TRUPANION, INC. 10-Q

Item 1. Financial Statements TRUPANION, INC. Condensed Consolidated Statements of Operations (in thousands, except share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Revenue $ 366,920 $ 327,456 $ 1,062,452 $ 948,377 Cost of revenue: Veterinary invoice expense (1) 263,127 238,814 766,157 703,485 Other cost of revenue (1) 43,739 39,263 130,311 119,017 Total cost of revenue 306,866 278,077 896,468 822,502 Operating expenses: Technology and development (1) 9,887 7,933 26,545 23,083 General and administrative (1) 18,311 16,977 58,325 46,903 New pet acquisition expense (1) 21,946 18,308 62,305 53,025 Depreciation and amortization 4,051 4,381 11,804 12,542 Total operating expenses 54,195 47,599 158,979 135,553 Loss from investment in joint venture — ( 34 ) ( 305 ) ( 184 ) Operating income (loss) 5,859 1,746 6,700 ( 9,862 ) Interest expense 2,790 3,820 9,683 11,071 Other (income), net ( 3,530 ) ( 3,538 ) ( 18,684 ) ( 9,601 ) Income (loss) before income taxes 6,599 1,464 15,701 ( 11,332 ) Income tax (benefit) expense 726 39 1,898 ( 43 ) Net income (loss) $ 5,873 $ 1,425 $ 13,803 $ ( 11,289 ) Net income (loss) per share: Basic $ 0.14 $ 0.03 $ 0.32 $ ( 0.27 ) Diluted $ 0.13 $ 0.03 $ 0.32 $ ( 0.27 ) Weighted average shares of common stock outstanding: Basic 43,076,695 42,233,903 42,849,769 42,076,998 Diluted 43,562,132 42,822,505 43,550,326 42,076,998 (1) Includes stock-based compensation expense as follows: Veterinary invoice expense $ 677 $ 847 $ 2,221 $ 2,625 Other cost of revenue 585 554 1,679 1,561 Technology and development 1,705 1,259 4,326 3,774 General and administrative 4,971 4,125 14,546 11,435 New pet acquisition expense 1,561 1,555 6,013 5,743 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Net income (loss) $ 5,873 $ 1,425 $ 13,803 $ ( 11,289 ) Other comprehensive income (loss): Foreign currency translation adjustments ( 1,423 ) 2,805 3,131 1,288 Net unrealized gain on available-for-sale investments 145 2,209 860 1,552 Other comprehensive income (loss), net of taxes ( 1,278 ) 5,014 3,991 2,840 Comprehensive income (loss) $ 4,595 $ 6,439 $ 17,794 $ ( 8,449 ) See accompanying notes to the condensed consolidated financial statements. 2 TRUPANION, INC. Condensed Consolidated Balance Sheets (in thousands, except share data) September 30, 2025 December 31, 2024 Assets (unaudited) Current assets: Cash and cash equivalents $ 154,773 $ 160,295 Short-term investments 193,761 147,089 Accounts and other receivables, net of allowance for credit losses of $ 1,595 at September 30, 2025 and $ 1,117 at December 31, 2024 302,534 274,031 Prepaid expenses and other assets 16,963 15,912 Total current assets 668,031 597,327 Restricted cash 34,136 39,235 Long-term investments 981 373 Property, equipment, and internal-use software, net 104,683 102,191 Intangible assets, net 24,772 13,177 Other long-term assets 7,186 17,579 Goodwill 40,384 36,971 Total assets $ 880,173 $ 806,853 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 12,760 $ 11,532 Accrued liabilities and other current liabilities 43,577 33,469 Reserve for veterinary invoices 53,972 51,635 Deferred revenue 279,713 251,640 Long-term debt - current portion 750 1,350 Total current liabilities 390,772 349,626 Long-term debt 113,790 127,537 Deferred tax liabilities 2,252 1,946 Other liabilities 4,797 4,476 Total liabilities 511,611 483,585 Stockholders’ equity: Common stock: $ 0.00001 par value per share, 100,000,000 shares authorized; 44,220,625 and 43,192,339 issued and outstanding at September 30, 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 595,802 568,302 Accumulated other comprehensive income (loss) 1,379 ( 2,612 ) Accumulated deficit ( 212,085 ) ( 225,888 ) Treasury stock, at cost: 1,028,186 shares at September 30, 2025 and December 31, 2024 ( 16,534 ) ( 16,534 ) Total stockholders’ equity 368,562 323,268 Total liabilities and stockholders’ equity $ 880,173 $ 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 July 1, 2025 42,987,772 $ — $ 587,289 $ 2,657 $ ( 217,958 ) $ ( 16,534 ) $ 355,454 Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 204,567 — ( 1,099 ) — — — ( 1,099 ) Stock-based compensation expense — — 9,612 — — — 9,612 Other comprehensive loss — — — ( 1,278 ) — — ( 1,278 ) Net Income — — — — 5,873 — 5,873 Balance at September 30, 2025 43,192,339 $ — $ 595,802 $ 1,379 $ ( 212,085 ) $ ( 16,534 ) $ 368,562 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Stockholders' Equity Shares Amount Balance at July 1, 2024 42,159,631 $ — $ 553,122 $ ( 1,771 ) $ ( 228,969 ) $ ( 16,534 ) $ 305,848 Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 181,064 — ( 545 ) — — — ( 545 ) Stock-based compensation expense — — 8,433 — — — 8,433 Other comprehensive income — — — 5,014 — — 5,014 Net income — — — — 1,425 — 1,425 Balance at September 30, 2024 42,340,695 $ — $ 561,010 $ 3,243 $ ( 227,544 ) $ ( 16,534 ) $ 320,175 See accompanying notes to the condensed consolidated financial statements. 