TRUPANION INC

Previous wording

We provide medical insurance for cats and dogs in the United States, Canada, Continental Europe, Australia, and Puerto Rico. Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level. Our growing and loyal membership base provides us with highly predictable and recurring revenue.

Current wording

We provide medical insurance for cats and dogs in the United States, Canada, and certain countries in Continental Europe. Through our data-driven, vertically-integrated approach, we develop and offer high-value medical insurance products, priced to take into account each pet’s unique characteristics and coverage level. Our growing and loyal membership base provides us with highly predictable and recurring revenue.

Previous 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.

Current wording

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

Previous wording

We generate leads for our subscription business segment from a diverse set of member acquisition channels, which we then convert into members through our contact center, website and other direct-to-consumer activities. These channels include leads from third-parties such as veterinarians and referrals from existing members. Veterinary hospitals represent our largest referral source. We engage our “Territory Partners” to have face-to-face visits with veterinarians and their staff. Territory Partners are dedicated to cultivating direct veterinary relationships and building awareness of the benefits of high quality medical insurance to veterinarians and their clients. Veterinarians then educate pet owners, who visit our website or call our contact center to learn more about, and potentially enroll in, Trupanion. We also receive a significant number of new leads from existing members adding pets and referring their friends and family members. Our direct-to-consumer acquisition channels serve as important resources for pet owner education and drive new member leads and conversion. We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.

Current wording

We generate leads for our subscription business segment from a diverse set of member acquisition channels, which we then seek to convert into members through our contact center, website and other direct-to-consumer activities. These channels include leads from third-parties such as veterinarians and referrals from existing members. Veterinary hospitals represent our largest referral source. Our “Territory Partners” create relationships with veterinary hospital teams through face-to-face visits. Territory Partners are dedicated to cultivating direct veterinary relationships and helping those veterinarians understand the benefits of high-quality medical insurance. Veterinarians then educate pet parents, who visit our website or call our contact center to learn more about, and potentially enroll in, a Trupanion product. We also receive a significant number of new leads from existing members adding pets and referring their friends and family members. Our direct-to-consumer acquisition channels serve as important resources for pet owner education and drive new member leads and conversion. We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.

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 writing policies on behalf of third parties and revenue from other products and insurance software solutions.

Current wording

Our other business segment generates revenue from other product offerings, primarily by underwriting policies on behalf of third parties with whom we generally have a business-to-business relationship. This business segment has, and targets, a lower margin profile than our subscription segment and is not part of our core business strategy. The largest source of revenue within this segment is from our long-standing contractual relationship as an underwriter for Pets Best Insurance Services ("Pets Best"), a third-party insurance provider we have worked with since 2015.

Previous wording

The following tables set forth total pets enrolled and key operating metrics for our subscription business for year to date values as well as each of the last eight fiscal quarters.

Current wording

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

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 subscription fees earned by the remainder of our subscription business.

Current wording

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

Previous wording

Total pets enrolled. Total pets enrolled reflects the number of subscription pets and pets enrolled in one of the insurance products offered in our other business segment at the end of each period presented. We monitor total pets enrolled because it provides an indication of the growth of our consolidated business.

Current wording

Total pets enrolled. Total pets enrolled reflects the number of pets enrolled in one of the insurance products offered in our subscription business segment and our other business segment at the end of each period presented. We monitor total pets enrolled because it provides an indication of the growth of our consolidated business.

Previous wording

Total subscription pets enrolled. Total subscription pets enrolled reflects the number of pets in active memberships at the end of each period presented. We monitor total subscription pets enrolled because it provides an indication of the growth of our subscription business.

Current wording

Total subscription pets enrolled. Total subscription pets enrolled reflects the number of pets in active memberships in our subscription business segment at the end of each period presented. We monitor total subscription pets enrolled because it provides an indication of the growth of our subscription business.

Previous wording

Average pet acquisition cost. Average pet acquisition cost ("PAC") is calculated as net acquisition cost divided by the total number of new subscription pets enrolled in that period. Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as new pet acquisition expense, excluding stock-based compensation expense, other business segment expense, offset by sign-up fee revenue. We exclude stock-based compensation expense because the amount varies from period to period based on number of awards issued and market-based valuation inputs. We offset sign-up fee revenue because it is a one-time charge to new members collected at the time of enrollment used to partially offset initial setup costs, which are included in new pet acquisition expenses. We exclude other business segment pet acquisition expense because that does not relate to subscription enrollments. We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.

