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What changed in TRUPANION, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TRUPANION, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+379 added−304 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-16)

Top changes in TRUPANION, INC.'s 2023 10-K

379 paragraphs added · 304 removed · 265 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

59 edited+19 added−7 removed30 unchanged
Biggest changeTrupanion members tend to visit their veterinarian more frequently and spend more money on the best course of treatment for their pet. This results in better health outcomes for pets, which we believe creates a flywheel effect that has been the key driver of growth for our subscription business.
Biggest changeThis results in better health outcomes for pets, which we believe creates a flywheel effect that has been the key driver of growth for our subscription business. 3 Through the use of our proprietary, patented software designed to communicate directly with a veterinary hospital’s practice management system, we are able to offer a differentiated experience to pet owners.
Our monthly subscription products, priced specifically for each pet’s unique characteristics and coverage level, help pet owners budget for unforeseen medical expenses. Through our high quality medical insurance products, pet owners are able to ensure the best care for their pet, and avoid decisions being made due to financial constraints.
Our monthly subscription products, priced specifically for each pet’s unique characteristics and coverage level, help pet owners budget for unforeseen medical expenses. Through our high quality medical insurance products, pet owners are able to ensure coverage for the best care for their pet and avoid decisions being made due to financial constraints.
We also offer to our team members globally a virtual healthcare concierge service through a leading third-party provider specializing in the field of virtual medicine. • Sabbatical - For every five consecutive years of service at Trupanion, team members are eligible for a paid five-week sabbatical. • Paid Volunteer Time – The TruGiving Volunteer Program offers one paid work day per year to volunteer with an organization of each team member's choice. • Paid Time Off – At least four weeks of paid time off is granted to team members each year in January, and increases with tenure. • Medical Insurance for You – Trupanion pays 100% of the premiums for team members’ medical, dental, and vision coverage and offers options to enroll eligible family members. • Medical Insurance for Your Pet – Team members have the option to enroll one dog or cat in 100% company paid Trupanion medical insurance at the highest coverage level we offer. • Health Savings Account – Team members enrolled in our eligible medical plan have access to a Trupanion funded Health Spending Account. • Flexible Spending Dollars – Team members receive flexible spending dollars each year on benefits of their choice, including contributions to dependent premiums, fitness and nutrition, childcare, and personal development. 6 • Leave of Absence & Salary Continuation – We provide all team members that are too ill or injured to work with access to time off through leave of absence at a reduced percentage of their salary through our disability pay programs. • Severance and Change in Control Policy – We have a Severance and Change in Control policy that applies equally to all team members, regardless of their role at Trupanion.
We also offer to our team members globally a virtual healthcare concierge service through a leading third-party provider specializing in the field of virtual medicine. • Sabbatical – For every five consecutive years of service at Trupanion, team members are eligible for a paid five-week sabbatical. • Paid Volunteer Time – The TruGiving Volunteer Program offers one paid work day per year to volunteer with an organization of each team member's choice. • Paid Time Off – At least four weeks of paid time off is granted to team members each year in January, and increases with tenure. • Medical Insurance for You – Trupanion pays 100% of the premiums for team members’ medical, dental, and vision coverage and offers options to enroll eligible family members. • Medical Insurance for Your Pet – Team members have the option to enroll one dog or cat in 100% company paid Trupanion medical insurance at the highest coverage level we offer. • Health Savings Account – Team members enrolled in our eligible medical plan have access to a Trupanion funded Health Spending Account. • Flexible Spending Dollars – Team members receive flexible spending dollars each year on benefits of their choice, including contributions to dependent premiums, fitness and nutrition, childcare, and personal development. • Leave of Absence & Salary Continuation – We provide all team members that are too ill or injured to work with access to time off through leave of absence at a reduced percentage of their salary through our disability pay programs. • Severance and Change in Control Policy – We have a Severance and Change in Control policy that applies equally to all team members, regardless of their role at Trupanion.
Trupanion is committed to paying equitably for equal work, regardless of gender or race/ethnicity, and conducts pay equity analyses as part of our efforts in furtherance of this commitment. Career Development At Trupanion we are committed to helping everyone grow and thrive along with the company.
Trupanion is committed to paying equitably for equal work, regardless of gender or race/ethnicity, and conducts pay equity analyses as part of our efforts in furtherance of this commitment. 7 Career Development At Trupanion we are committed to helping everyone grow and thrive along with the company.
As such, APIC is also subject to comprehensive regulation and supervision under laws and regulations of each U.S. state, territory, and possession. 7 Because APIC is domiciled in New York, APIC is subject to laws governing insurance holding companies in New York.
As such, APIC is also subject to comprehensive regulation and supervision under laws and regulations of each U.S. state, territory, and possession. Because APIC is domiciled in New York, APIC is subject to laws governing insurance holding companies in New York.
Our Business It is very difficult for pet owners to budget for veterinary expenses when their pets become sick or injured. Pet owners do not know whether their pet’s health will be “average,” “lucky,” or “unlucky.” Over the life of a pet, veterinary expense for a lucky vs. unlucky pet can vary from $500 to more than $50,000.
Our Business It is very difficult for pet owners to budget for veterinary expenses when their pets become sick or injured. Pet owners do not know whether their pet’s health will be “average,” “lucky,” or “unlucky.” Over the life of a pet, veterinary expense for a lucky versus unlucky pet can vary from $500 to more than $50,000.
Their role is to create meaningful, long-term relationships with veterinarians and to educate those veterinarians about the benefits of high quality medical insurance. We believe this structure aligns our interests and provides a platform that we can leverage over time. Our Territory Partner approach is unique and unmatched in our industry.
Their role is to create meaningful, long-term relationships with veterinarians and to educate those veterinarians about the benefits of high quality medical insurance for pets. We believe this structure aligns our interests and provides a platform that we can leverage over time. Our Territory Partner approach is unique and unmatched in our industry.
We are growing new member acquisition channels including employee benefits, point-of-sale, retail and direct-to-consumer, for the sale of our pet medical insurance products. We also intend to pursue new channels that we believe could, over time, deliver our desired return on investment. Aligning with strategic partners.
We are growing new member acquisition channels including employee benefits, point-of-sale, retail and direct-to-consumer, for the sale of our pet medical insurance products. We also continue to pursue new channels that we believe could, over time, deliver our desired return on investment. Aligning with strategic partners.
Even if a pet ends up being “average” over its life, the timing of accidents or illnesses may not align with the owner’s budgeting approach. Further, many pet owners do not know how to budget for the “average” cost of medical care for their pets.
Even if a pet ends up being “average” over its life, the timing of accidents or illnesses may not align with the pet owner’s budget. Further, many pet owners do not know how to budget for the “average” cost of medical care for their pets.
In our experience, competing pet insurance companies generally fall into one of two segments: (a) traditional providers with low target price points and narrow coverage that is unlikely to cover things most likely to go wrong, like congenital and hereditary conditions, and (b) higher-value providers that provide some form of an annual plan designed to increase the cost of the plan as the pet ages.
In our experience, competing pet medical insurance companies generally fall into one of two segments: (a) traditional providers with low target price points and narrow coverage that is unlikely to cover things most likely to go wrong, like congenital and hereditary conditions, and (b) higher-value providers that offer some form of an annual plan designed to increase the cost of the plan as the pet ages.
We use these channels, as well as social media, to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on these channels, such as social media, could be deemed to be material information. 9
We use these channels, as well as social media, to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on these channels, such as social media, could be deemed to be material information. 10
As a result, we are focused primarily on expanding the overall size of our markets by providing pet owners with high value, transparent medical coverage designed for each pet's unique characteristics and coverage level. We have been competing against at least 20 brands at any given time in our operating history.
As a result, we are focused primarily on expanding the overall size of our markets by providing pet owners with high value, transparent medical coverage designed for each pet's unique characteristics and coverage level. We have been competing against numerous brands at any given time in our operating history.
Our core “Trupanion” product was designed by veterinarians to enable them to practice the best medicine – thus recommending the optimal treatment for the pet. As a result, we believe our Trupanion product enables veterinarians to establish stronger ties and better alignment with their clients.
Our core “Trupanion” product was designed by veterinarians to enable them to practice the best medicine – thus recommending the optimal treatment for the pet. As a result, we believe our Trupanion-branded products enable veterinarians to establish stronger ties and better alignment with their clients.
Diversity, Equity, Inclusion, and Belonging We believe that diversity, equity, inclusion, and belonging (DEIB) is critical to supporting our fellow team members and enhancing our ability to fulfill our mission and achieve our goals. We strive to foster an environment where diversity of people with different perspectives and backgrounds can thrive.
Diversity, Equity, and Inclusion We believe that diversity, equity, and inclusion (DEI) is critical to supporting our fellow team members and enhancing our ability to fulfill our mission and achieve our goals. We strive to foster an environment where diversity of people with different perspectives and backgrounds can thrive.
We seek to grow the number of existing members that add a pet or refer their friends and family to Trupanion. We do so by focusing on improving the member experience, including increasing the percentage of veterinary invoices that are processed rapidly at checkout and paid directly to veterinarians through our patented, proprietary software. Improving conversion.
We seek to grow the number of existing members that add a pet or refer their friends and family to Trupanion. We do so by focusing on improving the member experience, including increasing the percentage of veterinary invoices that are paid directly to veterinarians through our patented, proprietary software. Improving conversion.
We believe that it would be extremely difficult, costly and time consuming for a competitor to replicate. Competition We compete primarily with pet owners who choose to self-fund their veterinary costs, mainly via credit cards, as well as new and existing pet insurance brands.
We believe that it would be extremely difficult, costly and time consuming for a competitor to replicate this model. 5 Competition We compete primarily with pet owners who choose to self-fund their veterinary costs, mainly via credit cards, as well as new and existing pet medical insurance brands.
Our monthly subscription business model provides us with high quality predictable and recurring revenue. Our subscription business’s cost-plus model is designed to spread the risk evenly within each category of pets so our members can budget for unexpected veterinary costs. We have been collecting comprehensive pet health data for over 20 years.
Our monthly subscription business model also provides us with high quality predictable and recurring revenue. Our subscription business’s cost-plus model is designed to spread the risk evenly within categories of pets so our members can better budget for unexpected veterinary costs. We have been collecting comprehensive pet health data for over 20 years.
While our insurance subsidiary and underwriter, American Pet Insurance Company (APIC), is domiciled in New York State and its primary regulator is, therefore, the New York Department of Financial Services (NY DFS), APIC is also currently licensed to do business in all 50 states, Puerto Rico and the District of Columbia.
Our primary insurance subsidiary and underwriter, American Pet Insurance Company (APIC), is domiciled in New York State and the New York Department of Financial Services (NY DFS) serves as its primary regulator. APIC is currently licensed to do business in all 50 states, Puerto Rico and the District of Columbia.
APIC is subject to these risk-based capital requirements that require us to maintain certain levels of surplus, specifically $142.4 million as of December 31, 2022, to support our overall business operations in consideration of our size and risk profile. If we fail to maintain the amount of risk-based capital required, we will be subject to additional regulatory oversight.
APIC is subject to these risk-based capital requirements that require us to maintain certain levels of surplus, specifically $137.6 million as of December 31, 2023, to support our overall business operations in consideration of our size and risk profile. If we fail to maintain the amount of risk-based capital required, we will be subject to additional regulatory oversight.
Item 1. Business Our Mission Our mission is to help loving, responsible pet owners budget and care for their pets. Company Overview We provide medical insurance for cats and dogs throughout the United States, Canada, Europe, Puerto Rico, and Australia.
Item 1. Business Our Mission Our mission is to help loving, responsible pet owners budget and care for their pets. Company Overview We provide medical insurance for cats and dogs in the United States, Canada, Continental Europe, and Australia.
Other Jurisdictions Regulations In Canada, our insurance is written by an unaffiliated Canadian-licensed insurer, Omega General Insurance Company (Omega). Under the terms of our agreements with Omega, we retain any financial risk associated with our Canadian business.
Other Jurisdictions Regulations In Canada, our insurance is written by an unaffiliated Canadian-licensed insurer, Omega General Insurance Company (Omega). Under the terms of our agreements with Omega, we retain any financial risk associated with our Canadian business. In October 2023, Omega was acquired by Accelerant.
We are proud to continually see about 23% of our team members transition to new roles within Trupanion each year. Team members have access to ongoing development designed to help them succeed in their roles today, develop skills for the future, and build a career at Trupanion.
We are proud to continually see approximately 15% of our team members transitioning to new roles within Trupanion each year. Team members have access to ongoing development designed to help them succeed in their roles today, develop skills for the future, and build a career at Trupanion.
North American Pet Health Insurance Association estimates that the penetration rate for medical insurance for cats and dogs in North America is approximately one to two percent.
North American Pet Health Insurance Association estimates that the penetration rate for medical insurance for cats and dogs in North America is approximately three percent.
We believe our data and approach to pricing is unmatched and provides us with a greater understanding of anticipated veterinary costs.
We believe our data and approach to pricing is unmatched by other pet insurers and provides us with a greater understanding of anticipated veterinary costs.
We intend to increase the number of veterinary hospitals that help their clients learn about high quality medical insurance, and to increase the rate at which active veterinary hospitals refer leads to us by leveraging our Territory Partners. Increasing the number of referrals from members.
We intend to increase the number of veterinary hospitals that help their clients learn about high quality medical insurance, and to increase the rate at which active veterinary hospitals refer leads to us by leveraging our outside sales team of Territory Partners who interface directly with veterinarians. Increasing referrals from members.
We believe our actuarial team, working with our granular data, is able to price our subscription plan much more accurately than other players in the industry, enabling us to provide our members with the highest value proposition relative to coverage level.
We believe our actuarial team, working with our granular data, is able to price our subscription plan much more accurately than any other players in the pet health insurance industry, enabling us to provide our members with the most accurate cost and highest value proposition relative to coverage level.
These include: • broader coverage and a superior value proposition due, in part, to our vertically integrated structure that reduces frictional costs, • a unique member acquisition strategy that leverages the relationships our Territory Partners have developed in the veterinary community, • a proprietary database containing over 20 years of comprehensive pet health data enabling us to be more precise in our pricing and pet acquisition expense, and • our patented, proprietary software which allows us to pay veterinary invoices directly at time of treatment. 5 Intellectual Property We rely on federal, state, common law, and international rights, as well as contractual restrictions, to protect our intellectual property.
These include: • broader coverage and a superior value proposition due, in part, to our vertically integrated structure that reduces frictional costs, • a unique member acquisition strategy that leverages the relationships our Territory Partners have developed in the veterinary community, • a proprietary database containing over 20 years of comprehensive pet health data enabling us to be more precise in our pricing and pet acquisition expense, and • our patented, proprietary software which allows us to pay veterinary invoices directly at time of treatment.
We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.
We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products. We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.
These include providing pet insurance policies on behalf of the Veteran Affairs program, employer sponsored programs, and underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand. Additionally, our other business segment includes the sale of software solutions.
Products in this segment include providing pet medical insurance policies on behalf of the U.S. Department of Veterans Affairs program, employer sponsored programs, and underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand. Additionally, our other business segment includes the sale of insurance software solutions.
We are investing in the education process and improving initial customer communication and experiences in order to increase our retention rates. 4 Automating the payment of veterinary invoices. We use artificial intelligence and machine learning to leverage data so we can automate the payment of veterinary invoices.
We are investing in the education process for our members and improving initial member communication and experiences in order to increase our retention rates. Automating payment of veterinary invoices. We use artificial intelligence and machine learning to leverage data to automate the payment of a portion of our veterinary invoices.
A sampling of our development opportunities include: • TruUniversity (TruU) – All team members participate in TruU company orientation to learn about our history, culture, product, business model, and operations. • Mentorship – Our TruMentor program creates connection across departments, so team members can learn from and support each other in their development. • Professional skills – Our continuing education course catalogue includes a wide variety of topics related to our business, the animal health industry, and professional skills. • Leadership Development – Our Leadership Unleashed curriculum offers specific leadership development programs both for new managers leading for the first time and for more experienced leaders leading teams of other leaders.
A sampling of our development opportunities include: • Trupanion Embark! – All team members participate in company orientation to learn about our history, culture, product, business model, and operations. • Mentorship – Our TruMentor program creates connection across departments, so team members can learn from and support each other in their development. • Professional skills – Our continuing education course catalogue includes a wide variety of topics related to our business, the animal health industry, and professional skills. • Leadership Development – Our Leadership Unleashed program offers development for aspiring, new and experienced managers to drive ownership and growth for the future of our business.
