10-Q 1 trup-20240930.htm 10-Q trup-20240930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 001-36537
TRUPANION, INC.
(Exact name of registrant as specified in its charter)
Delaware83-0480694
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
6100 4th Avenue S, Suite 200
Seattle, Washington98108
(855) 727 - 9079
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.00001 par value per shareTRUPThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Yes
☐
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Yes
☐
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of October 25, 2024, there were approximately 42,343,514 shares of the registrant’s common stock outstanding.


TRUPANION, INC.
TABLE OF CONTENTS


Note About Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and Section 27A of the Securities Act of 1933, as amended ("Securities Act"). All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “target,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan” and “expect,” and similar expressions that convey uncertainty of future events or outcomes, are intended to identify forward-looking statements.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II. Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law.
Unless otherwise stated or the context otherwise indicates, references to “we,” “us,” “our” and similar references refer to Trupanion, Inc. and its subsidiaries taken as a whole.





PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRUPANION, INC.
Condensed Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Revenue$327,456 $285,853 $948,377 $812,748 
Cost of revenue:
Veterinary invoice expense(1)
238,814 212,441 703,485 613,316 
Other cost of revenue(1)
39,263 38,179 119,017 108,480 
Total cost of revenue278,077 250,620 822,502 721,796 
Operating expenses:
Technology and development(1)
7,933 5,302 23,083 15,434 
General and administrative(1)
16,977 12,664 46,903 46,817 
New pet acquisition expense(1)
18,308 17,772 53,025 60,183 
Depreciation and amortization4,381 2,990 12,542 9,445 
Total operating expenses47,599 38,728 135,553 131,879 
Gain (loss) from investment in joint venture(34)4 (184)(140)
Operating income (loss)1,746 (3,491)(9,862)(41,067)
Interest expense3,820 3,053 11,071 8,380 
Other income, net(3,538)(2,465)(9,601)(6,445)
Income (loss) before income taxes1,464 (4,079)(11,332)(43,002)
Income tax expense (benefit)39 (43)(43)(472)
Net income (loss)$1,425 $(4,036)$(11,289)$(42,530)
Net income (loss) per share:
Basic$0.03 $(0.10)$(0.27)$(1.03)
Diluted$0.03 $(0.10)$(0.27)$(1.03)
Weighted average shares of common stock outstanding:
Basic42,233,903 41,536,575 42,076,998 41,344,195 
Diluted42,822,505 41,536,575 42,076,998 41,344,195 
(1)Includes stock-based compensation expense as follows:
Veterinary invoice expense$847 $895 $2,625 $2,614 
Other cost of revenue554 281 1,561 1,187 
Technology and development1,259 650 3,774 1,985 
General and administrative4,125 3,281 11,435 14,448 
New pet acquisition expense1,555 1,785 5,743 5,626 

See accompanying notes to the condensed consolidated financial statements.
1

TRUPANION, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Net income (loss)$1,425 $(4,036)$(11,289)$(42,530)
Other comprehensive income (loss):
Foreign currency translation adjustments2,805 (2,763)1,288 48 
Net unrealized gain (loss) on available-for-sale investments2,209 (243)1,552 (855)
Other comprehensive income (loss), net of taxes5,014 (3,006)2,840 (807)
Comprehensive income (loss)$6,439 $(7,042)$(8,449)$(43,337)

See accompanying notes to the condensed consolidated financial statements.
2

TRUPANION, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
September 30, 2024December 31, 2023
Assets(unaudited)
Current assets:
Cash and cash equivalents$137,477 $147,501 
Short-term investments155,580 129,667 
Accounts and other receivables, net of allowance for credit loss of $1,015 at September 30, 2024 and $1,085 at December 31, 2023
289,823 267,899 
Prepaid expenses and other assets16,692 17,022 
Total current assets599,572 562,089 
Restricted cash23,394 22,963 
Long-term investments14,215 12,866 
Property, equipment, and internal-use software, net102,862 103,650 
Intangible assets, net14,888 18,745 
Other long-term assets16,004 18,922 
Goodwill45,183 43,713 
Total assets$816,118 $782,948 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$10,136 $10,505 
Accrued liabilities and other current liabilities33,461 34,052 
Reserve for veterinary invoices56,668 63,238 
Deferred revenue260,238 235,329 
Long-term debt - current portion1,350 1,350 
Total current liabilities361,853 344,474 
Long-term debt127,548 127,580 
Deferred tax liabilities2,166 2,685 
Other liabilities4,376 4,487 
Total liabilities495,943 479,226 
Stockholders’ equity:
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 43,368,881 and 42,340,695 issued and outstanding at September 30, 2024; 42,887,052 and 41,858,866 shares issued and outstanding at December 31, 2023
— — 
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding
— — 
Additional paid-in capital561,010 536,108 
Accumulated other comprehensive income (loss)3,243 403 
Accumulated deficit(227,544)(216,255)
Treasury stock, at cost: 1,028,186 shares at September 30, 2024 and December 31, 2023
(16,534)(16,534)
Total stockholders’ equity 320,175 303,722 
Total liabilities and stockholders’ equity$816,118 $782,948 

