10-Q 1 trup-20210930.htm 10-Q trup-20210930
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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, 2021
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 28, 2021, there were approximately 40,368,077 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 September 30,Nine Months Ended September 30,
2021202020212020
Revenue$181,667 $130,120 $504,612 $359,341 
Cost of revenue:
Veterinary invoice expense(1)
125,058 91,266 353,210 252,955 
Other cost of revenue(1)
28,443 18,265 77,591 48,078 
Total cost of revenue153,501 109,531 430,801 301,033 
Operating expenses:
Technology and development(1)
4,391 2,426 12,201 6,839 
General and administrative(1)
8,246 5,412 22,897 15,345 
Sales and marketing(1)
19,708 13,344 58,802 33,028 
Depreciation and amortization2,944 1,666 9,195 4,770 
Total operating expenses35,289 22,848 103,095 59,982 
Gain (loss) from investment in joint venture(69)2 (149)(84)
Operating loss(7,192)(2,257)(29,433)(1,758)
Interest expense— 324 1 1,044 
Other income, net(61)(49)(222)(533)
Gain (loss) before income taxes(7,131)(2,532)(29,212)(2,269)
Income tax expense (benefit)(312)26 (724)69 
Net loss$(6,819)$(2,558)$(28,488)$(2,338)
Net loss per share:
Basic and diluted$(0.17)$(0.07)$(0.71)$(0.07)
Weighted average shares of common stock outstanding:
Basic and diluted40,283,818 35,426,742 40,044,518 35,193,317 
(1)Includes stock-based compensation expense as follows:
Veterinary invoice expense$769 $337 $3,740 $760 
Other cost of revenue542 111 2,029 300 
Technology and development749 133 2,213 366 
General and administrative2,271 1,108 6,412 2,912 
Sales and marketing2,112 741 7,024 1,972 

See accompanying notes to the consolidated financial statements.
1

TRUPANION, INC.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net loss$(6,819)$(2,558)$(28,488)$(2,338)
Other comprehensive income (loss):
Foreign currency translation adjustments(1,800)199 (808)(141)
Net unrealized gain (loss) on available-for-sale debt securities(2)— (2)1 
Other comprehensive income (loss), net of taxes(1,802)199 (810)(140)
Comprehensive loss$(8,621)$(2,359)$(29,298)$(2,478)

See accompanying notes to the consolidated financial statements.
2

TRUPANION, INC.
Consolidated Balance Sheets
(in thousands, except share data)
September 30, 2021December 31, 2020
Assets(unaudited)
Current assets:
Cash and cash equivalents$109,641 $139,878 
Short-term investments111,885 89,862 
Accounts and other receivables157,945 99,065 
Prepaid expenses and other assets11,077 8,222 
Total current assets390,548 337,027 
Restricted cash6,324 6,319 
Long-term investments, at fair value6,605 5,566 
Property and equipment, net75,432 72,602 
Intangible assets, net23,530 27,134 
Other long-term assets15,688 16,557 
Goodwill32,583 33,045 
Total assets$550,710 $498,250 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$6,482 $6,059 
Accrued liabilities and other current liabilities25,865 22,864 
Reserve for veterinary invoices38,750 28,929 
Deferred revenue140,125 92,547 
Total current liabilities211,222 150,399 
Deferred tax liabilities3,803 4,705 
Other liabilities3,712 3,207 
Total liabilities218,737 158,311 
Stockholders’ equity:
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 41,296,940 and 40,363,775 issued and outstanding at September 30, 2021; 40,383,972 and 39,450,807 shares issued and outstanding at December 31, 2020— — 
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding— — 
Additional paid-in capital460,339 439,007 
Accumulated other comprehensive income (loss)2,261 3,071 
Accumulated deficit(119,848)(91,360)
Treasury stock, at cost: 933,165 shares at September 30, 2021 and 933,165 shares at December 31, 2020(10,779)(10,779)
Total stockholders’ equity 331,973 339,939 
Total liabilities and stockholders’ equity$550,710 $498,250 

