TRUPANION INC

Previous wording

We operate in two aggregated reporting segments: subscription business and other business. We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products. We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our new pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return. Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium average revenue per pet products marketed under the brand names, Furkin and PHI Direct. We are the underwriter and provide a full suite of services and support for these products. They are designed to align with the target margin profile of our subscription business segment. Within our subscription business segment, we also offer products in Continental Europe, which are currently underwritten using third-party underwriters.

Current wording

We operate in two aggregated reporting segments: subscription business and other business. We generate revenue in our subscription business segment primarily from insurance premium payments, which we refer to as subscription fees, from direct-to-consumer products. We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our new pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return. Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium average revenue per pet products marketed under the brand names, Furkin and PHI Direct. We are the underwriter and provide a full suite of services and support for these products. They are designed to align with the target margin profile of our subscription business segment. Within our subscription business segment, we also offer products in certain countries in Continental Europe, which have been underwritten by third-parties who pay us commissions we recognize as revenue. Going forward our intent is to underwrite these products similar to our core Trupanion subscription products.

Previous wording

Our other business segment is comprised of revenue from other product offerings with third parties with whom we generally have a business-to-business relationship. This business segment has a different margin profile than our subscription segment and includes revenue from underwriting policies on behalf of third parties and revenue from other products and insurance software solutions. This segment of our business is not part of our core business strategy and generally has a lower margin. Over time, it is reasonable to expect changes to this segment that may impact the revenue contribution due to a partner or partners rolling off to the new underwriters.

Current wording

Our other business segment is comprised of revenue from other product offerings with third parties with whom we generally have a business-to-business relationship. This business segment has a different margin profile than our subscription segment and includes revenue from underwriting policies on behalf of third parties and revenue from other products and insurance software solutions. This segment of our business is not part of our core business strategy and generally has a lower margin. Over time, it is reasonable to expect changes to this segment that may impact the revenue contribution due to a partner or partners rolling off to other underwriters.

Previous wording

Total pets enrolled and total subscription pets enrolled include pet enrollments in European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker. Per pet metrics, however, exclude these European policies, as their revenue is currently earned from commissions, as opposed to the gross underwriting premiums earned by the remainder of our subscription business.

Current wording

Total pets enrolled and total subscription pets enrolled include pet enrollments in European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker. Per pet metrics, however, exclude these European policies, as their revenue is currently earned from commissions, as opposed to the subscription fees earned by the remainder of our subscription business.

Previous wording

When determining our PAC, we calculate net acquisition cost for a more comparable metric across periods. Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as GAAP new pet acquisition expense, excluding stock-based compensation expense, other business segment expense, and pet acquisition expense for commission-based policies, offset by sign-up fee revenue. We exclude stock-based compensation expense because the amount varies from period to period based on the number of awards issued and market-based valuation inputs. We exclude other business segment pet acquisition expense because it does not relate to subscription enrollments. We exclude pet acquisition expense for commission-based policies because the revenue of these products is earned from commissions from a third party underwriter, as opposed to the gross underwriting premiums earned by the remainder of our subscription business. We offset sign-up fee revenue because it is a one-time charge to new members collected at the time of enrollment used to partially offset initial setup costs, which are included in new pet acquisition expenses.

Current wording

When determining our PAC, we calculate net acquisition cost for a more comparable metric across periods. Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as GAAP new pet acquisition expense, excluding stock-based compensation expense, other business segment expense, and pet acquisition expense for commission-based policies, offset by sign-up fee revenue. We exclude stock-based compensation expense because the amount varies from period to period based on the number of awards issued and market-based valuation inputs. We exclude other business segment pet acquisition expense because it does not relate to subscription enrollments. We exclude pet acquisition expense for commission-based policies because the revenue of these products is earned from commissions from a third party underwriter, as opposed to the subscription fees earned by the remainder of our subscription business. We offset sign-up fee revenue because it is a one-time charge to new members collected at the time of enrollment used to partially offset initial setup costs, which are included in new pet acquisition expenses.