See accompanying notes to the condensed consolidated financial statements.
3


Trupanion, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
SharesAmount
Balance at July 1, 202442,159,631 $— $553,122 $(228,969)$(1,771)$(16,534)$305,848 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings181,064 — (545)— — — (545)
Stock-based compensation expense— — 8,433 — — — 8,433 
Other comprehensive income (loss)— — — — 5,014 — 5,014 
Net Income— — — 1,425 — — 1,425 
Balance at September 30, 202442,340,695 $— $561,010 $(227,544)$3,243 $(16,534)$320,175 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
SharesAmount
Balance at July 1, 202341,470,738 $— $519,450 $(210,056)$(4,102)$(16,534)$288,758 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings156,470 — 356 — — — 356 
Stock-based compensation expense— — 7,393 — — — 7,393 
Other comprehensive income (loss)— — — — (3,006)— (3,006)
Net loss— — — (4,036)— — (4,036)
Balance at September 30, 202341,627,208 $— $527,199 $(214,092)$(7,108)$(16,534)$289,465 

See accompanying notes to the condensed consolidated financial statements.

4

Trupanion, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
SharesAmount
Balance at January 1, 202441,858,866 $— $536,108 $(216,255)$403 $(16,534)$303,722 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings481,829 — (661)— — — (661)
Stock-based compensation expense— — 25,563 — — — 25,563 
Other comprehensive income (loss)— — — — 2,840 — 2,840 
Net loss— — — (11,289)— — (11,289)
Balance at September 30, 202442,340,695 $— $561,010 $(227,544)$3,243 $(16,534)$320,175 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
SharesAmount
Balance at January 1, 202341,013,158 $— $499,694 $(171,562)$(6,301)$(16,534)$305,297 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings614,050 — (15)— — — (15)
Stock-based compensation expense— — 27,520 — — — 27,520 
Other comprehensive income (loss)— — — — (807)— (807)
Net loss— — — (42,530)— — (42,530)
Balance at September 30, 202341,627,208 $— $527,199 $(214,092)$(7,108)$(16,534)$289,465 





5


TRUPANION, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
20242023
Operating activities
Net loss$(11,289)$(42,530)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization12,542 9,445 
Stock-based compensation expense25,138 25,860 
Other, net(453)(1,134)
Changes in operating assets and liabilities:
Accounts and other receivables(22,020)(45,593)
Prepaid expenses and other assets2,398 (2,761)
Accounts payable, accrued liabilities, and other liabilities(350)(3,832)
Reserve for veterinary invoices(6,469)17,697 
Deferred revenue25,088 43,979 
Net cash provided by (used in) operating activities24,585 1,131 
Investing activities
Purchases of investment securities(107,375)(109,389)
Maturities and sales of investment securities81,767 147,365 
Purchases of property, equipment, and internal-use software(7,858)(14,310)
Other1,552 1,420 
Net cash provided by (used in) investing activities(31,914)25,086 
Financing activities
Proceeds from debt financing, net of financing fees— 60,102 
Proceeds from exercise of stock options729 1,281 
Shares withheld to satisfy tax withholding(1,390)(1,296)
Repayments of debt financing(1,013)(1,380)
Other(609)(150)
Net cash provided by (used in) financing activities(2,283)58,557 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net19 (830)
Net change in cash, cash equivalents, and restricted cash(9,593)83,944 
Cash, cash equivalents, and restricted cash at beginning of period170,464 84,637 
Cash, cash equivalents, and restricted cash at end of period$160,871 $168,581 
Supplemental disclosures
Noncash investing and financing activities:
Purchases of property, equipment, and internal-use software included in accounts payable and accrued liabilities$484 $741 
See accompanying notes to the condensed consolidated financial statements.
6

