TRUPANION, INC. 10-K

Item 8. Financial Statements and Supplementary Data Trupanion, Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 61 Consolidated Statements of Operations 63 Consolidated Statements of Comprehensive Income ( Loss ) 64 Consolidated Balance Sheets 65 Consolidated Statements of Stockholders' Equity 66 Consolidated Statements of Cash Flows 67 Notes to Consolidated Financial Statements 68 60 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Trupanion, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Trupanion, Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 13, 2026 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates. 61 Reserve for Veterinary Invoices Description of the Matter The Company’s reserve for veterinary invoices totaled $55.9 million as of December 31, 2025. As discussed in Note 1 and Note 9 to the consolidated financial statements, the reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary claims that have been incurred but not yet paid as of the reporting date. The reserve also includes the Company's estimate of related internal processing costs. The Company’s reserve for veterinary invoices is based on an actuarial analysis of observed claim settlement patterns including, but not limited to, the number of veterinary invoices the Company expects to receive, the average cost of those veterinary invoices, the time elapsed between the date of loss and the date of payment, the appropriate segmentation between product lines or claim processing method, and the expected cost to process and administer claim payments. Auditing the Company’s reserve for veterinary invoices is complex and required the involvement of our actuarial specialists due to the sensitivity of the estimated reserve to management’s assumptions. Estimating the ultimate cost to settle the reserve for veterinary invoices is subjective due to the possibility that the actual veterinary invoice payments may not be comparable to historical trends experienced by the Company. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the process for estimating the reserve for veterinary invoices. This included, among other procedures, understanding management review controls in place over the review and approval of methods and assumptions used in estimating the reserve for veterinary invoices. To test the reserve for veterinary invoices, our audit procedures included, among others, testing the completeness and accuracy of the data used in the actuarial analyses by testing reconciliations of the underlying historical veterinary paid invoice data recorded in the source systems to the Company’s actuarial analyses, and comparing a sample of paid veterinary invoices to source documentation. With the assistance of EY actuarial specialists, we evaluated the appropriateness of the actuarial methods and assumptions used to estimate the reserve for veterinary invoices by comparing such methods and assumptions to our expectations of those used for the specific type of insurance, current and historical invoice payment patterns, and any operational or external changes affecting claim payments. We also compared management’s recorded reserves to a range of reasonable reserve estimates calculated independently by our EY actuarial specialists. Additionally, we performed a hindsight analysis of the prior period estimates using subsequent claims development. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2012. Seattle, Washington February 13, 2026 62 Trupanion, Inc. Consolidated Statements of Operations (in thousands, except share data) Year Ended December 31, 2025 2024 2023 Revenue $ 1,439,305 $ 1,285,684 $ 1,108,605 Cost of revenue: Veterinary invoice expense (1) 1,028,975 949,148 831,055 Other cost of revenue (1) 179,319 157,738 146,534 Total cost of revenue 1,208,294 1,106,886 977,589 Operating expenses: Technology and development (1) 37,848 31,255 21,403 General and administrative (1) 76,648 63,731 60,207 New pet acquisition expense (1) 85,408 71,379 77,372 Goodwill impairment charges 1,129 5,299 — Depreciation and amortization 15,836 16,466 12,474 Total operating expenses 216,869 188,130 171,456 Loss from investment in joint venture ( 305 ) ( 182 ) ( 219 ) Operating income (loss) 13,837 ( 9,514 ) ( 40,659 ) Interest expense 13,759 14,498 12,077 Other (income), net ( 21,916 ) ( 14,374 ) ( 7,701 ) Income (loss) before income taxes 21,994 ( 9,638 ) ( 45,035 ) Income tax expense (benefit) 2,561 ( 5 ) ( 342 ) Net income (loss) $ 19,433 $ ( 9,633 ) $ ( 44,693 ) Net income (loss) per share: Basic $ 0.45 $ ( 0.23 ) $ ( 1.08 ) Diluted $ 0.45 $ ( 0.23 ) $ ( 1.08 ) Weighted average shares of common stock outstanding: Basic 42,958,654 42,158,773 41,436,882 Diluted 43,555,884 42,158,773 41,436,882 (1) Includes stock-based compensation expense as follows: Veterinary invoice expense $ 2,841 $ 3,460 $ 3,667 Other cost of revenue 2,284 2,063 1,612 Technology and development 6,036 4,934 2,846 General and administrative 19,571 15,696 17,717 New pet acquisition expense 7,580 7,279 7,319 63 Trupanion, Inc. Consolidated Statements of Comprehensive Income (Loss) (in thousands) Year Ended December 31, 2025 2024 2023 Net income (loss) $ 19,433 $ ( 9,633 ) $ ( 44,693 ) Other comprehensive income (loss): Foreign currency translation adjustments 3,833 ( 3,037 ) 2,712 Net unrealized gain on available-for-sale debt securities 876 22 3,992 Other comprehensive income (loss), net of taxes 4,709 ( 3,015 ) 6,704 Comprehensive income (loss) $ 24,142 $ ( 12,648 ) $ ( 37,989 ) 64 Trupanion, Inc. Consolidated Balance Sheets (in thousands, except share data) December 31, 2025 2024 Assets Current assets: Cash and cash equivalents $ 138,024 $ 160,295 Short-term investments 232,706 147,089 Accounts and other receivables, net of allowance for credit losses of $ 1,311 at December 31, 2025 and $ 1,117 at December 31, 2024 301,945 274,031 Prepaid expenses and other assets 18,387 15,912 Total current assets 691,062 597,327 Restricted cash 33,434 39,235 Long-term investments 983 373 Property, equipment, and internal-use software, net 104,844 102,191 Intangible assets, net 24,102 13,177 Other long-term assets 21,237 17,579 Goodwill 39,382 36,971 Total assets $ 915,044 $ 806,853 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 16,445 $ 11,532 Accrued liabilities and other current liabilities 56,509 33,469 Reserve for veterinary invoices 55,921 51,635 Deferred revenue 270,935 251,640 Long-term debt - current portion 10,000 1,350 Total current liabilities 409,810 349,626 Long-term debt 101,784 127,537 Deferred tax liabilities 1,510 1,946 Other liabilities 18,004 4,476 Total liabilities 531,108 483,585 Stockholders’ equity: Common stock: $ 0.00001 par value per share, 100,000,000 shares authorized; 44,430,267 and 43,402,081 shares issued and outstanding at December 31, 2025 and 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 604,828 568,302 Accumulated other comprehensive income (loss) 2,097 ( 2,612 ) Accumulated deficit ( 206,455 ) ( 225,888 ) Treasury stock, at cost: 1,028,186 shares at December 31, 2025 and 2024 ( 16,534 ) ( 16,534 ) Total stockholders’ equity 383,936 323,268 Total liabilities and stockholders’ equity $ 915,044 $ 806,853 65 Trupanion, Inc. Consolidated Statements of Stockholders ’ Equity (in thousands, except share amounts) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Stockholders' Equity Shares Amount Balance at January 1, 2023 41,013,158 $ — $ 499,694 $ ( 6,301 ) $ ( 171,562 ) $ ( 16,534 ) $ 305,297 Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings 845,708 — 1,118 — — — 1,118 Stock-based compensation expense — — 35,296 — — — 35,296 Other comprehensive income — — — 6,704 — — 6,704 Net loss — — — — ( 44,693 ) — ( 44,693 ) Balance at December 31, 2023 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 629,579 — ( 1,743 ) — — — ( 1,743 ) Stock-based compensation expense — — 33,937 — — — 33,937 Other comprehensive loss — — — ( 3,015 ) — — ( 3,015 ) Net loss — — — — ( 9,633 ) — ( 9,633 ) Balance at December 31, 2024 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 913,636 — ( 2,015 ) — — — ( 2,015 ) Stock-based compensation expense — — 38,541 — — — 38,541 Other comprehensive income — — — 4,709 — — 4,709 Net income — — — — 19,433 — 19,433 Balance at December 31, 2025 43,402,081 $ — $ 604,828 $ 2,097 $ ( 206,455 ) $ ( 16,534 ) $ 383,936 66 Trupanion, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2025 2024 2023 Operating activities Net income (loss) $ 19,433 $ ( 9,633 ) $ ( 44,693 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 15,836 16,466 12,474 Stock-based compensation expense 38,312 33,432 33,161 Realized gain on nonmonetary exchange of preferred stock investment ( 7,783 ) — — Goodwill impairment charges 1,129 5,299 — Other, net 2,097 ( 1,748 ) 1,347 Changes in operating assets and liabilities: Accounts and other receivables ( 27,211 ) ( 6,717 ) ( 35,440 ) Prepaid expenses and other assets ( 1,166 ) 3,215 ( 1,907 ) Accounts payable, accrued liabilities, and other liabilities 26,029 2,084 1,644 Reserve for veterinary invoices 4,133 ( 11,310 ) 19,485 Deferred revenue 18,679 17,199 32,567 Net cash provided by operating activities 89,488 48,287 18,638 Investing activities Purchases of investment securities ( 256,031 ) ( 133,493 ) ( 165,936 ) Maturities and sales of investment securities 172,609 127,653 190,270 Purchases of property, equipment, and internal-use software ( 14,129 ) ( 9,716 ) ( 18,280 ) Other 1,664 2,099 1,585 Net cash provided by (used in) investing activities ( 95,887 ) ( 13,457 ) 7,639 Financing activities Proceeds from debt financing, net of financing fees 114,208 — 60,102 Repayment of debt financing ( 134,438 ) ( 1,350 ) ( 1,717 ) Proceeds from exercise of stock options 1,694 752 2,655 Shares withheld to satisfy tax withholding ( 3,712 ) ( 2,519 ) ( 1,536 ) Other ( 614 ) ( 840 ) ( 378 ) Net cash provided by (used in) financing activities ( 22,862 ) ( 3,957 ) 59,126 Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net 1,189 ( 1,877 ) 424 Net change in cash, cash equivalents, and restricted cash ( 28,072 ) 28,996 85,827 Cash, cash equivalents, and restricted cash at beginning of period 199,530 170,464 84,637 Cash, cash equivalents, and restricted cash at end of period $ 171,458 $ 199,530 $ 170,464 Supplemental disclosures Interest paid $ 13,085 $ 13,191 $ 12,100 Noncash investing and financing activities: Purchases of property, equipment, and internal-use software included in accounts payable and accrued liabilities 129 534 887 Right-of-use asset obtained in exchange for lease liability 14,452 — — Purchase of intellectual property in exchange for preferred stock investment 14,783 — — 67 Trupanion, Inc. Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Description of Business 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. Basis of Presentation The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain immaterial prior year amounts have been reclassified to conform with the current year's presentation. These reclassifications had no impact on net earnings, total assets, total liabilities, total shareholders' equity, or cash flows. 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. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At times, cash on deposit may be in excess of the applicable federal deposit insurance corporation limits. The Company considers any cash account not held in trust for a third party that is contractually restricted to withdrawal or use to be restricted cash. The Company is required to maintain certain restricted cash balances to comply with insurance company regulations. As of December 31, 2025, the Company was in compliance with all requirements. Accounts and Other Receivables Accounts and other receivables are comprised of trade receivables and other miscellaneous receivables and are carried at their estimated collectible amounts. Trade receivables are primarily related to the Company’s other business segment where the Company generates revenue from underwriting policies through unaffiliated general agents. These policies are typically annual policies, with monthly payment terms through the end of the twelve-month period. The Company had $ 281.9 million and $ 252.0 million accounts receivable associated with underwriting these policies as of December 31, 2025 and 2024, respectively. Deferred Acquisition Costs The Company incurs certain costs, including premium taxes, enrollment-based bonuses, and referral fees that directly relate to the successful acquisition of new or renewal customer contracts. These costs are deferred and are included in prepaid expenses and other assets on the consolidated balance sheet and amortized over the related policy term to the applicable financial statement line item, either new pet acquisition expense or other cost of revenue. Deferred acquisition costs as of December 31, 2025 and 2024 were $ 8.5 million and $ 7.5 million, respectively. Amortized deferred acquisition costs classified within new pet acquisition expense amounted to $ 9.3 million, $ 6.9 million, and $ 6.0 million and amortized deferred acquisition costs classified within other cost of revenue amounted to $ 55.3 million, $ 51.5 million, and $ 45.6 million, for the years ended December 31, 2025, 2024, and 2023, respectively. 68 Investments The Company invests in investment grade fixed maturity securities of varying maturities. Available-for-sale securities are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss). Held-to-maturity securities are reported at amortized cost. Premiums or discounts on fixed maturity securities are amortized or accreted over the life of the security and included as interest income within Other (income), net. There were $ 1.0 million in realized gains and $ 0.1 million in realized losses on sales of fixed maturity securities during the year ended December 31, 2025, $ 0.4 million in realized gains and $ 0.3 million in realized losses on sales of fixed maturity securities during the year ended December 31, 2024, and $ 0.3 million in realized gains and $ 0.9 million in realized losses on sales of fixed maturity securities during the years ended December 31, 2023. Each reporting period, the Company evaluates whether declines in fair value of its investments below carrying value are the result of expected credit losses. This evaluation includes the Company's ability and intent to hold these investments until recovery of carrying value occurs, including an evaluation of all available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable forecasts. Expected credit losses are recorded as an allowance through other (income), net within the Company's consolidated statements of operations. Fair Value of Financial Instruments The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs: Level 1 - Quoted prices in active markets for identical assets or liabilities Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly Level 3 - Unobservable inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability The Company's financial instruments, in addition to those presented in Note 7, Fair Value, include cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. The carrying amounts of accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short-term nature of these instruments. Property, Equipment, and Internal-Use Software Property, equipment, and internal-use software primarily consists of building, land and land improvements, office equipment, and internal-use software related to the Company’s website and internal support systems. Internal-use software is capitalized during the application development stage of the project. Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful life of the respective asset: Land Not depreciable Land improvements 10 years Building 39 years Software 3 to 5 years Office equipment 3 to 5 years Goodwill and Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized. The Company reviews these assets for impairment at least annually or if indicators of potential impairment exist. Acquired finite-lived intangibles are amortized on a straight-line basis over the estimated useful lives of the assets. The Company recognized impairment charges on goodwill totaling $1.1 million and $5.3 million during the years ended December 31, 2025 and 2024, respectively, and no goodwill impairment charges during the year ended December 31, 2023. The Company recognized no impairment on indefinite-lived intangible assets during the years ended December 31, 2025, 2024, and 2023. See Note 4 to these financial statements for further details on goodwill and related impairment charges. 