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 July 1, 202140,231,055 $— $453,950 $(113,029)$4,063 $(10,779)$334,205 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings132,720 — (224)— — — (224)
Stock-based compensation expense— — 6,613 — — — 6,613 
Other comprehensive income (loss)— — — — (1,802)— (1,802)
Net income (loss)— — — (6,819)— — (6,819)
Balance at September 30, 202140,363,775 $— $460,339 $(119,848)$2,261 $(10,779)$331,973 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
SharesAmount
Balance at July 1, 202035,246,292 $— $238,077 $(85,300)$(89)$(10,779)$141,909 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings332,248 — 2,260 — — — 2,260 
Stock-based compensation expense— — 2,488 — — — 2,488 
Other comprehensive income (loss)— — — — 199 — 199 
Net income (loss)— — — (2,558)— — (2,558)
Balance at September 30, 202035,578,540 $— $242,825 $(87,858)$110 $(10,779)$144,298 

See accompanying notes to the consolidated financial statements.

4

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, 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 withholdings912,968 — (549)— — — (549)
Stock-based compensation expense— — 21,881 — — — 21,881 
Other comprehensive income (loss)— — — — (810)— (810)
Net income (loss)— — — (28,488)— — (28,488)
Balance at September 30, 202140,363,775 $— $460,339 $(119,848)$2,261 $(10,779)$331,973 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
SharesAmount
Balance at January 1, 202034,947,017 $— $232,731 $(85,520)$250 $(10,701)$136,760 
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings634,823 — 3,606 — — — 3,606 
Stock-based compensation expense— — 6,488 — — — 6,488 
Repurchase of common stock(3,300)— — — — (78)(78)
Other comprehensive income (loss)— — — — (140)— (140)
Net income (loss)— — — (2,338)— — (2,338)
Balance at September 30, 202035,578,540 $— $242,825 $(87,858)$110 $(10,779)$144,298 

See accompanying notes to the consolidated financial statements.
5


TRUPANION, INC.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
20212020
Operating activities
Net loss$(28,488)$(2,338)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization9,195 4,770 
Stock-based compensation expense21,418 6,310 
Other, net(931)118 
Changes in operating assets and liabilities:
Accounts and other receivables(58,773)(38,068)
Prepaid expenses and other assets(1,922)(1,979)
Accounts payable, accrued liabilities, and other liabilities4,353 6,602 
Reserve for veterinary invoices9,854 7,692 
Deferred revenue47,596 34,473 
Net cash provided by operating activities2,302 17,580 
Investing activities
Purchases of investment securities(62,288)(43,972)
Maturities of investment securities39,066 29,817 
Purchases of property, equipment and intangible assets(8,537)(4,512)
Other(48)88 
Net cash used in investing activities(31,807)(18,579)
Financing activities
Proceeds from exercise of stock options3,056 4,296 
Shares withheld to satisfy tax withholding(3,730)(656)
Borrowings from line of credit, net of financing fees— 6,213 
Repayments to line of credit— (2,500)
Other— (78)
Net cash (used in) provided by financing activities(674)7,275 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net(53)(214)
Net change in cash, cash equivalents, and restricted cash(30,232)6,062 
Cash, cash equivalents, and restricted cash at beginning of period146,197 30,568 
Cash, cash equivalents, and restricted cash at end of period$115,965 $36,630 
Supplemental disclosures
Noncash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities$537 $613 
See accompanying notes to the consolidated financial statements.
6

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, 2020 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 12, 2021 (the 2020 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2020 10-K. Operating results for the three and nine months ended September 30, 2021 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 2020 10-K for additional discussion of these estimates and assumptions.
Reclassifications
Depreciation and amortization expenses have been reclassified as a separate line item in the consolidated statement of operations and prior period amounts have been reclassified from their original presentation to conform to the current period presentation. The Company has elected to present depreciation and amortization expenses as a separate line item to better align with management's view of the Company's operating results.