TRUPANION, INC.
Notes to the Condensed Consolidated Financial Statements (unaudited)
1. Nature of Operations and Significant Accounting Policies
Description of Business and Basis of Presentation
Trupanion, Inc. (collectively with its wholly-owned subsidiaries, the "Company") provides medical insurance for cats and dogs in the United States, Canada, Continental Europe, Australia, and Puerto Rico. The Company's data-driven, vertically-integrated approach enables the Company to provide pet owners with products that the Company believes are the highest value medical insurance, priced specifically for each pet’s unique characteristics.
The financial data as of December 31, 2023 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive income (loss), stockholders' equity and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission ("SEC") on February 27, 2024 (the "2023 10-K"). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2023 10-K. Operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 1 to the audited financial statements included in the 2023 10-K for additional discussion of these estimates and assumptions.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07 related to improving segment disclosures. This ASU enhances disclosures about significant segment expenses, allows for multiple measures of a segment's profit or loss, and requires additional disclosures about the chief operating decision maker. This ASU is effective for annual periods beginning after December 15, 2023, with early adoption permitted. The Company is still evaluating the impact of this ASU on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 which expands upon the income tax disclosures through changes to the rate reconciliation and income taxes paid information. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is still evaluating the impact of this ASU on its consolidated financial statements.

2. Net Income (Loss) per Share
Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is calculated using the weighted average number of shares of common stock plus, when dilutive, potential shares of common stock outstanding using the treasury-stock method. Potential shares of common stock outstanding include stock options, unvested restricted stock awards and restricted stock units.
The components of basic and diluted earnings per share were as follows (in thousands, except share and per share information):
7

 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Basic earnings per share:
Net income (loss)$1,425 $(4,036)$(11,289)$(42,530)
Shares used in computation:
Weighted average shares of common stock outstanding42,233,903 41,536,575 42,076,998 41,344,195 
Basic earnings per share$0.03 $(0.10)$(0.27)$(1.03)
Diluted earnings per share:
Net income (loss)$1,425 $(4,036)$(11,289)$(42,530)
Shares used in computation:
Weighted average shares of common stock outstanding42,233,903 41,536,575 42,076,998 41,344,195 
Stock options242,254 — — — 
Restricted stock awards and units346,348 — — — 
Weighted average number of shares42,822,505 41,536,575 42,076,998 41,344,195 
Diluted earnings per share$0.03 $(0.10)$(0.27)$(1.03)
The following potentially dilutive equity securities were not included in the diluted earnings per share of common stock calculation because they would have had an antidilutive effect:
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Stock options— 522,830 353,025 522,830 
Restricted stock awards and restricted stock units317,203 735,163 1,037,672 735,163 

3. Investments
Available-for sale securities are classified as short-term versus long-term investments based on whether they represent the investment of funds available for current operations. All available-for-sale securities are considered short-term in nature, with the exception of certain long-term investments that are being held for statutory requirements. Held-to-maturity securities are classified as short-term versus long-term investments based on the effective maturity dates. The amortized cost, gross unrealized holding gains and losses, and estimates of fair value of long-term and short-term investments by major security type and class of security were as follows as of September 30, 2024 and December 31, 2023 (in thousands):
8

Amortized
Cost		Gross
Unrealized
Holding
Gains		Gross
Unrealized
Holding
Losses		Fair
Value
As of September 30, 2024
Long-term investments:
Available-for-sale investments
Foreign deposits$14,051 $— $— $14,051 
$14,051 $— $— $14,051 
Held-to-maturity investments
U.S. treasury securities$164 $1 $— $165 
$164 $1 $— $165 
Short-term investments:
Available-for-sale investments
U.S. treasury securities$59,933 $976 $(1)$60,908 
Mortgage-backed securities and collateralized mortgage obligations13,228 181 (26)13,383 
Other asset-backed securities16,778 173 (10)16,941 
Corporate bonds41,515 751 (11)42,255 
$131,454 $2,081 $(48)$133,487 
Held-to-maturity investments
U.S. treasury securities$13,801 $34 $— $13,835 
Certificates of deposit8,292 — — 8,292 
$22,093 $34 $— $22,127 
Amortized
Cost		Gross
Unrealized
Holding
Gains		Gross
Unrealized
Holding
Losses		Fair
Value
As of December 31, 2023
Long-term investments:
Available-for-sale investments
Foreign deposits$11,869 $— $— $11,869 
$11,869 $— $— $11,869 
Held-to-maturity investments
U.S. treasury securities$997 $8 $— $1,005 
$997 $8 $— $1,005 
Short-term investments:
Available-for-sale investments
U.S. treasury securities$44,425 $326 $(64)$44,687 
Mortgage-backed securities and collateralized mortgage obligations10,460 69 (75)10,454 
Other asset-backed securities12,422 67 (53)12,436 
Corporate bonds36,404 332 (123)36,613 
$103,711 $794 $(315)$104,190 
Held-to-maturity investments
U.S. treasury securities$13,179 $21 $(15)$13,185 
Certificates of deposit12,298 — — 12,298 
$25,477 $21 $(15)$25,483 
9