Our target markets are large and under-penetrated, as measured by insured pets: North America 1 Continental Europe Australia Household dogs and cats (in thousands) 200,000 139,000 8,900 Market penetration 2.0 % 5.6 % 11.2 % 1 According to Insurance Information Institute and Canadian Animal Health Institute, there are approximately 200 million household dogs and cats in the United States and Canada.
Our target markets are large and under-penetrated, as measured by insured pets: North America 1 Continental Europe 2 Australia 3 Household dogs and cats (in thousands) 210,000 160,750 8,900 Pet insurance market penetration 3.0 % 8.4 % 9.0 % 1 According to IBIS World and Canadian Animal Health Institute, there are approximately 210 million household dogs and cats in the United States and Canada.
We have multiple employee-led resource groups that celebrate aspects of our team’s diversity and help foster a welcoming and safe space for support, education, professional development, and networking. We have a large representation of women at Trupanion including 59% of leadership positions.
We have multiple employee-led resource groups that celebrate aspects of our team’s diversity and help foster a welcoming and safe space for support, education, professional development, and networking.
Our other business segment is comprised of revenue from other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.
Our other business segment is comprised of revenue from other product offerings with third parties with whom we generally have a business-to-business relationship. This business segment has a different margin profile than our subscription segment and includes revenue from writing policies on behalf of third parties and revenue from other products and insurance software solutions.
Average veterinary expenses often greatly exceed the expectations of the pet owner and vary dramatically based on a multitude of factors, including the availability of care by region and the types of treatments advisable for specific pet breeds. Consequently, self-insuring is not an effective solution for many individual pet owners.
Average veterinary expenses often greatly exceed the expectations of pet owners and vary dramatically based on a multitude of factors, including the availability of care by region and the types of treatments advisable for specific pet breeds.
We intend to increase the percentage of veterinary invoices paid without human intervention with the goal of ensuring that we can process veterinary invoices in seconds and do so without reducing the quality of our decision making on a case-by-case basis. Growing additional member acquisition channels.
We intend to increase the percentage of veterinary invoices paid without human intervention with the goal of ensuring that we can process veterinary invoices in seconds, at a lower cost and without reducing the quality of service. Expanding additional member acquisition channels.
Further, NAIC developed a set of financial relationships or tests known as the Insurance Regulatory Information System, or IRIS, to assist state regulators in monitoring the financial condition of U.S. insurance companies.
Further, NAIC developed a set of financial relationships or tests known as the Insurance Regulatory Information System, or IRIS, to assist state regulators in monitoring the financial condition of U.S. insurance companies. As of December 31, 2023, APIC had one IRIS ratios outside the usual range relating to net premiums written to surplus.
We believe that over the long-term, the North American penetration rate can reach levels comparable to the U.K., where, according to Global Market Insights, approximately one in four cats and dogs has medical insurance.
We believe that over the long-term, the North American penetration rate can reach levels comparable to the U.K., where, according to Global Market Insights, approximately one in four cats and dogs has medical insurance. 2 According to FEDIAF European Facts & Figures, GfK Czech consumer panel, and KVL Czech Republic, there are approximately 161 million household dogs and cats in Continental Europe.
Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level. We operate in two business segments: subscription business and other business. We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products.
Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level. Our growing and loyal membership base provides us with highly predictable and recurring revenue. We operate in two business segments: subscription business and other business.
The vast majority of pet owners in the markets in which we operate do not currently have medical insurance for their pets and there is very little movement from one insurance company to another due to pre-existing conditions.
The vast majority of pet owners in the markets in which we operate do not currently have medical insurance for their pets and those that do have medical insurance for their pets do not typically move from one insurance company to another because pre-existing conditions would likely not be covered following a move.
We hold two U.S. utility patents and one U.S. design patent related to our proprietary software, and we have multiple additional patent applications pending in the United States and in other jurisdictions. We additionally rely on data and market exclusivity, and patent term extensions when available.
We hold six U.S. utility patents and one U.S. design patent related to our proprietary software, and we have multiple additional patent applications pending in the United States. We also have three issued utility patents and two issued design patents in other jurisdictions, as well as multiple additional patent applications pending.
Benefits We offer each team member the same benefits, regardless of role or level in the organization. We also recognize the importance of family and design our benefits plans to support the physical, financial, and emotional wellbeing of team members and their families.
We also recognize the importance of family and design our benefits plans to support the physical, financial, and emotional wellbeing of team members and their families. The benefits available to all team members regardless of role include: • Childcare & Support for Parents – We understand the importance of family and offer benefits to support working parents.
We continue to explore other international expansion opportunities. Expanding our product offering. We intend to introduce additional monthly subscription products, maintaining what we believe to be the highest value pet medical insurance, but with varying levels of coverage. Pursuing other non-insurance revenue offerings. We intend to continue pursuing opportunities to provide pet owners with complementary products and services.
We have introduced additional monthly subscription products, maintaining what we believe to be the highest value pet medical insurance, but with reduced coverage that is less expensive. Pursuing non-insurance revenue offerings. We intend to continue pursuing opportunities to provide pet owners with complementary products and services.
Information contained on, or that can be accessed through, our website is not incorporated by reference, and you should not consider information on our website to be part of this Annual Report on Form 10-K.
Information contained on, or that can be accessed through, our website is not incorporated by reference, and you should not consider information on our website to be part of this Annual Report on Form 10-K. 9 Available Information We are required to file annual, quarterly and other reports, proxy statements and other information with the Securities and Exchange Commission (SEC) under the Exchange Act.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established a Federal Insurance Office within the U.S. Department of the Treasury.
Trupanion is proactively engaged in the drafting and passage of the pet insurance law in these states through the North American Pet Health Insurance Association (NAPHIA). In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established a Federal Insurance Office within the U.S. Department of the Treasury.
Through the use of our proprietary, patented software designed to communicate directly with a veterinary hospital’s practice management software, we are able to offer a differentiated experience to pet owners. Using our software, veterinary hospitals can receive payment from us directly for approved invoices in seconds, with their clients (our members) only paying their deductible or co-payment of covered treatments.
Using our software, veterinary hospitals can receive payment from us directly for approved invoices in seconds, with their clients (our members) only paying their deductible or co-payment for covered treatments. We believe this unique and patented solution, which is offered free to veterinarians and pet owners, transforms the insurance experience.
Our total enrolled pets grew from 31,207 pets on January 1, 2010 to 1,537,573 pets on December 31, 2022, which represents a compound annual growth rate of 35%. As a result, our revenue has grown from $19.1 million in 2010 to $905.2 million in 2022.
Our total enrolled pets grew from 31,207 pets on January 1, 2010 to 1,714,473 pets on December 31, 2023, which represents a compound annual growth rate of 33%.
Our Strategy We are focused on attracting and retaining members by providing a best-in-class value and member experience. In particular, we are focused on the following: Increasing the leads from veterinary hospitals.
As a result, our revenue has grown from $19.1 million in 2010 to $1,108.6 million in 2023 which represents a compound annual growth rate of 34%. 4 Our Strategy We are focused on attracting and retaining members by providing a best-in-class value and member experience. In particular, we concentrate on the following: Increasing leads from veterinary hospitals.
In 2021, we established two new wholly-owned insurance subsidiaries, ZPIC Insurance Company (ZPIC) and QPIC Insurance Company (QPIC), domiciled in Missouri and Nebraska, respectively. We have funded required statutory capital to these new subsidiaries, however, neither subsidiary has begun underwriting insurance policies. U.S. federal law generally does not directly regulate the insurance industry.
We have funded required statutory capital to these new subsidiaries, however, neither subsidiary has begun underwriting insurance policies as of December 31, 2023. U.S. federal law generally does not directly regulate the insurance industry. However, from time to time, various federal regulatory and legislative changes have been proposed.
We also contract with team members in the Philippines through a third-party service provider, and we operate in Australia through a joint venture. Our team is increasingly global with team members working in our Seattle headquarters in the United States, in the U.K. office, and virtually across the U.S., Canada, and Europe. Our Seattle headquarters office is pet friendly.
Our team is increasingly global with team members working in our Seattle headquarters in the United States, in our offices in the U.K., Germany, and Czechia, and virtually across the U.S., Canada, and Europe.
We seek partnerships with players who are leaders in their field, have long-term alignment, and recognize the value of our brand and expertise. Expanding internationally. While the majority of our revenue is derived from the sale of insurance products in the U.S. and Canada, we have operations in Europe and operate in Australia through a joint-venture.
While the majority of our revenue is derived from the sale of insurance products in the U.S. and Canada, we have operations in Europe and operate in Australia through a joint-venture. We continue to explore other international expansion opportunities. Expanding our product offering.
However, from time to time, various federal regulatory and legislative changes have been proposed. Among the proposals that have in the past been, or are at present may be under consideration, are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers.
Among the proposals that have in the past been, or are at present may be under consideration, are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers. 8 In August 2022, members of the National Association of Insurance Commissioners (NAIC) passed a pet insurance model act to establish appropriate regulatory standards for the pet insurance industry.
As of December 31, 2022, the account held CAD $10.4 million. 8 We have a segregated cell business called Wyndham Segregated Account AX (WICL), located in Bermuda. WICL is regulated by the Bermuda Monetary Authority (BMA).
We have funded required statutory capital to this new subsidiary; however, GPIC has not begun underwriting insurance policies as of December 31, 2023. We have a segregated cell business called Wyndham Segregated Account AX (WICL), located in Bermuda. WICL is regulated by the Bermuda Monetary Authority (BMA).
We also offer complimentary COVID testing available 24/7 at our Seattle office for team members and their loved ones. Regulation United States Regulations U.S. federal law and the laws and regulations of each United States state, territory and possession apply to companies licensed to transact insurance business in these jurisdictions.
Regulation For further information, refer to the Regulation section included in Part II Item 7 of this report. United States Regulations U.S. federal law and the laws and regulations of each United States state, territory and possession apply to companies licensed to transact insurance business in these jurisdictions.
Our team members are our greatest asset, and we focus on attracting great people to our team and offering high-quality experiences to all team members. As of December 31, 2022, we employed 1,187 people across the U.S., Canada and Europe. Our team is further supported by 158 field sales Territory Partner business owners and their associates who represent Trupanion.
As of December 31, 2023, we employed 1,142 people across the U.S., Canada and Europe. Our team is further supported by 185 field sales Territory Partner business owners and their associates who represent Trupanion. We also contract with team members in the Philippines through a third-party service provider, and we operate in Australia through a joint venture.
We are investing to increase the rate at which we convert pet owners receiving quotes for our subscription plan into enrolled members. Improving retention, particularly in the first year of enrollment. Member retention is a key part of our strategy. Historically, members in their first year of membership have the lowest retention rate.
We are investing to increase the rate at which we convert pet owners receiving quotes for our subscription plan into enrolled members. Targeting a 71% value proposition. We aim to return to our members 71% of premiums we collect in the aggregate, which we believe is the highest targeted value proposition in our industry.
For example, among other steps we have taken, we have expanded the number of employee resource groups, developed a DEIB curriculum that is required for all team members, continue to develop accessibility enhancements to both our physical and digital spaces, and set department-level representation goals linked to compensation.
We have also developed a DEI curriculum that is required for all team members, and we continue to develop accessibility enhancements to both our physical and digital spaces. We have a large representation of women at Trupanion including 61% of leadership positions.
Our ability to protect and enforce our intellectual property rights is subject to risk and our failure to do so may adversely impact our business. Human Capital Resources Our Team We are a mission driven organization with a diverse team united by a shared passion for pets.
Human Capital Resources Our Team We are a mission driven organization with a diverse team united by a shared passion for pets. Our team members are our greatest asset, and we focus on attracting great people to our team and offering high-quality experiences to all team members.
We believe this unique solution, which is offered free to veterinarians and pet owners, transforms the insurance experience. 3 Our other business segment is comprised of other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription segment.
Our Furkin and PHI Direct products are currently distributed direct-to-consumer in Canada. Our other business segment is comprised of other product offerings with third parties with whom we generally have a business-to-business relationship, and this business segment has a different margin profile than our subscription segment.
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We believe that we have competitive advantages that position us favorably.
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Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium average revenue per unit (ARPU) products marketed under the brand names Furkin and PHI Direct.
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The benefits available to all team members regardless of role include: • Childcare & Support for Parents – We understand the importance of family and offer benefits to support working parents. Most notably, we offer onsite childcare at our Seattle headquarters.
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We provide a full suite of services and support for these products and they are designed to align with the target margin profile of our subscription business segment. Within our subscription business segment we also offer products in Continental Europe, which are currently underwritten using third-party underwriters.
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As part of our strategic plan, we have also set a goal to increase the representation of underrepresented groups on our teams beginning with underrepresented races and ethnicities. To achieve this goal we are taking specific actions to hire, retain, and develop people from underrepresented groups, and further a culture of inclusion at Trupanion.
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Consequently, self-insuring is not an effective solution for many pet owners as the cost of pet medical care has been outpacing inflation for over 20 years due to advancements in medical procedures and technology and due to increased availability of high-quality care.
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Safety We prioritize the safety of all members of our team. For example, when the COVID-19 pandemic emerged, we were one of the first Seattle-area public companies to transition to fully virtual work, doing so before it was required.
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Members with a Trupanion-branded product visit their veterinarian more frequently and spend more money on the best course of treatment for their pet.
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Since then we have kept our culture alive with more frequent all hands meetings and office hours with leadership, and converted many of our office events, like the annual Pet Pageant, to virtual formats. Since June 2021, we have offered hybrid work arrangements.
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Through our "Powered by Trupanion" suite of products, which are marketed by third parties, we are broadening our distribution in the retail and corporate worksite channels. Our "Powered by Trupanion" products offer the same differentiated experience Trupanion pet owners receive but with options for varying levels of coverage to meet budgetary requirements.
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As of December 31, 2022, APIC had three IRIS ratios outside the usual range, relating to net premiums written to surplus, change in adjusted policyholders’ surplus, and investment yield.
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The estimated penetration rate for medical insurance for cats and dogs is approximately eight and a half percent. 3 According to PetKeen, there are approximately 8.9 million household dogs and cats in the Australia. The estimated penetration rate for medical insurance for cats and dogs is approximately nine percent.
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Available Information We are required to file annual, quarterly and other reports, proxy statements and other information with the Securities and Exchange Commission (SEC) under the Exchange Act.
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Our ability to target the highest sustainable value proposition stems from our low cost operating model. Achieving our targeted value proposition requires we grow our ARPU in-line with the cost of veterinary care. Improving retention. Member retention is a key part of our strategy. Historically, members in their first year of membership have the lowest retention rate.
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We maintain relationships with players who are leaders in their field, have long-term alignment, and recognize the value of our brand and expertise. These companies generally have well-developed distribution channels but do not have our expertise in pet medical insurance. Expanding internationally.
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In recent years, there has been significant consolidation in the pet medical insurance industry resulting in many brands being controlled by a small number of companies. We believe that we have competitive advantages that position our product offering favorably compared to other brands offered in the marketplace.
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Intellectual Property We rely on federal, state, common law, and international rights, as well as contractual restrictions, to protect our intellectual property.
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We additionally rely on data and market exclusivity, and patent term extensions when available. Our ability to protect and enforce our intellectual property rights is subject to risk and our failure to do so may adversely impact our business.
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Our Seattle headquarters is pet friendly. 6 Benefits We offer each team member substantially the same benefits, regardless of role or level in the organization (with appropriate variations due to the country in which they reside).
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Most notably, we offer onsite childcare at our Seattle headquarters.
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Our DEI Committee is also employee-led and focuses on cultivating a culture of inclusion and belonging by supporting DEI activities, fostering effective DEI communications with Trupanion employees and advising on ways to improve progress in Trupanion's commitment to DEI.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition, any system failure that causes an interruption in or decreases the responsiveness of our services could impair our revenue-generating capabilities, harm our business and operating results and damage our reputation. In addition, any loss or mishandling of data could result in breach of confidence, competitive disadvantage or loss of members, and subject us to potential liability.
Biggest changeIf new solutions and enhancements are not successful on a long-term basis, we may not realize benefits from these investments, and our business and financial condition could be adversely affected. 19 In addition, any system failure that causes an interruption in or decreases the responsiveness of our services could impair our revenue-generating capabilities, harm our business and operating results and damage our reputation.