Current wording

Average pet acquisition cost. Average pet acquisition cost ("PAC") is calculated as net acquisition cost divided by the total number of new subscription pets enrolled in that period. Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as new pet acquisition expense, excluding stock-based compensation expense, other business segment expense, offset by sign-up fee revenue. We exclude stock-based compensation expense because the amount varies from period to period based on number of awards issued and market-based valuation inputs. We offset sign-up fee revenue because it is a one-time charge to some new members collected at the time of enrollment used to partially offset initial setup costs, which are included in new pet acquisition expenses. We exclude other business segment pet acquisition expense because that does not relate to subscription enrollments. We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.

Previous wording

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

Current wording

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

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 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.

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

Previous 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:

Current wording

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

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

Current wording

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

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 other underwriters.

Current wording

Our other business segment generates revenue from other product offerings, primarily by underwriting policies on behalf of third parties with whom we generally have a business-to-business relationship. This business segment has, and targets, a different margin profile than our subscription business and is not part of our core business strategy. The largest source of revenue within this segment is from our long-standing contractual relationship with Pets Best, a third-party insurance provider we have worked with since 2015. Additional products in this segment include the U.S. Department of Veterans Affairs program and employer-sponsored programs.

Previous 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.

Current wording

We generate revenue in our subscription business segment primarily from subscription payments for our pet medical insurance. Subscription payments are paid at the beginning of each subscription period. In most cases, our members authorize us to directly charge their credit card, debit card or bank account through automatic funds transfer. Subscription revenue is recognized on a pro rata basis over the policy term. Membership may be canceled at any time without penalty, and we issue a refund for the unused portion of the canceled membership. In addition to subscription payments, we generate a small amount of revenue from charging a one-time sign-up fee to some new members collected at the time of enrollment to partially offset initial setup costs. Sign-up fees are related to Trupanion's obligation to provide insurance coverage and are recognized over the policy term. We also generate a portion of our subscription business segment revenue through commissions earned in our European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker.

Previous wording

We generate revenue in our other business segment primarily from writing policies on behalf of third parties where we do not undertake the direct consumer marketing. This segment also includes revenue from other products and insurance software solutions that have a different margin profile from our subscription business.

Current wording

We generate revenue in our other business segment primarily from writing policies on behalf of third parties where we do not undertake the direct consumer marketing. This segment also includes revenue from other pet insurance products that have a different margin profile from our subscription business.

Previous wording

Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner fees upon policy renewals, payment processing fees and premium tax expenses. Other cost of revenue for the other business segment includes the commissions we pay to unaffiliated general agents, costs to administer the programs in the other business segment and premium taxes on the sales in this segment.

Current wording

Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner fees per member renewal, payment processing fees and premium tax expenses. Other cost of revenue for the other business segment includes the commissions we pay to unaffiliated general agents, costs to administer the programs in the other business segment and premium taxes on the sales in this segment.

Previous wording

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

Current wording

Gain (loss) from investment in joint venture consists of the share of income and losses from our equity method investment in a joint venture in Australia, as well as income and expenses associated with administrative services provided to the joint venture. In March 2025, we restructured this relationship from a joint venture to a brand license and services arrangement.

Previous wording

Other business segment. Our other business segment primarily includes other product offerings that have been materially different from those in our subscription business segment. In addition, we expect the growth rate and margin profile of this segment to be materially different from our subscription business segment. We do not undertake marketing efforts for and are not the primary interface with the customers of the third parties for whom we underwrite other business segment policies. Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive. Accordingly, we have limited influence on the volume of business of this segment. Loss of an entire program via contract termination could result in the associated policies and revenue being lost over a period of 12 to 18 months, which could have a material impact on our results of operations. In some cases, we have structured exclusive relationships, but those relationships have been and may continue to be subject to limitations on the number of enrolled pets as to which we will write policies for the third party. We may enter into additional relationships in this segment in the future, if we believe they will be beneficial, which could impact our operating results.

