of the Company’s long-lived assets were located in the United States as of March 31, 2025 and December 31, 2024. 17