Further, Territory Partners may themselves employ or engage others; we refer to these partners and their associates, collectively, as our Territory Partners. We do not control a Territory Partner’s employment or engagement of others, and it is possible that the actions of their employees and/or contractors could create threatened or actual legal proceedings against us.
Further, Territory Partners may themselves employ or engage others; we refer to these partners and their associates, collectively, as our Territory Partners. We do not control a Territory Partner’s employment or engagement of others, and it is possible that their actions or the actions of their employees and/or contractors could create threatened or actual legal proceedings against us.
Our insurance subsidiaries are required to maintain minimum levels of surplus to support our overall business operations in consideration of our size and risk profile. We have in the past and may in the future fail to maintain the amount of risk-based capital required to avoid potentially costly additional regulatory oversight.
Our insurance subsidiaries are required to maintain minimum levels of surplus capital to support our overall business operations in consideration of our size and risk profile. We have in the past and may in the future fail to maintain the amount of risk-based capital required to avoid potentially costly additional regulatory oversight.
From time to time we have released, and may continue to release, guidance in our quarterly earnings conference call, quarterly earnings releases, or otherwise, regarding our future performance that represents our management’s estimates as of the date of release. This guidance, which includes forward-looking statements, has been and will be based on projections prepared by our management.
From time to time we have released, and may continue to release, guidance in quarterly earnings conference call, quarterly earnings releases, or otherwise, regarding our future performance that represents our management’s estimates as of the date of release. This guidance, which includes forward-looking statements, has been and will be based on projections prepared by our management.
Our Credit Facility also contains certain financial covenants, including minimum quarterly revenue and liquidity thresholds. Our ability to meet these restrictive covenants can be affected by events beyond our control. We are also obligated to pay interest under the Credit Facility at a floating base rate plus an applicable margin, which rate will increase based on prevailing rates.
Our Credit Facility also contains certain financial covenants, including minimum revenue and liquidity thresholds. Our ability to meet these restrictive covenants can be affected by events beyond our control. We are also obligated to pay interest under the Credit Facility at a floating base rate plus an applicable margin, which rate will increase based on prevailing rates.
For these efforts to be successful, we must successfully enter into agreements with these third parties on terms that are attractive to us, and then successfully implement the arrangement, which requires integrating and coordinating their resources and capabilities with our own, which may present challenges relating to technology integration, marketing, regulatory matters, customer support, and other operational matters.
For these efforts to be successful, we must negotiate and enter into agreements with these third parties on terms that are attractive to us, and then successfully implement the arrangement, which requires integrating and coordinating their resources and capabilities with our own, which may present challenges relating to technology integration, marketing, regulatory matters, customer support, and other operational matters.
If Internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, our new member growth could decline, and our business and operating results could be harmed. 14 We endeavor to drive significant traffic to our website from consumers who search for pet medical insurance through Internet search engines such as Google, Bing and Yahoo!.
If Internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, our new member growth could decline, and our business and operating results could be harmed. We endeavor to drive significant traffic to our website from consumers who search for pet medical insurance through Internet search engines such as Google, Bing and Yahoo!.
Moreover, in the future, we may expand the number of countries in which we offer products and operate and this could increase our exposure to currency exchange rate fluctuations. Owning multiple insurance subsidiaries may harm our results of operations. We currently own one of the insurers through which we are issuing products - APIC, a New York domiciled insurer.
Moreover, in the future, we may expand the number of countries in which we offer products and operate and this could increase our exposure to currency exchange rate fluctuations. Owning multiple insurance subsidiaries may harm our results of operations. 23 We currently own one of the insurers through which we are issuing products - APIC, a New York domiciled insurer.
Covenants in our Credit Facility may restrict our operations, and if we do not effectively manage our business to comply with these covenants, our financial condition could be adversely affected. 25 Our Credit Facility contains various restrictive covenants, including limitations on our ability to incur other indebtedness or liens, make investments, and merge with or acquire other entities.
Covenants in our Credit Facility may restrict our operations, and if we do not effectively manage our business to comply with these covenants, our financial condition could be adversely affected. Our Credit Facility contains various restrictive covenants, including limitations on our ability to incur other indebtedness or liens, make investments, and merge with or acquire other entities.
Acquisitions or investments could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. 19 If we do not spend our development budget efficiently or effectively on commercially successful and innovative offerings and products, we may not realize the expected benefits of our strategy.
Acquisitions or investments could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. If we do not spend our development budget efficiently or effectively on commercially successful and innovative offerings and products, we may not realize the expected benefits of our strategy.
As we continue to expand internationally, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States, which may be expensive and divert management’s attention away from other operations. Our proprietary software is protected by patents.
As we continue to expand internationally, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States, which may be expensive and divert management’s attention away from other operations. 26 Our proprietary software is protected by patents.
From time to time, we have been, and in the future may become, subject to litigation, claims and regulatory proceedings and inquiries, including market conduct examinations and investigations by state insurance regulatory agencies and threatened or filed lawsuits by, among others, government agencies, employees, competitors, current or former members, or business partners.
From time to time, we have been, and in the future may become, subject to litigation, claims and regulatory proceedings and inquiries, including market conduct examinations and investigations by state insurance regulatory agencies and threatened or filed lawsuits by, among others, government agencies, employees, competitors, shareholders, current or former members, or business partners.
In addition, as we move business from Omega to GPIC, we may be required to contribute more risk-based capital than expected into GPIC. 20 We are expanding our operations internationally, and we may therefore become subject to a number of risks associated with international expansion and operations.
In addition, as we move business from Omega to GPIC, we may be required to contribute more risk-based capital than expected into GPIC. We are expanding our operations internationally, and we may therefore become subject to a number of risks associated with international expansion and operations.
If more veterinary hospitals install and use our patented proprietary software, the number or amounts of veterinary invoices we receive is likely to increase. Our patented proprietary software is designed to integrate directly with most practice management software systems used by veterinary hospitals and allow us to receive and pay veterinarian invoices directly to the hospital.
If more veterinary hospitals install and use our patented proprietary software, the number or amounts of veterinary invoices we receive is likely to increase. Our patented proprietary software is designed to integrate directly with most practice management software systems used by veterinary hospitals and allow us to receive and pay veterinary invoices directly to the hospital.
Our efforts to enforce or protect our proprietary rights may be ineffective, could result in substantial costs and diversion of resources and could substantially harm our operating results. 24 Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.
Our efforts to enforce or protect our proprietary rights may be ineffective, could result in substantial costs and diversion of resources and could substantially harm our operating results. Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.
Our estimates and assumptions may not accurately reflect our future results - we may overspend on new pet acquisition, and we may not be able to recover our pet acquisition costs or generate profits from these investments. 11 We have made and plan to continue to make significant investments to grow our member base.
Our estimates and assumptions may not accurately reflect our future results - we may overspend on new pet acquisition, and we may not be able to recover our pet acquisition costs or generate profits from these investments. We have made and plan to continue to make significant investments to grow our member base.
We believe that it is critical to our long-term success to improve the member experience so we encourage veterinary hospitals to install and use our software. We have found that installation and use of our software by a veterinary hospital could increase the number of invoices we receive from that hospital.
We believe that it is critical to our long-term success to improve the member experience so we encourage veterinary hospitals to install and use our software. We have found that installation and use of our patented software by a veterinary hospital could increase the number of invoices we receive from that hospital.
In addition, if revenue levels do not meet our expectations, our operating results and ability to execute on our business plan are likely to be harmed. Seasonal or periodic variations in the behavior of our members also may cause fluctuations in our financial results.
In addition, if revenue levels do not meet our expectations, our operating results and ability to execute on our business plan are likely to be harmed. 20 Seasonal or periodic variations in the behavior of our members also may cause fluctuations in our financial results.
Further, administration of this business and any similar business in the future may divert our time and attention away from our core business, which could adversely affect our operating results in the aggregate. In Canada, our medical plan is written by Omega General Insurance Company.
Further, administration of this business and any similar business in the future may divert our time and attention away from our core business, which could adversely affect our operating results in the aggregate. 22 In Canada, our medical plan is written by Omega General Insurance Company.
There may also be negative publicity associated with litigation or regulatory proceedings that could harm our reputation or decrease acceptance of our services. These claims may be costly to defend and may result in assessment of damages, adverse tax consequences and harm to our reputation.
There may also be negative publicity associated with litigation or regulatory proceedings that could harm our reputation or decrease acceptance of our services. These claims may be costly to defend and may result in assessment of damages, adverse tax consequences and 27 harm to our reputation.
We may not have easy access to such capital, and using it for this purpose may prevent us from investing in our growth and operations, which may require us to modify our operating plan, delay new initiatives, interfere with personnel growth, incur indebtedness or pursue financings, or otherwise modify our operations, any of which could have a material adverse effect on our operating results and financial condition. • If the required minimum capital in one of our insurers falls below the required threshold, the responsible regulator may take action, or such a reduction may result in a breach of various contractual relationships, including, for example, with the unaffiliated general agents for which we write pet insurance policies, which may give such parties the ability to cancel their contracts with us and/or sue us for damages related to our risk-based capital levels, which could have a material adverse effect on our financial condition. • We may not obtain required regulatory approvals in connection with potentially investing a portion of an insurer’s assets, for example in real property.
We may not have easy access to such capital, and using it for this purpose may prevent us from investing in our growth and operations, which may require us to modify our operating plan, delay new initiatives, interfere with personnel growth, incur indebtedness or pursue financings, or otherwise modify our operations, any of which could have a material adverse effect on our operating results and financial condition. • If the required minimum capital in one of our insurers falls below the required threshold, the responsible regulator may take action, or such a reduction may result in a breach of various contractual relationships, including, for example, with the unaffiliated general agents for which we write medical insurance for pets policies, which may give such parties the ability to cancel their contracts with us and/or sue us for damages related to our risk-based capital levels, which could have a material adverse effect on our financial condition. • We may not obtain required regulatory approvals in connection with potentially investing a portion of an insurer’s assets, for example in real property.
We expect to make significant expenditures and investments in new pet acquisition and product initiatives and these expenditures may not result in additional growth. Our recent growth in revenue and membership may not be sustainable or may decrease, and we may not generate sufficient revenue to consistently achieve profitability.
We expect to make significant expenditures and investments in new pet acquisition and product initiatives and these expenditures may not result in additional growth. Our growth in revenue and membership may not be sustainable or may decrease, and we may not generate sufficient revenue to consistently achieve profitability.
You should not rely on our historical rate of revenue growth as an indication of our future performance. We base our decisions regarding new pet acquisition expenditures primarily on the projected internal rate of return on marketing spend.
You should not rely on our historical rate of revenue growth as an indication of our future performance. 12 We base our decisions regarding new pet acquisition expenditures primarily on the projected internal rate of return on marketing spend.
Regulations that require individuals or entities that sell medical insurance for cats and dogs or process claims to be licensed may be interpreted to apply to our business more broadly than we expect them to, which could require us to modify our business practices, create liabilities, damage our reputation, and harm our business. 27 Insurance regulations generally require that each individual who sells, solicits or negotiates insurance on our behalf must maintain a valid license in the jurisdiction in which the activity occurs.
Regulations that require individuals or entities that sell medical insurance for cats and dogs or process claims to be licensed may be interpreted to apply to our business more broadly than we expect them to, which could require us to modify our business practices, create liabilities, damage our reputation, and harm our business. 29 Insurance regulations generally require that each individual who sells, solicits or negotiates insurance on our behalf must maintain a valid license in the jurisdiction in which the activity occurs.
We are expanding our operations internationally and expect to continue exploring outside of North America. For instance, we have entered the Australian market in 2019 through a joint venture.
We are expanding our operations internationally and expect to continue exploring opportunities outside of North America. For instance, we have entered the Australian market in 2019 through a joint venture.
Changes to this business may be volatile due to the nature of the relationships. Further, this business historically has had, and we expect it to continue to have, lower margins than our core business.
Changes to this business may be volatile due to the nature of the relationships. Further, this business historically has had, and we expect it to continue to have, significantly lower margins than our core business.
A critical factor in attracting consumers searching for pet medical insurance on the Internet to our website is whether we are prominently displayed in response to Internet searches relating to pet insurance.
A critical factor in attracting consumers searching for pet medical insurance on the Internet to our website is whether we are prominently displayed in response to Internet searches relating to medical insurance for pets.
If our security measures are breached and unauthorized access is obtained to our data, including our members’ data, we may lose our competitive advantage, our systems may be perceived as not being secure and we may incur third-party liability. 22 Our data repository contains proprietary information that we believe gives us a competitive advantage, including data on veterinary invoices received and other data with respect to members, Territory Partners, veterinarians and other third parties.
If our security measures are breached and unauthorized access is obtained to our data, including our members’ data, we may lose our competitive advantage, our systems may be perceived as not being secure and we may incur third-party liability. 24 Our data repository contains proprietary information that we believe gives us a competitive advantage, including data on veterinary invoices received and other data with respect to members, Territory Partners, veterinarians and other third parties.
Any new laws or regulations or new interpretations of existing laws or regulations relating to the Internet could harm our business and we could be forced to incur substantial costs in order to comply with them, which would harm our business, operating results and financial condition. 28 Additionally, we use phone solicitation, email and texting to market our services to potential members and/or as a means of communicating with our existing members.
Any new laws or regulations or new interpretations of existing laws or regulations relating to the Internet could harm our business and we could be forced to incur substantial costs in order to comply with them, which would harm our business, operating results and financial condition. 30 Additionally, we use phone solicitation, email, and texting to market our services to potential members and/or as a means of communicating with our existing members.
This could damage our reputation with our members and reduce our retention rates, which could significantly damage our brand, result in the loss of expected revenue and otherwise harm our business, operating results and financial condition. 12 If we are unable to grow our member base and maintain high member retention rates, our growth prospects and revenue will be adversely affected.
This could damage our reputation with our members and reduce our retention rates, which could significantly damage our brand, result in the loss of expected revenue and otherwise harm our business, operating results and financial condition. 13 If we are unable to grow our member base and maintain high member retention rates, our growth prospects and revenue will be adversely affected.
Our relationship with our Territory Partners may be terminated at any time (for instance, if they feel unsupported or undervalued by us), and, if terminated, we may not recoup the costs associated with educating them about our subscription products, and the relationship developed by that Territory Partner would be unsupported until such time a new Territory Partner is installed.
Our relationship with our Territory Partners may be terminated at any time (for instance, if they feel unsupported or undervalued by us), and, if terminated, we may not recoup the costs associated with educating them about our subscription products, and the relationships with veterinarians developed by that Territory Partner would be unsupported until such time a new Territory Partner is installed.
The number of veterinary invoices may be affected by the level of care and attentiveness an owner provides to the pet, the pet’s breed and age (at enrollment) and other factors outside of our control, as well as fluctuations in member retention rates and by new member initiatives that encourage an increase in veterinary invoices and other new member acquisition activities.
The number or amount of veterinary invoices may be affected by the level of care and attentiveness an owner provides to the pet, the pet’s breed and age (at enrollment) and other factors outside of our control, as well as fluctuations in member retention rates and by new member initiatives that encourage an increase in veterinary invoices and other new member acquisition activities.
In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions. 23 If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures and significantly higher credit card-related costs, each of which could adversely affect our business, operating results and financial condition.
In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions. 25 If we fail to adequately control fraudulent payment processing, we may face civil liability, diminished public perception of our security measures and significantly higher credit card-related costs, each of which could adversely affect our business, operating results and financial condition.
An increase in the number of members who utilize credit and debit cards to pay their subscription fees or related credit and debit card fees would reduce our margins and could require us to increase subscription fees, which could cause us to lose members and revenue, or suffer an increase in our operating expenses, either of which could adversely affect our operating results.
An increase in the number of members who utilize credit and debit cards and mobile apps to pay their subscription fees or related credit and debit card fees would reduce our margins and could require us to increase subscription fees, which could cause us to lose members and revenue, or suffer an increase in our operating expenses, either of which could adversely affect our operating results.
However, various factors are causing our accounting to become complex, such as our building acquisition, our investments in strategic opportunities, and our expansion into foreign markets. The ongoing evolution of our business, international expansion, and entry into complementary businesses, such as pet food, may compound these complexities.