Maturities of investments classified as available-for-sale and held-to-maturity were as follows (in thousands):
 As of September 30, 2024
 Amortized
Cost		Fair
Value
Available-for-sale:
Due under one year$5,902 $5,915 
Due after one year through five years109,597 111,298 
$115,499 $117,213 
Available-for-sale collateralized:
Due under one year$3,298 $3,296 
Due after one year through five years22,252 22,553 
Due after five years through ten years3,674 3,698 
Due after ten years782 778 
$30,006 $30,325 
Held-to-maturity:
Due under one year$22,093 $22,127 
Due after one year through five years164 165 
$22,257 $22,292 

The Company does not expect any credit losses from its held-to-maturity investments, considering the composition of the investment portfolio and the credit loss history of these investments. For available-for-sale investments, the Company determined that there were unrealized losses of less than $0.1 million as of September 30, 2024, and $0.3 million as of December 31, 2023. As of September 30, 2024, $8.2 million in available-for-sale investments have been in a loss position for more than twelve months, with total unrealized losses of less than $0.1 million. As of September 30, 2024, $6.8 million available-for-sale investments have been in a loss position for less than twelve months, with total unrealized losses of less than $0.1 million. As of December 31, 2023, $18.9 million in available-for-sale investments had been in a loss position for more than twelve months, with total unrealized losses of $0.2 million. As of December 31, 2023, $25.9 million available-for-sale investments had been in a loss position for less than twelve months, with total unrealized losses of $0.1 million. All losses relate to interest rate changes. The Company does not expect any credit losses from its available-for-sale investments, considering the composition of the investment portfolio and the credit rating of these investments. For those securities, the Company determined it is not likely to, and does not intend to, sell prior to a potential recovery.
Proceeds from the sales of fixed maturities classified as available-for-sale were $59.2 million and $83.9 million during the nine months ended September 30, 2024 and 2023, respectively.

10

4. Other Investments
Preferred Stock Investment
The Company has invested $7.0 million in the preferred stock of a variable interest entity, Baystride, Inc. ("Baystride"), a U.S.-based privately held corporation operating in the pet food industry. The Company does not have power over the activities that most significantly impact the economic performance of the entity and is, therefore, not the primary beneficiary. The Company has the option to purchase all of the outstanding common stock issued by Baystride in August 2027 at an amount approximating its expected fair value. The preferred stock investment in the entity is redeemable, and therefore, is accounted for as an available-for-sale debt security, and measured at fair value at each balance sheet date — see Note 5.
Additionally, the Company has extended a $7.0 million revolving line of credit to Baystride to fund its inventory purchases, which will increase annually by $2.0 million until the note’s maturity in 2027. Borrowing amounts are subject to limitations based on Baystride’s forecasted revenues and inventory balances. The Company's investment and amounts loaned under the line of credit are recorded in other long-term assets on its consolidated balance sheet. The outstanding loan balance under the line of credit, including accrued interest, was $2.1 million and $4.0 million as of September 30, 2024 and December 31, 2023, respectively. The Company has also entered into a series of agreements to provide ancillary services to, and receive reimbursement from, Baystride at cost. The Company provided $0.2 million and $0.3 million of these services for the nine months ended September 30, 2024 and 2023, respectively.
Allowance for Credit Loss
The Company regularly evaluates its investments for expected credit losses. The Company considers past events, current conditions, and reasonable and supportable forecasts in estimating an allowance for credit losses. Additionally, the Company considers the ultimate collection of cash flows from its investments and whether the Company has the intent to sell, or if it is more likely than not the Company would be required to sell the security prior to recovery of its amortized cost. Such evaluations are revised as conditions change and new information becomes available. Based on these considerations, the Company has established an allowance for credit losses related to its preferred stock investment. The following table presents a rollforward of the allowance for credit losses for this investment.
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Balance at beginning of period$(1,674)$— $(1,674)$— 
(Addition to) allowance for credit losses— — — — 
Balance at end of period$(1,674)$— $(1,674)$— 