4 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 703,894 — ( 1,456 ) — — — ( 1,456 ) Stock-based compensation expense — — 28,956 — — — 28,956 Other comprehensive income — — — 3,991 — — 3,991 Net Income — — — — 13,803 — 13,803 Balance at September 30, 2025 43,192,339 $ — $ 595,802 $ 1,379 $ ( 212,085 ) $ ( 16,534 ) $ 368,562 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 481,829 — ( 661 ) — — — ( 661 ) Stock-based compensation expense — — 25,563 — — — 25,563 Other comprehensive income — — — 2,840 — — 2,840 Net loss — — — — ( 11,289 ) — ( 11,289 ) Balance at September 30, 2024 42,340,695 $ — $ 561,010 $ 3,243 $ ( 227,544 ) $ ( 16,534 ) $ 320,175 See accompanying notes to the condensed consolidated financial statements. 5 TRUPANION, INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Nine Months Ended September 30, 2025 2024 Operating activities Net income (loss) $ 13,803 $ ( 11,289 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 11,804 12,542 Stock-based compensation expense 28,785 25,138 Realized gain on nonmonetary exchange of preferred stock investment ( 7,783 ) — Other, net 1,164 ( 453 ) Changes in operating assets and liabilities: Accounts and other receivables ( 27,927 ) ( 22,020 ) Prepaid expenses and other assets ( 540 ) 2,398 Accounts payable, accrued liabilities, and other liabilities 11,017 ( 350 ) Reserve for veterinary invoices 2,235 ( 6,469 ) Deferred revenue 27,668 25,088 Net cash provided by operating activities 60,226 24,585 Investing activities Purchases of investment securities ( 183,021 ) ( 107,375 ) Maturities and sales of investment securities 137,827 81,767 Purchases of property, equipment, and internal-use software ( 10,206 ) ( 7,858 ) Other 1,639 1,552 Net cash used in investing activities ( 53,761 ) ( 31,914 ) Financing activities Repayment of debt financing ( 15,713 ) ( 1,013 ) Proceeds from exercise of stock options 1,407 729 Shares withheld to satisfy tax withholding ( 2,867 ) ( 1,390 ) Other ( 614 ) ( 609 ) Net cash used in financing activities ( 17,787 ) ( 2,283 ) Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net 701 19 Net change in cash, cash equivalents, and restricted cash ( 10,621 ) ( 9,593 ) Cash, cash equivalents, and restricted cash at beginning of period 199,530 170,464 Cash, cash equivalents, and restricted cash at end of period $ 188,909 $ 160,871 Supplemental disclosures Noncash investing and financing activities: Purchases of property, equipment, and internal-use software included in accounts payable and accrued liabilities $ 571 $ 484 Purchase of intellectual property in exchange for preferred stock investment $ 14,783 $ — See accompanying notes to the condensed consolidated financial statements. 6 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 and, for incremental accounting topics in the current period, are described below. Operating results for the nine months ended September 30, 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. Acquisition of Intellectual Property The Company’s intellectual property acquisition was determined to be an asset acquisition in accordance with ASC 805-50, Business Combinations. To conclude if a transaction is an asset acquisition, the Company considers if substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets. The Company then considers if the acquired set of assets consist of inputs and processes that contribute to the creation of outputs. The acquired assets are recognized based on their cost to the Company, which includes related transaction costs. The Company allocates the purchase price based on relative fair value of the assets acquired. Refer to Note 4 for further discussion on the Company's acquisition of intellectual property. Nonmonetary Exchange The Company accounts for nonmonetary exchanges at fair value. If the transaction lacks commercial substance or fair value is not determinable, the asset received is recorded at the carrying amount of the asset surrendered. The Company evaluates each transaction individually to determine the appropriate accounting treatment. Accumulated Other Comprehensive Income Reclassifications The Company’s available-for-sale securities are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss). Upon realization, through sale or maturity, realized gains and losses are reclassified out of accumulated other comprehensive income. The Company has made a policy election to report the reclassification of accumulated other comprehensive income (loss), net from the beginning to the end of the period within our Statement of Comprehensive Income (Loss) and Note 11, Accumulated Comprehensive Income (Loss). 