However, various factors are causing our accounting to become complex, such as our investments in strategic opportunities and our expansion into foreign markets. The ongoing evolution of our business, international expansion, and entry into complementary businesses, such as pet food, may compound these complexities.
More critically, an adverse result from a proceeding could require us to change the way we conduct our business, including our marketing and promotional practices, and such a result may have a greater adverse effect on our business than monetary damages or fines.
More critically, an adverse result from a proceeding could require us to change the way we conduct our business, including our marketing and sales practices, and such a result may have a greater adverse effect on our business than monetary damages or fines.
In addition, the growth and development of the market for electronic commerce and Internet-related pet insurance advertisements and transactions may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business and selling subscriptions over the Internet.
In addition, the growth and development of the market for electronic commerce and Internet-related advertisements and transactions may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business and selling subscriptions over the Internet.
We may also consider external factors, including changes in the law, court decisions, changes to regulatory requirements and economic conditions. Because reserves are estimates of veterinary invoices that have been incurred but are not yet submitted to us, setting appropriate reserves is an inherently uncertain and complex process that involves significant subjective judgment.
We may also consider external factors, including changes in the law, court decisions, changes to regulatory requirements and economic conditions, including the current inflationary environment. Because reserves are estimates of veterinary invoices that have been incurred but are not yet submitted to us, setting appropriate reserves is an inherently uncertain and complex process that involves significant subjective judgment.
Factors affecting the market price of our common stock include: • variations in our operating results, earnings per share, cash flows from operating activities, and key operating metrics, and how those results compare to analyst expectations; • forward-looking guidance that we provide to the public and industry and financial analysts related to future revenue and results of operations, and any change in that guidance or our failure to achieve the results reflected in that guidance; • the net increases in the number of members, either independently or as compared with published expectations of industry, financial or other analysts that cover our company; • changes to our subscription, strategic alliances, acquisitions or significant agreements by us or by our competitors; • recruitment or departure of key personnel; • factors relating to our other business segment; • issuance of common stock or other securities to certain partners; 30 • the economy as a whole and market conditions in our industry; • trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock; • the number of shares of our stock trading on a regular basis; and • any other factors discussed in these risk factors.
Factors affecting the market price of our common stock include: • variations in our operating results, earnings per share, cash flows from operating activities, and key operating metrics, and how those results compare to analyst expectations; • forward-looking guidance that we provide to the public and industry and financial analysts related to future revenue and results of operations, and any change in that guidance or our failure to achieve the results reflected in that guidance; • the net increases in the number of members, either independently or as compared with published expectations of industry, financial or other analysts that cover our company; • changes to our subscription, strategic alliances, acquisitions or significant agreements by us or by our competitors; • recruitment or departure of key personnel; • factors relating to our other business segment; • issuance of common stock or other securities to certain partners; 32 • the economy as a whole and market conditions in our industry; • trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock; • publications and public statements by financial analysts and other finance industry professionals and activists; • the number of shares of our stock trading on a regular basis; and • any other factors discussed in these risk factors.
Among others, these risks relate to: • Our significant net losses since inception, ability to achieve and maintain profitability or our ability to maintain our rate of revenue growth in the future; • Our ability to grow and retain our member base, including uncertainties in the assumptions we use to determine our new pet acquisition spend, variable costs of attracting new members through online channels such as social media or search engines and from leads generated from Territory Partners, veterinarians and other third parties; • Our reliance on Territory Partners, whom we engage as independent contractors rather than employees, and other third parties; • The actual levels of our veterinary invoice expense (which may increase with use of our patented software for direct payment of invoices) and our ability to timely and accurately process valid invoices and to identify improper invoices; • Our ability to maintain certain levels of surplus capital under applicable insurance regulations; • Our ability to react to competitors and alternative financing methods for pet related medical costs; • Our ability to maintain and enhance our brand; • Our ability to maintain and scale our infrastructure, to invest in or acquire businesses, products or technologies, or otherwise manage our growth; • Changes in legal, judicial, social and other environmental conditions, which could result in unexpected claim and coverage liability; • Our reliance on key personnel and strategic relationships and our ability to maintain these relationships; • Fluctuations in foreign exchange rates, other issues relating to expanding our operations internationally, and general changes in the global economy that can cause our operating results to vary; • Ownership of multiple insurance subsidiaries in different jurisdictions; • Our ability to maintain effective internal controls and security measures, including measures to mitigate cyber-attacks; • Our acceptance of automatic fund transfers, credit card and debit card payments; • Ownership of an office building; • Our ability to protect our intellectual property (IP), avoid violating IP rights of others, and maintain relationships with third parties providing necessary IP and technology to us; • The outcome of litigation or regulatory proceedings; • Our level of indebtedness, our ability to service our debt, and our ability to comply with covenants that may restrict our operations and limit our ability to expand our business; • Our ability to utilize net operating loss carryforwards and potential increases in our tax liabilities; • The possible resurgence of the COVID-19 pandemic or a different variation of the virus or pandemic; • Our ability to comply with numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance, privacy, the internet, email and texting, and accounting matters; and • Our common stock, including missed earnings guidance, inadequate analyst coverage, trading volatility, lack of dividends, concentrated ownership, and anti-takeover provisions in our governing documents. 10 Risks Related to Our Business and Industry We have incurred significant cumulative net losses since our inception and may not be able to achieve or maintain profitability in the future.
Among others, these risks relate to: • Our significant net losses since inception, ability to achieve and maintain profitability or our ability to maintain our rate of revenue growth in the future; • Our ability to grow and retain our member base, including uncertainties in the assumptions we use to determine our new pet acquisition spend, variable costs of attracting new members through online channels such as social media or search engines and from leads generated from Territory Partners, veterinarians and other third parties; • Our reliance on Territory Partners, whom we engage as independent contractors rather than employees, and other third parties; • The actual levels of our veterinary invoice expense (which may increase with use of our patented software for direct payment of invoices) and our ability to timely and accurately process valid invoices and to identify improper invoices; • Our ability to maintain certain levels of surplus capital under applicable insurance regulations; • Our ability to react to competitors and alternative financing methods for pet related medical costs; • Our ability to maintain and enhance our brand; • Our ability to maintain and scale our infrastructure, to invest in or acquire businesses, products or technologies, or otherwise manage our growth; • Changes in legal, judicial, social and other environmental conditions, which could result in unexpected claim and coverage liability; • Our reliance on key personnel and strategic relationships and our ability to maintain these relationships; • Fluctuations in foreign exchange rates, other issues relating to expanding our operations internationally, and general changes in the global economy that can cause our operating results to vary; • Ownership of multiple insurance subsidiaries in different jurisdictions; • Our ability to remediate the material weaknesses in internal control over financial reporting and maintain effective internal controls and security measures, including measures to mitigate cyber-attacks; • Our acceptance of automatic fund transfers, credit card and debit card payments; • Ownership of an office building; • Our ability to protect our intellectual property (IP), avoid violating IP rights of others, and maintain relationships with third parties providing necessary IP and technology to us; • The outcome of litigation or regulatory proceedings; • Our level of indebtedness, our ability to service our debt, and our ability to comply with covenants that may restrict our operations and limit our ability to expand our business; • Our ability to utilize net operating loss carryforwards and potential increases in our tax liabilities; • Our ability to comply with numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance, privacy, the internet, email and texting, and accounting matters; and • Our common stock, including missed earnings guidance, inadequate analyst coverage, trading volatility, lack of dividends, concentrated ownership, and anti-takeover provisions in our governing documents. 11 Risks Related to Our Business and Industry We have incurred significant cumulative net losses since our inception and may not be able to achieve or maintain profitability in the future.
Moreover, if our new pet acquisition expenses increase or we invest in member acquisition channels that do not ultimately result in the expected number of new member enrollments, the return on our investment may be lower than we anticipate irrespective of the lifetime value of the pets that we project to acquire as a result of the new members.
Moreover, if our new pet acquisition expenses increase or we invest in member acquisition channels that do not ultimately result in the expected number of new member enrollments or enrollments cancel before we recoup our acquisition expenses, the return on our investment may be lower than we anticipate irrespective of the lifetime value of the pets that we project to acquire as a result of the new members.
We believe that our continued revenue growth will depend on, among other factors, our ability to: • improve our market penetration through cost-efficient and effective pet acquisition programs to attract new members; • convert leads into enrollments; • maintain high retention rates; • increase the lifetime value per pet; • maintain positive relationships with veterinarians and other lead sources; • maintain positive relationships with and increase the number and efficiency of Territory Partners; • successfully integrate entities we recently acquired into our business; • expand our business internationally; • create and maintain positive relationships with strategic partners, particularly partners who present us with new sales channels and those who create software solutions for veterinary practices; • continue to offer products with a superior value with competitive features and rates; • price our subscriptions in relation to actual operating expenses and achieve required regulatory approval for pricing changes; • recruit, integrate and retain skilled, qualified and experienced sales department professionals who can demonstrate our value proposition to new and existing members; • provide our members with superior member service, including timely and efficient payment of veterinary invoices, and by recruiting, integrating and retaining skilled and experienced personnel who can efficiently review veterinary invoices and process payments; • generate new and maintain existing relationships and programs in our other business segment; • react to existing and new competitors; • protect and defend our critical intellectual property; • increase awareness of and positive associations with pet insurance and our brand; • react to unexpected developments and general macroeconomic conditions, including pandemics and unfavorable changes in economic conditions, such as inflation, rising interest rates, or a recession; and • successfully respond to and comply with regulations affecting our business and defend or prosecute any litigation.
We believe that our continued revenue growth will depend on, among other factors, our ability to: • improve our market penetration through cost-efficient and effective pet acquisition programs to attract new members; • convert leads into enrollments; • maintain high retention rates; • increase the lifetime value per pet; • maintain positive relationships with veterinarians and other lead sources; • maintain positive relationships with and increase the number and efficiency of Territory Partners in all of our target markets; • successfully integrate entities we acquire into our business; • expand our business internationally; • create and maintain positive relationships with strategic partners, particularly partners who present us with new sales channels and those who create software solutions for veterinary practices; • continue to offer products with a superior value with competitive features and rates; • price our subscriptions in relation to actual operating expenses and achieve required regulatory approval for pricing changes; • recruit, integrate and retain skilled, qualified and experienced sales professionals who can demonstrate our value proposition to new and existing members; • provide our members with superior service, including timely and efficient payment of veterinary invoices, and by recruiting, integrating and retaining skilled and experienced personnel who can efficiently review veterinary invoices and process payments; • generate new relationships and manage and maintain existing relationships and programs in our other business segment; • react to existing and new competitors; • protect and defend our critical intellectual property; • increase awareness of and positive associations with medical insurance for pets and our brand; • react to unexpected developments and general macroeconomic conditions, including pandemics and unfavorable changes in economic conditions, such as inflation, rising interest rates, or a recession; and • successfully respond to and comply with regulations affecting our business and defend or prosecute any litigation.
As more veterinary hospitals install our software, we expect the number or amounts of veterinary invoices to increase and result in an increase in our cost of revenue, which may have a material adverse effect on our financial condition. Our use of capital may be constrained by minimum capital requirements or contractual obligations.
As more veterinary hospitals install our patented software, we expect the number or amount of veterinary invoices to increase and result in an increase in our cost of revenue, which may have a material adverse effect on our financial condition. Our use of capital may be constrained by minimum capital requirements or contractual obligations.
Our average pet acquisition cost has increased over time and has significantly varied in the past. In the future, our average pet acquisition cost may continue to rise and significantly vary period to period based upon specific marketing initiatives.
Our average pet acquisition cost has increased over time and has significantly varied in the past. In the future, our average pet acquisition cost may continue to rise or fall and vary significantly period to period based upon specific marketing initiatives.
Strategic relationships also involve various risks, depending on their structure, including the following: • our strategic partners may not be successful in creating leads; • we may be unable to convert leads from our strategic partners into enrolled pets; • our strategic partners could terminate their relationships with us; • our strategic partners may acquire or form alliances with our competitors, thereby reducing their business with us; • we may overpay strategic partners relative to the business the relationship generates; and • bad publicity and other issues faced by our strategic partners could negatively impact us.
Strategic relationships also involve various risks, depending on their structure, including the following: • our strategic partners may not be successful; • we may be unable to convert leads from our strategic referral partners into enrolled pets; • our strategic partners could terminate their relationships with us; • our strategic partners may acquire or form alliances with our competitors, thereby reducing or eliminating their business with us; • we may overpay strategic partners relative to the business the relationship generates; and • bad publicity and other issues faced by our strategic partners could negatively impact us.
In addition, from time to time we provided information regarding how we think about the drivers of and our method of calculating our intrinsic value, including related statements regarding discounted cash flows and underlying assumptions (such as pet enrollment, revenue per pet, lifetime values of a pet, pet acquisition costs, and other costs and expenses). 29 These statements are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond our control, including those described in these “Risk Factors” and elsewhere in this report.
In addition, from time to time we have provided, and may continue to provide, information regarding how we think about the drivers of and our method of calculating our intrinsic value, including related statements regarding discounted cash flows and underlying assumptions (such as pet enrollment, revenue per pet, lifetime values of a pet, pet acquisition costs, and other costs and expenses). 31 These statements are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond our control, including those described in these “Risk Factors” and elsewhere in this report.
We use these technology frameworks to price our subscriptions, enroll members, engage with current members and pay veterinary invoices. Our members review and purchase subscriptions through our website and contact center, and for those veterinary hospitals who have installed our patented proprietary software, we receive and pay veterinarian invoices directly to the hospitals through our software.
We use these technology frameworks to price our subscriptions, enroll members, engage with current members and pay veterinary invoices. Our members research and purchase subscriptions through our website and contact center, and for those veterinary hospitals who have installed our patented proprietary software, we receive and pay veterinary invoices directly to the hospitals through our patented software.
If Omega were to terminate its underwriting arrangement with us, our business could be adversely affected. In Canada, our pet insurance subscription is currently written by Omega, and we assume all premiums written by Omega and the related veterinary invoice expense through an agency agreement and a fronting and administration agreement.
If Omega were to terminate its underwriting arrangement with us, our business could be adversely affected. In Canada, our medical insurance for pets subscription is currently written by Omega, and we assume all premiums written by Omega and the related veterinary invoice expense through an agency agreement and a fronting and administration agreement.
This plan provides certain benefits to our employees in the event there is a change in control of our company and an employee is terminated under certain conditions. Potential acquirers may determine that the possible payments under this plan make an acquisition of our company unattractive. 31 Item 1B. Unresolved Staff Comments None.
This plan provides certain benefits to our employees in the event there is a change in control of our company and an employee is terminated under certain conditions. Potential acquirers may determine that the possible payments and acceleration of equity under this plan make an acquisition of our company unattractive. 33 Item 1B. Unresolved Staff Comments None.
Members may choose to terminate their subscription for a variety of reasons, including perceived or actual lack of value, delays or other unsatisfactory experiences in how we review and process veterinary invoice payments, unsatisfactory member service, an economic downturn, increased subscription fees, loss of a pet, a more attractive offer from a competitor, changes in our subscription or other reasons, including reasons that are outside of our control.
Members may choose to terminate their subscription for a variety of reasons, including, loss of a pet, increased subscription fees, perceived or actual lack of value, delays or other unsatisfactory experiences in how we review and process veterinary invoice payments, unsatisfactory member service, a change in the economic environment, a more attractive offer from a competitor, changes in our subscription or other reasons, including reasons that are outside of our control.
Increases in the number of veterinary invoices we receive could arise from unexpected events that are inherently difficult to predict, such as a pandemic that spreads through the pet population, tainted pet food or supplies or an unusually high number of serious injuries or illnesses.
Increases in the number and amount of veterinary invoices we receive could arise from unexpected or other events that are inherently difficult to predict or estimate, such as a pandemic that spreads through the pet population, tainted pet food or supplies or an unusually high number of serious injuries or illnesses.
We expect to roll off a portion of our other business starting in 2023 in order to allow us to utilize capital for other purposes, but we do not control the timing or extent of this roll off and, accordingly, it may not proceed as we expect, which could cause our results to fluctuate or have other unexpected impacts on our business.
We expect to roll off a portion of our other business starting in 2025 subject to certain limitations in order to allow us to utilize capital for other purposes, but we do not control the timing or extent of this roll off and, accordingly, it may not proceed as we expect, which could cause our results to fluctuate or have other unexpected impacts on our business.