Current wording

Other business segment. Our other business segment primarily includes other product offerings that are materially different from those in our subscription business segment. In addition, we expect the growth rate and margin profile of this segment to be significantly different from our subscription business segment. We do not undertake marketing efforts for and are not the primary interface with the customers of the third parties for whom we underwrite other business segment policies. Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive, including our contractual relationship with Pets Best. Accordingly, we have limited influence on the volume of business of this segment. Loss of an entire program via contract termination could result in the associated policies and revenue being lost over a period of 12 to 18 months, which could have a material impact on our results of operations. In some cases, we have structured exclusive relationships, but those relationships have been and may continue to be subject to limitations on the number of enrolled pets as to which we will write policies for the third party. We may enter into additional relationships in this segment in the future, if we believe they will be beneficial, which could impact our operating results.

Previous wording

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

Current wording

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

Previous 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.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. Total revenue increased by $35.9 million, or 12%, to $342.0 million for the three months ended March 31, 2025. Revenue from our subscription business segment increased by $31.9 million, or 16%, to $233.1 million for the year ended March 31, 2025. This increase was primarily due to a 11% increase in monthly average revenue per pet and an increase in subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion. Revenue from our other business segment increased by $3.9 million, or 4%, to $108.9 million for the three months ended March 31, 2025. This increase was primarily driven by an 18% increase in monthly average revenue per pet in this segment, partially offset by a decrease in pet months primarily reflecting the expected run-off of pets we historically insured for Pets Best.

Previous 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.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. Total cost of revenue for our subscription business segment increased by $17.7 million, or 10%, to $189.8 million, for the three months ended March 31, 2025. This increase was driven by a $15.8 million, or 10%, increase in veterinary invoice expense and a $1.9 million, or 10%, increase in other cost of revenue. The 10% increase in veterinary invoice expense was driven by a 6% increase in veterinary invoice expense per pet and an increase in total subscription pet months for policies underwritten by Trupanion. The 10% increase in other cost of revenue was primarily due to general increases in costs attributable to growth in our membership and subscription revenue. Subscription business cost of revenue decreased from 86% to 81% of revenue year-over-year.

Previous 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.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. Technology and development expenses increased by $1.1 million, or 16%, to $8.1 million for the three months ended March 31, 2025. This increase was primarily due to a $0.6 million increase in general compensation and other employee-related expenses, a $0.4 million reduction in capitalized expenditures related to internally developed software projects launched in early 2024, and a $0.3 million increase in development expense, offset by a $0.2 million decrease in infrastructure-related expenses. Technology and development expenses remained constant at 2% of total revenue year-over-year.

Previous 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.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. General and administrative expenses increased by $5.2 million, or 36%, to $19.9 million for the three months ended March 31, 2025. This increase was driven by increases of $2.4 million in general compensation and other employee-related expenses, $1.2 million in professional services, and $1.8 million in underwriting fees related to our Canadian business. General and administrative expenses increased from 5% to 6% of total revenue year-over-year.

Previous wording

Three months ended September 30, 2024 compared to three months ended September 30, 2023. New pet acquisition expenses increased by $0.5 million, or 3%, to $18.3 million for the three months ended September 30, 2024. The increase was primarily driven by expanded external marketing spend during the third quarter of 2024 for purposes of generating leads and driving conversion. New pet acquisition as a percentage of revenue remained constant at 6% of total revenue year over year.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. New pet acquisition expenses increased by $3.7 million, or 22%, to $20.5 million for the three months ended March 31, 2025. This increase was primarily driven by increased marketing spend as we have begun deploying more capital to acquire new pets in a disciplined manner. New pet acquisition expense as a percentage of revenue remained constant at 6% as we were able to stay disciplined with our discretionary pet acquisition spend.

Previous 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.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. Depreciation and amortization expense remained constant at $3.8 million, or 1% of revenue for the three months ended March 31, 2025.

Previous 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.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. Total other (income) expense, net, increased by $0.8 million to income of less than $0.1 million for the three months ended March 31, 2025, primarily due to an increase in interest income from our investments and a decrease in interest expense.

Previous 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.

Current wording

Three months ended March 31, 2025 compared to three months ended March 31, 2024. Stock-based compensation is included in the cost and expense line items in the consolidated statements of operations, discussed above. Stock-based compensation expense increased from $8.2 million to $9.8 million for the three months ended March 31, 2025. The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan.