11

5. Fair Value
Fair Value Disclosures - Investments
The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands):
As of September 30, 2024
Fair ValueLevel 1Level 2Level 3
Assets
Money market funds$76,979 $76,979 $— $— 
Fixed maturities:
Mortgage-backed securities and collateralized mortgage obligations13,383 — 13,383 — 
Other asset-backed securities16,941 — 16,941 — 
Corporate bonds42,255 — 42,255 — 
Foreign deposits14,051 14,051 — — 
U.S. Treasury securities60,908 — 60,908 — 
Preferred stock investment5,326 — — 5,326 
Total$229,843 $91,030 $133,487 $5,326 
As of December 31, 2023
Fair ValueLevel 1Level 2Level 3
Assets
Money market funds$67,360 $67,360 $— $— 
Fixed maturities:
Mortgage-backed securities and collateralized mortgage obligations10,454 — 10,454 — 
Other asset-backed securities12,436 — 12,436 — 
Corporate bonds36,613 — 36,613 — 
Foreign deposits11,869 11,869 — — 
U.S. Treasury securities44,687 — 44,687 — 
Preferred stock investment5,326 — — 5,326 
Total$188,745 $79,229 $104,190 $5,326 

The Company measures the fair value of money market funds and foreign deposits, classified as Level 1, based on quoted prices in active markets for identical assets. The Company's fixed maturity investments classified as either Level 1 or Level 2 in the above tables are priced exclusively by external sources, including pricing vendors, dealers/market makers, and exchange-quoted prices. The fair value of the Company's fixed maturity investments classified as Level 2 is based on either recent trades in inactive markets or quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. Held-to-maturity investments are carried at amortized cost and the fair value and changes in unrealized gains (losses) are disclosed in Note 3, Investments. The fair value of these investments is determined in the same manner as available-for-sale securities and are considered either a Level 1 or Level 2 measurement.
The Company's preferred stock investment (see Note 4) is accounted for as an available-for-sale debt security, and measured at fair value at each balance sheet date. The estimated fair value of the preferred stock investment is a Level 3 measurement, and is based on certain unobservable inputs such as the value of the underlying enterprise, volatility, time to liquidity, and market interest rates. An increase or decrease in any of these unobservable inputs would result in a change in the fair value measurement. The estimated fair value was $5.3 million as of September 30, 2024, unchanged from December 31, 2023, and is recorded in other long-term assets on the Company's consolidated balance sheet.
The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers between levels for the nine months ended September 30, 2024 and the year ended December 31, 2023.
12

The following table presents the change in fair value of the Company’s preferred stock investment carried at fair value and classified as Level 3 as of September 30, 2024 and 2023 (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Balance at beginning of period$5,326 $4,115 $5,326 $4,115 
Changes in fair value included in earnings— — — — 
Balance at end of period$5,326 $4,115 $5,326 $4,115 
Fair Value Disclosures - Other Assets and Liabilities
The Company's other long-term assets balance also included notes receivable of $4.9 million and $6.8 million as of September 30, 2024 and December 31, 2023, respectively, recorded at their estimated collectible amount. The Company estimates that the carrying value of the notes receivable approximates the fair value. The estimated fair value represents a Level 3 measurement within the fair value hierarchy, and is based on market interest rates and the assessed creditworthiness of the third party.
The Company estimates the fair value of long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement. Based upon the terms of the debt, the carrying amount of long-term debt approximated fair value at September 30, 2024.

6. Commitments and Contingencies
Legal Proceedings
From time to time the Company is or may become subject to various legal proceedings arising in the ordinary course of business, including proceedings against members, other entities or regulatory bodies. Estimated liabilities are recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. At this time, the Company does not believe any such matters to be material individually or in the aggregate. These views are subject to change following the outcome of future events or the results of future developments.