Any termination of these relationships could result in a reduction in our revenue. For the year ended December 31, 2022, premiums from policies sourced by general agents accounted for 32% of our total revenue, and one general agent sourced members whose premiums accounted for over 10% of our total revenue.
Any termination of these relationships could result in a reduction in our revenue. For the year ended December 31, 2023, premiums from policies sourced by general agents accounted for 34% of our total revenue, and one general agent sourced members whose premiums accounted for over 10% of our total revenue.
In addition to the United States, we offer products in Canada, several European countries, and Australia, and we are pursuing operations in other jurisdictions such as Japan. These activities expose us to the risk of changes in currency exchange rates. For the year ended December 31, 2022, approximately 15% of our total revenue was generated in Canada.
In addition to the United States, we offer products in Canada, several European countries, and Australia, and we are pursuing operations in several other jurisdictions. These activities expose us to the risk of changes in currency exchange rates. For the year ended December 31, 2023, approximately 15% of our total revenue was generated in Canada.
These provisions, among other things: • establish a classified board of directors so that not all members of our board are elected at one time; • permit only the board of directors to establish the number of directors and fill vacancies on the board; • provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders; • require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws; • authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan (also known as a “poison pill”); • eliminate the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • prohibit cumulative voting; and • establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These provisions, among other things: • permit the CEO to also serve as the chair of the board of directors; • permit only the board of directors to establish the number of directors and fill vacancies on the board; • provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders; • require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws; • authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan (also known as a “poison pill”); • eliminate the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • prohibit cumulative voting; and • establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These inquires may include investigations regarding a number of our business practices, including the manner in which we market and sell products, the manner in which we write policies for any unaffiliated general agent, and whether any amounts we pay to hospitals or hospital groups is appropriate.
These inquires may include investigations regarding a number of our business practices, including the manner in which we market and sell products, the manner in which we write policies for any unaffiliated general agent, and whether any amounts we pay to hospitals or hospital groups (e.g., for electronic claims processing) is appropriate.
We believe member satisfaction and retention depends in part on our ability to accurately evaluate and pay veterinary invoices in a timely manner.
Our success depends in part on our ability to review, process, and pay veterinary invoices timely and accurately. We believe member satisfaction and retention depends in part on our ability to accurately evaluate and pay veterinary invoices in a timely manner.
Moreover, applicable law might prevent or limit our ability to include non-compete obligations in our contracts with Territory Partners. Similarly, Territory Partners may not require, or applicable law may not permit or may limit a Territory Partner’s ability to subject their employees or service providers to non-compete obligations.
Moreover, applicable law might prevent or limit our ability to subject our Territory Partners to non-compete obligations. Similarly, Territory Partners may not require, or applicable law may not permit or may limit a Territory Partner’s ability to subject their employees or service providers to non-compete obligations.
In March 2022, we entered into a credit agreement with Piper Sandler Finance, LLC that provides us with up to $150.0 million of credit (the Credit Facility). As of December 31, 2022, we issued term loans totaling $75.0 million under the Credit Facility.
In March 2022, we entered into a credit agreement with Piper Sandler Finance, LLC, as administrative agent, that provides us with up to $150.0 million of credit (the Credit Facility). As of December 31, 2023, we issued term loans totaling $135.0 million under the Credit Facility.
As of December 31, 2022, the account held CAD $10.4 million. 15 To comply with these regulations and contractual obligations, we may be required to maintain capital that we would otherwise invest in our growth and operations, which may require us to modify our operating plan or marketing initiatives, delay the implementation of new initiatives or development of new technologies, decrease the rate at which we hire additional personnel and enter into relationships with Territory Partners, incur indebtedness or pursue equity or debt financings or otherwise modify our business operations, any of which could have a material adverse effect on our operating results and financial condition.
To comply with these regulations and contractual obligations, we may be required to maintain capital that we would otherwise invest in our growth and operations, which may require us to modify our operating plan or marketing initiatives, delay the implementation of new initiatives or development of new technologies, decrease the rate at which we hire additional personnel and enter into relationships with Territory Partners, incur indebtedness or pursue equity or debt financings or otherwise modify our business operations, any of which could have a material adverse effect on our operating results and financial condition.
We rely significantly on Territory Partners, veterinarians and other third parties, including strategic partners, to generate leads. 13 In order for us to implement our business strategy and grow our revenue, we must effectively maintain and increase the number and quality of our relationships with Territory Partners, veterinarians, existing members, complementary online and other businesses, animal shelters, breeders and veterinary affiliates, including veterinarian purchasing groups and associations and other referral sources, and continue to scale and improve our processes, programs and procedures that support them.
In order for us to implement our business strategy and grow our revenue, we must effectively maintain and increase the number and quality of our relationships with Territory Partners, veterinarians and veterinary affiliates, including veterinarian purchasing groups and associations, existing members, complementary online and other businesses, animal shelters, breeders and other referral sources, and continue to scale and improve our processes, programs and procedures that support them.
Such review has in the past resulted, and may in the future result, in delayed implementation of pricing changes, which could adversely affect our operating results and financial condition. In addition, we may be prevented by regulators from implementing significant pricing changes, requiring us to raise rates more quickly than we otherwise may desire.
Such review has in the past resulted (for instance, during the COVID-19 pandemic), and may in the future result, in delayed implementation of pricing changes, which could adversely affect our operating results and financial condition. In addition, we may be prevented by regulators from implementing significant pricing changes, requiring us to raise rates more often than we otherwise may desire.
Our board of directors approved the 4% increase for 2022. The amount of dilution could be substantial depending upon the size of our future issuances of securities or exercises or settlement of stock-based awards.
Our board of directors most recently approved a 4% increase in 2022. The amount of dilution could be substantial depending upon the size of our future issuances of securities or exercises or settlement of stock-based awards.
Our success depends to a significant extent on the continued services of our current management team, including Darryl Rawlings, our founder, Chief Executive Officer and Chairperson of the Board. The loss of Mr. Rawlings or several other key executives or employees within a short time frame could have a material adverse effect on our business.
Our success depends to a significant extent on the continued services of our current management team, such as Margi Tooth, our President, and Darryl Rawlings, our founder, Chief Executive Officer and Chairperson of the Board. The loss of key executives or employees within a short time frame could have a material adverse effect on our business.
Our ability to grow our business depends on retaining and expanding our member base. For the year ended December 31, 2022, we generated 66.0% of our revenue from subscriptions. In order to continue to increase our membership, we must continue to convince prospective members of the benefits of pet insurance in general and our subscription in particular.
Our ability to grow our business depends on retaining and expanding our member base. For the year ended December 31, 2023, we generated 64.0% of our revenue from our subscription business segment. In order to increase our membership, we must continue to convince prospective members of the benefits of medical insurance for pets in general and our subscription in particular.
Algorithmic search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet search engine, which may change from time to time.
Algorithmic search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet search engine, which may change from time to time, and paid search advertisements often receive the most prominent listing.
Further, we do not transfer or cede our risk as an insurer and, therefore, we maintain more risk than we would if we purchased reinsurance. Rising costs of veterinary care and the increasing availability and usage of more expensive, technologically advanced medical treatments may increase the amounts of veterinary invoices we receive.
Further, in the United States, we do not transfer or cede our risk as an insurer and, therefore, we maintain more risk than we would if we purchased reinsurance. 16 Rising costs of veterinary care and the increasing availability and usage of more expensive, technologically advanced medical treatments may increase the amount of veterinary invoices we receive, especially in the current inflationary environment.
In addition, media prices may increase during a period of economic growth, which could increase our new pet acquisition expenses. As a result, our business, operating results and financial condition may be significantly affected by changes in the economic environment.
In addition, media prices and other costs may change with changes in the economic environment, which could increase our new pet acquisition expenses. As a result, our business, operating results and financial condition may be significantly affected by changes in the economic environment.
If we do not retain our existing members or if our marketing initiatives do not result in enrolling more pets or result in enrolling pets that inherently have a lower retention rate, we may not be able to maintain our retention and new pet acquisition rates.
We expect to continue to make significant expenditures relating to the retention of existing members. 14 If we do not retain our existing members or if our marketing initiatives do not result in enrolling more pets or result in enrolling pets that inherently have a lower retention rate, we may not be able to maintain our retention and new pet acquisition rates.
As of December 31, 2022, we had U.S. federal net operating loss carryforwards of approximately $258.9 million that will begin to expire in 2026.
As of December 31, 2023, we had U.S. federal net operating loss carryforwards of approximately $271.6 million that will begin to expire in 2026.
These factors include: • the competitiveness of our subscription, including its perceived value, simplicity, and fairness; • potential consumer confusion as we add more products; • changes in consumer shopping behaviors due to circumstances outside of our control, such as increased inflation and other economic conditions, the COVID-19 pandemic and containment efforts, and consumers’ ability or willingness to pay for our product; • legal or regulatory requirements, including those that make the experience on our website cumbersome or difficult to navigate or that hinder our ability to communicate with potential members quickly and in a way that is more conducive to conversion; • system failures or interruptions in our website or contact center; and • changes in the mix of consumers who learn about us through various member acquisition channels.
These factors include: • the pricing and competitiveness of our subscription, including its perceived value, simplicity, and fairness; • our ability to explain and educate consumers regarding the benefits and differences related to our products, including our offerings marketed by third parties, and any potential consumer confusion as we add more products; • changes in consumer shopping behaviors due to circumstances outside of our control, such as increased inflation and other economic conditions, the COVID-19 pandemic and containment efforts, and consumers’ ability or willingness to pay for our product; • legal or regulatory requirements, including those that make the experience on our website cumbersome or difficult to navigate or that hinder our ability to communicate with potential members quickly and in a way that is more conducive to conversion; and • system failures or interruptions in our website or contact center.
Our business depends on our ability to maintain and scale the infrastructure necessary to operate our technology platform and could be adversely affected by a system failure.
Our business depends on our ability to maintain and scale the infrastructure necessary to operate our technology platform and could be adversely affected by a system failure, security breach, loss of data or cyberattack.
If we fail to effectively manage our growth, our business, operating results and financial condition may suffer. We have recently experienced, and expect to continue to experience, significant growth, which has placed, and may continue to place, significant demands on our management and our operational and financial systems and infrastructure.
We have recently experienced, and expect to continue to experience, significant growth, which has placed, and may continue to place, significant demands on our management and our operational and financial systems and infrastructure.
These fluctuations may make comparing our operating results on a period-to-period basis less meaningful and make our future results difficult to predict. You should not rely on our past results as an indication of our future performance.
Our operating results may fluctuate in the future as a result of a number of factors, many of which are beyond our control. These fluctuations may make comparing our operating results on a period-to-period basis less meaningful and make our future results difficult to predict. You should not rely on our past results as an indication of our future performance.
We have funded our operations through equity financings, and borrowings under revolving lines of credit and term loans. Our ability to achieve and maintain profitability will depend, in significant part, on obtaining new members, retaining our existing members, maintaining relationships with our strategic partners, and ensuring that our expenses, including new pet acquisition expense, do not exceed our revenue.
Our ability to achieve and maintain profitability will depend, in significant part, on obtaining new members, retaining our existing members, maintaining relationships with our strategic partners, and ensuring that our expenses, including new pet acquisition expense, do not exceed our revenue.
We plan to expand the number of our Territory Partners and introduce other distribution channels to increase lead generation and to engage in other sales and promotional activities, including direct-to-consumer advertising and increasing our social media footprint, all of which are likely to increase our acquisition costs.
We intend to maintain our Territory Partner model and structure and we plan to introduce other distribution channels to increase lead generation and to engage in other sales and promotional activities, including direct-to-consumer advertising, all of which are likely to increase our acquisition costs.
Acquisitions and operations of these insurers presents a number of risks, including the following: • Acquiring or forming a new insurance subsidiary may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the acquisition or formation is completed. • Even if we are successful in forming or acquiring a new insurance subsidiary we may not achieve the anticipated benefits. 21 • Each insurance entity will likely require a significant initial minimum capital contribution. • Each insurance entity will be subject to additional regulatory scrutiny in the jurisdiction of incorporation and any additional jurisdictions in which the insurance subsidiary operates.
Acquisitions and operations of these insurers presents a number of risks, including the following: • Acquiring or forming a new insurance subsidiary may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the acquisition or formation is completed. • Even if we are successful in forming or acquiring a new insurance subsidiary we may not achieve the anticipated benefits.
In addition, the costs associated with defending, settling, or resolving pending and future lawsuits (including demands for arbitration) relating to the independent contractor status of Territory Partners could be material to our business. Any of the foregoing circumstances could have a material adverse impact on our operating results and financial condition.
In addition, the costs associated with defending, settling, or resolving pending and future lawsuits or regulatory proceedings (including demands for arbitration) relating to the independent contractor status of Territory Partners could be material to our business.
Any such consolidation, acquisition, alliance or cooperative relationship could adversely affect our ability to compete effectively and result in our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our business, financial condition, cash flows and results of operations. 16 To compete effectively, we believe we will need to continue to invest significant resources in pet acquisition, in improving our member service levels, in the online experience and functionalities of our website and in other technologies and infrastructure.
Any such consolidation, acquisition, alliance or cooperative relationship could adversely affect our ability to compete effectively and result in our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our business, financial condition, cash flows and results of operations.
Our operating results may vary, which could make period-to-period comparisons less meaningful, and make our future results difficult to predict. We have historically and may in the future experience fluctuations in our revenue, expenses and operating results. Our operating results may fluctuate in the future as a result of a number of factors, many of which are beyond our control.
Our operating results may vary, which could make period-to-period comparisons less meaningful, and make our future results difficult to predict. We have historically experienced, and may in the future experience, fluctuations in our revenue, expenses and operating results.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Information with respect to this item may be found in Note 9 of Item 8, “Financial Statements and Supplementary Data”, under the caption, “Legal Proceedings” which information is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 32 PART II
Biggest changeItem 3. Legal Proceedings Information with respect to this item may be found in Note 9 of Item 8, “Financial Statements and Supplementary Data”, under the caption, “Legal Proceedings” which information is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 35 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe stockholder return on the following graph is not necessarily indicative of future performance. 33 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Trupanion Inc. $ 100.00 $ 85.89 $ 125.59 $ 408.99 $ 451.08 $ 162.38 S&P Small Cap 600 Index $ 100.00 $ 90.25 $ 109.07 $ 119.51 $ 149.71 $ 123.63 NASDAQ-100 Technology Sector Index $ 100.00 $ 93.96 $ 138.78 $ 192.33 $ 244.21 $ 146.69 Russell 2000 Index $ 100.00 $ 87.13 $ 108.38 $ 128.61 $ 146.23 $ 114.70 34
Biggest changeThe stockholder return on the following graph is not necessarily indicative of future performance. 36 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Trupanion Inc. $ 100.00 $ 146.22 $ 476.17 $ 525.18 $ 189.06 $ 121.36 S&P Small Cap 600 Index $ 100.00 $ 120.86 $ 132.43 $ 165.89 $ 137.00 $ 156.02 NASDAQ-100 Technology Sector Index $ 100.00 $ 147.71 $ 204.70 $ 259.92 $ 156.13 $ 260.26 Russell 2000 Index $ 100.00 $ 124.38 $ 147.61 $ 167.82 $ 131.64 $ 151.51 37 Item 6. [Reserved] 38
Securities Authorized for Issuance under Equity Compensation Plans The information called for by this item is incorporated by reference to our Proxy Statement for the Annual Meeting of Stockholders to be held in 2023.
Securities Authorized for Issuance under Equity Compensation Plans The information called for by this item is incorporated by reference to our Proxy Statement for the Annual Meeting of Stockholders to be held in 2024.
This chart compares the stockholder return on an investment of $100 over the five years from December 31, 2017 through December 31, 2022 for (1) our common stock, (2) the S&P Small Cap 600 Index, (3) the NASDAQ-100 Technology Sector Index, and (4) the Russell 2000 Index.
This chart compares the stockholder return on an investment of $100 over the five years from December 31, 2018 through December 31, 2023 for (1) our common stock, (2) the S&P Small Cap 600 Index, (3) the NASDAQ-100 Technology Sector Index, and (4) the Russell 2000 Index.
Holders of Record As of February 9, 2023, there were 29 registered stockholders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, whose shares are held of record by banks, brokers, and other financial institutions.
Holders of Record As of February 19, 2024, there were 29 registered stockholders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, whose shares are held of record by banks, brokers, and other financial institutions.