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, and warrants.
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,
 2021202020212020
Stock options843,452 1,647,052 843,452 1,647,052 
Restricted stock awards and restricted stock units1,138,709 765,825 1,138,709 765,825 


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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 September 30, 2021 and December 31, 2020 (in thousands):
Amortized
Cost		Gross
Unrealized
Holding
Gains		Gross
Unrealized
Holding
Losses		Fair
Value
As of September 30, 2021
Long-term investments:
Foreign deposits$5,605 $— $— $5,605 
Municipal bond1,000 — — 1,000 
$6,605 $— $— $6,605 
       Short-term investments:
              U.S. Treasury securities$8,677 $— $(1)$8,676 
              Certificates of deposit3,288 — — 3,288 
              U.S. government funds99,920 — — 99,920 
$111,885 $— $(1)$111,884 
 Amortized
Cost		Gross
Unrealized
Holding
Gains		Gross
Unrealized
Holding
Losses		Fair
Value
As of December 31, 2020
Long-term investments:
Foreign deposits$4,564 $— $— $4,564 
Municipal bond1,000 2 — 1,002 
$5,564 $2 $— $5,566 
Short-term investments:
U.S. Treasury securities$6,494 $— $(2)$6,492 
Certificates of deposit1,696 — — 1,696 
U.S. government funds81,672 — — 81,672 
$89,862 $— $(2)$89,860 
Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 As of September 30, 2021
 Amortized
Cost		Fair
Value
Available-for-sale:
Due after one year through five years$6,605 $6,605 
$6,605 $6,605 

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 the unrealized losses were immaterial and due to non-credit factors. 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.

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4. Other Investments
Investment in Variable Interest Entity
The Company has invested $7.0 million in preferred stock of Baystride, Inc., a 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 $2.5 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 was $2.5 million as of September 30, 2021 and December 31, 2020. 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 $0.6 million and $1.0 million of these services for the nine months ended September 30, 2021 and 2020, respectively.
Investment in Joint Venture
In September 2018, the Company acquired a non-controlling equity interest in a joint venture in Australia, whereby it has committed to licensing certain intellectual property and contributing up to $2.2 million AUD upon the achievement of specific operational milestones over a period of at least four years from the agreement execution date. As of September 30, 2021, the Company has contributed $0.6 million AUD. This equity investment is accounted for using the equity method and is classified in other long-term assets on the Company's consolidated balance sheet. The Company's share of income and losses from this equity method investment is included in gain (loss) from investment in joint venture on its consolidated statement of operations. Also included in this line item are income and expenses associated with administrative services provided to the joint venture.

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 September 30, 2021
 Fair ValueLevel 1Level 2Level 3
Assets
Restricted cash$6,324 $6,324 $— $— 
Money market funds71,754 71,754 — — 
Fixed maturities:
Foreign deposits5,605 5,605 — — 
Municipal bond1,000 — 1,000 — 
Investment in variable interest entity7,949 — — 7,949 
Total$92,632 $83,683 $1,000 $7,949 
 As of December 31, 2020
 Fair ValueLevel 1Level 2Level 3
Assets
Restricted cash$6,319 $6,319 $— $— 
Money market funds99,054 99,054 — — 
Fixed maturities:
Foreign deposits4,564 4,564 — — 
Municipal bond1,002 — 1,002 — 
Investment in variable interest entity7,949 — — 7,949 
Total$118,888 $109,937 $1,002 $7,949 

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The Company measures the fair value of restricted cash, 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 for available-for-sale securities and is considered a Level 1 measurement.

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 $7.9 million as of September 30, 2021, unchanged from December 31, 2020, 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 $6.0 million and $6.1 million as of September 30, 2021 and December 31, 2020, 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. There was no significant activity in Level 3 of the hierarchy during the nine months ended September 30, 2021.

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, 2021 and the year ended December 31, 2020.

6. Commitments and Contingencies
Certain state insurance regulators in the United States have contacted the Company regarding whether employees who had helped prospective members enroll by telephone in prior years were required to have an insurance license to conduct such telephone conversations. To date, the Company has resolved each of these matters in non-material amounts and believes it is compliant with the applicable regulations. The Company is currently engaged with a limited number of state insurance regulators to resolve this same legacy issue and believes it has adequately reserved for these matters.
In addition, 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.
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Reserve for veterinary invoices
Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):
 Nine Months Ended September 30,
Subscription20212020
Reserve at beginning of year$19,925 $15,541 
Veterinary invoices during the period related to:
Current year262,721 202,734 
Prior years(1,116)356 
Total veterinary invoice expense261,605 203,090 
Amounts paid during the period related to:
Current year240,488 185,828 
Prior years15,412 12,849 
Total paid255,900 198,677 
Non-cash expenses3,830 903 
Reserve at end of period$21,800 $19,051 