7. Reserve for Veterinary Invoices
The reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that have not been processed or received but that are dated as of, or prior to, its balance sheet date. The reserve also includes the Company's estimate of related internal processing costs. The reserve estimate involves actuarial projections, and is based on management's assessment of facts and circumstances currently known, and assumptions about anticipated patterns. The Company uses generally accepted actuarial methodologies, such as paid loss development methods, in estimating the amount of the reserve for veterinary invoices. The reserve is made for each of the Company's segments, subscription and other business, and is continually refined as the Company receives and pays veterinary invoices. Changes in management's assumptions and estimates may have a relatively large impact to the reserve and associated expense.
Reserve for veterinary invoices
Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):
13

 Nine Months Ended September 30,
Subscription20242023
Reserve at beginning of year$31,548 $21,543 
Veterinary invoices during the period related to:
Current year464,001 400,604 
Prior years142 2,426 
Total veterinary invoice expense464,143 403,030 
Amounts paid during the period related to:
Current year439,325 368,269 
Prior years29,675 21,829 
Total paid469,000 390,098 
Non-cash expenses2,529 2,794 
Reserve at end of period$24,162 $31,681 

The Company had unfavorable development on veterinary invoice reserves for the subscription business segment of $0.1 million for the nine months ended September 30, 2024, and unfavorable development on veterinary invoice reserves of $2.4 million for the nine months ended September 30, 2023, both of which were the result of ongoing analysis of recent payment trends. Non-cash expenses are primarily comprised of stock-based compensation expense for employees performing claims processing related duties.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 Nine Months Ended September 30,
Other Business20242023
Reserve at beginning of year$31,690 $22,191 
Veterinary invoices during the period related to:
Current year240,690 209,635 
Prior years(1,348)651 
Total veterinary invoice expense239,342 210,286 
Amounts paid during the period related to:
Current year209,862 181,535 
Prior years28,664 21,285 
Total paid238,526 202,820 
Non-cash expenses— — 
Reserve at end of period$32,506 $29,657 

The Company had favorable development on veterinary invoice reserves for the other business segment of $1.3 million for the nine months ended September 30, 2024, and unfavorable development on veterinary invoice reserves of $0.7 million for the nine months ended September 30, 2023, both of which were the result of ongoing analysis of recent payment trends.
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Reserve for veterinary invoices, by year of occurrence
In the following tables, the reserve for veterinary invoices for each segment is presented as the amount (in thousands) by the year to which the veterinary invoice relates, referred to as the year of occurrence.
SubscriptionAs of September 30, 2024
Year of Occurrence
2022 and prior$64 
20231,951 
202422,147 
$24,162 

Other Business As of September 30, 2024
Year of Occurrence
2022 and prior$158 
20231,520 
202430,828 
$32,506 

8. Debt
On March 25, 2022, the Company entered into a credit agreement with Piper Sandler Finance, LLC, acting as the administrative agent, that provides the Company with $150.0 million in credit (the "Credit Facility") consisting of:
(a) an initial term loan in an aggregate principal amount of $60.0 million ("Initial Term Loan"), which was funded at closing;
(b) commitments for delayed draw term loans in an aggregate principal amount not in excess of $75.0 million ("Delayed Draw Term Loans", and together with the Initial Term Loan, the "Term Loans"), which were able to be drawn from time to time until September 25, 2023. On December 29, 2022, February 17, 2023, and September 21, 2023, the Company borrowed Delayed Draw Term loans of $15.0 million, $35.0 million, and $25.0 million, respectively; and
(c) commitments for revolving loans in an aggregate principal amount at any time outstanding not in excess of $15.0 million ("Revolving Loans"), which may be drawn at any time prior to March 25, 2027.
The Credit Facility bears interest at a floating base rate plus an applicable margin. The stated interest rate as of September 30, 2024 was approximately 10.48% for the $60.0 million Initial Term Loan and for the aggregate $75.0 million Delayed Draw Term Loans. The Company incurred total debt issuance costs of approximately $5.9 million, which are reported in the consolidated balance sheet as a direct reduction from the carrying amount of the Credit Facility, and are amortized as interest expense over the term of five years.
The Credit Facility is secured by substantially all assets of the Company and its subsidiaries. Proceeds from the Credit Facility may be used for permitted acquisitions and investments, working capital and other general corporate purposes. The Credit Agreement contains financial and other covenants. As of September 30, 2024, the Company was in compliance with all financial and other covenants.
To the extent not previously paid, the Initial Term Loan is due and payable on March 25, 2027, the Delayed Draw Term Loans are due and payable on the earlier of the five-year anniversary of their initial funding or March 25, 2028, and Revolving Loans are due and payable on March 25, 2027. The Company must repay 0.25% of any then-outstanding Term Loans, together with accrued and unpaid interest, on a quarterly basis.
15