Previous wording

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

Current wording

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

Previous wording

We operate in two aggregated reporting segments: subscription business and other business. We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products. We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return. Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium average revenue per pet products marketed under the brand names Furkin and PHI Direct. We provide a full suite of services and support for these products and they are designed to align with the target margin profile of our subscription business segment. Within our subscription business segment, we also offer products in Continental Europe, which are currently underwritten using third-party underwriters.

Current wording

We operate in two aggregated reporting segments: subscription business and other business. We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products. We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return. Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium average revenue per pet products marketed under the brand names Furkin and PHI Direct. We provide a full suite of services and support for these products and they are designed to align with the target margin profile of our subscription business segment. Within our subscription business segment, we also offer products in Continental Europe, which have been underwritten by third-parties who pay us commissions we recognize as revenue.

Previous wording

We generate revenue in our subscription business segment primarily from subscription fees for our pet medical insurance. Fees are paid at the beginning of each subscription period. In most cases, our members authorize us to directly charge their credit card, debit card or bank account through automatic funds transfer. Subscription revenue is recognized on a pro rata basis over the enrollment term. Membership may be canceled at any time without penalty, and we issue a refund for the unused portion of the canceled membership. We also generate a portion of our subscription business segment revenue through commissions earned in our European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker.

Current wording

We generate revenue in our subscription business segment primarily from subscription fees for our pet medical insurance. We also generate an immaterial amount of revenue in this segment in the form of one-time sign-up fees charged to members at enrollment. Subscription fees are paid at the beginning of each subscription period. In most cases, our members authorize us to directly charge their credit card, debit card or bank account through automatic funds transfer. Subscription revenue is recognized on a pro rata basis over the enrollment term. Membership may be canceled at any time without penalty, and we issue a refund for the unused portion of the canceled membership. We also generate a portion of our subscription business segment revenue through commissions earned in our European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Current wording

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

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. Total revenue increased by $94.0 million, or 18%, to $620.9 million for the six months ended June 30, 2024. Revenue from our subscription business segment increased by $71.3 million, or 21%, to $409.8 million for the six months ended June 30, 2024. This increase was primarily due to an 10% increase in subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion and a 11% increase in monthly average revenue per pet. Revenue from our other business segment increased by $22.7 million, or 12%, to $211.2 million for the six months ended June 30, 2024. This increase was primarily driven by a 15% increase in monthly average revenue per pet in this segment, offset by a 2% decrease in pet months in this segment.

Current wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. Total revenue increased by $41.6 million, or 15%, to $327.5 million for the three months ended September 30, 2024. Revenue from our subscription business segment increased by $36.1 million, or 20%, to $219.0 million for the three months ended September 30, 2024. This increase was primarily due to a 13% increase in monthly average revenue per pet and an increase in subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion. Revenue from our other business segment increased by $5.5 million, or 5%, to $108.5 million, for the three months ended September 30, 2024. This increase was primarily driven by an 18% increase in monthly average revenue per pet in this segment, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party.

Previous wording

Three months ended June 30, 2024 compared to three months ended June 30, 2023. Total revenue increased by $44.2 million, or 16%, to $314.8 million for the three months ended June 30, 2024. Revenue from our subscription business segment increased by $35.4 million, or 20%, to $208.6 million for the three months ended June 30, 2024. This increase was primarily driven by an 8% increase in total subscription pet months (the sum of pet months for each month during a period) for policies underwritten by Trupanion and a 11% increase in monthly average revenue per pet. Revenue from our other business segment increased by $8.9 million, or 9%, to $106.2 million, for the three months ended June 30, 2024. This increase was primarily driven by a 16% increase in monthly average revenue per pet in this segment, offset by a 6% decrease in pet months in this segment.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. Total revenue increased by $135.6 million, or 17%, to $948.4 million for the nine months ended September 30, 2024. Revenue from our subscription business segment increased by $107.4 million, or 21%, to $628.7 million for the nine months ended September 30, 2024. This increase was primarily due to an 11% increase in monthly average revenue per pet and an increase in subscription pet months for policies underwritten by Trupanion. Revenue from our other business segment increased by $28.3 million, or 10%, to $319.6 million for the nine months ended September 30, 2024. This increase was primarily driven by a 16% increase in monthly average revenue per pet in this segment, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party.