69 Asset Impairment Long-lived assets, including property, equipment, internal-use software, and finite-lived intangible assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured as the amount the asset's carrying value exceeds its fair value. The Company recognized no impairment losses on long-lived assets, including property, equipment, internal-use software, and finite-lived intangible assets for the years ended December 31, 2025, 2024, and 2023. Reserve for Veterinary Invoices Reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary claims that have been incurred but not yet paid as of the reporting date. The reserve also includes the Company's estimate of related internal processing costs. To determine the accrual, the Company makes assumptions based on its historical experience, including the number of veterinary invoices we expect to receive, the average cost of those veterinary invoices, the time elapsed between the date of loss and the date of payment, the member's chosen deductible, and the Company's expected cost to process and administer the payments. As of each balance sheet date, the Company reevaluates its reserve and adjusts the estimate for new information. Deferred Revenue Deferred revenue is primarily related to the Company’s other business segment where the Company generates revenue from underwriting policies through unaffiliated general agents. These policies are typically annual policies for which revenue is recognized pro-rata over the twelve-month policy period. Deferred revenue also consists of subscription payments received or billed in advance of the subscription services within the Company's subscription business. Revenue Recognition Revenue is recognized pro-rata over the term of the customer contracts. The Company generates revenue primarily from subscription payments and through underwriting policies for unaffiliated general agents. For the year ended December 31, 2025, premiums from policies sourced by general agents accounted for 30 % of our total revenue, and one general agent sourced members whose premiums accounted for over 10% of our total revenue. Veterinary Invoice Expense Veterinary invoice expense includes the Company’s costs to review and pay veterinary invoices, administer the payments, and provide member services, and other operating expenses directly or indirectly related to this process. The Company also accrues for veterinary claims that have been incurred but not yet paid and the estimated cost of processing these invoices. Veterinary invoice expense also includes amounts paid by unaffiliated general agents on our behalf, and an estimate of amounts incurred and not yet paid for the other business segment. Other Cost of Revenue Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner renewal commissions, credit card transaction fees and premium tax expenses. Other cost of revenue for the other business segment includes the commissions the Company pays to unaffiliated general agents and costs to administer the programs in the other business segment. Technology and Development Technology and development expenses primarily consist of personnel costs and related expenses for the Company's technology staff, which includes information technology development, security, infrastructure support, and third-party services. It also includes expenses associated with development in new geographies and new products and offerings.. General and Administrative General and administrative expenses consist primarily of personnel costs and related expenses for the Company’s finance, actuarial, human resources, legal, regulatory, and general management functions, as well as facilities and professional services. New Pet Acquisition Expense New pet acquisition expenses primarily consist of costs to acquire a pet (including costs associated directly to supporting the first year of a member), personnel costs, costs to educate veterinarians and consumers about the benefits of Trupanion, costs to generate leads and to convert leads into enrolled pets, as well as print, online and promotional advertising costs. 70 Other (Income), Net Other (income), net, totaled $ 21.9 million, $ 14.4 million, and $ 7.7 million, including interest income of $ 12.3 million, $ 12.4 million, and $ 9.0 million for the years ended December 31, 2025, 2024, and 2023. Refer to Note 6, Other Investments, for more information on amounts recorded to Other (income), net in relation to the Company's preferred stock investment in Baystride, Inc. Advertising Advertising costs are expensed as incurred. Advertising costs amounted to $ 23.8 million, $ 13.3 million and $ 16.9 million, in the years ended December 31, 2025, 2024 and 2023, respectively. The Company records advertising costs within New pet acquisition expense. Stock-Based Compensation Compensation expense related to stock-based transactions, including employee and non-employee restricted stock units, is measured and recognized in the financial statements based on fair value. The fair value of restricted stock units is the common stock price as of the measurement date. Stock-based compensation expense for stock options and restricted stock units is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. The Company recognizes forfeitures when they occur. Income Taxes The Company uses the asset and liability approach for accounting and reporting income taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases, operating loss, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a tax rate change is recognized in the period that includes the enactment date. Valuation allowances are provided for when it is considered more likely than not that deferred tax assets will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than a 50% likelihood of being realized. Penalties and interest are classified as a component of income taxes. F oreign Currency Translation The Company’s consolidated financial statements are reported in U.S. dollars. Assets and liabilities denominated in foreign currencies were translated to U.S. dollars, the reporting currency, at the exchange rates in effect on the balance sheet date. Revenue and expenses denominated in foreign currencies were translated to U.S. dollars using a weighted average rate for the relevant reporting period. Cumulative translation adjustments of $ 0.7 million, $( 3.1 ) million, and $( 0.1 ) million were recorded in accumulated other comprehensive income (loss) as of December 31, 2025, 2024, and 2023, respectively. Leases The Company, at the inception of a contract, determines whether a contract is or contains a lease. The Company records right-of-use ("ROU") assets and lease obligations for its operating leases which are initially recognized based on the discounted future lease payments over the term of the lease. The Company records right-of-use assets within Other Long-Term Assets and lease obligations within Other Liabilities. If the rate implicit in the Company's leases is not readily determinable, the Company's applicable incremental borrowing rate is used in calculating the present value of the sum of the lease payments. Lease term is defined as the non-cancellable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company has elected not to recognize ROU asset and lease obligations for its short-term leases, which are defined as leases with an initial term of 12 months or less. 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. 71 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 6 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 (loss) on a specific identification basis. 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 14, Accumulated Comprehensive Income (Loss) Insurance Operations Effective January 1, 2015, the Company formed a segregated account in Bermuda as part of Wyndham Insurance Company (SAC) Limited (WICL) and entered into a revised fronting and reinsurance arrangement with Accelerant Insurance Company of Canada, formerly known as Omega General Insurance Company, to include its newly formed segregated account. The Company maintains all risk with the business written in Canada and consolidates the entity in its financial statements. Dividends are allowed subject to the Segregated Accounts Company Act of 2000, which allows for dividends only to the extent that the entity remains solvent and the value of its assets remain greater than the aggregate of its liabilities and its issued share capital and share premium accounts. A portion of the Company's business in Canada is written by Accelerant and the risk is assumed by the Company through a fronting and reinsurance agreement. Premiums are recognized and earned pro rata over the terms of the related customer contracts. Revenue recognized under this agreement in 2025, 2024, and 2023 was $ 127.2 million, $ 206.7 million and $ 167.6 million, respectively, and deferred revenue relating to this arrangement at December 31, 2025 and 2024 was $ 1.3 million and $ 11.3 million, respectively. Reinsurance revenue was 9 %, 16 %, and 15 % of total revenue in 2025, 2024, and 2023, respectively. Cash designated for the purpose of paying claims related to this reinsurance agreement was $ 5.9 million and $ 7.2 million at December 31, 2025 and 2024, respectively. In addition, as required by the Canadian Office of the Superintendent of Financial Institutions regulations related to the Company’s reinsurance agreement with Accelerant, the Company is required to fund a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims. As of December 31, 2025, the account balance was CAD $8.7 million and the Company was in compliance with all requirements. During 2025, the Company began directly underwriting a material portion of its Canadian business through its wholly-owned insurance subsidiary, GPIC. The Company has not transferred any risk to third-party reinsurers. Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, investments, and debt. The Company manages its risk by investing cash equivalents and investment securities in money market instruments and securities of the U.S. government, U.S. government agencies and high-credit-quality issuers of debt securities. 