Future principal payments on outstanding borrowings as of September 30, 2024 are as follows (in thousands):
Year Ending December 31,September 30, 2024
2024$337 
20251,350 
20261,350 
202772,113 
202857,125 
Total$132,275 

9. Stock-Based Compensation
Stock-based compensation expense includes restricted stock units granted to employees and other service providers and has been reported in the Company’s consolidated statements of operations depending on the function performed by the employee or other service provider. Stock-based compensation expense recognized in each category of the consolidated statements of operations was as follows (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Veterinary invoice expense$847 $895 $2,625 $2,614 
Other cost of revenue554 281 1,561 1,187 
Technology and development1,259 650 3,774 1,985 
General and administrative4,125 3,281 11,435 14,448 
New pet acquisition expense1,555 1,785 5,743 5,626 
Total expensed stock-based compensation8,340 6,892 25,138 25,860 
Capitalized stock-based compensation93 501 425 1,660 
Total stock-based compensation$8,433 $7,393 $25,563 $27,520 
Restricted Stock Units
A summary of the Company’s restricted stock unit activity is as follows:
Number of 
Shares		Weighted Average
Grant Date Fair Value per Share
Unvested shares as of December 31, 2023714,382 $66.64 
Granted902,690 28.63 
Vested(526,251)60.13 
Forfeited(53,149)46.56 
Unvested shares as of September 30, 20241,037,672 37.91 

As of September 30, 2024, the Company had 1,037,672 unvested restricted stock units. Stock-based compensation expenses of $41.6 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 2.2 years.
In March 2023, two executives terminated employment with the Company and one executive signed a separation agreement effective June 1, 2023. In conjunction with these departures, the Company accelerated the vesting of certain RSUs as of the termination date and extended the purchase date of certain vested options from 90 to 365 days. These award modifications resulted in the recognition of $4.8 million share-based compensation expense during the nine months ended September 30, 2023.
16

Stock Options
A summary of the Company's stock option activity is as follows:
Number of OptionsWeighted Average Exercise Price per ShareAggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2023408,970 $14.09 $6,715 
Granted— — — 
Exercised(55,445)13.14 1,352 
Forfeited(500)14.93 — 
Outstanding as of September 30, 2024353,025 14.24 9,793 
Exercisable as of September 30, 2024353,025 14.24 9,793 

As of September 30, 2024, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 1.9 years. The Company has not granted any new stock options since 2017.

10. Stockholders' Equity
Common Stock and Preferred Stock
As of September 30, 2024, the Company had 100,000,000 shares of common stock authorized and 42,340,695 shares of common stock outstanding. Holders of common stock are entitled to one vote on each matter properly submitted to the stockholders of the Company except those related to matters concerning possible outstanding preferred stock. At September 30, 2024, the Company had 10,000,000 shares of undesignated preferred stock authorized for future issuance and did not have any outstanding shares of preferred stock. The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company (the "Board"), whenever funds are legally available. These rights are subordinate to the dividend rights of holders of any senior classes of stock outstanding at the time. The Company does not intend to declare or pay any cash dividends in the foreseeable future.
Share Repurchase Program
In April 2021, the Board approved a share repurchase program, pursuant to which the Company may, between May 2021 and May 2026, repurchase outstanding shares of the Company's common stock. The Company repurchased no shares during the nine months ended September 30, 2024 and 2023, respectively.

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11. Accumulated Comprehensive Income (Loss)
A summary of the components of accumulated other comprehensive income (loss) is as follows (in thousands):
For the three months ended September 30, 2024Foreign Currency TranslationNet Unrealized Gain (Loss) on Available-for-Sale SecuritiesTotal
Balance as of July 1, 2024$(1,593)$(178)$(1,771)
Other comprehensive income (loss)2,805 2,209 5,014 
Balance as of September 30, 2024$1,212 $2,031 $3,243 
For the three months September 30, 2023Foreign Currency TranslationNet Unrealized Gain (Loss) on Available-for-Sale SecuritiesTotal
Balance as of July 1, 2023$23 $(4,125)$(4,102)
Other comprehensive income (loss)(2,763)(243)(3,006)
Balance as of September 30, 2023$(2,740)$(4,368)$(7,108)
For the nine months ended September 30, 2024Foreign Currency TranslationNet Unrealized Gain (Loss) on Available-for-Sale SecuritiesTotal
Balance as of January 1, 2024$(76)$479 $403 
Other comprehensive income (loss)1,288 1,552 2,840 
Balance as of September 30, 2024$1,212 $2,031 $3,243 
For the nine months ended September 30, 2023Foreign Currency TranslationNet Unrealized Gain (Loss) on Available-for-Sale SecuritiesTotal
Balance as of January 1, 2023$(2,788)$(3,513)$(6,301)
Other comprehensive income (loss)48 (855)(807)
Balance as of September 30, 2023$(2,740)$(4,368)$(7,108)

