TRUPANION, INC. [TRUP] Filings

10-Q 1 trup-20220630.htm 10-Q trup-20220630

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 June 30, 2022


			☐			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)


Delaware						83-0480694
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

6100 4th Avenue S, Suite 400

Seattle,

Washington

98108


			(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 class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.00001 par value per share	TRUP	The 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

☐

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

☐

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 July 28, 2022, there were approximately 40,746,174 shares of the registrant’s common stock outstanding.

TRUPANION, INC.

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
	Signatures	60

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue	$	219,411	$	168,260	$	425,410	$	322,945
Cost of revenue:
Veterinary invoice expense(1)	157,616		118,282		302,542		228,152
Other cost of revenue(1)	33,212		25,433		64,391		49,148
Total cost of revenue	190,828		143,715		366,933		277,300
Operating expenses:
Technology and development(1)	6,396		4,079		11,625		7,810
General and administrative(1)	9,227		7,435		18,593		14,651
New pet acquisition expense(1)	22,982		19,390		44,609		39,094
Depreciation and amortization	2,707		3,158		5,424		6,251
Total operating expenses	41,312		34,062		80,251		67,806
Gain (loss) from investment in joint venture	(42)		5		(111)		(80)
Operating loss	(12,771)		(9,512)		(21,885)		(22,241)
Interest expense	1,193		3		1,272		1
Other income, net	(365)		(99)		(679)		(161)
Loss before income taxes	(13,599)		(9,416)		(22,478)		(22,081)
Income tax expense (benefit)	19		(195)		(5)		(412)
Net loss	$	(13,618)	$	(9,221)	$	(22,473)	$	(21,669)

Net loss per share:
Basic and diluted	$	(0.33)	$	(0.23)	$	(0.55)	$	(0.54)

Weighted average shares of common stock outstanding:
Basic and diluted	40,738,738		40,142,872		40,660,797		39,922,885


(1)Includes stock-based compensation expense as follows:
Veterinary invoice expense	$	1,047	$	672	$	2,234	$	2,971
Other cost of revenue	783		552		1,432		1,487
Technology and development	1,101		800		2,009		1,464
General and administrative	3,066		2,322		5,489		4,141
New pet acquisition expense	2,637		2,181		5,019		4,912

See accompanying notes to the consolidated financial statements.


TRUPANION, INC. Consolidated Statements of Comprehensive Income (Loss) (in thousands) (unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(13,618)	$	(9,221)	$	(22,473)	$	(21,669)
Other comprehensive income (loss):
Foreign currency translation adjustments	(3,349)		373		(4,247)		991
Net unrealized gain (loss) on available-for-sale debt securities	(1)		1		(1)		1
Other comprehensive income (loss), net of taxes	(3,350)		374		(4,248)		992
Comprehensive loss	$	(16,968)	$	(8,847)	$	(26,721)	$	(20,677)

See accompanying notes to the consolidated financial statements.


TRUPANION, INC. Consolidated Balance Sheets (in thousands, except share data)
	June 30, 2022		December 31, 2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	101,615	$	87,400
Short-term investments	141,420		126,012
Accounts and other receivables, net of allowance for doubtful accounts of $355 at June 30, 2022 and $342 at December 31, 2021	204,249		165,217
Prepaid expenses and other assets	15,248		12,325
Total current assets	462,532		390,954
Restricted cash	13,472		13,469
Long-term investments, at fair value	7,716		7,061
Property and equipment, net	83,041		77,950
Intangible assets, net	19,758		22,663
Other long-term assets	19,246		17,776
Goodwill	29,405		32,709
Total assets	$	635,170	$	562,582
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,477	$	8,952
Accrued liabilities and other current liabilities	31,175		28,162
Reserve for veterinary invoices	36,637		39,671
Deferred revenue	185,292		146,911
Long-term debt - current portion	609		—
Total current liabilities	260,190		223,696
Long-term debt	53,623		—
Deferred tax liabilities	2,480		2,827
Other liabilities	4,123		3,859
Total liabilities	320,416		230,382
Stockholders’ equity:
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 41,773,422 and 40,745,298 issued and outstanding at June 30, 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 capital	481,818		466,792
Accumulated other comprehensive income	(1,171)		3,077
Accumulated deficit	(149,363)		(126,890)
Treasury stock, at cost: 1,028,124 shares at June 30, 2022 and 933,165 shares at December 31, 2021	(16,530)		(10,779)
Total stockholders’ equity	314,754		332,200
Total liabilities and stockholders’ equity	$	635,170	$	562,582

See accompanying notes to the consolidated financial statements.