Previous wording

Three months ended June 30, 2024 compared to three months ended June 30, 2023. Total cost of revenue for our subscription business segment increased $24.2 million, or 16%, to $175.7 million, for the three months ended June 30, 2024. This increase was driven by a $21.2 million, or 16%, increase in veterinary invoice expense and a $3.0 million, or 18%, increase in other cost of revenue. The 16% increase in veterinary invoice expense was driven by an 8% increase in total subscription pet months for policies underwritten by Trupanion and a 7% increase in veterinary invoice expense per pet month. The 18% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership. Subscription business cost of revenue decreased from 87% to 84% of revenue year-over-year.

Current wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. Total cost of revenue for our subscription business segment increased $19.9 million, or 13%, to $177.4 million, for the three months ended September 30, 2024. This increase was driven by a $16.6 million, or 12%, increase in veterinary invoice expense and a $3.4 million, or 19%, increase in other cost of revenue. The 12% increase in veterinary invoice expense was driven by an increase in total subscription pet months for policies underwritten by Trupanion and a 5% increase in veterinary invoice expense per pet month. The 19% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership and subscription revenue. Subscription business cost of revenue decreased from 86% to 81% of revenue year-over-year.

Previous wording

Total cost of revenue for our other business segment increased by $9.1 million, or 10%, to $98.8 million for the three months ended June 30, 2024. The increase was primarily driven by a $5.9 million, or 34%, increase in other cost of revenue as well as a $3.2 million, or 4%, increase in veterinary invoice expense. The 34% increase in other cost of revenue was primarily driven by increases in managing general agent ("MGA") and underwriting fees, which reflects higher earned premium and lower loss ratio in the other business segment. The 4% increase in veterinary invoice expense was primarily driven by a 10% increase in veterinary invoice expense per pet, offset by a 6% decrease in pet months in this segment. Cost of revenue for the other business segment increased from 92% to 93% of revenue year-over-year.

Current wording

Total cost of revenue for our other business segment increased by $7.5 million, or 8%, to $100.7 million for the three months ended September 30, 2024. This increase was primarily driven by a $9.8 million, or 13%, increase in veterinary invoice expense offset by a $2.3 million, or 11%, decrease in other cost of revenue. The 13% increase in veterinary invoice expense was primarily driven by a 27% increase in veterinary invoice expense per pet, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party. The 11% decrease in other cost of revenue was primarily driven by decreases in managing general agent ("MGA") and underwriting fees which are primarily a reflection of the loss sensitive nature of our MGA arrangements with minimal impact to our other business operating margin. Cost of revenue for the other business segment increased from 91% to 93% of revenue year-over-year.

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. Total cost of revenue for our subscription business segment increased by $50.3 million, or 17%, to $347.9 million, for the six months ended June 30, 2024. This increase was driven by a $44.6 million, or 17%, increase in veterinary invoice expense and a $5.7 million, or 17%, increase in other cost of revenue. The 17% increase in veterinary invoice expense was driven by a 10% increase in total subscription pet months for policies underwritten by Trupanion and a 7% increase in veterinary invoice expense per pet month. The 17% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership. Subscription business cost of revenue decreased from 88% to 85% of revenue year-over-year.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. Total cost of revenue for our subscription business segment increased by $70.2 million, or 15%, to $525.2 million for the nine months ended September 30, 2024. This increase was driven by a $61.1 million, or 15%, increase in veterinary invoice expense and a $9.1 million, or 17%, increase in other cost of revenue. The 15% increase in veterinary invoice expense was driven by an increase in total subscription pet months for policies underwritten by Trupanion and a 6% increase in veterinary invoice expense per pet month.

Previous wording

Total cost of revenue for our other business segment increased by $23.0 million, or 13%, to $196.6 million for the six months ended June 30, 2024. The increase was primarily driven by a $19.2 million, or 14%, increase in veterinary invoice expense as well as a $3.7 million, or 10%, increase in other cost of revenue. The 14% increase in veterinary invoice expense was primarily driven by a 16% increase in veterinary invoice expense per pet, offset by a 2% decrease in pet months. The 10% increase in other cost of revenue was primarily driven by increases in MGA and underwriting fees. Cost of revenue for the other business segment increased from 92% to 93% of revenue year-over-year.