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 annual periods beginning after December 15, 2024. 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 to 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 evaluating the impact of this ASU on its consolidated financial statements. In September 2025, the FASB issued ASU 2025-06, which modernizes the accounting for software costs that are accounted for under Subtopic 350-40, Intangibles-Goodwill and Other-Internal-Use Software. The ASU is effective for annual periods 7 beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact of adopting ASU 2025-06. 2. Net Income (Loss) per Share Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (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 components of basic and diluted earnings per share were as follows (in thousands, except share and per share information): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Basic earnings per share: Net income (loss) $ 5,873 $ 1,425 $ 13,803 $ ( 11,289 ) Shares used in computation: Weighted average shares of common stock outstanding 43,076,695 42,233,903 42,849,769 42,076,998 Basic earnings per share $ 0.14 $ 0.03 $ 0.32 $ ( 0.27 ) Diluted earnings per share: Net income (loss) $ 5,873 $ 1,425 $ 13,803 $ ( 11,289 ) Shares used in computation: Weighted average shares of common stock outstanding 43,076,695 42,233,903 42,849,769 42,076,998 Stock options 173,254 242,254 263,574 — Restricted stock awards and units 312,183 346,348 436,983 — Weighted average number of shares 43,562,132 42,822,505 43,550,326 42,076,998 Diluted earnings per share $ 0.13 $ 0.03 $ 0.32 $ ( 0.27 ) 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Stock options — — — 353,025 Restricted stock units 102,935 317,203 969,201 1,037,672 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 September 30, 2025 and December 31, 2024 (in thousands): 8 Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value As of September 30, 2025 Long-term investments: Held-to-maturity investments U.S. treasury securities $ 981 $ 3 $ — $ 984 $ 981 $ 3 $ — $ 984 Short-term investments: Available-for-sale investments U.S. treasury securities $ 85,398 $ 441 $ ( 8 ) $ 85,831 Mortgage-backed securities and collateralized mortgage obligations 24,059 188 ( 21 ) 24,226 Other asset-backed securities 23,085 168 — 23,253 Corporate bonds 46,008 600 ( 5 ) 46,603 $ 178,550 $ 1,397 $ ( 34 ) $ 179,913 Held-to-maturity investments U.S. treasury securities $ 9,732 $ 4 $ — $ 9,736 Certificates of deposit 4,116 — — 4,116 $ 13,848 $ 4 $ — $ 13,852 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 9 Future maturities of investments classified as available-for-sale and held-to-maturity are as follows (in thousands): As of September 30, 2025 Amortized Cost Fair Value Available-for-sale: Due under one year $ 651 $ 661 Due after one year through five years 130,755 131,773 Due after five years through ten years — — Due after ten years — — $ 131,406 $ 132,434 Available-for-sale collateralized: Due under one year $ 5,943 $ 5,976 Due after one year through five years 30,693 30,948 Due after five years through ten years 10,269 10,307 Due after ten years 239 248 $ 47,144 $ 47,479 Held-to-maturity: Due under one year $ 13,848 $ 13,852 Due after one year through five years 981 984 $ 14,829 $ 14,836 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 September 30, 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 September 30, 2025 U.S. treasury securities $ 6,760 $ ( 8 ) $ — $ — $ 6,760 $ ( 8 ) Mortgage-backed securities and collateralized mortgage obligations 1,958 ( 3 ) 1,053 ( 18 ) 3,011 ( 21 ) Other asset-backed securities 68 — — — 68 — Corporate bonds 2,215 ( 5 ) — — 2,215 ( 5 ) Total $ 11,001 $ ( 16 ) $ 1,053 $ ( 18 ) $ 12,054 $ ( 34 ) 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 ) 10 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. The Company determined it is not likely to, and does not intend to, sell securities currently in a loss position prior to a potential recovery of their 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 maturity investments classified as available-for-sale were $ 114.6 million and $ 59.2 million during the nine months ended September 30, 2025 and 2024, respectively. 