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 Company adopted ASU 2023-09 for the fiscal year ended December 31, 2025. Refer to the Company's updated annual income tax disclosures in Note 17, Income Taxes. 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. 72 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 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): As of December 31, 2025 2024 2023 Basic earnings per share: Net income (loss) $ 19,433 $ ( 9,633 ) $ ( 44,693 ) Shares used in computation: Weighted average shares of common stock outstanding 42,958,654 42,158,773 41,436,882 Basic earnings per share $ 0.45 $ ( 0.23 ) $ ( 1.08 ) Diluted earnings per share: Net income (loss) $ 19,433 $ ( 9,633 ) $ ( 44,693 ) Shares used in computation: Weighted average shares of common stock outstanding 42,958,654 42,158,773 41,436,882 Stock options 233,377 — — Restricted stock units 363,853 — — Weighted average number of shares 43,555,884 42,158,773 41,436,882 Diluted earnings per share $ 0.45 $ ( 0.23 ) $ ( 1.08 ) 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: Year Ended December 31, 2025 2024 2023 Stock options — 347,334 408,970 Restricted stock units 1,129,314 970,739 714,382 3. Property, Equipment, and Internal-Use Software, Net Property, equipment, and internal-use software, net consisted of the following (in thousands): December 31, 2025 2024 Land and improvements $ 15,911 $ 15,911 Building and improvements 49,402 49,359 Software 83,672 64,368 Office equipment and other 5,038 6,123 Construction in progress 9,764 16,070 Property, equipment, and internal-use software, at cost 163,787 151,831 Less: Accumulated depreciation ( 58,943 ) ( 49,640 ) Property, equipment, and internal-use software, net $ 104,844 $ 102,191 73 Depreciation expense related to property, equipment, and internal-use software was $ 11.2 million, $ 11.2 million and $ 6.7 million for the years ended December 31, 2025, 2024 and 2023, respectively. 4. Goodwill and Intangible Assets Goodwill arises from business acquisitions in which the purchase price exceeds the fair value of tangible and intangible assets acquired less assumed liabilities. The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through qualitative assessment it is determined that it is more likely than not that goodwill or indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill or indefinite-lived assets are impaired, the Company’s impairment testing continues with the estimation of reporting unit fair value using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. Estimates of fair value are based on the best information available to the Company as of the assessment date. As of December 31, 2025, all of the Company's goodwill has been assigned to two reporting units within our Subscription Business operating segment: Trupanion Core - North America and PetExpert. The following is a summary of goodwill by reportable segment for the years ended December 31, 2025 and 2024 (in thousands): Subscription Business Balance as of January 1, 2024 $ 43,713 Impairment charges ( 5,229 ) Effects of foreign currency ( 1,513 ) Balance as of December 31, 2024 36,971 Impairment charges ( 1,129 ) Effects of foreign currency 3,540 Balance as of December 31, 2025 $ 39,382 As of December 31, 2025 and 2024, goodwill consisted of the following (in thousands): December 31, 2025 2024 Goodwill, gross $ 45,740 $ 42,200 Accumulated impairment losses ( 6,358 ) ( 5,229 ) Goodwill, net $ 39,382 $ 36,971 In the fourth quarter of 2025, the Company performed its annual goodwill impairment test for both reporting units with assigned goodwill and recognized impairment charges of $1.1 million on the goodwill of PetExpert, based on the fair value assessments performed after circumstances indicated that the goodwill of this reporting unit more likely than not had become impaired. These circumstances primarily related to the Company’s decision to slow expansion efforts as the Company focuses capital allocation on reporting units operating within the Company's stated financial guardrails. In the fourth quarter of 2024, the Company performed its annual goodwill impairment test for all three reporting units with assigned goodwill and recognized impairment charges of $2.7 million and $2.5 million on the goodwill of Smart Paws and PetExpert, respectively, based on the fair value assessments performed after circumstances indicated that the goodwill of these reporting units more likely than not had become impaired. These circumstances primarily related to the Company’s decision to slow expansion efforts as the Company focuses capital allocation on reporting units operating within the Company's stated financial guardrails. Following the impairment charges taken in 2024 and 2025, no goodwill remains for Smart Paws and $6.8 million of goodwill remains for PetExpert, which could be further impaired in the future if this reporting unit fails to meet its revised financial projections. The Company determined that the Trupanion Core – North America reporting unit was not at risk of goodwill impairment as of December 31, 2025 and 2024. The following table presents the detail of intangible assets other than goodwill for the periods presented (in thousands): 74 Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Remaining Useful Life as of December 31, 2025 (1) December 31, 2025 Licenses $ 4,773 $ — $ 4,773 N/A Trade name 1,369 ( 732 ) 637 4.8 Developed technologies 17,781 ( 15,515 ) 2,266 0.6 Customer relationships 8,874 ( 8,417 ) 457 0.3 Patents, trademarks, and other 17,459 ( 1,490 ) 15,969 2.6 Total Intangibles $ 50,256 $ ( 26,154 ) $ 24,102 0.8 December 31, 2024 Licenses $ 4,773 $ — $ 4,773 Trade name 1,271 ( 531 ) 740 Developed technologies 16,835 ( 12,106 ) 4,729 Customer relationships 8,180 ( 6,394 ) 1,786 Patents, trademarks, and other 2,556 ( 1,407 ) 1,149 Total Intangibles $ 33,615 $ ( 20,438 ) $ 13,177 (1) Does not include intangible assets not yet placed in service. The Company acquired an insurance company in 2007, which originally included licenses in 23 states. These licenses were valued at $ 4.8 million. The Company is currently licensed in all 50 states, the District of Columbia and Puerto Rico. Insurance licenses are renewed annually upon payment of various fees assessed by the issuing state. Renewal costs are expensed as incurred. Insurance licenses are considered an indefinite-lived intangible asset given the planned renewal of the certificates of authority and applicable licenses for the foreseeable future. Additionally, as detailed in Note 6, Other Investments, during 2025 the Company acquired intellectual property developed by Baystride, Inc., valued at $ 14.8 million on the acquisition date. This cost will be amortized over the intellectual property's estimated useful lives of 20 years once the patent is approved. Amortization expense associated with intangible assets was $ 4.6 million, $ 5.3 million, and $ 5.7 million for the years ended December 31, 2025, 2024, and 2023, respectively. As of December 31, 2025, expected amortization expense relating to definite-lived intangible assets for each of the next five years and thereafter is as follows (in thousands): Year ending December 31 (1) : Amortization Expense 2026 $ 1,590 2027 1,477 2028 172 2029 172 2030 149 Thereafter 136 Total $ 3,696 (1) Does not include intangible assets not yet placed in service. 5. 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 December 31, 2025 and 2024 (in thousands): 75 Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value As of December 31, 2025 Long-term investments: Held-to-maturity investments U.S. treasury securities $ 983 $ 5 $ — $ 988 $ 983 $ 5 $ — $ 988 Short-term investments: Available-for-sale investments U.S. treasury securities $ 103,643 $ 523 $ ( 8 ) $ 104,158 Mortgage-backed securities and collateralized mortgage obligations 24,501 201 ( 15 ) 24,687 Other asset-backed securities 23,685 152 — 23,837 Corporate bonds 47,311 527 ( 3 ) 47,835 $ 199,140 $ 1,403 $ ( 26 ) $ 200,517 Held-to-maturity investments U.S. treasury securities $ 9,757 $ 10 $ — $ 9,767 Foreign Treasury Securities 18,263 — — 18,263 Certificates of deposit 4,169 — — 4,169 $ 32,189 $ 10 $ — $ 32,199 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 76 Future maturities of investments classified as available-for-sale and held-to-maturity are as follows (in thousands): December 31, 2025 Amortized Cost Fair Value Available-for-sale: Due under one year $ 5 $ 5 Due after one year through five years 150,949 151,988 Due after five years through ten years — — Due after ten years — — $ 150,954 $ 151,993 Available-for-sale collateralized: Due under one year $ 7,165 $ 7,200 Due after one year through five years 31,925 32,162 Due after five years through ten years 8,868 8,925 Due after ten years 228 237 $ 48,186 $ 48,524 Held-to-maturity: Due under one year $ 32,189 $ 32,199 Due after one year through five years 983 988 $ 33,172 $ 33,187 The following tables present the gross unrealized losses and related fair values for the Company's investment in available-for-sale securities, grouped by duration of time in a continuous unrealized loss position as of December 31, 2025 and December 31, 2024 (in thousands): Less than 12 Months 12 Months or More Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2025 U.S. treasury securities $ 5,139 $ ( 8 ) $ — $ — $ 5,139 $ ( 8 ) Mortgage-backed securities and collateralized mortgage obligations 2,893 ( 3 ) 967 ( 12 ) 3,860 ( 15 ) Other asset-backed securities — — — — — — Corporate bonds 2,700 ( 3 ) — — 2,700 ( 3 ) Total $ 10,732 $ ( 14 ) $ 967 $ ( 12 ) $ 11,699 $ ( 26 ) 77 Less than 12 Months 12 Months or More Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses 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 ) As of December 31, 2025, 14 of the securities held were in an unrealized loss position. 