10-Q 1 trup-20220331.htm 10-Q trup-20220331
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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 March 31, 2022
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 400
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 filerAccelerated filer
Non-accelerated filerSmaller 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). YesNo
As of April 21, 2022, there were approximately 40,720,473 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.
Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)
Three Months Ended March 31,
20222021
Revenue$205,999 $154,685 
Cost of revenue:
Veterinary invoice expense(1)
144,926 109,870 
Other cost of revenue(1)
31,179 23,715 
Total cost of revenue176,105 133,585 
Operating expenses:
Technology and development(1)
5,229 3,731 
General and administrative(1)
9,366 7,216 
New pet acquisition expense(1)
21,627 19,704 
Depreciation and amortization2,717 3,093 
Total operating expenses38,939 33,744 
Loss from investment in joint venture(69)(85)
Operating loss(9,114)(12,729)
Interest expense79 (2)
Other income, net(314)(62)
Loss before income taxes(8,879)(12,665)
Income tax benefit(24)(217)
Net loss$(8,855)$(12,448)
Net loss per share:
Basic and diluted$(0.22)$(0.31)
Weighted average shares of common stock outstanding:
Basic and diluted40,581,989 39,700,454 
(1)Includes stock-based compensation expense as follows:
Veterinary invoice expense$1,187 $2,299 
Other cost of revenue649 935 
Technology and development908 664 
General and administrative2,423 1,819 
New pet acquisition expense2,382 2,731 

See accompanying notes to the consolidated financial statements.
1


TRUPANION, INC.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
Three Months Ended March 31,
20222021
Net loss$(8,855)$(12,448)
Other comprehensive income (loss):
Foreign currency translation adjustments(898)618 
Net unrealized gain (loss) on available-for-sale debt securities  
Other comprehensive income (loss), net of taxes(898)618 
Comprehensive loss$(9,753)$(11,830)

See accompanying notes to the consolidated financial statements.
2


TRUPANION, INC.
Consolidated Balance Sheets
(in thousands, except share data)
March 31, 2022December 31, 2021
Assets(unaudited)
Current assets:
Cash and cash equivalents$122,462 $87,400 
Short-term investments136,571 126,012 
Accounts and other receivables, net of allowance for doubtful accounts of $358 at March 31, 2022 and $342 at December 31, 2021
189,035 165,217 
Prepaid expenses and other assets14,488 12,325 
Total current assets462,556 390,954 
Restricted cash13,470 13,469 
Long-term investments, at fair value7,384 7,061 
Property and equipment, net80,368 77,950 
Intangible assets, net21,317 22,663 
Other long-term assets17,722 17,776 
Goodwill31,794 32,709 
Total assets$634,611 $562,582 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$5,795 $8,952 
Accrued liabilities and other current liabilities29,746 28,162 
Reserve for veterinary invoices38,524 39,671 
Deferred revenue170,990 146,911 
Long-term debt - current portion609  
Total current liabilities245,664 223,696 
Long-term debt53,662  
Deferred tax liabilities2,690 2,827 
Other liabilities4,062 3,859 
Total liabilities306,078 230,382 
Stockholders’ equity:
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 41,644,656 and 40,711,491 issued and outstanding at March 31, 2022; 41,408,350 and 40,475,185 shares issued and outstanding at December 31, 2021
  
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding
  
Additional paid-in capital472,878 466,792 
Accumulated other comprehensive income2,179 3,077 
Accumulated deficit(135,745)(126,890)
Treasury stock, at cost: 933,165 shares at March 31, 2022 and December 31, 2021
(10,779)(10,779)
Total stockholders’ equity 328,533 332,200 
Total liabilities and stockholders’ equity$634,611 $562,582 

See accompanying notes to the consolidated financial statements.
3



Trupanion, Inc.
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, 202240,475,185 $ $466,792 $(126,890)$3,077 $(10,779)$332,200 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings236,306 — (1,699)— — — (1,699)
Stock-based compensation expense— — 7,785 — — — 7,785 
Other comprehensive income (loss)— — — — (898)— (898)
Net income (loss)— — — (8,855)— — (8,855)
Balance at March 31, 202240,711,491 $ $472,878 $(135,745)$2,179 $(10,779)$328,533 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
SharesAmount
Balance at January 1, 202139,450,807 $ $439,007 $(91,360)$3,071 $(10,779)$339,939 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings605,599 — (643)— — — (643)
Stock-based compensation expense— — 8,611 — — — 8,611 
Other comprehensive income (loss)— — — — 618 — 618 
Net income (loss)— — — (12,448)— — (12,448)
Balance at March 31, 202140,056,406 $ $446,975 $(103,808)$3,689 $(10,779)$336,077 