4. Other Investments Preferred Stock Investment and Nonmonetary Exchange The Company 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 did not have power over the activities that most significantly impact the economic performance of the entity and was, therefore, not the primary beneficiary. The preferred stock investment in the entity was redeemable and, therefore, was accounted for as an available-for-sale debt security and measured at fair value at each balance sheet date — see Note 5. During the three months ended June 30, 2025, the Company entered into a purchase agreement for intellectual property developed by Baystride. In exchange for this intellectual property, the Company transferred all of its Baystride preferred stock back to Baystride. The Company concluded that the transaction met the definition of a nonmonetary exchange and an asset acquisition. The Company determined that the cost to acquire the intellectual property was $ 14.9 million, which was comprised of the fair value of the Baystride preferred stock relinquished of $ 14.8 million and direct transaction costs of $ 0.1 million. The acquired intellectual property has been recorded as a patent within Intangible assets, net on the Company's consolidated balance sheet and will be amortized over a 20-year useful life. The nonmonetary exchange resulted in a gain of $ 7.8 million, calculated as the difference between the Company's initial $ 7.0 million investment in Baystride's preferred stock and its $ 14.8 million fair value on the transaction date. This gain was recorded to Other (income), net within the Company's consolidated statement of operations. Additionally, the Company had extended a $ 7.0 million revolving line of credit to Baystride to fund its inventory purchases. 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 were recorded in other long-term assets on its consolidated balance sheet. The outstanding loan balance under the line of credit, including accrued interest, was extinguished in July 2025 and was $ 1.6 million as of December 31, 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 of $ 1.7 million in the fourth quarter of 2023 related to its investment in the Baystride preferred stock. There was no change to this allowance during the nine months ended September 30, 2024 and the 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. There was no change to the allowance for credit losses during the nine months ended September 30, 2025. 11 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 September 30, 2025 Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 65,127 $ 65,127 $ — $ — Fixed maturities: Mortgage-backed securities and collateralized mortgage obligations 24,226 — 24,226 — Other asset-backed securities 23,253 — 23,253 — Corporate bonds 46,603 — 46,603 — U.S. treasury securities 85,831 — 85,831 — Total $ 245,040 $ 65,127 $ 179,913 $ — 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 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 nine months ended September 30, 2025 and the year ended December 31, 2024. The Company's preferred stock investment (see Note 4) was accounted for as an available-for-sale debt security, and measured at fair value at each balance sheet date and as of the transaction date. The estimated fair value of the preferred stock investment was a Level 3 measurement, and was 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 following table presents the change in fair value of the Company’s preferred stock investment previously carried at fair value and classified as Level 3 (in thousands): 12 Nine Months Ended September 30, 2025 2024 Balance at beginning of period $ 7,916 $ 5,326 Reversal of cumulative unrealized gain included in other comprehensive income (loss) (916) — Realized gain on nonmonetary exchange of preferred stock investment in Other (income), net 7,783 — Exchange of preferred stock for intellectual property (14,783) — Balance at end of period $ — $ 5,326 Fair Value Disclosures - Other Assets and Liabilities The Company's other long-term assets balance also included notes receivable of $ 2.6 million and $ 4.3 million as of September 30, 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 September 30, 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 claims development 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): Nine Months Ended September 30, Subscription 2025 2024 Reserve at beginning of year $ 23,084 $ 31,548 Veterinary invoices during the period related