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 $ 141.7 million and $ 77.1 million during the years ended December 31, 2025 and 2024, respectively. 6 . 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 7. On June 3, 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 were 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 paid in full and extinguished in July 2025 and was $ 1.6 million as of December 31, 2024. Allowance for Credit Losses 78 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. 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 in 2025 prior to the exchange of the investment for intellectual property. Investment in Joint Venture In September 2018, the Company acquired a non-controlling equity interest in a joint venture in Australia, whereby it had committed to licensing certain intellectual property and contributing up to $ 2.2 million AUD upon the achievement of specific operational milestones over a period of at least four years from the agreement execution date. As of December 31, 2024, the Company had contributed $ 1.5 million AUD. This equity investment was accounted for using the equity method and was classified in other long-term assets on the Company's consolidated balance sheet. The Company's share of income and losses from this equity method investment were included in gain (loss) from investment in joint venture on its consolidated statement of operations. Also included in this line item were income and expenses associated with administrative services provided to the joint venture. In March 2025, the Company restructured this relationship from a joint venture to a brand licenses and services agreement. 79 7. Fair Value Fair Value Disclosures 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 December 31, 2025 Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 46,818 $ 46,818 $ — $ — Fixed maturities: Mortgage-backed securities and collateralized mortgage obligations 24,687 — 24,687 — Other asset-backed securities 23,837 — 23,837 — Corporate bonds 47,835 — 47,835 — U.S. Treasury securities 104,158 — 104,158 — Total $ 247,335 $ 46,818 $ 200,517 $ — 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 5, 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 years ended December 31, 2025 and 2024. The Company's preferred stock investment (see Note 6) 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 derived by discounted cash flow and market valuation techniques which utilized 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. 80 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): December 31, 2025 2024 Balance at beginning of period $ 7,916 $ 5,326 Unrealized gain included in other comprehensive income (loss) — 916 Reversal of cumulative unrealized gain included in other comprehensive income (loss) (916) — Recovery of credit loss included in earnings — 1,674 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 $ — $ 7,916 Fair Value Disclosures - Other Assets and Liabilities The Company's other long-term assets balance also included notes receivable of $ 2.5 million and $ 4.3 million as of December 31, 2025 and 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 December 31, 2025. 8. 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 involving 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. 9. 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): 81 Year Ended December 31, Subscription 2025 2024 2023 Reserve at beginning of year $ 23,084 $ 31,548 $ 21,543 Veterinary invoices during the period related to: Current year 696,897 623,928 540,396 Prior years 3,257 500 2,800 Total veterinary invoice expense 700,154 624,428 543,196 Amounts paid during the period related to: Current year 668,897 598,593 506,294 Prior years 25,050 30,875 23,001 Total paid 693,947 629,468 529,295 Non-cash expenses 2,927 3,424 3,896 Reserve at end of period $ 26,364 $ 23,084 $ 31,548 The Company had unfavorable development on veterinary invoice reserves of $ 3.3 million for the year ended December 31, 2025, including unfavorable development of $ 1.1 million attributable to accident year 2024 and unfavorable development of $ 2.2 million attributable to accident year 2023 and prior. The unfavorable development for accident years 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): Year Ended December 31, Other Business 2025 2024 2023 Reserve at beginning of year $ 28,551 $ 31,690 $ 22,191 Veterinary invoices during the period related to: Current year 334,572 326,018 287,361 Prior years ( 5,751 ) ( 1,298 ) 498 Total veterinary invoice expense 328,821 324,720 287,859 Amounts paid during the period related to: Current year 306,221 298,596 256,616 Prior years 21,594 29,263 21,744 Total paid 327,815 327,859 278,360 Reserve at end of period $ 29,557 $ 28,551 $ 31,690 The Company had favorable development on veterinary invoice reserves for the other business segment of $ 5.8 million for the year ended December 31, 2025, including favorable development on veterinary invoice reserves of $ 5.6 million attributable to accident year 2024 and favorable development of $ 0.2 million attributable to accident year 2023 and prior. The favorable development for accident year 2024 was 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 cumulative veterinary invoice expenses represent the total expense from received invoices as of December 31, 2025, by year the veterinary invoice relates to, referred to as the year of occurrence. Information for years 2022 through 2024 is provided as required supplementary information. Amounts in these tables are presented on a constant currency basis to remove the impact of changes in the foreign currency exchange rate on development. The cumulative expenses as of the end of each year are revalued using the currency exchange rate as of December 31, 2025. Due to variability in internal and external sources of claims data, and the lack of comparability of claim count information between those sources, it is impractical for the Company to disclose claim frequency information. As such, the cumulative number of veterinary invoices received is not included in the disclosures below. 82 The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's subscription business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data): Cumulative veterinary invoice expenses Reserve As of December 31, As of December 31, Subscription 2022 2023 2024 2025 2025 Year of Occurrence (unaudited) (unaudited) (unaudited) 2022 $ 435,185 $ 436,489 $ 436,924 $ 437,682 $ — 2023 $ 538,622 $ 537,497 $ 538,090 $ — 2024 $ 623,658 $ 624,627 $ 1,291 2025 $ 699,554 $ 25,073 $ 2,299,953 $ 26,364 The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's other business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data): Cumulative veterinary invoice expenses Reserve As of December 31, As of December 31, Other Business 2022 2023 2024 2025 2025 Year of Occurrence (unaudited) (unaudited) (unaudited) 2022 $ 211,717 $ 212,156 $ 211,777 $ 211,959 $ 16 2023 $ 287,356 $ 286,253 $ 285,798 $ 49 2024 $ 326,018 $ 320,461 $ 1,141 2025 $ 334,579 $ 28,351 $ 1,152,797 $ 29,557 Cumulative paid veterinary invoice expense In the following tables, amounts are by the year the veterinary invoice relates to, referred to as the year of occurrence. Amounts in these tables are presented on a constant currency basis to remove the impact of changes in the foreign currency exchange rate. The cumulative amounts paid as of the end of each year are revalued using the currency exchange rate as of December 31, 2025. Information for years 2022 through 2024 is provided as required supplementary information. The following table summarizes the amounts paid for veterinary invoices, inclusive of related internal processing costs and reported on a constant currency basis, for the subscription