Current wording

Total cost of revenue for our other business segment increased by $30.5 million, or 11%, to $297.3 million for the nine months ended September 30, 2024. This increase was primarily driven by a $29.1 million, or 14%, increase in veterinary invoice expense as well as a $1.5 million, or 3%, increase in other cost of revenue. The 14% increase in veterinary invoice expense was primarily driven by a 20% increase in veterinary invoice expense per pet, offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party. The 3% increase in other cost of revenue was primarily driven by increases in MGA, underwriting, and other premium-based expenses. Cost of revenue for the other business segment increased from 92% to 93% of revenue year-over-year.

Previous wording

Three months ended June 30, 2024 compared to three months ended June 30, 2023. Technology and development expenses increased by $3.0 million, or 57%, to $8.2 million for the three months ended June 30, 2024, primarily due a $1.8 million reduction in capitalized expenditures related to internally-developed software projects launched in early 2024, a $0.9 million increase in development expense, and a $0.4 million increase in infrastructure-related expenses. Technology and development expenses increased from 2% to 3% of total revenue year over year.

Current wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. Technology and development expenses increased by $2.6 million, or 50%, to $7.9 million for the three months ended September 30, 2024. This increase was primarily due to a $1.7 million decrease in capitalized expenditures related to internally-developed software projects launched in early 2024, a $0.8 million increase in general compensation and other employee-related expenses, including stock-based compensation expense, and a $0.2 million increase in infrastructure-related expenses, partially offset by a $0.1 million decrease in development expense. Technology and development expenses remained consistent at 2% of total revenue year over year.

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. Technology and development expenses increased by $5.0 million, or 50%, to $15.2 million for the six months ended June 30, 2024, primarily due to a $3.5 million reduction in capitalized expenditures related to internally-developed software projects launched in early 2024 and a $1.2 million increase in development expense. Technology and development expenses remained constant at 2% of total revenue year-over-year.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. Technology and development expenses increased by $7.6 million, or 50%, to $23.1 million for the nine months ended September 30, 2024. This increase was primarily due to a $5.3 million reduction in capitalized expenditures related to internally-developed software projects launched in early 2024, a $1.2 million increase in infrastructure-related expenses, and a $1.2 million increase in development expense. Technology and development expenses remained constant at 2% of total revenue year-over-year.

Previous wording

Three months ended June 30, 2024 compared to three months ended June 30, 2023. General and administrative expenses increased by $2.1 million, or 16%, to $15.3 million for the three months ended June 30, 2024. The increase was primarily due to $1.2 million in property and sales taxes and discretionary related expenses, $0.5 million in underwriting fees related to our Canadian business, and $0.5 million in professional services. General and administrative expenses remained constant at 5% of total revenue year over year.

Current wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. General and administrative expenses increased by $4.3 million, or 34%, to $17.0 million for the three months ended September 30, 2024. This increase was primarily due to $2.0 million in general compensation and other employee-related expenses, including stock-based compensation expense, $1.5 million in professional services, and $0.6 million in underwriting fees related to our Canadian operations. General and administrative expenses increased from 4% to 5% of total revenue year over year.

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. General and administrative expenses decreased by $4.2 million, or 12%, to $29.9 million for the six months ended June 30, 2024. The decrease in expense when comparing periods was driven primarily by two charges recorded during the first quarter of 2023, a $4.8 million stock-based compensation charge following certain executive departures and a $3.8 million charge related to the negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers. These decreases in expense period over period were partially offset by increases of $1.8 million in property and sales taxes and discretionary related expenses, $1.1 million in underwriting fees related to our Canadian business, $1.1 million in professional services, and $0.5 million in general compensation and other employee-related expenses. General and administrative expenses decreased from 6% to 5% of total revenue year-over-year.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. General and administrative expenses increased by $0.1 million, or 0%, to $46.9 million for the nine months ended September 30, 2024. Two charges were recorded during the first quarter of 2023 that led to decreases in expense when comparing periods, a $4.8 million stock-based compensation charge following certain executive departures and a $3.8 million charge related to the negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers. These decreases in expense were offset by increases of $3.9 million in general compensation and other employee-related expenses, $2.7 million in professional services, and $1.7 million in underwriting fees related to our Canadian operations. General and administrative expenses decreased from 6% to 5% of total revenue year-over-year.