Previous wording

Our primary requirements for liquidity are paying veterinary invoices, funding operations and capital requirements, investing in new member acquisition, investing in enhancements to our member experience, and servicing debt. We have certain contractual obligations in the normal course of business, including obligations and commitments relating to our Credit Facility, non-cancellable vendor purchase agreements, as well as future payments of veterinary invoices. Refer to Note 7, Reserve for Veterinary Invoices, included in Item 1 of Part I of this report, for further details on anticipated cash outflows.

Current wording

Our primary requirements for liquidity are paying veterinary invoices, funding and growing our operations, funding our capital requirements, investing in new member acquisition, investing in enhancements to our member experience, and servicing debt. We have certain contractual obligations in the normal course of business, including obligations and commitments relating to our Credit Facility, non-cancellable vendor purchase agreements, as well as future payments of veterinary invoices. Refer to Note 7, Reserve for Veterinary Invoices, included in Item 1 of Part I of this report, for further details on anticipated cash outflows.

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 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.

Current wording

Most recently, our primary source of liquidity has been cash provided by our operations. We believe our operating cash flow is sufficient to fund our operations and capital requirements for the next 12 months. As we continue to grow and consider strategic opportunities, however, we may explore additional financing to fund our operations and growth or for strategic purposes. 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 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.

Current wording

As of March 31, 2025, we had $321.8 million in cash, cash equivalents and short-term investments, of which $273.0 million was held by our insurance entities. Outside of insurance entities, we held $48.8 million in cash, cash equivalents and short-term investments with an additional $15.0 million available under our Credit Facility.

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 nine months ended September 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 three months ended March 31, 2025.

Previous 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.

Current wording

Net cash provided by operating activities was $16.0 million for the three months ended March 31, 2025, compared to $2.4 million for the three months ended March 31, 2024. This increase was primarily driven by improved operating results largely driven by higher revenue, improved Subscription Business margins, and timing differences in other working capital activities. Changes in accounts receivable and deferred revenue were primarily related to annual policies with annual payment terms within our other business segment. Changes in our reserve for veterinary invoices are driven by multiple factors, including ongoing analysis of claims frequency and severity as well as changes in claims inventory at period end.

Previous 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.

Current wording

Net cash used by investing activities was $9.0 million for the three months ended March 31, 2025, primarily consisting of $40.9 million in purchases of investments, partially offset by $33.2 million in proceeds on maturities and sales of investments, and $1.9 million of capital expenditures mainly related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements. Net cash used in investing activities was $2.7 million for the three months ended March 31, 2024, primarily consisting of $3.1 million of capital expenditures mainly related to the development of internal-use software focused on member experience, claims processing and internal policy management improvements.

Previous 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.

Current wording

Net cash used by financing activities was $0.5 million for the three months ended March 31, 2025, consisting of $1.0 million in proceeds from the exercise of stock options, partially offset by $0.9 million in shares withheld to satisfy tax withholdings, and $0.3 million in repayments on the Credit Facility. Net cash used in financing activities was $0.3 million for the three months ended March 31, 2024, primarily consisting of $0.3 million in repayments on the Credit Facility.

Previous 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.

Current wording

As of March 31, 2025, our insurance entities collectively held $117.7 million in cash and cash equivalents, to be used for operating expenses of our insurance entities, $155.3 million in short-term investments and $287.6 million in other current assets. The majority of the assets in our insurance entities are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

Previous 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.

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.

Previous wording

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

Current wording

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

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 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.

Current wording

In 2021, we established a new wholly-owned U.S. insurance subsidiary, ZPIC, domiciled in Missouri, and in 2022 we established a new wholly-owned insurance subsidiary, GPIC, domiciled in Canada. We formed these insurance subsidiaries to provide us flexibility as to the insurance entity we use to market and write policies. We have funded the required statutory capital to each of these new subsidiaries.

Previous 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.

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 March 2025, our parent company received a dividend of $15.6 million from WICL Segregated Account AX as permitted under our agreements with WICL. As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Accelerant Insurance Company of Canada, we are required to maintain a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims. As of March 31, 2025, the account held CAD $20.4 million.