See accompanying notes to the consolidated financial statements.
4



TRUPANION, INC.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended March 31,
20222021
Operating activities
Net loss$(8,855)$(12,448)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization2,717 3,093 
Stock-based compensation expense7,549 8,448 
Other, net(79)(230)
Changes in operating assets and liabilities:
Accounts and other receivables(23,815)(18,805)
Prepaid expenses and other assets(2,060)(1,331)
Accounts payable, accrued liabilities, and other liabilities(1,806)35 
Reserve for veterinary invoices(1,213)1,179 
Deferred revenue23,972 18,324 
Net cash used in operating activities(3,590)(1,735)
Investing activities
Purchases of investment securities(22,892)(12,157)
Maturities of investment securities12,199 10,478 
Purchases of property and equipment(3,553)(2,883)
Other(5)(40)
Net cash used in investing activities(14,251)(4,602)
Financing activities
Proceeds from debt financing, net of financing fees54,463  
Proceeds from exercise of stock options600 1,238 
Shares withheld to satisfy tax withholding(2,298)(1,881)
Net cash provided by (used in) financing activities52,765 (643)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net139 230 
Net change in cash, cash equivalents, and restricted cash35,063 (6,750)
Cash, cash equivalents, and restricted cash at beginning of period100,869 146,197 
Cash, cash equivalents, and restricted cash at end of period$135,932 $139,447 
Supplemental disclosures
Noncash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities$945 $753 
See accompanying notes to the consolidated financial statements.
5


TRUPANION, INC.
Notes to the 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 throughout the United States, Canada, Puerto Rico, and Australia. 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, 2021 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 17, 2022 (the 2021 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2021 10-K. Operating results for the three months ended March 31, 2022 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 2021 10-K for additional discussion of these estimates and assumptions.

2. Net Income (Loss) per Share
Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is calculated using the weighted average number of shares of common stock plus, when dilutive, potential shares of common stock outstanding using the treasury-stock method. Potential shares of common stock outstanding include stock options and restricted stock units.
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 March 31,
 20222021
Stock options759,719 1,026,605 
Restricted stock units1,366,507 1,232,549 


6


3. Investments
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 March 31, 2022 and December 31, 2021 (in thousands):
Amortized
Cost
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair
Value
As of March 31, 2022
Long-term investments:
Foreign deposits$6,373 $ $ $6,373 
Municipal bond1,000 11  1,011 
$7,373 $11 $ $7,384 
       Short-term investments:
              U.S. Treasury securities$8,773 $ $(30)$8,743 
              Certificates of deposit3,355   3,355 
              U.S. government funds124,443   124,443 
$136,571 $ $(30)$136,541 
 Amortized
Cost
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair
Value
As of December 31, 2021
Long-term investments:
Foreign deposits$6,050 $ $ $6,050 
Municipal bond1,000 11  1,011 
$7,050 $11 $ $7,061 
Short-term investments:
U.S. Treasury securities$8,671 $ $(9)$8,662 
Certificates of deposit3,295   3,295 
U.S. government funds114,046   114,046 
$126,012 $ $(9)$126,003 
Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 As of March 31, 2022
 Amortized
Cost
Fair
Value
Available-for-sale:
Due after one year through five years$7,373 $7,384 
$7,373 $7,384 

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 debt securities, the Company determined that there were no unrealized losses. The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell, the securities prior to maturity or prior to the recovery of the amortized cost basis.

7


4. Other Investments
The Company has invested $7.0 million in preferred stock of a variable interest entity, Baystride, Inc., 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 variable interest entity and is, therefore, not the primary beneficiary. The Company has the option to purchase all of the outstanding common shares issued by the variable interest entity in 2023 at an amount approximating its expected fair value. The preferred stock investment in the variable interest entity is accounted for as an available-for-sale debt security and measured at fair value at each balance sheet date.
Additionally, the Company has extended a $4.1 million revolving line of credit to the variable interest entity to fund its inventory purchases. 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 $4.5 million as of March 31, 2022 and December 31, 2021. The Company has also entered into a series of agreements to provide ancillary services to, and receive reimbursement from, the variable interest entity at cost. The Company provided $0.2 million of these services for the three months ended March 31, 2022 and 2021.