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. New pet acquisition expenses decreased by $7.7 million, or 18%, to $34.7 million for the six months ended June 30, 2024. This decrease was primarily due to a decrease in expenses related to generating leads and driving conversion, as we focused on growth in our more efficient channels. New pet acquisition expenses as a percentage of revenue was 6% for the six months ended June 30, 2024 compared to 8% in the same period last year, as we were able to stay disciplined with our discretionary pet acquisition spend, while still managing to grow total enrolled subscription pets by 8%.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. New pet acquisition expenses decreased by $7.2 million, or 12%, to $53.0 million for the nine months ended September 30, 2024. This decrease was primarily due to a decrease in expenses related to generating leads and driving conversion, particularly in the first half of 2024, as we focused on growth in our more efficient channels. New pet acquisition expenses as a percentage of revenue was 6% for the nine months ended September 30, 2024 compared to 7% in the same period last year, as we were able to stay disciplined with our discretionary pet acquisition spend, while still managing to grow total enrolled subscription pets by 6%.

Previous wording

Three months ended June 30, 2024 compared to three months ended June 30, 2023. Depreciation and amortization expense increased by $1.1 million, or 35%, to $4.4 million for the three months ended June 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Current wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. Depreciation and amortization expense increased by $1.4 million, or 47%, to $4.4 million for the three months ended September 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. Depreciation and amortization expense increased by $1.7 million, or 26%, to $8.2 million for the six months ended June 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. Depreciation and amortization expense increased by $3.1 million, or 33%, to $12.5 million for the nine months ended September 30, 2024 primarily driven by an increase in in-service internally developed software projects during the period.

Previous wording

Three months ended June 30, 2024 compared to three months ended June 30, 2023. Total other (income) expense, net decreased by $0.4 million to $0.4 million for the three months ended June 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Current wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. Total other (income) expense, net decreased by $0.3 million to $0.3 million for the three months ended September 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. Total other (income) expense, net decreased by $0.2 million to $1.2 million for the six months ended June 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. Total other (income) expense, net decreased by $0.5 million to $1.5 million for the nine months ended September 30, 2024 primarily due to an increase in interest income from our investments partially offset by an increase in interest expense.

Previous wording

Three months ended June 30, 2024 compared to three months ended June 30, 2023. Stock-based compensation increased by $2.0 million, or 30%, to $8.6 million for the three months ended June 30, 2024. The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan.

Current wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. Stock-based compensation increased by $1.4 million, or 21%, to $8.3 million for the three months ended September 30, 2024. The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan.

Previous wording

Six months ended June 30, 2024 compared to six months ended June 30, 2023. Stock-based compensation decreased by $2.2 million, or 11%, to $16.8 million for the six months ended June 30, 2024. The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan. Additionally, the six months ended June 30, 2023 included $4.8 million in stock-based compensation as a result of charges after certain executive departures.

Current wording

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023. Stock-based compensation decreased by $0.7 million, or 3%, to $25.1 million for the nine months ended September 30, 2024. The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan. Additionally, the nine months ended September 30, 2023 included $4.8 million in stock-based compensation as a result of charges after certain executive departures.

Previous wording

Most recently, our primary sources of liquidity have been cash provided by operations and available borrowings from our Credit Facility. We believe these sources are sufficient to fund our operations and capital requirements for the next 12 months. As we continue to grow and consider strategic opportunities, however, we may explore additional financing to fund our operations and growth or to meet capital requirements. Financing could include equity, equity-linked, or debt financing. Additional financing may not be available to us on acceptable terms, or at all. As our capital surplus grows relative to the rate of growth of our business, we may also generate cash, via dividends or other methods, from one or more of our underwriting entities.