The Company's reserve for the subscription business segment increased from $19.9 million at December 31, 2020 to $21.8 million at September 30, 2021. This change was comprised of $261.6 million in expense recorded during the period less $255.9 million in payments of veterinary invoices. The $261.6 million in veterinary invoice expense incurred included a reduction of $1.1 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the nine months ended September 30, 2020, the Company increased prior year reserves by $0.4 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):
 Nine Months Ended September 30,
Other Business20212020
Reserve at beginning of year$9,004 $5,653 
Veterinary invoices during the period related to:
Current year91,912 50,062 
Prior years(307)(197)
Total veterinary invoice expense91,605 49,865 
Amounts paid during the period related to:
Current year75,062 40,406 
Prior years8,597 5,324 
Total paid83,659 45,730 
Non-cash expenses— — 
Reserve at end of period$16,950 $9,788 

The Company’s reserve for the other business segment increased from $9.0 million at December 31, 2020 to $17.0 million at September 30, 2021. This change was comprised of $91.6 million in expense recorded during the period less $83.7 million in payments of veterinary invoices. The $91.6 million in veterinary invoice expense incurred included a reduction of $0.3 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the nine months ended September 30, 2020, the Company decreased prior year reserves by $0.2 million as a result of analysis of 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, 2021
Year of Occurrence
2019 and prior$1,116 
20202,281 
202118,403 
$21,800 

Other Business As of September 30, 2021
Year of Occurrence
2019 and prior$— 
2020100 
202116,850 
$16,950 

8. 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 September 30,Nine Months Ended September 30,
 2021202020212020
Veterinary invoice expense$769 $337 $3,740 $760 
Other cost of revenue542 111 2,029 300 
Technology and development749 133 2,213 366 
General and administrative2,271 1,108 6,412 2,912 
Sales and marketing2,112 741 7,024 1,972 
Total expensed stock-based compensation6,443 2,430 21,418 6,310 
Capitalized stock-based compensation170 58 463 178 
Total stock-based compensation$6,613 $2,488 $21,881 $6,488 

As of September 30, 2021, the Company had 1,138,709 unvested restricted stock units that are expected to vest. Stock-based compensation expenses of $73.8 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 2.9 years.
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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, 20201,459,290 $9.93 $160,200 
Granted— — — 
Exercised(612,475)5.19 54,329 
Forfeited(3,363)13.08 — 
Outstanding as of September 30, 2021843,452 13.36 54,245 
Exercisable as of September 30, 2021843,452 $13.36 $54,245 

As of September 30, 2021, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 4.5 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, 2020782,755 $34.81 
Granted742,736 99.79 
Vested(341,991)38.67 
Forfeited(44,791)71.54 
Unvested shares as of September 30, 20211,138,709 $74.59 

9. Stockholders' Equity
Common Stock and Preferred Stock
As of September 30, 2021, the Company had 100,000,000 shares of common stock authorized and 40,363,775 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, 2021, 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.


13

10. 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 "Trupanion" branded 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 sales and marketing 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.
Operating income (loss) of the Company’s segments were as follows (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Subscription business:
Revenue$127,077 $99,379 $360,742 $281,316 
Veterinary invoice expense90,626 71,872 261,605 203,090 
Other cost of revenue13,128 9,226 37,432 26,024 
Technology and development3,072 1,853 8,723 5,355 
General and administrative5,768 4,133 16,372 12,017 
Sales and marketing19,574 13,079 58,378 32,409 
Depreciation and amortization2,059 1,273 6,583 3,735 
Subscription business operating loss(7,150)(2,057)(28,351)(1,314)
Other business:
Revenue54,590 30,741 143,870 78,025 
Veterinary invoice expense34,432 19,394 91,605 49,865 
Other cost of revenue15,315 9,039 40,159 22,054 
Technology and development1,319 573 3,478 1,484 
General and administrative2,478 1,279 6,525 3,328 
Sales and marketing134 265 424 619 
Depreciation and amortization885 393 2,612 1,035 
Other business operating income (loss)27 (202)(933)(360)
Gain (loss) from investment in joint venture(69)2 (149)(84)
Total operating loss$(7,192)$(2,257)$(29,433)$(1,758)

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,
 2021202020212020
United States$151,457 $109,119 $418,343 $300,699 
Canada and other30,211 21,001 86,269 58,642 
Total revenue$181,667 $130,120 $504,612