TRUPANION, INC.

Previous 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.

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. Additional products in this segment include the U.S. Department of Veterans Affairs program and employer-sponsored programs.

Previous 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.

Current wording

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

Previous 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.

Current wording

Total subscription pets enrolled. Total subscription pets enrolled reflects the number of pets enrolled in one of the insurance products offered 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

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

Current wording

The following tables present the reconciliation of our non-GAAP financial measures from corresponding GAAP measures for year to date values as well as each of the last eight fiscal quarters (in thousands):

Previous 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:

Current wording

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

Previous 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.

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 collected at the time of new 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

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

Current wording

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

Previous 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.

Current wording

Three months ended June 30, 2025 compared to three months ended June 30, 2024. Total revenue increased by $38.8 million, or 12%, to $353.6 million for the three months ended June 30, 2025. Revenue from our subscription business segment increased by $33.5 million, or 16%, to $242.2 million for the three months ended June 30, 2025. This increase was primarily due to an 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 $5.2 million, or 5%, to $111.4 million for the three months ended June 30, 2025. This increase was primarily driven by a 20% 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 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.

Current wording

Three months ended June 30, 2025 compared to three months ended June 30, 2024. Total cost of revenue for our subscription business segment increased by $19.7 million, or 11%, to $195.5 million, for the three months ended June 30, 2025. This increase was driven by a $17.4 million, or 11%, increase in veterinary invoice expense and a $2.3 million, or 12%, increase in other cost of revenue. The 11% increase in veterinary invoice expense was driven by a 7% increase in veterinary invoice expense per pet and an increase in total subscription pet months for policies underwritten by Trupanion. The 12% 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 84% to 81% of revenue year-over-year primarily due to growth in subscription revenue outpacing growth in subscription veterinary invoice expense.

Previous wording

Total cost of revenue for our other business segment increased by $3.3 million, or 3%, to $101.0 million for the three months ended March 31, 2025. This increase was driven by a $5.2 million, or 31%, increase in other cost of revenue partially offset by a $1.9 million, or 2%, decrease in veterinary invoice expense. The 31% increase in other cost of revenue was primarily driven by increases in managing general agent fees. The 2% decrease in veterinary invoice expense was primarily driven by an 11% 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. Cost of revenue for the other business segment remained constant at 93% of revenue year-over-year.

Current wording

Total cost of revenue for our other business segment increased by $4.5 million, or 5%, to $103.2 million for the three months ended June 30, 2025. This increase was driven by a $7.1 million, or 9%, increase in veterinary invoice expense, partially offset by a $2.6 million, or 11%, decrease in other cost of revenue. The 9% increase in veterinary invoice expense was primarily driven by a 25% increase in veterinary invoice expense per pet, partially offset by a decrease in pet months in this segment primarily reflecting the expected run-off of pets we historically insured for Pets Best. Cost of revenue for the other business segment remained constant at 93% of revenue year-over-year.

Previous 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.

Current wording

Three months ended June 30, 2025 compared to three months ended June 30, 2024. Technology and development expenses increased by $0.4 million, or 5%, to $8.6 million for the three months ended June 30, 2025. This increase was primarily due to a $1.0 million increase in general compensation and other employee-related expenses and a $0.2 million reduction in capitalized expenditures related to internally developed software projects, partially offset by a $0.6 million decrease in development expense and a $0.2 million decrease in infrastructure-related expenses. Technology and development expenses decreased from 3% to 2% of total revenue year-over-year.

Previous 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.

Current wording

Three months ended June 30, 2025 compared to three months ended June 30, 2024. General and administrative expenses increased by $4.9 million, or 32%, to $20.1 million for the three months ended June 30, 2025. This increase was driven by increases of $4.3 million in general compensation and other employee-related expenses and $1.5 million in underwriting fees related to our Canadian business, partially offset by a decrease of $0.8 million in professional services. General and administrative expenses increased from 5% to 6% of total revenue year-over-year.

Previous 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.

Current wording

Three months ended June 30, 2025 compared to three months ended June 30, 2024. New pet acquisition expenses increased by $2.0 million, or 11%, to $19.8 million for the three months ended June 30, 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 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.