Current wording

Most recently, our primary sources of liquidity have been cash provided by operations and available borrowings from our Credit Facility. We believe these sources are sufficient to fund our operations and capital requirements for the next 12 months. As we continue to grow and consider strategic opportunities, however, we may explore additional financing to fund our operations and growth or for strategic purposes. Financing could include equity, equity-linked, or debt financing. Additional financing may not be available to us on acceptable terms, or at all. If our capital surplus grows relative to the rate of growth of our business, we may also generate cash for operations and growth, via dividends or other methods, from one or more of our underwriting entities.

Previous wording

As of June 30, 2024, the Company had $277.2 million in cash, cash equivalents and short-term investments, of which $244.1 million was held by the Company's insurance entities. Outside of our insurance entities, we held $33.2 million in cash, cash equivalents and short-term investments with an additional $15.0 million available under our Credit Facility. Our insurance entities maintained $263.0 million of capital surplus, which was $130.3 million in excess of the estimated risk-based capital requirement of $132.7 million. The ability to distribute any portion of this estimated $130.3 million excess to our parent company, and the timing of any distribution, may be subject to regulatory limitations.

Current wording

As of September 30, 2024, we had $293.1 million in cash, cash equivalents and short-term investments, of which $256.7 million was held by our insurance entities. Outside of our insurance entities, we held $36.4 million in cash, cash equivalents and short-term investments. We also had an additional $15.0 million available under our Credit Facility. Our insurance entities maintained $274.6 million of capital surplus, which was $139.9 million in excess of the estimated risk-based capital requirement of $134.7 million. The ability to distribute any portion of this estimated $139.9 million excess to our parent company, and the timing of any distribution, may be subject to regulatory limitations and may be delayed or limited from time to time.

Previous wording

In April 2021, our board of directors approved a share repurchase program, pursuant to which we may, between May 2021 and May 2026, repurchase outstanding shares of our common stock. While our board of directors has approved the program, any repurchase activity is subject to quarterly assessment and board approval, based on various factors including available cash, our stock price relative to our estimated intrinsic value, forecasted operating results, and available opportunities to deploy capital. We repurchased no shares under this program during the six months ended June 30, 2024.

Current wording

In April 2021, our board of directors approved a share repurchase program, pursuant to which we may, between May 2021 and May 2026, repurchase outstanding shares of our common stock. While our board of directors has approved the program, any repurchase activity is subject to quarterly assessment and board approval, based on various factors including available cash, our stock price relative to our estimated intrinsic value, forecasted operating results, and available opportunities to deploy capital. We repurchased no shares under this program during the nine months ended September 30, 2024.

Previous wording

Net cash provided by operating activities was $9.3 million for the six months ended June 30, 2024, compared to $10.3 million net cash used in operating activities for the six months ended June 30, 2023. This increase was primarily driven by an increase in premium collection from members as our pricing actions flow through and a decrease in acquisition costs offset by timing differences in other working capital activities. Changes in accounts receivable and deferred revenue were primarily related to annual policies with annual payment terms within our other business segment.

Current wording

Net cash provided by operating activities was $24.6 million for the nine months ended September 30, 2024, compared to $1.1 million net cash provided by operating activities for the nine months ended September 30, 2023. This increase was primarily driven by expansion in our subscription operating margin and a decrease in acquisition costs offset by timing differences in other working capital activities. Changes in accounts receivable and deferred revenue were primarily related to annual policies with annual payment terms within our other business segment. Changes in our reserve for veterinary invoices are driven by multiple factors, including ongoing analysis of claims frequency and severity as well as changes in claims inventory at each period end.

Previous wording

Net cash used in investing activities was $30.5 million for the six months ended June 30, 2024, primarily consisting of purchases of investment securities of $81.2 million as well as $5.9 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements, partially offset by $55.7 million in sales and maturities of investment securities. Net cash provided by investing activities was $28.4 million for the six months ended June 30, 2023, primarily consisting of $117.7 million in sales and maturities of investment securities, offset by $79.9 million of purchases of investments and $9.9 million of capital expenditures.

Current wording

Net cash used in investing activities was $31.9 million for the nine months ended September 30, 2024, primarily consisting of purchases of investment securities of $25.6 million, net of maturities, as well as $7.9 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements. Net cash provided by investing activities was $25.1 million for the nine months ended September 30, 2023, primarily consisting of $38.0 million in maturities of investment securities, net of purchases, offset by $14.3 million of capital expenditures primarily related to the development of internal-use software focused on member experience improvements.