5. Fair Value
Investments
The following tables summarize, 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 March 31, 2022
 Fair ValueLevel 1Level 2Level 3
Assets
Money market funds75,758 75,758   
Fixed maturities:
Foreign deposits6,373 6,373   
Municipal bond1,011  1,011  
Preferred shares in variable interest entity8,442   8,442 
Total$91,584 $82,131 $1,011 $8,442 
 As of December 31, 2021
 Fair ValueLevel 1Level 2Level 3
Assets
Money market funds32,255 32,255   
Fixed maturities:
Foreign deposits6,050 6,050   
Municipal bond1,011  1,011  
Preferred shares in variable interest entity8,442   8,442 
Total$47,758 $38,305 $1,011 $8,442 

The Company measures the fair value of money market funds and foreign deposits based on quoted prices in active markets for identical assets. The fair value of the municipal bond 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. Short-term 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 is considered a Level 1 measurement.

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The Company's preferred stock investment in the variable interest entity (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. Estimated fair value was $8.4 million as of March 31, 2022, unchanged from December 31, 2021, recorded in other long-term assets on the Company's consolidated balance sheet.
Fair Value Disclosures
The Company's other long-term assets balance included notes receivable of $7.6 million as of March 31, 2022 and December 31, 2021, 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. There was no significant activity in Level 3 of the hierarchy during the three months ended March 31, 2022.

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 three months ended March 31, 2022 and the year ended December 31, 2021.

6. Commitments and Contingencies
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 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):
 Three Months Ended March 31,
Subscription20222021
Reserve at beginning of year$22,407 $19,925 
Veterinary invoices during the period related to:
Current year101,078 84,216 
Prior years(488)(490)
Total veterinary invoice expense100,590 83,726 
Amounts paid during the period related to:
Current year85,993 68,214 
Prior years13,922 12,468 
Total paid99,915 80,682 
Non-cash expenses1,234 2,369 
Reserve at end of period$21,848 $20,600 

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The Company's reserve for the subscription business segment decreased $0.6 million from $22.4 million at December 31, 2021 to $21.8 million at March 31, 2022. This change was comprised of $100.6 million in expense recorded during the period less $99.9 million in payments of veterinary invoices. The $100.6 million in veterinary invoice expense incurred included a reduction of $0.5 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2021, the Company's adjustment to prior year reserves was a reduction of $0.5 million as a result of analysis of payment trends.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 Three Months Ended March 31,
Other Business20222021
Reserve at beginning of year$17,264 $9,004 
Veterinary invoices during the period related to:
Current year43,735 26,414 
Prior years601 (270)
Total veterinary invoice expense44,336 26,144 
Amounts paid during the period related to:
Current year29,426 18,031 
Prior years15,498 7,582 
Total paid44,924 25,613 
Non-cash expenses  
Reserve at end of period$16,676 $9,535 

The Company’s reserve for the other business segment decreased $0.6 million from $17.3 million at December 31, 2021 to $16.7 million at March 31, 2022. This change was comprised of $44.3 million in expense recorded during the period less $44.9 million in payments of veterinary invoices. The $44.3 million in veterinary invoice expense incurred included an increase of $0.6 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2021, the Company's adjustment to decrease prior year reserves was $0.3 million as a result of analysis of payment trends.
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 March 31, 2022
Year of Occurrence
2020 and prior$1,584 
20216,413 
202213,851 
$21,848 

Other Business As of March 31, 2022
Year of Occurrence
2020 and prior$11 
20212,357 
202214,308 
$16,676 


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8. Debt
On March 25, 2022, the Company entered into a $150.0 million credit agreement (the “Credit Facility”) that provides for:
(a) an initial term loan in an aggregate principal amount of $60.0 million (“Initial Term Loan”), which 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 may be drawn from time to time until September 25, 2023; 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 base rate plus an applicable margin. The interest rate as of March 31, 2022 was approximately 5.76%. The Company incurred total debt issuance cost of approximately $5.7 million at closing, which is reported in the Consolidated Balance Sheet as a direct deduction from the carrying amount of the Credit Facility, and is 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 March 31, 2022, the Company was in compliance with all financial and non-financial 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 Credit Facility are secured by substantially all assets of the Company and its subsidiaries. The Company must repay 0.25% of any then-outstanding Term Loans, together with accrued and unpaid interest, on a quarterly basis. Future principal payments on outstanding borrowings as of March 31, 2022 are as follows (in thousands):