The shares we issue are subject to various restrictions, including a minimum holding period of two years and customary transfer restrictions for shares acquired in a private placement. On October 28, 2022, we issued 60 shares of our common stock to the distributor in respect of product sales that occurred in the quarter ended September 30, 2022.
The shares we issue are subject to various restrictions, including a minimum holding period of two years and customary transfer restrictions for shares acquired in a private placement. During the quarter ended December 31, 2023, we issued 2,000 shares of our common stock to the distributor in respect of product sales that occurred in the quarter ended September 30, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConsolidated Statements of Operations Data: Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 (in thousands) Revenue: Subscription business $ 158,562 $ 152,401 $ 145,808 $ 139,839 $ 134,120 $ 127,077 $ 120,373 $ 113,292 Other business 87,447 81,359 73,603 66,160 60,259 54,590 47,887 41,393 Total revenue 246,009 233,760 219,411 205,999 194,379 181,667 168,260 154,685 Cost of revenue: Subscription business (1) 131,823 128,158 122,440 115,263 108,627 103,754 99,746 95,537 Other business 80,537 75,543 68,388 60,842 55,217 49,747 43,969 38,048 Total cost of revenue 212,360 203,701 190,828 176,105 163,844 153,501 143,715 133,585 Operating expenses: Technology and development (1) 6,955 6,553 6,396 5,229 4,665 4,391 4,079 3,731 General and administrative (1) 10,472 10,314 9,227 9,366 8,996 8,246 7,435 7,216 New pet acquisition expense (1) 22,457 22,434 22,982 21,627 19,845 19,708 19,390 19,704 Depreciation and amortization 2,897 2,600 2,707 2,717 2,770 2,944 3,158 3,093 Total operating expenses 42,781 41,901 41,312 38,939 36,276 35,289 34,062 33,744 Gain (loss) from investment in joint venture (85) (57) (42) (69) (22) (69) 5 (85) Operating income (loss) (9,217) (11,899) (12,771) (9,114) (5,763) (7,192) (9,512) (12,729) Interest expense 1,587 1,408 1,193 79 9 — 3 (2) Other expense (income), net (1,504) (889) (365) (314) 236 (61) (99) (62) Income (loss) before income taxes (9,300) (12,418) (13,599) (8,879) (6,008) (7,131) (9,416) (12,665) Income tax expense (benefit) (15) 496 19 (24) 1,034 (312) (195) (217) Net income (loss) $ (9,285) $ (12,914) $ (13,618) $ (8,855) $ (7,042) $ (6,819) $ (9,221) $ (12,448) (1) Includes stock-based compensation expense as follows (in thousands): Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 (in thousands) Cost of revenue $ 1,346 $ 1,472 $ 1,830 $ 1,836 $ 1,379 $ 1,311 $ 1,224 $ 3,234 Technology and development 1,549 1,184 1,101 908 843 749 800 664 General and administrative 3,550 3,792 3,066 2,423 2,450 2,271 2,322 1,819 New pet acquisition expense 2,122 2,195 2,637 2,382 2,136 2,112 2,181 2,731 Total stock-based compensation expense $ 8,567 $ 8,643 $ 8,634 $ 7,549 $ 6,808 $ 6,443 $ 6,527 $ 8,448 52 Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Other Financial and Operational Data: Total Business: Total pets enrolled (at period end) 1,537,573 1,439,605 1,348,145 1,267,253 1,176,778 1,104,376 1,024,226 943,854 Subscription Business: Total subscription pets enrolled (at period end) 869,862 808,077 770,318 736,691 704,333 676,463 643,395 609,835 Monthly average revenue per pet $ 63.11 $ 63.80 $ 64.26 $ 64.21 $ 63.89 $ 63.60 $ 63.69 $ 62.97 Lifetime value of a pet, including fixed expenses $ 641 $ 673 $ 713 $ 730 $ 717 $ 697 $ 681 $ 684 Average pet acquisition cost (PAC) $ 283 $ 268 $ 309 $ 301 $ 306 $ 280 $ 284 $ 279 Average monthly retention 98.69 % 98.71 % 98.74 % 98.75 % 98.74 % 98.72 % 98.72 % 98.73 % Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 (as a percentage of revenue) Revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Cost of revenue 86 87 87 85 84 84 85 86 Operating expenses: Technology and development 3 3 3 3 2 2 2 2 General and administrative 4 4 4 7 5 5 4 7 New pet acquisition expense 9 10 10 10 10 11 12 13 Depreciation and amortization 1 1 1 1 1 2 2 2 Total operating expenses 17 18 19 19 19 19 20 22 Gain (loss) from investment in joint venture — — — — — — — — Operating income (loss) (4) (5) (6) (4) (3) (4) (6) (8) Interest expense 1 1 1 — — — — — Other expense (income), net (1) — — — — — — — Income (loss) before income taxes (4) (5) (6) (4) (3) (4) (6) (8) Income tax expense (benefit) — — — — 1 — — — Net income (loss) (4) % (6) % (6) % (4) % (4) % (4) % (5) % (8) % Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 (as a percentage of subscription revenue) Subscription business revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Subscription business cost of revenue 83 84 84 82 81 82 83 84 53 Liquidity and Capital Resources The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2022 2021 2020 Net cash (used in) provided by operating activities $ (8,000) $ 7,458 $ 21,544 Net cash used in investing activities (67,516) (51,913) (76,747) Net cash (used in) provided by financing activities 60,743 (1,125) 170,848 Effect of foreign exchange rates on cash, cash equivalents, and restricted cash, net (1,459) 252 (16) Net change in cash, cash equivalents, and restricted cash $ (16,232) $ (45,328) $ 115,629 Our primary requirements for liquidity are paying veterinary invoices, funding operations and capital requirements, investing in new member acquisition, investing in enhancements to our member experience, and servicing debt.
Biggest changeConsolidated Statements of Operations Data: Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 (in thousands) Revenue: Subscription business $ 191,537 $ 182,906 $ 173,253 $ 165,210 $ 158,562 $ 152,401 $ 145,808 $ 139,839 Other business 104,320 102,947 97,313 91,119 87,447 81,359 73,603 66,160 Total revenue 295,857 285,853 270,566 256,329 246,009 233,760 219,411 205,999 Cost of revenue: Subscription business (1) 158,631 157,444 151,520 146,091 131,823 128,158 122,440 115,263 Other business 97,162 93,176 89,673 83,892 80,537 75,543 68,388 60,842 Total cost of revenue 255,793 250,620 241,193 229,983 212,360 203,701 190,828 176,105 Operating expenses: Technology and development (1) 5,969 5,302 5,232 4,900 6,955 6,553 6,396 5,229 General and administrative (1) 13,390 12,664 13,136 21,017 10,472 10,314 9,227 9,366 New pet acquisition expense (1) 17,189 17,772 20,769 21,642 22,457 22,434 22,982 21,627 Depreciation and amortization 3,029 2,990 3,253 3,202 2,897 2,600 2,707 2,717 Total operating expenses 39,577 38,728 42,390 50,761 42,781 41,901 41,312 38,939 Gain (loss) from investment in joint venture (79) 4 (73) (71) (85) (57) (42) (69) Operating income (loss) 408 (3,491) (13,090) (24,486) (9,217) (11,899) (12,771) (9,114) Interest expense 3,697 3,053 2,940 2,387 1,587 1,408 1,193 79 Other expense (income), net (1,256) (2,465) (2,078) (1,902) (1,504) (889) (365) (314) Income (loss) before income taxes (2,033) (4,079) (13,952) (24,971) (9,300) (12,418) (13,599) (8,879) Income tax expense (benefit) 130 (43) (238) (191) (15) 496 19 (24) Net income (loss) $ (2,163) $ (4,036) $ (13,714) $ (24,780) $ (9,285) $ (12,914) $ (13,618) $ (8,855) (1) Includes stock-based compensation expense as follows (in thousands): Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 (in thousands) Cost of revenue $ 1,478 $ 1,176 $ 1,307 $ 1,318 $ 1,346 $ 1,472 $ 1,830 $ 1,836 Technology and development 861 650 627 708 1,549 1,184 1,101 908 General and administrative 3,269 3,281 2,948 8,219 3,550 3,792 3,066 2,423 New pet acquisition expense 1,693 1,785 1,755 2,086 2,122 2,195 2,637 2,382 Total stock-based compensation expense $ 7,301 $ 6,892 $ 6,637 $ 12,331 $ 8,567 $ 8,643 $ 8,634 $ 7,549 54 Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Other Financial and Operational Data: Total Business: Total pets enrolled (at period end) 1,714,473 1,712,177 1,679,659 1,616,865 1,537,573 1,439,605 1,348,145 1,267,253 Subscription Business: Total subscription pets enrolled (at period end) 991,426 969,322 943,958 906,369 869,862 808,077 770,318 736,691 Monthly average revenue per pet $ 67.07 $ 65.82 $ 64.41 $ 63.58 $ 63.11 $ 63.80 $ 64.26 $ 64.21 Lifetime value of a pet, including fixed expenses $ 419 $ 428 $ 470 $ 541 $ 641 $ 673 $ 713 $ 730 Average pet acquisition cost (PAC) $ 217 $ 212 $ 236 $ 247 $ 283 $ 268 $ 309 $ 301 Average monthly retention 98.49 % 98.55 % 98.61 % 98.65 % 98.69 % 98.71 % 98.74 % 98.75 % Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 (as a percentage of revenue) Revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Cost of revenue 86 88 89 90 86 87 87 85 Operating expenses: Technology and development 2 2 2 2 3 3 3 3 General and administrative 5 4 5 8 4 4 4 7 New pet acquisition expense 6 6 8 8 9 10 10 10 Depreciation and amortization 1 1 1 1 1 1 1 1 Total operating expenses 13 14 16 20 17 18 19 19 Gain (loss) from investment in joint venture — — — — — — — — Operating income (loss) — (1) (5) (10) (4) (5) (6) (4) Interest expense 1 1 1 1 1 1 1 — Other expense (income), net — (1) (1) (1) (1) — — — Income (loss) before income taxes (1) (1) (5) (10) (4) (5) (6) (4) Income tax expense (benefit) — — — — — — — — Net income (loss) (1) % (1) % (5) % (10) % (4) % (6) % (6) % (4) % Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 (as a percentage of subscription revenue) Subscription business revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Subscription business cost of revenue 83 86 87 88 83 84 84 82 55 Liquidity and Capital Resources The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 18,638 $ (8,000) $ 7,458 Net cash provided by (used in) investing activities 7,639 (67,516) (51,913) Net cash provided by (used in) financing activities 59,126 60,743 (1,125) Effect of foreign exchange rates on cash, cash equivalents, and restricted cash, net 424 (1,459) 252 Net change in cash, cash equivalents, and restricted cash $ 85,827 $ (16,232) $ (45,328) Our primary requirements for liquidity are paying veterinary invoices, funding operations and capital requirements, investing in new member acquisition, investing in enhancements to our member experience, and servicing debt.
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.
We operate in two business segments: subscription business and other business. We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products.
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.
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.
Over time we plan to implement new initiatives to improve our member experience, make modifications to our subscription plan, introduce new coverage plans, pursue pet food or other adjacent opportunities, improve our technology, increase the number of veterinary hospitals using our direct pay software, and find other ways to maintain a strong value proposition for our members.
Over time, we plan to implement new initiatives to improve our member experience, make modifications to our subscription plan, introduce new coverage plans, pursue pet food or other adjacent opportunities, improve our technology, increase the number of veterinary hospitals using our patented direct pay software, and find other ways to maintain a strong value proposition for our members.
Gain (loss) from investment in joint venture Gain (loss) from investment in joint venture consists of the share of income and losses from our equity method investment in a joint venture, as well as income and expenses associated with administrative services provided to the joint venture. Stock-based compensation Stock-based compensation is included in the cost and expense line items above.
Gain (loss) from investment in joint venture Gain (loss) from investment in joint venture consists of the share of income and losses from our equity method investment in a joint venture, as well as income and expenses associated with administrative services provided to the joint venture. 46 Stock-based compensation Stock-based compensation is included in the cost and expense line items above.
Stock-based compensation will vary depending on corporate performance and terms of the awards under our equity incentive plan. For example, when we have delivered strong performance, stock-based compensation may increase as a result of incentive-based awards under our equity incentive plan. 44 Factors Affecting Our Performance Average monthly retention.
Stock-based compensation will vary depending on corporate performance and terms of the awards under our equity incentive plan. For example, when we have delivered strong performance, stock-based compensation may increase as a result of incentive-based awards under our equity incentive plan. Factors Affecting Our Performance Average monthly retention.
Our net acquisition cost and the number of new members we enroll depends on a number of factors, including the amount we elect to invest in pet acquisition activities in any particular period in the aggregate and by channel, the frequency of existing members adding a pet or referring their friends or family, the effectiveness of our sales execution and marketing initiatives, changes in costs of media, the mix of our pet acquisition expenditures and the competitive environment.
Our net acquisition cost and the number of new members we enroll depends on a number of factors, including the amount we have available and we elect to invest in pet acquisition activities in any particular period in the aggregate and by channel, the frequency of existing members adding a pet or referring their friends or family, the effectiveness of our sales execution and marketing initiatives, changes in costs of media, the mix of our pet acquisition expenditures and the competitive environment.
We have certain contractual obligations in the normal course of business, including obligations and commitments relating to our Credit Facility, non-cancellable vendor purchase agreements, as well as future payments of veterinary invoice claims. Refer to Note 10, Reserve for Veterinary Invoices, included in Item 8 of Part II of this 10-K, for further details on anticipated cash outflows.
We have certain contractual obligations in the normal course of business, including obligations and commitments relating to our Credit Facility, non-cancellable vendor purchase agreements, as well as future payments of veterinary invoices. Refer to Note 10, Reserve for Veterinary Invoices, included in Item 8 of Part II of this 10-K, for further details on anticipated cash outflows.
We believe the reserve amount as of December 31, 2022 is adequate, and we do not believe that there are any reasonably likely changes in the facts or circumstances underlying key assumptions that would result in the reserve balance being insufficient in an amount that would have a material impact on our reported results, financial position or liquidity.
We believe the reserve amount as of December 31, 2023 is adequate, and we do not believe that there are any reasonably likely changes in the facts or circumstances underlying key assumptions that would result in the reserve balance being insufficient in an amount that would have a material impact on our reported results, financial position or liquidity.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Our subscription business’s cost-plus model depends on our ability to estimate our operating costs and expenses, including veterinary invoice expenses, and to adjust our pricing to achieve our target returns. We regularly reevaluate and adjust the price of our subscriptions, with a goal of achieving our targeted payout ratio, subject to the review and approval of applicable state regulators.
Our subscription business’s cost-plus model depends on our ability to estimate our operating costs and expenses, including veterinary invoice expenses, and to adjust our pricing to achieve our target returns. We regularly reevaluate and adjust the price of our subscriptions, with a goal of achieving our targeted payout ratio, subject to the review and approval of regulators where applicable.
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 December 31, 2022 is an average of each month’s retention from January 1, 2022 through December 31, 2022.
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 December 31, 2023 is an average of each month’s retention from January 1, 2023 through December 31, 2023.
As of each balance sheet date, we reevaluate our reserve and may adjust the estimate for new information.
As of each balance sheet date, we reevaluate our reserve and adjust the estimate for new information.
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. 55
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. 58
Technology and development Technology and development expenses primarily consist of personnel costs and related expenses for our technology staff, which includes information technology development and infrastructure support, including third-party services. It also includes expenses associated with development of new products and offerings.
Technology and development Technology and development expenses primarily consist of personnel costs and related expenses for our technology staff, which includes information technology development and infrastructure support, including third-party services. It also includes expenses associated with development in new geographies and new products and offerings.
The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan. 51 Quarterly Results of Operations The following tables contain selected quarterly financial information for the years ended December 31, 2022 and 2021.
The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, calculated according to our equity incentive plan. 53 Quarterly Results of Operations The following tables contain selected quarterly financial information for the years ended December 31, 2023 and 2022.
Overview We provide medical insurance for cats and dogs throughout the United States, Canada, Europe, Puerto Rico, and Australia. Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level. Our growing and loyal membership base provides us with highly predictable and recurring revenue.
Overview We provide medical insurance for cats and dogs in the United States, Canada, Continental Europe, and Australia. Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level. Our growing and loyal membership base provides us with highly predictable and recurring revenue.