segment (in thousands): Year Ended December 31, Subscription 2022 2023 2024 2025 Year of Occurrence (unaudited) (unaudited) (unaudited) 2022 $ 414,550 $ 435,156 $ 436,924 $ 437,682 2023 $ 508,540 $ 536,318 $ 538,090 2024 $ 601,611 $ 623,336 2025 $ 674,481 $ 2,273,589 Total amounts unpaid and recorded as a liability $ 26,364 83 The following table summarizes the amounts paid for veterinary invoices, inclusive of related internal processing costs and reported on a constant currency basis, for the other business segment (in thousands): Year Ended December 31, Other Business 2022 2023 2024 2025 Year of Occurrence (unaudited) (unaudited) (unaudited) 2022 $ 190,019 $ 211,211 $ 211,761 $ 211,943 2023 $ 256,611 $ 285,140 $ 285,749 2024 $ 298,596 $ 319,320 2025 $ 306,228 $ 1,123,240 Total amounts unpaid and recorded as a liability $ 29,557 10. Leases The Company leases certain office space and buildings from third parties and recognizes lease expense on a straight-line basis over the lease term. During the year ended December 31, 2025, we entered into a lease for a building to use as a manufacturing facility for our pet food initiative. The tables below present information regarding the Company's lease assets and liabilities (in thousands): As of December 31, 2025 2024 Assets Operating lease right-of-use assets $ 14,688 $ 362 Total lease assets 14,688 362 Liabilities Current Operating lease liabilities 767 — Long-term Operating lease liabilities 13,397 362 Total lease liabilities $ 14,164 $ 362 The Company's lease costs recognized in the Consolidated Statements of Operations consist of the following (in thousands): Year ended December 31, 2025 2024 2023 Operating lease cost $ 454 $ 87 $ 151 Total lease costs $ 454 $ 87 $ 151 84 Other lease information is as follows: Year ended December 31, 2025 2024 Weighted-average remaining lease term - operating leases 9.9 8.5 Weighted-average discount rate - operating leases 7.66 % 10.38 % The following table summarizes the Company's future minimum lease payments during the next five fiscal years and thereafter (in thousands): Year Ending December 31, Operating Leases 2026 $ 919 2027 1,212 2028 1,220 2029 1,453 2030 2,700 Thereafter 14,449 Total undiscounted lease obligations $ 21,953 Imputed interest 7,789 Net lease obligations $ 14,164 11. Debt Prior Credit Facility On March 25, 2022 , the Company entered into a credit agreement with Piper Sandler Finance, LLC, acting as the administrative agent, that provided the Company with $ 150.0 million in credit (the "Prior Credit Facility"). The Prior 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. In November 2025, the Company repaid the Prior Credit Facility in full utilizing proceeds from its new Credit Facility. In connection with repayment of the Prior Credit Facility, the Company recognized a loss of $ 1.6 million, recorded within Interest expense, which reflected the portion of debt issuance cost that was unamortized at the time of extinguishment. PNC Facility On November 4, 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 (the "PNC Facility") consisting of: (a) an initial term loan in an aggregate principal amount of $ 100.0 million ("PNC Initial Term Loan"), which was funded at closing; (b) commitments for revolving loans in an aggregate principal amount at any time outstanding not in excess of $ 20.0 million (PNC Revolving Loans), of which $ 15.0 million was drawn and the rest may be drawn at any time prior to maturity. The PNC Facility is secured by substantially all assets of the Company and its subsidiaries. Proceeds from the PNC Facility were utilized to pay off the Prior Credit Facility. The credit agreement with PNC Bank contains financial and other covenants. As of December 31, 2025, the Company was in compliance with all financial and other covenants. To the extent not previously paid, the PNC Facility is due and payable on November 4, 2028. The Company will make quarterly principal payments of $ 2.5 million on the PNC Initial Term Facility. The Company may voluntarily prepay loans or reduce revolving commitments under the PNC Facility at any time without premium or penalty. Loans under the PNC Facility bear interest at a reference rate plus an applicable margin, which will generally be the SOFR reference rate plus 2.75% per annum. The stated interest rate as of December 31, 2025 was approximately 6.42 % fo r the aggregate outstanding term loans. The Company incurred total debt issuance cost of approximat ely $ 0.8 million, wh ich is reported in the consolidated balance sheet as a direct reduction from the carrying amount of the PNC Facility, and is amortized as interest expense over the term of three years. 85 Future principal payments on outstanding borrowings as of December 31, 2025 are as follows (in thousands): Year Ending December 31, December 31, 2025 2026 $ 10,000 2027 10,000 2028 92,500 Total $ 112,500 12. 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 for the years ended December 31, 2025, 2024 and 2023 was as follows (in thousands): Year Ended December 31, 2025 2024 2023 Veterinary invoice expense $ 2,841 $ 3,460 $ 3,667 Other cost of revenue 2,284 2,063 1,612 Technology and development 6,036 4,934 2,846 General and administrative 19,571 15,696 17,717 New pet acquisition expense 7,580 7,279 7,319 Total expensed stock-based compensation 38,312 33,432 33,161 Capitalized stock-based compensation 229 505 2,135 Total stock-based compensation $ 38,541 $ 33,937 $ 35,296 Stock Options The grant date fair value of stock option awards are estimated on the date of grant using the Black-Scholes option-pricing model. The Company did not grant any new stock options during the years ended December 31, 2025, 2024, and 2023. 86 The following table presents information regarding stock options granted, exercised and forfeited for the periods presented: Number of Options Weighted Average Exercise Price per Share Aggregate Intrinsic Value (in thousands) Outstanding as of January 1, 2023 629,650 $ 13.53 $ 21,410 Granted — — — Exercised ( 213,848 ) 12.47 3,720 Forfeited ( 6,832 ) 12.80 — Outstanding as of December 31, 2023 408,970 14.09 6,715 Granted — — — Exercised ( 61,136 ) 12.91 1,590 Forfeited ( 500 ) 14.93 — Outstanding as of December 31, 2024 347,334 14.30 11,775 Granted — — — Exercised ( 142,572 ) 11.90 3,620 Forfeited ( 7,530 ) 9.82 — Outstanding as of December 31, 2025 197,232 16.20 4,175 Exercisable at December 31, 2025 197,232 $ 16.20 $ 4,175 As of December 31, 2025, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 1.1 years. The Company has not granted any new stock options since 2017 and all outstanding options vested prior to January 1, 2022. The Company issues authorized shares upon the exercise of stock options. 87 Restricted Stock Units The following table presents information regarding restricted stock units granted, vested, and forfeited for the years ended December 31, 2025, 2024 and 2023 is as follows: Number of Shares Weighted Average Grant Date Fair Value per Share Unvested shares as of January 1, 2023 1,112,552 $ 84.46 Granted 366,870 26.77 Vested ( 669,413 ) 72.52 Forfeited ( 95,627 ) 79.60 Unvested shares as of December 31, 2023 714,382 66.64 Granted 957,168 29.21 Vested ( 629,217 ) 57.46 Forfeited ( 71,594 ) 44.00 Unvested shares as of December 31, 2024 970,739 37.35 Granted 1,043,549 45.37 Vested ( 864,810 ) 43.78 Forfeited ( 134,704 ) 35.83 Unvested shares as of December 31, 2025 1,014,774 $ 40.32 As of December 31, 2025, the Company had 1,014,774 unvested restricted stock units. Stock-based compensation expenses of $ 37.8 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 1.9 years. In March 2023, two executives terminated employment with the Company and one executive signed a separation agreement effective June 1, 2023. In conjunction with these departures, the Company accelerated the vesting of certain RSUs as of the termination date and extended the purchase date of certain vested options from 90 to 365 days. These award modifications resulted in the recognition of $ 4.8 million share-based compensation expense during the year ended December 31, 2023. 13. Stockholders ’ Equity Common Stock and Preferred Stock As of December 31, 2025, the Company had 100,000,000 shares of common stock authorized and 43,402,081 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 December 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, to be recorded as treasury stock. The Company repurchased no shares during the years ended December 31, 2025 and 2024. 