Year Ending December 31,March 31, 2022
2022$461 
2023593 
2024587 
2025581 
2026576 
Thereafter57,202 
Total$60,000 

9. Stock-Based Compensation
Stock-based compensation expense includes stock options and 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 March 31,
 20222021
Veterinary invoice expense$1,187 $2,299 
Other cost of revenue649 935 
Technology and development908 664 
General and administrative2,423 1,819 
New pet acquisition expense2,382 2,731 
Total expensed stock-based compensation7,549 8,448 
Capitalized stock-based compensation236 162 
Total stock-based compensation$7,785 $8,610 

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As of March 31, 2022, the Company had 1,366,507 unvested restricted stock units. Stock-based compensation expenses of $108.1 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 3 years.
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, 2021807,205 $13.39 $95,765 
Granted  — 
Exercised(47,204)12.51 4,555 
Forfeited(282)10.23 — 
Outstanding as of March 31, 2022759,719 13.45 57,490 
Exercisable as of March 31, 2022759,719 $13.45 $57,490 

As of March 31, 2022, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 4 years.
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, 20211,087,627 $78.94 
Granted512,284 89.42 
Vested(214,922)81.97 
Forfeited(18,482)82.70 
Unvested shares as of March 31, 20221,366,507 $82.34 

10. Stockholders' Equity
Common Stock and Preferred Stock
As of March 31, 2022, the Company had 100,000,000 shares of common stock authorized and 40,711,491 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 March 31, 2022, 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 has not repurchased any shares under this program.

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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):
Foreign Currency TranslationNet Unrealized Gain (Loss) on Available-for-Sale SecuritiesTotal
Balance as of December 31, 2021$1,624 $1,453 $3,077 
Other comprehensive income (loss)(898) (898)
Balance as of March 31, 2022$726 $1,453 $2,179 

Foreign Currency TranslationNet Unrealized Gain (Loss) on Available-for-Sale SecuritiesTotal
Balance as of December 31, 2020$2,120 $951 $3,071 
Other comprehensive income (loss)618  618 
Balance as of March 31, 2021$2,738 $951 $3,689 

12. Segments
The Company has two reporting segments: subscription business and other business. The subscription business segment generates revenue primarily from subscription fees related to the Company's direct-to-consumer products, while the other business segment is comprised of revenue from other product offerings that generally have a business-to-business relationship and a different margin profile than our subscription segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.
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 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.
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Operating income (loss) of the Company’s segments were as follows (in thousands):
 Three Months Ended March 31,
 20222021
Subscription business:
Revenue$139,839 $113,292 
Veterinary invoice expense100,590 83,726 
Other cost of revenue14,673 11,811 
Technology and development3,550 2,733 
General and administrative6,358 5,285 
New pet acquisition expense21,518 19,533 
Depreciation and amortization1,844 2,265 
Subscription business operating loss(8,694)(12,061)
Other business:
Revenue66,160 41,393 
Veterinary invoice expense44,336 26,144 
Other cost of revenue16,506 11,904 
Technology and development1,679 998 
General and administrative3,008 1,931 
New pet acquisition expense109 171 
Depreciation and amortization873 828 
Other business operating income (loss)(351)(583)
Gain (loss) from investment in joint venture(69)(85)
Total operating loss$(9,114)$(12,729)

The following table presents the Company’s revenue by geographic region of the member (in thousands):
 Three Months Ended March 31,
 20222021
United States$172,748 $127,759 
Canada and other33,251 26,926 
Total revenue$205,999 $154,685 
Substantially all of the Company’s long-lived assets were located in the United States as of March 31, 2022 and December 31, 2021.

13. Related Parties
In August 2018, the Company invested $0.3 million in a limited liability entity in exchange for a 17.5% ownership interest. The investee is considered to be a related party, as the Company has the ability to exercise significant influence over the investee. In February 2020, the Company entered into a service agreement with the investee, under which the Company incurred $1.0 million and $0.8 million of expenses for consulting services provided by the investee related to pet acquisition during the three months ended March 31, 2022 and 2021, respectively, recorded as new pet acquisition expense on the Company's consolidated statement of operations.