to: Current year 515,999 464,001 Prior years 2,789 142 Total veterinary invoice expense 518,788 464,143 Amounts paid during the period related to: Current year 489,216 439,325 Prior years 23,523 29,675 Total paid 512,739 469,000 Non-cash expenses 2,291 2,529 Reserve at end of period $ 26,842 $ 24,162 13 The Company had unfavorable development on veterinary invoice reserves of $ 2.8 million for the nine months ended September 30, 2025, including unfavorable development of $1.1 million attributable to accident year 2024 and unfavorable development of $1.7 million attributable to accident year 2023 and prior. The unfavorable development for accident year 2024 and 2023 was primarily driven by higher than expected frequency of claims. Non-cash expenses are primarily comprised of stock-based compensation for employees performing claims processing related duties. Summarized below are the changes in total liability for the Company's other business segment (in thousands): Nine Months Ended September 30, Other Business 2025 2024 Reserve at beginning of year $ 28,551 $ 31,690 Veterinary invoices during the period related to: Current year 252,895 240,690 Prior years ( 5,526 ) ( 1,348 ) Total veterinary invoice expense 247,369 239,342 Amounts paid during the period related to: Current year 227,648 209,862 Prior years 21,141 28,664 Total paid 248,789 238,526 Non-cash expenses 1 — Reserve at end of period $ 27,130 $ 32,506 The Company had favorable development on veterinary invoice reserves for the other business segment of $ 5.5 million for the nine months ended September 30, 2025, including favorable development on veterinary invoice reserves of $5.4 million attributable to accident year 2024 and favorable development of $0.1 million attributable to accident year 2023 and prior. The favorable development for accident year 2024 was primarily driven by lower than expected frequency and to a lesser extent, lower than expected severity in the fourth quarter of 2024. 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 September 30, 2025 Year of Occurrence 2023 and prior $ 79 2024 2,271 2025 24,492 $ 26,842 Other Business As of September 30, 2025 Year of Occurrence 2023 and prior $ 255 2024 1,629 2025 25,246 $ 27,130 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; (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 14 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 . To the extent not previously paid, the Initial Term Loan would have been due and payable on March 25, 2027 , the Delayed Draw Term Loans due and payable on the earlier of the five-year anniversary of their initial funding or March 25, 2028 , and Revolving Loans due and payable on March 25, 2027 . The Credit Facility obligated the Company to repay 0.25 % of any then-outstanding Term Loans, together with accrued and unpaid interest, on a quarterly basis. In June 2025, the Company made a $ 14.9 million principal repayment on the Initial Term Loan in addition to the 0.25 % quarterly mandatory repayment. The Credit Facility bore interest at a floating base rate plus an applicable margin. The stated interest rate as of September 30, 2025 was approximately 9.15 % for the aggregate outstanding 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 was secured by substantially all assets of the Company and its subsidiaries. Proceeds from the Credit Facility were permitted to be used for acquisitions and investments, working capital and other general corporate purposes. The Credit Agreement contained financial and other covenants . As of September 30, 2025, the Company was in compliance with all financial and other covenants . Future principal payments on outstanding borrowings as of September 30, 2025 were as follows (in thousands): Year Ending December 31, As of September 30, 2025 2025 $ 187 2026 750 2027 58,163 2028 57,125 Total $ 116,225 In November 2025, the Company repaid the Credit Facility in full. See Note 13, Subsequent Events. 15 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Veterinary invoice expense $ 677 $ 847 $ 2,221 $ 2,625 Other cost of revenue 585 554 1,679 1,561 Technology and development 1,705 1,259 4,326 3,774 General and administrative 4,971 4,125 14,546 11,435 New pet acquisition expense 1,561 1,555 6,013 5,743 Total expensed stock-based compensation 9,499 8,340 28,785 25,138 Capitalized stock-based compensation 113 93 171 425 Total stock-based compensation $ 9,612 $ 8,433 $ 28,956 $ 25,563 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 ( 114,960 ) 12.27 2,852 Forfeited ( 4,780 ) 10.58 — Outstanding as of September 30, 2025 227,594 15.40 6,345 Exercisable as of September 30, 2025 227,594 $ 15.40 $ 6,345 As of September 30, 2025, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 1.2 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, vested 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 975,328 45.94 Vested ( 658,803 ) 43.83 Forfeited ( 128,841 ) 35.49 Unvested shares as of September 30, 2025 1,158,423 $ 41.11 Stock-based compensation expenses of $ 45.1 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 1.9 years. 