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12. Segments
The Company has two aggregated reporting segments: subscription business and other business. The subscription business segment consists of products that have been created to meet the needs of their distribution channels and have similar target margin profiles. This segment generates revenue primarily from subscription fees related to the Company's direct-to-consumer products. The other business segment generates revenue primarily by underwriting policies on behalf of third parties. The Company does not undertake marketing efforts for these policies and has a business-to-business relationship with these third-parties. The other business segment also includes other products and insurance software solutions that have a different margin profile from the Company’s subscription business segment.
The chief operating decision maker reviews revenue and operating income (loss) to evaluate segment performance. Revenue, veterinary invoice expense, other cost of revenue, and new pet acquisition expenses are generally directly attributed to each segment. Other operating expenses, such as technology and development expense, general and administrative expense, and depreciation and amortization, are generally allocated proportionately based on revenue in each segment. Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss. The Company does not analyze discrete segment balance sheet information related to long-term assets.
Operating income (loss) of the Company’s segments were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Subscription business:
Revenue$218,986 $182,906 $628,738 $521,369 
Veterinary invoice expense156,307 139,747 464,143 403,030 
Other cost of revenue21,058 17,697 61,094 52,025 
Technology and development5,305 3,393 15,303 9,901 
General and administrative11,353 8,103 31,095 27,587 
New pet acquisition expense18,210 17,762 52,897 60,060 
Depreciation and amortization2,929 1,913 8,315 6,060 
Subscription business operating income (loss)3,824 (5,709)(4,109)(37,294)
Other business:
Revenue108,470 102,947 319,639 291,379 
Veterinary invoice expense82,507 72,694 239,342 210,286 
Other cost of revenue18,205 20,482 57,923 56,455 
Technology and development2,628 1,909 7,780 5,533 
General and administrative5,624 4,561 15,808 19,230 
New pet acquisition expense98 10 128 123 
Depreciation and amortization1,452 1,077 4,227 3,385 
Other business operating income (loss)(2,044)2,214 (5,569)(3,633)
Gain (loss) from investment in joint venture(34)4 (184)(140)
Operating income (loss)1,746 (3,491)(9,862)(41,067)
Interest expense3,820 3,053 11,071 8,380 
Other income, net(3,538)(2,465)(9,601)(6,445)
Income (loss) before income taxes$1,464 $(4,079)$(11,332)$(43,002)

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The following table presents the Company’s revenue by geographic region of the member (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
United States$272,825 $241,064 $792,018 $686,662 
Canada and other54,631 44,789 156,359 126,086 
Total revenue$327,456 $285,853 $948,377 $812,748 
Substantially all of the Company’s long-lived assets were located in the United States as of September 30, 2024 and December 31, 2023.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
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.
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.
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.
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.
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Key Operating Metrics
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.
Nine Months Ended September 30,
20242023
Total Business:
Total pets enrolled (at period end)1,688,903 1,712,177 
Subscription Business:
Total subscription pets enrolled (at period end)1,032,042 969,322 
Monthly average revenue per pet$71.94 $64.63 
Lifetime value of a pet, including fixed expenses$493 $428 
Average pet acquisition cost (PAC)$227 $232 
Average monthly retention98.29 %98.55 %
Three Months Ended
Sep. 30, 2024Jun. 30, 2024Mar. 31, 2024Dec. 31, 2023Sep. 30, 2023Jun. 30, 2023Mar. 31, 2023Dec. 31, 2022
Total Business:
Total pets enrolled (at period end)1,688,903 1,699,643 1,708,017 1,714,473 1,712,177 1,679,659 1,616,865 1,537,573 
Subscription Business:
Total subscription pets enrolled (at period end)1,032,042 1,020,934 1,006,168 991,426 969,322 943,958 906,369 869,862 
Monthly average revenue per pet$74.27 $71.72 $69.79 $67.07 $65.82 $64.41 $63.58 $63.11 
Lifetime value of a pet, including fixed expenses$493 $450 $428 $419 $428 $470 $541 $641 
Average pet acquisition cost (PAC)$243 $231 $207 $217 $212 $236 $247 $283