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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 throughout the United States, Canada, Puerto Rico, and Australia. Our data-driven, vertically-integrated approach enables us to provide pet owners with products that offer what we believe is the highest value medical insurance, 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 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.
We operate in two business segments: subscription business and other business. We generate revenue in our subscription business segment primarily by subscription fees from our direct-to-consumer products. Fees are paid at the beginning of each subscription period, which automatically renews on a monthly basis. We generate revenue in our other business segment primarily by writing policies on behalf of third parties. We do not undertake the marketing efforts for these policies and have a business-to-business relationship with these third parties. Our other business segment also includes revenue from other products and software solutions that have a different margin profile from our subscription business.
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.
Our Response to the COVID-19 Pandemic
We have not experienced a material adverse impact on our business due to COVID-19, but we continue to monitor conditions closely and adapt our operations to meet federal, state and local guidance. Our focus remains on promoting employee health and safety, serving our members and ensuring business continuity. Our Seattle headquarters is now open for those who want to work in that office, in compliance with applicable regulations and guidance.
The impacts of COVID-19 and related economic conditions on our results are highly uncertain and in many ways outside of our control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult, if possible, to anticipate. For additional details, see the section titled "Risk Factors."
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Key Operating Metrics
The following table sets forth total pets enrolled and key operating metrics for our subscription business for each of the last eight fiscal quarters.
Three Months Ended
Mar. 31, 2022Dec. 31, 2021Sept. 30, 2021Jun. 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020Jun. 30, 2020
Total Business:
Total pets enrolled (at period end)1,267,253 1,176,778 1,104,376 1,024,226 943,854 862,928 804,251 744,727 
Subscription Business:
Total subscription pets enrolled (at period end)736,691 704,333 676,463 643,395 609,835 577,957 552,909 529,400 
Monthly average revenue per pet$64.21 $63.89 $63.60 $63.69 $62.97 $62.03 $60.87 $59.40 
Lifetime value of a pet, including fixed expenses$730 $717 $697 $681 $684 $653 $615 $597 
Average pet acquisition cost (PAC)$301 $306 $280 $284 $279 $272 $261 $199 
Average monthly retention98.75 %98.74 %98.72 %98.72 %98.73 %98.71 %98.69 %98.66 %


Total pets enrolled. Total pets enrolled reflects the number of subscription pets or 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.
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.
Monthly average revenue per pet. Monthly average revenue per pet is calculated as amounts billed in a given period for subscriptions divided by the total number of subscription pet months in the period. Total subscription pet months in a period represents the sum of all subscription pets enrolled for each month during the period. We monitor monthly average revenue per pet because it is an indicator of the per pet unit economics of our subscription business.
Lifetime value of a pet, including fixed expenses. Lifetime value of a pet, including fixed expenses, is calculated based on subscription revenue less cost of revenue from our subscription business segment for the 12 months prior to the period end date excluding stock-based compensation expense related to cost of revenue from our subscription business segment, sign-up fee revenue and the change in deferred revenue between periods. This amount is also reduced by the fixed expenses related to our subscription business, which are the pro-rata portion of general and administrative and technology and development expenses, less stock-based compensation, based on revenues. This amount, on a per pet basis, is multiplied by the implied average subscriber life in months. Implied average subscriber life in months is calculated as the quotient obtained by dividing one by one minus the average monthly retention rate. We monitor lifetime value of a pet, including fixed expenses, to estimate the value we might expect from new pets over their implied average subscriber life in months, if they behave like the average pet in that respective period. When evaluating the amount of pet acquisition expenses we may want to incur to attract new pet enrollments, we refer to the lifetime value of a pet, including fixed expenses, as well as our estimated internal rate of return calculation for an average pet, which also includes an estimated surplus capital charge, to inform the amount of acquisition spend in relation to the estimated payback period.
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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 and 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.
Average monthly retention. Average monthly retention is measured as the monthly retention rate of enrolled subscription pets for each applicable period averaged over the 12 months prior to the period end date. As such, our average monthly retention rate as of March 31, 2022 is an average of each month’s retention from April 1, 2021 through March 31, 2022. We calculate monthly retention as the number of pets that remain after subtracting all pets that cancel during a month, including pets that enroll and cancel within that month, divided by the total pets enrolled at the beginning of that month. We monitor average monthly retention because it provides a measure of member satisfaction and allows us to calculate the implied average subscriber life in months.

Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP financial measures, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for, the directly comparable financial measures prepared in accordance with GAAP.
We calculate these non-GAAP financial measures by excluding certain non-cash or non-recurring expenses. We exclude business combination transaction cost as it is non-recurring and not indicative of our operating performance. We exclude stock-based compensation as it is non-cash in nature. Although stock-based compensation expenses are expected to remain recurring expenses for the foreseeable future, we believe excluding them allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies. We define non-GAAP development expenses as operating expenses incurred to develop new products and offerings that are pre-revenue. We define non-GAAP fixed expenses as the total of Technology and Development expense and General and Administrative expense, less stock-based compensation expense, business combination transaction cost, and development expenses related to exploring and developing new products and offerings that are in the pre-revenue stage.

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The following table presents the reconciliation of our non-GAAP financial measures from corresponding GAAP measures for the periods presented (in thousands):
Three Months Ended
Mar. 31, 2022Dec. 31, 2021Sept. 30, 2021Jun. 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020Jun. 30, 2020
Veterinary invoice expense$144,926 $132,852 $125,058 $118,282 $109,870 $98,169 $91,266 $82,049 
Less:
Stock-based compensation expense1
(1,173)(798)(769)(672)(2,299)(358)(337)(245)
Other business cost of paying veterinary invoices(44,336)(38,009)(34,432)(31,029)(26,144)(22,254)(19,394)(16,019)
Subscription cost of paying veterinary invoices (non-GAAP)$99,417 $94,045 $89,857 $86,581 $81,427 $75,557 $71,535 $65,785 
% of subscription revenue71.1 %70.1 %70.7 %71.9 %71.9 %71.0 %72.0 %71.2 %
Other cost of revenue$31,179 $30,992 $28,443 $25,433 $23,715 $20,925 $18,265 $16,004 
Less:
Stock-based compensation expense1
(631)(581)(542)(552)(935)(168)(111)(99)
Other business variable expenses(16,506)(17,208)(15,315)(12,940)(11,904)(11,079)(9,039)(7,440)
Subscription variable expenses (non-GAAP)$14,042 $13,203 $12,586 $11,941 $10,876 $9,678 $9,115 $8,465 
% of subscription revenue10.0 %9.8 %9.9 %9.9 %9.6 %9.1 %9.2 %9.2 %
Technology and development expense$5,229 $4,665 $4,391 $4,079 $3,731 $3,108 $2,426 $2,293 
General and administrative expense9,366 8,996 8,246 7,435 7,216 6,502 5,412 5,073 
Less:
Stock-based compensation expense1
(3,226)(3,293)(3,020)(3,122)(2,483)(1,275)(1,241)(1,208)
Business combination transaction costs— — — — (82)(522)— — 
Development expenses(1,258)(858)(919)(1,121)(821)(339)— — 
Fixed expenses (non-GAAP)$10,111 $9,510 $8,698 $7,271 $7,561 $7,474 $6,597 $6,158 
% of total revenue4.9 %4.9 %4.8 %4.3 %4.9 %5.2 %5.1 %5.2 %
New pet acquisition expense$21,627 $19,845 $19,708 $19,390 $19,704 $14,809 $13,344 $9,242 
Less:
Stock-based compensation expense1
(2,328)(2,136)(2,112)(2,181)(2,731)(801)(741)(675)
Other business pet acquisition expense(109)(76)(134)(118)(171)(201)(265)(191)
Subscription acquisition cost (non-GAAP)$19,190 $17,633 $17,462 $17,091 $16,802 $13,807 $12,338 $8,376 
% of subscription revenue13.7 %13.1 %13.7 %14.2 %14.8 %13.0 %12.4 %9.1 %
1Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses. We account for such expense as stock-based compensation according to GAAP, but we do not include it in any non-GAAP adjustments. Stock-based compensation associated with bonuses was approximately $0.2 million for the three months ended March 31, 2022.

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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 and 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 the 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 it does not relate to subscription enrollments.
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:

Three Months Ended
Mar. 31, 2022Dec. 31, 2021Sept. 30, 2021Jun. 30, 2021Mar. 31, 2021Dec. 31, 2020Sept. 30, 2020Jun. 30, 2020
New pet acquisition expense$21,627 $19,845