Trupanion, Inc. Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) (unaudited)
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders' Equity
	Shares	Amount
Balance at April 1, 2022	40,711,491	$	—	$	472,878	$	(135,745)	$	2,179	$	(10,779)	$	328,533
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings	128,766	—		(60)		—		—		—		(60)
Stock-based compensation expense	—	—		9,000		—		—		—		9,000
Repurchases of common stocks	(94,959)									(5,751)		(5,751)
Other comprehensive income (loss)	—	—		—		—		(3,350)		—		(3,350)
Net income (loss)	—	—		—		(13,618)		—		—		(13,618)
Balance at June 30, 2022	40,745,298	$	—	$	481,818	$	(149,363)	$	(1,171)	$	(16,530)	$	314,754


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders' Equity
	Shares	Amount
Balance at April 1, 2021	40,056,406	$	—	$	446,975	$	(103,808)	$	3,689	$	(10,779)	$	336,077
Issuance of common stock in connection with the Company's equity award programs, net of tax withholdings	174,649	—		318		—		—		—		318
Stock-based compensation expense	—	—		6,657		—		—		—		6,657
Other comprehensive income (loss)	—	—		—		—		374		—		374
Net income (loss)	—	—		—		(9,221)		—		—		(9,221)
Balance at June 30, 2021	40,231,055	$	—	$	453,950	$	(113,029)	$	4,063	$	(10,779)	$	334,205

See accompanying notes to the consolidated financial statements.


Trupanion, Inc. Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) (unaudited)
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders' Equity
	Shares	Amount
Balance at January 1, 2022	40,475,185	$	—	$	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 withholdings	365,072	—		(1,759)		—		—		—		(1,759)
Stock-based compensation expense	—	—		16,785		—		—		—		16,785
Repurchases of common stock	(94,959)									(5,751)		(5,751)
Other comprehensive income (loss)	—	—		—		—		(4,248)		—		(4,248)
Net income (loss)	—	—		—		(22,473)		—		—		(22,473)
Balance at June 30, 2022	40,745,298	$	—	$	481,818	$	(149,363)	$	(1,171)	$	(16,530)	$	314,754


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders' Equity
	Shares	Amount
Balance at January 1, 2021	39,450,807	$	—	$	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 withholdings	780,248	—		(325)		—		—		—		(325)
Stock-based compensation expense	—	—		15,268		—		—		—		15,268
Other comprehensive income (loss)	—	—		—		—		992		—		992
Net income (loss)	—	—		—		(21,669)		—		—		(21,669)
Balance at June 30, 2021	40,231,055	$	—	$	453,950	$	(113,029)	$	4,063	$	(10,779)	$	334,205

See accompanying notes to the consolidated financial statements.

TRUPANION, INC.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2022		2021
Operating activities
Net loss	$	(22,473)	$	(21,669)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	5,424		6,251
Stock-based compensation expense	16,183		14,975
Other, net	(74)		(545)
Changes in operating assets and liabilities:
Accounts and other receivables	(39,127)		(40,796)
Prepaid expenses and other assets	(2,821)		(2,092)
Accounts payable, accrued liabilities, and other liabilities	703		(872)
Reserve for veterinary invoices	(2,998)		6,870
Deferred revenue	38,463		33,956
Net cash used in operating activities	(6,720)		(3,922)
Investing activities
Purchases of investment securities	(47,368)		(43,373)
Maturities of investment securities	31,212		30,580
Purchases of property and equipment	(7,479)		(5,770)
Other	(1,502)		(73)
Net cash used in investing activities	(25,137)		(18,636)
Financing activities
Proceeds from debt financing, net of financing fees	54,431		—
Repayments of debt	(150)		—
Repurchases of common stock	(5,751)		—
Proceeds from exercise of stock options	1,171		2,358
Shares withheld to satisfy tax withholding	(2,930)		(2,751)

Net cash provided by (used in) financing activities	46,771		(393)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net	(696)		408
Net change in cash, cash equivalents, and restricted cash	14,218		(22,543)
Cash, cash equivalents, and restricted cash at beginning of period	100,869		146,197
Cash, cash equivalents, and restricted cash at end of period	$	115,087	$	123,654
Supplemental disclosures
Noncash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities	$	924	$	548

See accompanying notes to the consolidated financial statements.