88 14. Accumulated Comprehensive Income (Loss) A summary of the components of accumulated other comprehensive income (loss) is as follows (in thousands): Foreign Currency Translation Net Unrealized Gain (Loss) on Available-for-Sale Securities Total Balance as of January 1, 2023 $ ( 2,788 ) $ ( 3,513 ) $ ( 6,301 ) Other comprehensive income 2,712 3,992 6,704 Balance as of December 31, 2023 $ ( 76 ) $ 479 $ 403 Other comprehensive income (loss) ( 3,037 ) 22 ( 3,015 ) Balance as of December 31, 2024 $ ( 3,113 ) $ 501 $ ( 2,612 ) Other comprehensive income 3,833 876 4,709 Balance as of December 31, 2025 $ 720 $ 1,377 $ 2,097 In connection with the nonmonetary exchange discussed in Note 6, the Company reclassified $0.9 million of previously unrealized gain from Accumulated other comprehensive income (loss) to Other (income), net during the twelve months ended December 31, 2025. 89 15. 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, new pet acquisition expenses and goodwill impairment charges are generally directly attributed to each segment. Other operating expenses, such as technology and development expense, general and administrative expense, and depreciation and amortization, are generally allocated proportionately based on revenue in each segment. 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. O perating income (loss) of the Company’s segments was as follows (in thousands): Year Ended December 31, 2025 2024 2023 Subscription business: Revenue $ 989,338 $ 856,521 $ 712,906 Veterinary invoice expense 700,154 624,428 543,196 Other cost of revenue 90,726 82,423 70,490 Technology and development 26,016 20,822 13,765 General and administrative 52,686 42,457 36,256 New pet acquisition expense 85,269 71,240 77,172 Goodwill impairment charges 1,129 5,299 — Depreciation and amortization 10,885 10,970 8,021 Subscription business operating income (loss) 22,473 ( 1,118 ) ( 35,994 ) Other business: Revenue 449,967 429,163 395,699 Veterinary invoice expense 328,821 324,720 287,859 Other cost of revenue 88,593 75,315 76,044 Technology and development 11,832 10,433 7,638 General and administrative 23,962 21,274 23,951 New pet acquisition expense 139 139 200 Depreciation and amortization 4,951 5,496 4,453 Other business operating loss ( 8,331 ) ( 8,214 ) ( 4,446 ) Loss from investment in joint venture ( 305 ) ( 182 ) ( 219 ) Total operating income (loss) 13,837 ( 9,514 ) ( 40,659 ) Interest expense 13,759 14,498 12,077 Other (income), net ( 21,916 ) ( 14,374 ) ( 7,701 ) Income (loss) before income taxes $ 21,994 $ ( 9,638 ) $ ( 45,035 ) 90 The following table presents the Company’s revenue by geographic region of the member (in thousands): Year Ended December 31, 2025 2024 2023 United States $ 1,197,807 $ 1,073,150 $ 935,312 Canada and other 241,498 212,534 173,293 Total revenue $ 1,439,305 $ 1,285,684 $ 1,108,605 Substantially all of the Company’s long-lived assets were located in the United States as of December 31, 2025 and 2024. 91 16. Dividend Restrictions and Statutory Surplus The Company’s business operations are conducted through subsidiaries. In the U.S., the Company has two insurance subsidiaries: American Pet Insurance Company ("APIC"), domiciled in New York, and ZPIC Insurance Company ("ZPIC"), domiciled in Missouri. ZPIC does not yet underwrite any business. The Company also owns an insurance Company domiciled in Canada, GPIC Insurance Company ("GPIC"), and three segregated cell businesses in Bermuda, Wyndham Segregated Accounts AX, Trupanion Germany, and Trupanion Switzerland. In addition to general state law restrictions on payments of dividends and other distributions to stockholders applicable to all corporations, insurance companies are subject to further regulations that, among other things, may require such companies to maintain certain levels of equity and restrict the amount of dividends and other distributions that may be paid to their parent corporations. Applicable regulations generally restrict the ability of the insurance entities to pay dividends to its holding company parent. These restrictions are based in part on the prior year’s statutory income and surplus. In the United States, dividends up to specified levels are generally considered ordinary and may be paid without prior approval. Dividends, in larger amounts, known as extraordinary dividends, are subject to approval by the insurer's domiciliary state regulator. An extraordinary dividend or distribution is generally defined as a dividend or distribution that, in the aggregate in any 12-month period, exceeds the lesser of (i) 10% of surplus as of the preceding December 31 or (ii) the insurer’s adjusted net investment income for the 12-month period immediately preceding the declaration or distribution of the current dividend increased by the excess, if any, of net investment income over dividends declared or distributed during the period commencing thirty-six months prior to the declaration or distribution of the current dividend and ending twelve months prior thereto, and not including realized capital gains. APIC paid an extraordinary dividend of $26.0 million to the Company during the year ended December 31, 2025, and ordinary dividends to the Company in 2024 and 2023 of $ 4.2 million and $ 7.6 million, respectively. The Company's insurance subsidiary in Canada, GPIC, is regulated by the Canadian Office of the Superintendent of Financial Institutions ("OSFI") and is required to maintain prescribed minimum capital and solvency levels, including compliance with OSFI's Minimum Capital Test ("MCT"). Dividends may not be paid if the subsidiary would fail to meet applicable regulatory capital requirements following the payment of the dividend. Payment of dividends requires advance notice to OSFI and must be supported by a comprehensive analysis, including projections demonstrating capital adequacy and liquidity following the proposed dividend. OSFI has the authority to restrict or prohibit dividend payments if it determines that such payments would be imprudent or could adversely affect GPIC's financial condition. The Company's insurance subsidiaries in Bermuda are regulated by the Bermuda Monetary Authority. Under the Bermuda Companies Act of 1981, as amended, a Bermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that: (a) the company is, or would be after the payment, unable to pay its liabilities as they become due; or (b) the realizable value of the company’s assets would thereby be less than its liabilities. The Segregated Accounts Company Act of 2000 further requires that dividends out of a segregated account can only be paid to the extent that the cell remains solvent. The value of its assets must remain greater than the aggregate of its liabilities, issued share capital, and share premium accounts. Per our contractual agreements with Wyndham Insurance Company (SAC) Limited, the allowable dividend is equivalent to the positive undistributed profit attributable to the shares. Wyndham Segregated Account AX paid the Company dividends totaling $ 27.9 million, $ 8.6 million, and $ 7.3 million during the years ended December 31, 2025, 2024 and 2023, respectively. The statutory net income for 2025, 2024 and 2023 and statutory capital and surplus at December 31, 2025, 2024 and 2023, for APIC were as follows (in thousands): As of December 31, 2025 2024 2023 Statutory net income $ 54,572 $ 49,007 $ 40,076 Statutory capital and surplus $ 275,052 $ 245,484 $ 199,613 As of December 31, 2025, APIC maintained $ 275.1 million of statutory capital and surplus which was above the company action level risk-based capital requirement of $ 106.0 million. 92 The statutory net income for 2025, 2024 and 2023 and statutory capital and surplus at December 31, 2025, 2024 and 2023, for GPIC were as follows (in thousands): As of December 31, 2025 2024 2023 Statutory net income (1) $ 8,045 $ 128 $ 16 Statutory capital and surplus (1) $ 37,684 $ 8,639 $ 8,516 (1) Amounts presented in CAD As of December 31, 2025, GPIC maintained CAD $ 37.7 million of statutory capital and surplus which was above the required capital of CAD $ 10.1 million to maintain the minimum capital ratio of 100%. During the year ended December 31, 2025, the Company funded $ 15.3 million, $ 0.3 million, $ 0.4 million and $ 0.8 million in total of statutory capital to GPIC, ZPIC, Trupanion Germany and Trupanion Switzerland, respectively, and no capital to APIC. During the year ended December 31, 2024, the Company funded $ 1.1 million, $ 0.2 million, $ 0.1 million and $ 0.2 million of statutory capital to APIC, ZPIC, Trupanion Germany and Trupanion Switzerland, respectively, and no capital to GPIC. ZPIC currently maintains $ 7.5 million of capital to remain licensed in certain U.S. states and will be required to maintain a level of surplus as determined by its respective domiciliary regulator when it begins underwriting policies. As of December 31, 2025, the Company had $ 11.5 million on deposit with various U.S. states in which it is licensed to write policies. 