Our ability to retain enrolled pets depends on a number of factors, including the actual and perceived value of our services and the quality of our member experience, the ease and transparency of the process for reviewing and paying veterinary invoices for our members, and the competitive environment.
Our ability to retain enrolled pets depends on a number of factors, including the actual and perceived value of our services and the quality of our member experience, the ease and transparency of the process for reviewing and paying veterinary invoices for our members, the rate of veterinary inflation and of our pricing adjustments, and the competitive environment.
This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
The ultimate liability, however, may be in excess of or less than the amount we have reserved. For the year ended December 31, 2022, we paid $36.6 million for veterinary invoices dated on or before December 31, 2021, including related processing costs. Our reserve estimate for these expenses was $39.7 million as of December 31, 2021.
The ultimate liability, however, may be in excess of or less than the amount we have reserved. For the year ended December 31, 2023, we paid $44.7 million for veterinary invoices dated on or before December 31, 2022, including related processing costs. Our reserve estimate for these expenses was $43.7 million as of December 31, 2022.
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, other business segment expense, and managing general agent expense, offset by sign-up fee revenue.
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, other business segment expense, and pet acquisition expense for commission-based policies, offset by sign-up fee revenue.
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.
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 in providing consistency and comparability with past financial performance.
Other cost of revenue Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner renewal fees, credit card transaction fees and premium tax expenses.
Other cost of revenue Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner renewal fees, payment processing fees and premium tax expenses.
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.
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.
We also accrue for veterinary invoices that have been incurred but not yet received. This also includes amounts paid by unaffiliated general agents, and an estimate of amounts incurred and not yet paid for our other business segment.
We also accrue for veterinary invoices that have been incurred but not yet received and for the estimated internal costs of processing those invoices. This also includes amounts paid by unaffiliated general agents on our behalf, and an estimate of amounts incurred and not yet paid for our other business segment.
We may enter into additional relationships in the future to the extent we believe they will be profitable to us, which could also impact our operating results. 45 Results of Operations The following tables set forth our results of operations for the periods presented both in absolute dollars and as a percentage of total revenue for those periods.
We may enter into additional relationships in this segment in the future, if we believe they will be beneficial, which could impact our operating results. 47 Results of Operations The following tables set forth our results of operations for the periods presented both in absolute dollars and as a percentage of total revenue for those periods.
Paid loss development factors are estimated based on historical paid loss triangles. The reserve represents our estimate of the future amount we will pay for veterinary invoices that are dated as of, or prior to, our balance sheet date. The reserve also includes our estimate of related internal processing costs.
The reserve represents our estimate of the future amount we will pay for veterinary invoices that are dated as of, or prior to, our balance sheet date. The reserve also includes our estimate of related internal processing costs.
For example, if the number of new pets enrolled increases at a faster rate than our historical experience, our average monthly retention rate could be adversely impacted, as our retention rate is generally lower during the first year of member enrollment. Investment in pet acquisition.
For example, if the number of new pets enrolled increases at a faster rate than our historical experience, our average monthly retention rate could be adversely impacted, as our retention rate is generally lower during the first year of member enrollment. Investment in pet acquisition. We have made and may continue to make significant investments to grow our member base.
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 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.
Accordingly, we cannot control the volume of business, even if a contract is not terminated. Loss of an entire program via contract termination could result in the associated policies and revenue being lost over a period of 12 to 18 months, which could have a material impact on our results of operations.
Loss of an entire program via contract termination could result in the associated policies and revenue being lost over a period of 12 to 18 months, which could have a material impact on our results of operations.
New Pet Acquisition Expense Year Ended December 31, % Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in thousands, except pet and per pet data) New pet acquisition expense $ 89,500 $ 78,647 $ 47,837 14% 64% Percentage of total revenue 10 % 11 % 10 % Subscription Business: Total subscription pets enrolled (at period end) 869,862 704,333 577,957 24 22 Average pet acquisition cost (PAC) $ 289 $ 287 $ 247 1 16 Year ended December 31, 2022 compared to year ended December 31, 2021.
New Pet Acquisition Expense Year Ended December 31, % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (in thousands, except pet and per pet data) New pet acquisition expense $ 77,372 $ 89,500 $ 78,647 (14)% 14% Percentage of total revenue 7 % 10 % 11 % Subscription Business: Total subscription pets enrolled (at period end) 991,426 869,862 704,333 14 24 Average pet acquisition cost (PAC) $ 228 $ 289 $ 287 (21) 1 Year ended December 31, 2023 compared to year ended December 31, 2022.
Net cash used by operating activities was $8.0 million for the year ended December 31, 2022, compared to $7.5 million net cash provided by operating activities for the year ended December 31, 2021.
Operating Cash Flows Net cash provided by operating activities was $18.6 million for the year ended December 31, 2023 compared to $8.0 million net cash used by operating activities for the year ended December 31, 2022.
As of December 31, 2022, our reserve for veterinary invoices was $43.7 million, consisting of $42.4 million for the amount we expect to pay in the future for veterinary invoices dated between January 1, 2022 and December 31, 2022, inclusive of related processing costs, and a reserve of $1.3 million for invoices dated prior to January 1, 2022.
As of December 31, 2023, our reserve for veterinary invoices was $63.2 million, consisting of $61.0 million for the amount we expect to pay in the future for veterinary invoices dated between January 1, 2023 and December 31, 2023, inclusive of related processing costs, and a reserve of $2.2 million for invoices dated prior to January 1, 2023.
New pet acquisition expense New pet acquisition expenses primarily consist of costs, including employee compensation, to educate veterinarians and consumers about the benefits of Trupanion, to generate leads and to convert leads into enrolled pets, as well as print, online and promotional advertising costs. New pet acquisition expense was previously termed “sales and marketing” on the consolidated statement of operations.
New pet acquisition expense New pet acquisition expenses primarily consist of costs, including personnel costs, to educate veterinarians and consumers about the benefits of Trupanion, to generate leads and to convert leads into enrolled pets, as well as print, online and promotional advertising costs.
While our board of directors has approved the program, any repurchase activity is subject to quarterly assessment and board approval, based on various factors including available cash, stock price relative to our estimated intrinsic value, forecasted operating results, and available opportunities to otherwise deploy capital for business expansion.
While our board of directors has approved the program, any repurchase activity is subject to quarterly assessment and board approval, based on various factors including available cash, our stock price relative to our estimated intrinsic value, forecasted operating results, and available opportunities to deploy capital. We repurchased no shares under this program during the year ended December 31, 2023.
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. 40 The following tables present the reconciliation of our non-GAAP financial measures from corresponding GAAP measures for the periods presented (in thousands): Year Ended December 31, 2022 2021 2020 Veterinary invoice expense $ 649,737 $ 486,062 $ 351,124 Less: Stock-based compensation expense (1) (4,054) (4,538) (1,118) Other business cost of paying veterinary invoices (212,857) (129,614) (72,119) Subscription cost of paying veterinary invoices (non-GAAP) $ 432,826 $ 351,910 $ 277,887 % of subscription revenue 72.5 % 71.1 % 71.7 % Other cost of revenue $ 133,257 $ 108,583 $ 69,003 Less: Stock-based compensation expense (1) (2,232) (2,610) (468) Other business variable expenses (72,453) (57,367) (33,133) Subscription variable expenses (non-GAAP) $ 58,572 $ 48,606 $ 35,402 % of subscription revenue 9.8 % 9.8 % 9.1 % Technology and development expense $ 25,133 $ 16,866 $ 9,947 General and administrative expense 39,379 31,893 21,847 Less: Stock-based compensation expense (1) (17,135) (11,918) (4,553) Business combination transaction costs (372) (82) (522) Development expenses (7,789) (3,719) (339) Fixed expenses (non-GAAP) $ 39,216 $ 33,040 $ 26,380 % of total revenue 4.3 % 4.7 % 5.3 % New pet acquisition expense $ 89,500 $ 78,647 $ 47,837 Less: Stock-based compensation expense (1) (9,116) (9,160) (2,773) Other business pet acquisition expense (541) (499) (820) Subscription acquisition cost (non-GAAP) $ 79,843 $ 68,988 $ 44,244 % of subscription revenue 13.3 % 13.9 % 11.4 % (1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.
We define non-GAAP fixed expenses as the total of technology and development expense and general and administrative expense, less stock-based compensation expense, non-recurring transaction and restructuring expense, and development expenses related to exploring and developing new products and offerings that generally are in the pre-revenue stage or not at scale. 42 The following tables present the reconciliation of our non-GAAP financial measures from corresponding GAAP measures for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Veterinary invoice expense $ 831,055 $ 649,737 $ 486,062 Less: Stock-based compensation expense (1) (3,450) (4,054) (4,538) Other business cost of paying veterinary invoices (287,858) (212,857) (129,614) Subscription cost of paying veterinary invoices (non-GAAP) $ 539,747 $ 432,826 $ 351,910 % of subscription revenue 75.7 % 72.5 % 71.1 % Other cost of revenue $ 146,534 $ 133,257 $ 108,583 Less: Stock-based compensation expense (1) (1,544) (2,232) (2,610) Other business variable expenses (75,756) (72,453) (57,367) Subscription variable expenses (non-GAAP) $ 69,234 $ 58,572 $ 48,606 % of subscription revenue 9.7 % 9.8 % 9.8 % Technology and development expense $ 21,403 $ 25,133 $ 16,866 General and administrative expense 60,207 39,379 31,893 Less: Stock-based compensation expense (1) (19,869) (17,135) (11,918) Non-recurring transaction or restructuring expenses (2) (4,175) (372) (82) Development expenses (3) (5,100) (7,789) (3,719) Fixed expenses (non-GAAP) $ 52,466 $ 39,216 $ 33,040 % of total revenue 4.7 % 4.3 % 4.7 % New pet acquisition expense $ 77,372 $ 89,500 $ 78,647 Less: Stock-based compensation expense (1) (7,000) (9,116) (9,160) Other business pet acquisition expense (200) (541) (499) Subscription acquisition cost (non-GAAP) $ 70,172 $ 79,843 $ 68,988 % of subscription revenue 9.8 % 13.3 % 13.9 % (1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.
Our primary sources of liquidity are cash provided by operations and available borrowings from our Credit Facility, under which we have $75.0 million remaining credit as of December 31, 2022. We believe these sources are sufficient to fund our operations and capital requirements for the next 12 months.
Most recently, our primary sources of liquidity have been cash provided by operations and available borrowings from our Credit Facility. We believe these sources are sufficient to fund our operations and capital requirements for the next 12 months.
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. † Excluding activity relating to managing general agent policies. 39 Non-GAAP Financial Measures In addition to our results determined in accordance with U.S.
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. 41 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 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.
We exclude non-recurring transactions and restructuring expenses as they are not indicative of our operating performance. We exclude stock-based compensation as it is non-cash in nature.
This segment also includes revenue from other products and software solutions that have a different margin profile from our subscription business. 43 Cost of Revenue Cost of revenue in each of our segments is comprised of the following: Veterinary invoice expense Veterinary invoice expense includes our costs to review veterinary invoices, administer the payments, and provide member services, and other operating expenses directly or indirectly related to this process.
Cost of Revenue Cost of revenue in each of our segments is comprised of the following: Veterinary invoice expense Veterinary invoice expense includes our costs to review and pay veterinary invoices, administer the payments, and provide member services, and other operating expenses directly or indirectly related to this process.
Year Ended December 31, 2022 2021 2020 (in thousands) Revenue: Subscription business $ 596,610 $ 494,862 $ 387,732 Other business 308,569 204,129 114,296 Total revenue 905,179 698,991 502,028 Cost of revenue: Subscription business (1) 497,684 407,664 314,875 Other business 285,310 186,981 105,252 Total cost of revenue 782,994 594,645 420,127 Operating expenses: Technology and development (1) 25,133 16,866 9,947 General and administrative (1) 39,379 31,893 21,847 New pet acquisition expense (1) 89,500 78,647 47,837 Depreciation and amortization 10,921 11,965 7,071 Total operating expenses 164,933 139,371 86,702 Loss from investment in joint venture (253) (171) (126) Operating loss (43,001) (35,196) (4,927) Interest expense 4,267 10 1,381 Other expense (income), net (3,072) 14 (581) Loss before income taxes (44,196) (35,220) (5,727) Income tax expense 476 310 113 Net loss $ (44,672) $ (35,530) $ (5,840) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Cost of revenue $ 6,484 $ 7,148 $ 1,586 Technology and development 4,742 3,056 758 General and administrative 12,831 8,862 3,795 New pet acquisition expense 9,336 9,160 2,773 Total stock-based compensation expense $ 33,393 $ 28,226 $ 8,912 46 Year Ended December 31, 2022 2021 2020 (as a percentage of revenue) Revenue 100 % 100 % 100 % Cost of revenue 87 85 84 Operating expenses: Technology and development 3 2 2 General and administrative 4 5 4 New pet acquisition expense 10 11 10 Depreciation and amortization 1 2 1 Total operating expenses 18 20 17 Loss from investment in joint venture — — — Operating loss (5) (5) (1) Interest expense — — — Other expense (income), net — — — Loss before income taxes (5) (5) (1) Income tax expense — — — Net loss (5) % (5) % (1) % Stock-based compensation expense: Year Ended December 31, 2022 2021 2020 (as a percentage of revenue) Cost of revenue 1 % 1 % — % Technology and development 1 1 1 General and administrative 1 — — New pet acquisition expense 1 1 1 Total stock-based compensation expense 4 % 4 % 2 % Year Ended December 31, 2022 2021 2020 (as a percentage of subscription revenue) Subscription business revenue 100 % 100 % 100 % Subscription business cost of revenue 83 82 81 47 Comparison of the years ended December 31, 2022, 2021, and 2020 Revenue Year Ended December 31, % Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in thousands, except percentages, pet and per pet data) Revenue: Subscription business $ 596,610 $ 494,862 $ 387,732 21% 28% Other business 308,569 204,129 114,296 51 79 Total revenue $ 905,179 $ 698,991 $ 502,028 29 39 Percentage of Revenue by Segment: Subscription business 66 % 71 % 77 % Other business 34 29 23 Total revenue 100 % 100 % 100 % Total pets enrolled (at period end) 1,537,573 1,176,778 862,928 31 36 Total subscription pets enrolled (at period end) 869,862 704,333 577,957 24 22 Monthly average revenue per pet $ 63.82 $ 63.56 $ 60.37 — 5 Average monthly retention 98.69 % 98.74 % 98.71 % Year ended December 31, 2022 compared to year ended December 31, 2021.
Year Ended December 31, 2023 2022 2021 (in thousands) Revenue: Subscription business $ 712,906 $ 596,610 $ 494,862 Other business 395,699 308,569 204,129 Total revenue 1,108,605 905,179 698,991 Cost of revenue: Subscription business (1) 613,686 497,684 407,664 Other business 363,903 285,310 186,981 Total cost of revenue 977,589 782,994 594,645 Operating expenses: Technology and development (1) 21,403 25,133 16,866 General and administrative (1) 60,207 39,379 31,893 New pet acquisition expense (1) 77,372 89,500 78,647 Depreciation and amortization 12,474 10,921 11,965 Total operating expenses 171,456 164,933 139,371 Gain (loss) from investment in joint venture (219) (253) (171) Operating loss (40,659) (43,001) (35,196) Interest expense 12,077 4,267 10 Other expense (income), net (7,701) (3,072) 14 Loss before income taxes (45,035) (44,196) (35,220) Income tax expense (benefit) (342) 476 310 Net loss $ (44,693) $ (44,672) $ (35,530) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue $ 5,279 $ 6,484 $ 7,148 Technology and development 2,846 4,742 3,056 General and administrative 17,717 12,831 8,862 New pet acquisition expense 7,319 9,336 9,160 Total stock-based compensation expense $ 33,161 $ 33,393 $ 28,226 48 Year Ended December 31, 2023 2022 2021 (as a percentage of revenue) Revenue 100 % 100 % 100 % Cost of revenue 88 87 85 Operating expenses: Technology and development 2 3 2 General and administrative 5 4 5 New pet acquisition expense 7 10 11 Depreciation and amortization 1 1 2 Total operating expenses 15 18 20 Gain (loss) from investment in joint venture — — — Operating loss (4) (5) (5) Interest expense 1 — — Other expense (income), net (1) — — Loss before income taxes (4) (5) (5) Income tax expense (benefit) — — — Net loss (4) % (5) % (5) % Stock-based compensation expense: Year Ended December 31, 2023 2022 2021 (as a percentage of revenue) Cost of revenue — % 1 % 1 % Technology and development — 1 — General and administrative 2 1 1 New pet acquisition expense 1 1 1 Total stock-based compensation expense 3 % 4 % 4 % Year Ended December 31, 2023 2022 2021 (as a percentage of subscription revenue) Subscription business revenue 100 % 100 % 100 % Subscription business cost of revenue 86 83 82 49 Comparison of the years ended December 31, 2023, 2022, and 2021 Revenue Year Ended December 31, % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (in thousands, except percentages, pet and per pet data) Revenue: Subscription business $ 712,906 $ 596,610 $ 494,862 19% 21% Other business 395,699 308,569 204,129 28 51 Total revenue $ 1,108,605 $ 905,179 $ 698,991 22 29 Percentage of Revenue by Segment: Subscription business 64 % 66 % 71 % Other business 36 34 29 Total revenue 100 % 100 % 100 % Total pets enrolled (at period end) 1,714,473 1,537,573 1,176,778 12 31 Total subscription pets enrolled (at period end) 991,426 869,862 704,333 14 24 Monthly average revenue per pet $ 65.26 $ 63.82 $ 63.56 2 — Average monthly retention 98.49 % 98.69 % 98.74 % Year ended December 31, 2023 compared to year ended December 31, 2022.