Current wording

Three months ended June 30, 2025 compared to three months ended June 30, 2024. Depreciation and amortization expense decreased by $0.4 million, or 9%, to $4.0 million for the three months ended June 30, 2025, primarily driven by fewer internally developed software projects placed in-service during the period.

Previous 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.

Current wording

Six months ended June 30, 2025 compared to six months ended June 30, 2024. Total other (income) expense, net increased by $9.5 million from expense of $1.2 million to income of $8.3 million for the six months ended June 30, 2025, primarily due to a $7.8 million realized gain on the nonmonetary exchange of our Baystride preferred stock investment for intellectual property developed by Baystride. Additionally, total other (income) expense, net includes an increase in interest income from our investments and a decrease in interest expense.

Previous 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.

Current wording

Three months ended June 30, 2025 compared to three months ended June 30, 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 $8.6 million to $9.5 million for the three months ended June 30, 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

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.

Current wording

As of June 30, 2025, we had $319.6 million in cash, cash equivalents and short-term investments, of which $266.3 million was held by our insurance entities. Outside of insurance entities, we held $53.3 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 three months ended March 31, 2025.

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 six months ended June 30, 2025.

Previous 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.

Current wording

Net cash provided by operating activities was $31.0 million for the six months ended June 30, 2025, compared to $9.3 million for the six months ended June 30, 2024. This increase was primarily driven by improved operating results, largely driven by higher revenue and 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 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.

Current wording

Net cash used in investing activities was $51.4 million for the six months ended June 30, 2025, primarily consisting of purchases of investment securities of $142.0 million as well as $4.9 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 $94.3 million in sales and maturities of investment securities. Net cash used in investing activities was $30.5 million for the six months ended June 30, 2024, primarily consisting of $81.2 million in purchases of investments 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.

Previous 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.

Current wording

Net cash used in financing activities was $16.3 million for the six months ended June 30, 2025, primarily consisting of $15.5 million in repayments on the Credit Facility. 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.

Previous wording

Our Credit Facility provides us with up to $150.0 million of credit. As of March 31, 2025, we issued term loans totaling $135.0 million under the Credit Facility. The Credit Facility is secured by substantially all of our assets and those of our subsidiaries. Refer to Note 8, Debt, included in Item 1 of Part I of this report, for further details.

Current wording

Our Credit Facility provides us with up to $150.0 million of credit. As of June 30, 2025, we have outstanding term loans totaling $116.4 million under the Credit Facility. The Credit Facility is secured by substantially all of our assets and those of our subsidiaries. In June 2025, we made a $14.9 million principal repayment on the Initial Term Loan. Refer to Note 8, Debt, included in Item 1 of Part I of this report, for further details.

Previous 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.

Current wording

As of June 30, 2025, our insurance entities collectively held $69.5 million in cash and cash equivalents, to be used for operating expenses of our insurance entities, $196.8 million in short-term investments and $288.5 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.

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. In May 2025, APIC distributed an extraordinary dividend of $26.0 million to Trupanion, Inc.

Previous 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.

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. In 2025, we began underwriting an immaterial amount of business, which is expected to increase in the future, generated by GPIC. 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 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.

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. Trupanion, Inc. received dividends of $15.6 million and $7.0 million from WICL Segregated Account AX in March and July 2025, respectively, 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 June 30, 2025, the account held CAD $21.9 million.

Previous wording

We enter into long-term contractual obligations and commitments in the normal course of business, consisting primarily of debt obligations and non-cancellable vendor service agreements. In March 2022, we entered into a credit agreement that provides us with up to $150.0 million of credit, including a $60.0 million initial term loan that was funded at closing and an aggregate $75.0 million of delayed draw term loans funded between December 2022 and September 2023. Refer to Note 8, Debt, included in Item 1 of Part I of this report, for further details, including interest and future principal repayments.

Current wording

We enter into long-term contractual obligations and commitments in the normal course of business, consisting primarily of debt obligations and non-cancellable vendor service agreements. In March 2022, we entered into a credit agreement that provides us with up to $150.0 million of credit, including a $60.0 million Initial Term Loan that was funded at closing and an aggregate $75.0 million of delayed draw term loans funded between December 2022 and September 2023. In June 2025, we made a $14.9 million principal repayment on the Initial Term Loan. Refer to Note 8, Debt, included in Item 1 of Part I of this report, for further details, including interest and future principal repayments.