17. Income Taxes Income (l oss) before income taxes was as follows for the years ended December 31, 2025, 2024 and 2023 (in thousands): Year Ended December 31, 2025 2024 2023 United States $ 17,223 $ ( 758 ) $ ( 41,019 ) Foreign 4,771 ( 8,880 ) ( 4,016 ) Total $ 21,994 $ ( 9,638 ) $ ( 45,035 ) The components of income tax expense (benefit) were as follows (in thousands): Year Ended December 31, 2025 2024 2023 Current: U.S. federal (1) $ — $ 120 $ ( 8 ) U.S. state 243 — — Foreign 2,897 610 464 3,140 730 456 Deferred: U.S. federal (1) — ( 48 ) 7 U.S. state and local 1 — — Foreign ( 580 ) ( 687 ) ( 805 ) ( 579 ) ( 735 ) ( 798 ) Income tax expense (benefit) $ 2,561 $ ( 5 ) $ ( 342 ) (1) These items include both federal and state components of tax expense (benefit) in 2024 and 2023 as the Company adopted ASU 2023-09 on a prospective basis. The Company's effective tax rate reconciliation for the year ended December 31, 2025 has been prepared in accordance with ASU 2023-09 on a prospective basis. Effective tax rate reconciliations for prior periods are presented in accordance with 93 guidance in effect at the time and have not been updated to conform to the new disclosure requirements. As a result, the rate reconciliation for the current year may not be directly comparable to those of prior periods. A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is presented below: Consolidated Rate Reconciliation Current Year (ASU 2023-09) Year Ended December 31, 2025 U.S. federal tax at statutory rate $ 4,619 21.0 % Domestic federal Tax credits ( 193 ) ( 0.9 ) Change in valuation allowance ( 4,574 ) ( 20.8 ) Nontaxable or nondeductible items: Equity compensation 834 3.8 Other permanent adjustments 355 1.6 Other adjustments: Other ( 35 ) ( 0.2 ) U.S. state income taxes, net of federal income tax effect (1) 233 1.1 Foreign tax effects: Canada Statutory rate difference between Canada and U.S. ( 532 ) ( 2.4 ) Provincial taxes (2) 1,023 4.7 Other 2 — Czechia Goodwill impairment 237 1.1 Other ( 127 ) ( 0.6 ) Germany 353 1.6 Other foreign jurisdictions 360 1.6 Worldwide changes in unrecognized tax benefits 6 — Effective income tax rate $ 2,561 11.6 % (1) State taxes in Oregon make up the majority (greater than 50 percent) of the tax effect in this category. (2) State and local taxes in Ontario, British Columbia, and Alberta make up the majority of the tax effect in this category. Consolidated Rate Reconciliation Prior Year (legacy guidance) Year Ended December 31, 2024 2023 Federal income taxes at statutory rate 21.0 % 21.0 % U.S. state income taxes, net of federal income tax effect 5.0 7.9 Equity compensation ( 16.3 ) ( 9.2 ) Change in valuation allowance 2.9 ( 19.1 ) Other, net ( 0.4 ) ( 0.1 ) Credits 1.2 0.3 Goodwill impairment ( 13.4 ) — Effective income tax rate — % 0.8 % 94 The principal components of the Company’s deferred tax assets and liabilities were as follows (in thousands): As of December 31, 2025 2024 Deferred tax assets: Deferred revenue $ 11,070 $ 10,798 Accruals and reserves 2,592 1,932 Net operating loss carryforwards 67,928 67,674 Depreciation and amortization — 3,387 Lease Liability 3,100 — Equity compensation 1,347 1,323 Credits 1,541 1,297 Other 803 977 Total deferred tax assets 88,381 87,388 Deferred tax liabilities: Deferred costs ( 1,657 ) ( 1,569 ) Right-of-use Asset ( 3,303 ) — Intangible assets ( 1,813 ) ( 2,302 ) Other ( 1,130 ) ( 623 ) Total deferred tax liabilities ( 7,903 ) ( 4,494 ) Total deferred taxes 80,478 82,894 Less deferred tax asset valuation allowance ( 81,802 ) ( 84,707 ) Net deferred tax liability $ ( 1,324 ) $ ( 1,813 ) At December 31, 2025, the Company had U.S. federal, U.S. state, and foreign net operating loss carryforwards of $ 67.9 million (tax-effected, net of federal benefit) and U.S. federal income tax credits of $ 1.5 million. Use of carryforwards is limited based on the future income of the Company. The federal net operating loss carryforwards will begin to expire in 2027. Foreign net operating loss carryforwards will begin to expire in 2026. U.S. federal income tax credits will begin to expire in 2036. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the Company’s net operating loss carryforwards and credit carryforwards may be limited if the Company experiences an ownership change. As of December 31, 2025, the utilization of approximately $ 0.3 million of net operating losses are subject to limitation as a result of prior ownership changes; however, subsequent ownership changes may further affect the limitation in future years. A valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against its U.S. Federal, the majority of its U.S. State, and a portion of its foreign deferred tax assets as of December 31, 2025, 2024, and 2023 because the Company’s management has determined that it is more likely than not that these assets will not be fully realized. For the year ended December 31, 2025, the Company recognized a net decrease of $ 2.9 million in valuation allowance against its net deferred tax assets associated with U.S. federal and certain foreign and U.S. state jurisdictions, primarily attributable the utilization of net operating losses in certain jurisdictions. The Company is open to examination by the U.S. federal tax jurisdiction for the years ended December 31, 2021 through 2025, and is also open to examination for 2006 and forward with respect to net operating loss carryforwards generated and carried forward from those years in the United States. The Company is subject to taxation in various states and countries, and may be subject to audit or examination by the relevant authorities in respect to those particular jurisdictions primarily for 2018 and thereafter. On July 4, 2025, the One Big Beautiful Bill Act ("2025 U.S. Tax Act") was enacted in the United States. Among the changes, the 2025 U.S. Tax Act restores immediate expensing of domestic research and development costs and modifies certain international provisions. The 2025 U.S. Tax Act did not have a material impact on the current year effective rates for income taxes or cash taxes paid. While we continue to evaluate the impact for future years, we do not anticipate a material impact for income taxes or cash taxes paid. 95 Many countries have enacted the Organization for Economic Cooperation and Development’s 15% global minimum tax regime. The legislation did not have a material impact on our current year effective rates for income taxes or for cash taxes paid, however we continue to monitor developments and evaluate impacts, if any, of these rules on our results of operations and cash flows. For the year ended December 31, 2025, the Company intends to invest substantially all of its foreign subsidiary earnings, as well as its capital in its foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which it would incur significant, additional costs upon repatriation of such amounts. A deferred tax liability related to taxes due upon repatriation to the U.S. has not been recorded. The Company is booking Global Intangible Low-Taxed Income ("GILTI") on a current basis and is not booking deferred taxes related to GILTI. The Company accounts for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon examination by the taxing authority, including resolution of any appeals or litigation, on the basis of the technical merits of the position. If the tax position meets the more-likely-than-not criteria, the portion of the tax benefit greater than 50% likely to be realized upon settlement with the relevant taxing authority is recognized in the financial statements. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands): Year Ended December 31, 2025 2024 2023 Balance, beginning of year $ 83 $ 80 $ 151 Increases (decreases) to tax positions related to prior periods 6 3 ( 72 ) Increases (decreases) to tax positions related to the current year 1 — 1 Balance, end of year $ 90 $ 83 $ 80 The Company's disaggregated presentation of net cash paid for income taxes for the year ended December 31, 2025 has been prepared in accordance with ASU 2023-09 on a prospective basis. As a result, the net cash paid for income taxes for the current year may not be directly comparable to those of prior periods. Net cash paid for income taxes in 2025 consisted of the following: December 31, 2025 Federal $ — State Oregon 149 Other 47 Foreign Canada - Federal 250 Canada - British Columbia 95 Canada - Ontario 94 United Kingdom 405 Other 5 Total $ 1,045 The Company paid income taxes of $ 0.5 million and $ 0.6 million in the years ended December 31, 2024 and 2023, respectively. 18. Employee Benefits The Company has a 401(k) plan for its U.S. employees. The plan allows employees to contribute a percentage of their pretax earnings annually, subject to limitations imposed by the Internal Revenue Service. The plan also allows the Company to make a 96 matching contribution, subject to certain limitations. The Company made matching contributions of $ 0.8 million for the year ended December 31, 2025, and no matching contributions during the years ended December 31, 2024 and 2023. 97 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.