16 10. Stockholders' Equity Common Stock and Preferred Stock As of September 30, 2025, the Company had 100,000,000 shares of common stock authorized and 43,192,339 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 September 30, 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 nine months ended September 30, 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): Three months ended September 30, 2025 Foreign Currency Translation Net Unrealized Gain (Loss) on Available-for-Sale Securities Total Balance as of July 1, 2025 $ 1,441 $ 1,216 $ 2,657 Other comprehensive loss ( 1,423 ) 145 ( 1,278 ) Balance as of September 30, 2025 $ 18 $ 1,361 $ 1,379 Three months ended September 30, 2024 Foreign Currency Translation Net Unrealized Gain (Loss) on Available-for-Sale Securities Total Balance as of July 1, 2024 $ ( 1,593 ) $ ( 178 ) $ ( 1,771 ) Other comprehensive income 2,805 2,209 5,014 Balance as of September 30, 2024 $ 1,212 $ 2,031 $ 3,243 Nine Months Ended September 30, 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 3,131 860 3,991 Balance as of September 30, 2025 $ 18 $ 1,361 $ 1,379 Nine Months Ended September 30, 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 income 1,288 1,552 2,840 Balance as of September 30, 2024 $ 1,212 $ 2,031 $ 3,243 In connection with the nonmonetary exchange discussed in Note 4, the Company reclassified $0.9 million of previously unrealized gain from Accumulated other comprehensive income (loss) to Other (income), net during the nine months ended September 30, 2025. 17 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Subscription business: Revenue $ 252,697 $ 218,986 $ 727,917 $ 628,738 Veterinary invoice expense 177,733 156,307 518,788 464,143 Other cost of revenue 23,033 21,058 67,310 61,094 Technology and development 6,809 5,305 18,187 15,303 General and administrative 12,611 11,353 39,960 31,095 New pet acquisition expense 21,895 18,210 62,175 52,897 Depreciation and amortization 2,790 2,929 8,087 8,315 Subscription business operating income (loss) 7,826 3,824 13,410 (4,109) Other business: Revenue 114,223 108,470 334,535 319,639 Veterinary invoice expense 85,394 82,507 247,369 239,342 Other cost of revenue 20,706 18,205 63,001 57,923 Technology and development 3,078 2,628 8,358 7,780 General and administrative 5,700 5,624 18,365 15,808 New pet acquisition expense 51 98 130 128 Depreciation and amortization 1,261 1,452 3,717 4,227 Other business operating income (loss) (1,967) (2,044) (6,405) (5,569) Loss from investment in joint venture — ( 34 ) ( 305 ) ( 184 ) Operating income (loss) 5,859 1,746 6,700 ( 9,862 ) Interest expense 2,790 3,820 9,683 11,071 Other (income), net ( 3,530 ) ( 3,538 ) ( 18,684 ) ( 9,601 ) Income (loss) before income taxes $ 6,599 $ 1,464 $ 15,701 $ ( 11,332 ) 18 The following table presents the Company’s revenue by geographic region of the member (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 United States $ 304,579 $ 272,825 $ 884,382 $ 792,018 Canada and other 62,341 54,631 178,070 156,359 Total revenue $ 366,920 $ 327,456 $ 1,062,452 $ 948,377 Substantially all of the Company’s long-lived assets were located in the United States as of September 30, 2025 and December 31, 2024. 13. Subsequent Events The Company has evaluated events subsequent to September 30, 2025 through the date of this filing to assess the need for potential recognition or disclosure. Credit Facility Refinancing In November 2025, the Company entered into a credit agreement with PNC Bank, National Association, acting as the administrative agent, that provides the Company with $120.0 million in credit consisting of a term loan in an aggregate principal amount of $100.0 million and commitments for revolving loans in an aggregate principal amount at any time outstanding not in excess of $20.0 million (collectively, the "PNC Facility"). The PNC Facility is secured by substantially all of the Company's assets and those of its subsidiaries. The Company used the proceeds from the PNC Facility to extinguish the outstanding balance under the Credit Facility. 19