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 and six months ended June 30, 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 June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Stock options	716,537	916,434	716,537	916,434
Restricted stock units	1,261,460	1,175,228	1,261,460	1,175,228

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 June 30, 2022 and December 31, 2021 (in thousands):


	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
As of June 30, 2022
Long-term investments:
Foreign deposits	$	6,706	$	—	$	—	$	6,706
Municipal bond	1,000		10		—		1,010
	$	7,706	$	10	$	—	$	7,716
Short-term investments:
U.S. Treasury securities	$	9,011	$	—	$	(71)	$	8,940
Certificates of deposit	3,375		—		—		3,375
U.S. government funds	129,034		—		—		129,034
	$	141,420	$	—	$	(71)	$	141,349

	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 bond	1,000		11		—		1,011
	$	7,050	$	11	$	—	$	7,061
Short-term investments:
U.S. Treasury securities	$	8,671	$	—	$	(9)	$	8,662
Certificates of deposit	3,295		—		—		3,295
U.S. government funds	114,046		—		—		114,046
	$	126,012	$	—	$	(9)	$	126,003

Maturities of debt securities classified as available-for-sale were as follows (in thousands):


	As of June 30, 2022
	Amortized Cost		Fair Value
Available-for-sale:
Due after one year through five years	$	7,706	$	7,716
	$	7,706	$	7,716

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.

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 $5.6 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 $6.1 million and $4.5 million as of June 30, 2022 and December 31, 2021, respectively. 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 $0.4 million of these services for the six months ended June 30, 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 June 30, 2022
	Fair Value		Level 1		Level 2		Level 3
Assets
Money market funds	$	56,860	$	56,860	$	—	$	—
Fixed maturities:
Foreign deposits	6,706		6,706		—		—
Municipal bond	1,010		—		1,010		—
Preferred shares in variable interest entity	8,442		—		—		8,442
Total	$	73,018	$	63,566	$	1,010	$	8,442

	As of December 31, 2021
	Fair Value		Level 1		Level 2		Level 3
Assets
Money market funds	$	32,255	$	32,255	$	—	$	—
Fixed maturities:
Foreign deposits	6,050		6,050		—		—
Municipal bond	1,011		—		1,011		—
Preferred shares in variable interest entity	8,442		—		—		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.

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 June 30, 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 $9.2 million and $7.6 million as of June 30, 2022 and December 31, 2021, 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 six months ended June 30, 2022.

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 June 30, 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 six months ended June 30, 2022 and the year ended December 31, 2021.

6. Goodwill

The following is a summary of goodwill by reportable segment for the six months ended June 30, 2022 (in thousands):


	Subscription Business		Other Business		Total
Balance as of December 31, 2021	$	32,709	$	—	$	32,709
Effects of foreign currency	(3,304)		—		(3,304)
Balance as of June 30, 2022	$	29,405	$	—	$	29,405

7. 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.

8. 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):


	Six Months Ended June 30,
Subscription	2022		2021
Reserve at beginning of year	$	22,407	$	19,925
Veterinary invoices during the period related to:
Current year	210,149		171,795
Prior years	(2,321)		(816)
Total veterinary invoice expense	207,828		170,979
Amounts paid during the period related to:
Current year	190,348		152,382
Prior years	16,469		14,420
Total paid	206,817		166,802
Non-cash expenses	2,325		3,089
Reserve at end of period	$	21,093	$	21,013

The Company's reserve for the subscription business segment decreased $1.3 million from $22.4 million at December 31, 2021 to $21.1 million at June 30, 2022. This change was comprised of $207.8 million in expense recorded during the period less $206.8 million in payments of veterinary invoices. The $207.8 million in veterinary invoice expense incurred included a reduction of $2.3 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the six months ended June 30, 2021, the Company's adjustment to prior year reserves was a reduction of $0.8 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):


	Six Months Ended June 30,
Other Business	2022		2021
Reserve at beginning of year	$	17,264	$	9,004
Veterinary invoices during the period related to:
Current year	94,175		57,487
Prior years	539		(314)
Total veterinary invoice expense	94,714		57,173
Amounts paid during the period related to:
Current year	79,362		43,038
Prior years	17,072		8,296
Total paid	96,434		51,334
Non-cash expenses	—		—
Reserve at end of period	$	15,544	$	14,843

The Company’s reserve for the other business segment decreased $1.7 million from $17.3 million at December 31, 2021 to $15.5 million at June 30, 2022. This change was comprised of $94.7 million in expense recorded during the period less $96.4 million in payments of veterinary invoices. The $94.7 million in veterinary invoice expense incurred included an increase of $0.5 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the six months ended June 30, 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.