Previous wording

Net cash used in financing activities was $1.2 million for the six months ended June 30, 2024, primarily consisting of $0.7 million in repayments on the Credit Facility. Net cash provided by financing activities was $33.7 million for the six months ended June 30, 2023, primarily consisting of $35.1 million in proceeds from the Credit Facility.

Current wording

Net cash used in financing activities was $2.3 million for the nine months ended September 30, 2024, primarily consisting of $1.0 million in repayments on the Credit Facility, as well as $1.4 million in shares withheld to satisfy tax withholding. Net cash provided by financing activities was $58.6 million for the nine months ended September 30, 2023, primarily consisting of $60.1 million in proceeds from the Credit Facility, offset by $1.4 million in repayments on the Credit Facility.

Previous wording

As of June 30, 2024, our insurance entities collectively held $91.2 million in cash and cash equivalents, to be used for operating expenses for our insurance entities, $152.8 million in short-term investments and $284.4 million in other current assets. Most of the assets in our insurance entities are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

Current wording

As of September 30, 2024, our insurance entities collectively held $101.2 million in cash and cash equivalents to be used for operating expenses for our insurance entities, $155.5 million in short-term investments and $288.0 million in other current assets. Most of the assets in our insurance entities are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

Previous wording

The majority of our investments are held by our insurance entities to satisfy risk-based capital requirements of the National Association of Insurance Commissioners ("NAIC"). The NAIC requirements provide a method for analyzing the minimum amount of risk-based capital (statutory capital and surplus plus other adjustments) appropriate for an insurance company to support its overall business operations, taking into account the risk characteristics of the company’s assets, liabilities and certain other items. An insurance company found to have insufficient statutory capital based on its risk-based capital ratio may be subject to varying levels of additional regulatory oversight depending on the level of capital inadequacy. APIC must hold certain capital amounts in order to comply with the statutory regulations and, therefore, we cannot use these amounts for general operating purposes without regulatory approval. As our business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements will also increase, though risk-based capital requirements also take our overall rate of growth into consideration. Recently, our other business segment growth has slowed and, currently, we expect that to continue, which would reduce capital requirements. APIC was required to maintain at least $99.0 million and $137.6 million of risk-based capital as of June 30, 2024 and December 31, 2023, respectively. In July 2024, APIC distributed an ordinary dividend of $4.1 million to Trupanion, Inc.

Current wording

The majority of our investments are held by our insurance entities to satisfy risk-based capital requirements of our regulators based on requirements published by the National Association of Insurance Commissioners ("NAIC"). The NAIC requirements provide a method for analyzing the minimum amount of risk-based capital (statutory capital and surplus plus other adjustments) appropriate for an insurance company to support its overall business operations, taking into account the risk characteristics of the company’s assets, liabilities and certain other items. An insurance company found to have insufficient statutory capital based on its risk-based capital ratio may be subject to varying levels of additional regulatory oversight depending on the level of capital inadequacy. APIC must hold certain capital amounts in order to comply with the statutory regulations and, therefore, we cannot use these amounts for general operating purposes without regulatory approval. As our business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements will also increase, though risk-based capital requirements also take our overall rate of growth into consideration. Recently, our other business segment growth has slowed and, currently, we expect that to continue, which would reduce capital requirements. APIC was required to maintain at least $99.1 million and $137.6 million of risk-based capital as of September 30, 2024 and December 31, 2023, respectively. In July 2024, APIC distributed an ordinary dividend of $4.1 million to Trupanion, Inc.

Previous wording

In 2021, we established two new wholly-owned U.S. insurance subsidiaries, ZPIC and QPIC, domiciled in Missouri and Nebraska, respectively, and in 2022, we established a new wholly-owned insurance subsidiary, GPIC, domiciled in Canada. We have funded required statutory capital to each of these new subsidiaries. As of June 30, 2024, neither ZPIC, QPIC nor GPIC have begun underwriting any insurance policies, accordingly, each of these entities are currently overcapitalized relative to traditional risk-based capital requirements. We formed these insurance subsidiaries to provide us flexibility as to the insurance entity we use to market and write policies.

Current wording

In 2021, we established two new wholly-owned U.S. insurance subsidiaries, ZPIC and QPIC, domiciled in Missouri and Nebraska, respectively, and in 2022, we established a new wholly-owned insurance subsidiary, GPIC, domiciled in Canada. We formed these insurance subsidiaries to provide us flexibility as to the insurance entity we use to market and write policies. We have funded the required statutory capital to each of these new subsidiaries. As of September 30, 2024, neither ZPIC, QPIC nor GPIC have begun underwriting any insurance policies. Due to anticipated lack of use, during the quarter ended September 30, 2024, we began the dissolution process for QPIC, which included a distribution of $4.4 million of previously required capital to Trupanion, Inc. We intend to fully dissolve QPIC and distribute remaining capital of $3.4 million to Trupanion, Inc. upon receiving necessary regulatory approvals.

Previous wording

Wyndham Insurance Company (SAC) Limited ("WICL") Segregated Account AX

Current wording

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

Previous wording

WICL Segregated Account AX was established by WICL, with Trupanion, Inc. as the shareholder, to enter into a reinsurance agreement with Accelerant Insurance Company of Canada, formerly known as Omega General Insurance Company. All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL, and all shares of the segregated account are owned by Trupanion, Inc. In April 2024, our parent company received a dividend of $8.6 million from WICL Segregated Account AX as allowed under our agreements with WICL. As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Accelerant Insurance Company of Canada, we are required to maintain a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims. As of June 30, 2024, the account held CAD $17.9 million.

Current wording

WICL is domiciled in Bermuda and regulated by the Bermuda Monetary Authority ("BMA"). WICL Segregated Account AX was established by WICL, with Trupanion, Inc. as the shareholder, to enter into a reinsurance agreement with Accelerant Insurance Company of Canada, formerly known as Omega General Insurance Company. All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL, and all shares of the segregated account are owned by Trupanion, Inc. In April 2024, our parent company received a dividend of $8.6 million from WICL Segregated Account AX as permitted under our agreements with WICL. As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Accelerant Insurance Company of Canada, we are required to maintain a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims. As of September 30, 2024, the account held CAD $19.0 million.

Previous wording

Though we are not directly regulated by the Bermuda Monetary Authority ("BMA"), WICL's regulation and compliance impacts us as it could have an adverse impact on the ability of WICL Segregated Account AX to pay dividends. WICL is regulated by the BMA under the Insurance Act of 1978 ("Insurance Act") and the Segregated Accounts Company Act of 2000. The Insurance Act imposes on Bermuda insurance companies, solvency and liquidity standards, certain restrictions on the declaration and payment of dividends and distributions, certain restrictions on the reduction of statutory capital, and auditing and reporting requirements, and grants the BMA powers to supervise and, in certain circumstances, to investigate and intervene in the affairs of insurance companies. Under the Insurance Act, WICL, as a class 3 insurer, is required to maintain available statutory capital and surplus at a level equal to or in excess of a prescribed minimum established by reference to net written premiums and loss reserves.

Current wording

Though we are not directly regulated by BMA, WICL's regulation and compliance impacts us as it could have an adverse impact on our ability to secure dividends from our WICL segregated accounts. WICL is regulated by the BMA under the Insurance Act of 1978 ("Insurance Act") and the Segregated Accounts Company Act of 2000. The Insurance Act imposes on Bermuda insurance companies, solvency and liquidity standards, certain restrictions on the declaration and payment of dividends and distributions, certain restrictions on the reduction of statutory capital, and auditing and reporting requirements, and grants the BMA powers to supervise and, in certain circumstances, to investigate and intervene in the affairs of insurance companies. Under the Insurance Act, WICL, as a class 3 insurer, is required to maintain available statutory capital and surplus at a level equal to or in excess of a prescribed minimum established by reference to net written premiums and loss reserves.

Previous wording

Under the Bermuda Companies Act 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 after the payment be, 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 and the value of its assets remain greater than the aggregate of its liabilities and its issued share capital and share premium accounts.

Current wording

Under the Bermuda Companies Act 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 after the payment be, 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 account 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.