Subscription	As of June 30, 2022
Year of Occurrence
2020 and prior	$	381
2021	3,236
2022	17,476
	$	21,093


Other Business	As of June 30, 2022
Year of Occurrence
2020 and prior	$	—
2021	731
2022	14,813
	$	15,544

9. Debt

On March 25, 2022, the Company entered into a credit agreement 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 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 floating base rate plus an applicable margin. The interest rate as of June 30, 2022 was approximately 5.76%. The Company incurred total debt issuance cost of approximately $5.8 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 June 30, 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 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 June 30, 2022 are as follows (in thousands):


Year Ending December 31,	June 30, 2022
2022	$	300
2023	600
2024	600
2025	600
2026	600
Thereafter	57,150
Total	$	59,850

10. 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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Veterinary invoice expense	$	1,047	$	672	$	2,234	$	2,971
Other cost of revenue	783		552		1,432		1,487
Technology and development	1,101		800		2,009		1,464
General and administrative	3,066		2,322		5,489		4,141
New pet acquisition expense	2,637		2,181		5,019		4,912
Total expensed stock-based compensation	8,634		6,527		16,183		14,975
Capitalized stock-based compensation	366		131		602		293
Total stock-based compensation	$	9,000	$	6,658	$	16,785	$	15,268

As of June 30, 2022, the Company had 1,261,460 unvested restricted stock units. Stock-based compensation expenses of $97.9 million related to unvested restricted stock units are expected to be recognized over a weighted average period of approximately 2.9 years.

Stock Options

A summary of the Company's stock option activity is as follows:


	Number of Options	Weighted Average Exercise Price per Share		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021	807,205	$	13.39	$	95,765
Granted	—	—		—
Exercised	(88,386)	13.25		6,866
Forfeited	(2,282)	19.67		—
Outstanding as of June 30, 2022	716,537	13.39		33,584

Exercisable as of June 30, 2022	716,537	$	13.39	$	33,584

As of June 30, 2022, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 3.8 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, 2021	1,087,627	$	78.94
Granted	535,867	87.96
Vested	(312,778)	76.10
Forfeited	(49,256)	82.44
Unvested shares as of June 30, 2022	1,261,460	$	83.34

11. Stockholders' Equity

Common Stock and Preferred Stock

As of June 30, 2022, the Company had 100,000,000 shares of common stock authorized and 40,745,298 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 June 30, 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 repurchased 94,959 shares during the three and six months ended June 30, 2022.

12. 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 June 30, 2022	Foreign Currency Translation		Net Unrealized Gain (Loss) on Available-for-Sale Securities		Total
Balance as of March 31, 2022	$	726	$	1,453	$	2,179
Other comprehensive income (loss)	(3,349)		(1)		(3,350)
Balance as of June 30, 2022	$	(2,623)	$	1,452	$	(1,171)


For the three months ended June 30, 2021	Foreign Currency Translation		Net Unrealized Gain (Loss) on Available-for-Sale Securities		Total
Balance as of March 31, 2021	$	2,738	$	951	$	3,689
Other comprehensive income (loss)	373		1		374
Balance as of June 30, 2021	$	3,111	$	952	$	4,063


For the six months ended June 30, 2022	Foreign Currency Translation		Net Unrealized Gain (Loss) on Available-for-Sale Securities		Total
Balance as of December 31, 2021	$	1,624	$	1,453	$	3,077
Other comprehensive income (loss)	(4,247)		(1)		(4,248)
Balance as of June 30, 2022	$	(2,623)	$	1,452	$	(1,171)


For the six months ended June 30, 2021	Foreign Currency Translation		Net Unrealized Gain (Loss) on Available-for-Sale Securities		Total
Balance as of December 31, 2020	$	2,120	$	951	$	3,071
Other comprehensive income (loss)	991		1		992
Balance as of June 30, 2021	$	3,111	$	952	$	4,063

13. 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 business 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.

Operating income (loss) of the Company’s segments were as follows (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Subscription business:
Revenue

TRUPANION, INC. [TRUP] Filings
10-Q	[2022-08-04]
10-Q	[2022-04-29]
10-K	[2022-02-17]
10-Q	[2021-11-04]
10-Q	[2021-08-06]
10-Q	[2021-04-30]
10-K	[2021-02-12]
10-Q	[2020-10-30]
10-Q	[2020-08-05]
10-Q	[2020-05-01]
10-K	[2020-02-14]
10-Q	[2019-11-06]
10-Q	[2019-07-31]
10-Q	[2019-05-03]
10-K	[2019-02-14]
10-Q	[2018-11-09]
10-Q	[2018-08-03]
10-Q	[2018-05-02]
10-K	[2018-02-14]
10-Q	[2017-11-03]
10-Q	[2017-08-02]
10-Q	[2017-05-03]
10-K	[2017-02-15]
10-Q	[2016-11-04]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-17]
10-Q	[2015-11-05]
10-Q	[2015-08-05]
10-Q	[2015-05-07]
10-K	[2015-02-24]
10-Q	[2014-10-31]
10-Q	[2014-08-28]
S-1	[2014-06-16]