As of December 31, 2022, we issued term loans totaling $75.0 million under the Credit Facility. Refer to Note 11, Debt, included in Item 8 of this report, for further details.
As of December 31, 2023, we issued term loans totaling $135.0 million under the Credit Facility. The Credit Facility is secured by substantially all of our assets and those of our subsidiaries. Refer to Note 11, Debt, included in Item 8 of this report, for further details.
Financing Cash Flows Net cash provided by financing activities was $60.7 million for the year ended December 31, 2022, compared to $1.1 million net cash used by financing activities during the same period in the prior year, primarily due to net proceeds from the term loans under the new Credit Facility which closed in March 2022, partially offset by $5.8 million used for the repurchase of shares of our common stock during the period. 54 Long-Term Debt Our Credit Facility provides us with up to $150.0 million of credit.
Net cash provided by financing activities was $60.7 million for the year ended December 31, 2022, primarily consisting of $69.1 million in proceeds from the Credit Facility, partially offset by $5.8 million in repurchases of common stock. 56 Long-Term Debt Our Credit Facility provides us with up to $150.0 million of credit.
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.
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.
As our mix of business between geographies changes, our metrics, such as our monthly average revenue per pet, and our exposure to foreign exchange fluctuations will be impacted. As we expand into international markets and continue to explore other opportunities, we expect these effects to increase. Other business segment.
As our mix of business between products and geographies changes, our metrics, such as our monthly average revenue per pet, and our exposure to foreign exchange fluctuations will be impacted. We expect our international business, additional product offerings and "Powered by Trupanion" plans to grow and, in turn, we expect these effects to increase. Other business segment.
General and Administrative Expenses Year Ended December 31, % Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in thousands, except percentages) General and administrative $ 39,379 $ 31,893 $ 21,847 23% 46% Percentage of total revenue 4 % 5 % 4 % Year ended December 31, 2022 compared to year ended December 31, 2021.
Technology and development expenses decreased from 3% to 2% of total revenue year over year General and Administrative Expenses Year Ended December 31, % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (in thousands, except percentages) General and administrative $ 60,207 $ 39,379 $ 31,893 53% 23% Percentage of total revenue 5 % 4 % 5 % Year ended December 31, 2023 compared to year ended December 31, 2022.
We account for such expense as stock-based compensation in accordance with 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 December 31, 2022. When determining our PAC, we calculate net acquisition cost for a more comparable metric across periods.
We account for such expense as stock-based compensation in accordance with GAAP, but we do not include it in any non-GAAP adjustments. Stock-based compensation associated with bonuses was approximately $0.7 million for the three months ended December 31, 2023.
We monitor monthly average revenue per pet because it is an indicator of the per pet unit economics of our subscription business. * Total pets enrolled and total subscription pets enrolled metrics include managing general agent pets acquired. † Excluding activity relating to managing general agent policies. 38 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.
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.
The relative mix of our business between the United States, Canada, and other jurisdictions, and between areas within those geographies, impacts the monthly average revenue per pet we receive. For example, prices from our plans could vary depending on the relative cost of veterinary care in different countries or areas.
The relative mix of our business by geography, pet age, species, breed, and other factors impacts the monthly average revenue per pet we receive. For example, prices from our plans could vary depending on the relative cost of veterinary care in different countries or areas or whether the pet is a dog or a cat.
Our subscription business segment primarily relates to subscription fees from our direct-to-consumer products. Our other business segment includes revenue from other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription business segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.
Our other business segment is comprised of revenue from other product offerings, with third parties with whom we generally have a business-to-business relationship. This business segment has a different margin profile than our subscription segment and includes revenue from writing policies on behalf of third parties and revenue from other products and insurance software solutions.
We account for such expense as stock-based compensation in accordance with GAAP, but we do not include it in any non-GAAP adjustments.
We account for such expense as stock-based compensation in accordance with GAAP, but we do not include it in any non-GAAP adjustments. Stock-based compensation associated with bonuses was approximately $1.3 million for the year ended December 31, 2023.
This makes it important for us to accurately estimate our costs and to promptly pursue regulatory approval of pricing adjustments. We may, though, have timing mismatches during which our pricing does not reflect our current expense profile. Timing of initiatives.
This makes it important for us to accurately estimate our costs and to promptly implement pricing adjustments, which generally roll onto our book of insured pets over the succeeding twelve months following any applicable regulatory approval. As a result, we may have timing mismatches during which our pricing does not reflect our current expense profile.
Revenue from our other business segment increased by $104.4 million to $308.6 million, or 51%, for the year ended December 31, 2022, primarily due to a 41% increase in enrolled pets in this segment. 48 Cost of Revenue Year Ended December 31, % Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in thousands, except percentages, pet and per pet data) Cost of Revenue: Subscription business: Veterinary invoice expense $ 436,880 $ 356,448 $ 279,005 23% 28% Other cost of revenue 60,804 51,216 35,870 19 43 Total cost of revenue 497,684 407,664 314,875 22 29 Other business: Veterinary invoice expense 212,857 129,614 72,119 64 80 Other cost of revenue 72,453 57,367 33,133 26 73 Total cost of revenue 285,310 186,981 105,252 53 78 Percentage of Revenue by Segment: Subscription business: Veterinary invoice expense 73 % 72 % 72 % Other cost of revenue 10 10 9 Total cost of revenue 83 82 81 Other business: Veterinary invoice expense 69 63 63 Other cost of revenue 23 28 29 Total cost of revenue 92 92 92 Total pets enrolled (at period end) 1,537,573 1,176,778 862,928 31 36 Total subscription pets enrolled (at period end) 869,862 704,333 577,957 24 22 Monthly average revenue per pet $ 63.82 $ 63.56 $ 60.37 — 5 Year ended December 31, 2022 compared to year ended December 31, 2021.
This increase was primarily driven by a 24% increase in pet months and a 5% increase in monthly average revenue per pet in this segment. 50 Cost of Revenue Year Ended December 31, % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (in thousands, except percentages, pet and per pet data) Cost of Revenue: Subscription business: Veterinary invoice expense $ 543,196 $ 436,880 $ 356,448 24% 23% Other cost of revenue 70,490 60,804 51,216 16 19 Total cost of revenue 613,686 497,684 407,664 23 22 Other business: Veterinary invoice expense 287,859 212,857 129,614 35 64 Other cost of revenue 76,044 72,453 57,367 5 26 Total cost of revenue 363,903 285,310 186,981 28 53 Percentage of Revenue by Segment: Subscription business: Veterinary invoice expense 76 % 73 % 72 % Other cost of revenue 10 10 10 Total cost of revenue 86 83 82 Other business: Veterinary invoice expense 73 69 63 Other cost of revenue 19 23 28 Total cost of revenue 92 92 92 Total pets enrolled (at period end) 1,714,473 1,537,573 1,176,778 12 31 Total subscription pets enrolled (at period end) 991,426 869,862 704,333 14 24 Monthly average revenue per pet $ 65.26 $ 63.82 $ 63.56 2 — Year ended December 31, 2023 compared to year ended December 31, 2022.
Generally, we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. Reserve for Veterinary Invoices We use the paid loss development method (chain-ladder method) to estimate reserves for veterinary invoices for our subscription and for the majority of our other business segment.
Generally, we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Subscription revenue is recognized on a pro rata basis over the enrollment term. Membership may be canceled at any time without penalty, and we issue a refund for the unused portion of the canceled membership.
In most cases, our members authorize us to directly charge their credit card, debit card or bank account through automatic funds transfer. Subscription revenue is recognized on a pro rata basis over the enrollment term. Membership may be canceled at any time without penalty, and we issue a refund for the unused portion of the canceled membership.
This update represents a change in name only. It does not denote a change in method of accounting. Depreciation and amortization Depreciation and amortization expenses consist of depreciation of property, equipment, and software developed for internal use, as well as amortization of finite-lived intangible assets.
Depreciation and amortization Depreciation and amortization expenses consist of depreciation of property, equipment, and software developed for internal use, as well as amortization of finite-lived intangible assets.
Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as new pet acquisition expense, excluding stock-based compensation expense, other business segment expense and managing general agent 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.
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, other business segment expense, offset by sign-up fee revenue.
In addition, most of the assets in our insurance subsidiaries are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.
Most of the assets in our insurance entities are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate. American Pet Insurance Company (APIC) The majority of our investments are held by our insurance entities to satisfy risk-based capital requirements of the National Association of Insurance Commissioners (NAIC).
In April 2021, our board of directors approved a share repurchase program, pursuant to which we may, between May 2021 and May 2026, repurchase outstanding shares of our common stock.
The ability to distribute any portion of this estimated $64.1 million excess to our parent company, and the timing of any distribution, may be subject to regulatory limitations. In April 2021, our board of directors approved a share repurchase program, pursuant to which we may, between May 2021 and May 2026, repurchase outstanding shares of our common stock.
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. 42 The following tables reconcile GAAP new pet acquisition expense to non-GAAP net acquisition cost (in thousands) for the years ended December 31, 2022, 2021, and 2020, and for each of the last eight fiscal quarters: Year Ended December 31, 2022 2021 2020 New pet acquisition expense $ 89,500 $ 78,647 $ 47,837 Net of sign-up fee revenue (4,984) (4,954) (3,292) Excluding: Stock-based compensation expense (9,116) (9,160) (2,773) Other business pet acquisition expense (541) (499) (820) Pet acquisition expense for managing general agent policies (443) — — Net acquisition cost $ 74,416 $ 64,034 $ 40,952 Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 New pet acquisition expense $ 22,457 $ 22,434 $ 22,982 $ 21,627 $ 19,845 $ 19,708 $ 19,390 $ 19,704 Net of sign-up fee revenue (1,191) (1,339) (1,252) (1,202) (1,162) (1,268) (1,260) (1,264) Excluding: Stock-based compensation expense (2,079) (2,108) (2,601) (2,328) (2,136) (2,112) (2,181) (2,731) Other business pet acquisition expense (65) (181) (186) (109) (76) (134) (118) (171) Pet acquisition expense for managing general agent policies (443) — — — — — — — Net acquisition cost $ 18,679 $ 18,806 $ 18,943 $ 17,988 $ 16,471 $ 16,194 $ 15,831 $ 15,538 Components of Operating Results General We operate in two business segments: subscription business and other business.
The following tables reconcile GAAP new pet acquisition expense to non-GAAP net acquisition cost (in thousands) for the years ended December 31, 2023, 2022, and 2021, and for each of the last eight fiscal quarters: Year Ended December 31, 2023 2022 2021 New pet acquisition expense $ 77,372 $ 89,500 $ 78,647 Net of sign-up fee revenue (4,527) (4,984) (4,954) Excluding: Stock-based compensation expense (7,000) (9,116) (9,160) Other business pet acquisition expense (200) (541) (499) Pet acquisition expense for commission-based policies (3,443) (443) — Net acquisition cost $ 62,202 $ 74,416 $ 64,034 Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 New pet acquisition expense $ 17,189 $ 17,772 $ 20,769 $ 21,642 $ 22,457 $ 22,434 $ 22,982 $ 21,627 Net of sign-up fee revenue (1,035) (1,084) (1,189) (1,219) (1,191) (1,339) (1,252) (1,202) Excluding: Stock-based compensation expense (1,567) (1,679) (1,722) (2,032) (2,079) (2,108) (2,601) (2,328) Other business pet acquisition expense (77) (10) (62) (51) (65) (181) (186) (109) Pet acquisition expense for commission-based policies (802) (826) (888) (927) (443) — — — Net acquisition cost $ 13,708 $ 14,173 $ 16,908 $ 17,413 $ 18,679 $ 18,806 $ 18,943 $ 17,988 Components of Operating Results General We operate in two business segments: subscription business and other business.
Cost of revenue for our other business segment increased by $98.3 million, or 53%, to $285.3 million for the year ended December 31, 2022, primarily due to the increase in enrolled pets in this segment. 49 Technology and Development Expenses Year Ended December 31, % Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in thousands, except percentages) Technology and development $ 25,133 $ 16,866 $ 9,947 49% 70% Percentage of total revenue 3 % 2 % 2 % Year ended December 31, 2022 compared to year ended December 31, 2021.
Cost of revenue for the other business segment remained at a constant 92% of revenue year-over-year. 51 Technology and Development Expenses Year Ended December 31, % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (in thousands, except percentages) Technology and development $ 21,403 $ 25,133 $ 16,866 (15)% 49% Percentage of total revenue 2 % 3 % 2 % Year ended December 31, 2023 compared to year ended December 31, 2022.
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.
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 generate revenue in our other business segment primarily from writing policies on behalf of third parties where we do not undertake the direct consumer marketing.
We also generate a portion of our subscription business segment revenue through commissions earned in our European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker. We generate revenue in our other business segment primarily from writing policies on behalf of third parties where we do not undertake the direct consumer marketing.
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 direct-to-consumer acquisition channels serve as important resources for pet owner education and drive new member leads and conversion.
Stock-based compensation expense in total was $33.4 million for the year ended December 31, 2022, up from $28.2 million in the prior year period.
Stock-based compensation is included in the cost and expense line items in the consolidated statements of operations, discussed above. Stock-based compensation expense in total was $33.2 million for the year ended December 31, 2023, down from $33.4 million in the prior year period.
Stock-based compensation associated with bonuses was approximately $0.9 million for the year ended December 31, 2022. 41 Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Veterinary invoice expense $ 176,083 $ 171,112 $ 157,616 $ 144,926 $ 132,852 $ 125,058 $ 118,282 $109,870 Less: Stock-based compensation expense (1) (899) (960) (1,022) (1,173) (798) (769) (672) (2,299) Other business cost of paying veterinary invoices (59,946) (58,197) (50,378) (44,336) (38,009) (34,432) (31,029) (26,144) Subscription cost of paying veterinary invoices (non-GAAP) $ 115,238 $ 111,955 $ 106,216 $ 99,417 $ 94,045 $ 89,857 $ 86,581 $ 81,427 % of subscription revenue 72.7 % 73.5 % 72.8 % 71.1 % 70.1 % 70.7 % 71.9 % 71.9 % Other cost of revenue $ 36,277 $ 32,589 $ 33,212 $ 31,179 $ 30,992 $ 28,443 $ 25,433 $ 23,715 Less: Stock-based compensation expense (1) (414) (433) (754) (631) (581) (542) (552) (935) Other business variable expenses (20,591) (17,346) (18,010) (16,506) (17,208) (15,315) (12,940) (11,904) Subscription variable expenses (non-GAAP) $ 15,272 $ 14,810 $ 14,448 $ 14,042 $ 13,203 $ 12,586 $ 11,941 $ 10,876 % of subscription revenue 9.6 % 9.7 % 9.9 % 10.0 % 9.8 % 9.9 % 9.9 % 9.6 % Technology and development expense $ 6,955 $ 6,553 $ 6,396 $ 5,229 $ 4,665 $ 4,391 $ 4,079 $ 3,731 General and administrative expense 10,472 10,314 9,227 9,366 8,996 8,246 7,435 7,216 Less: Stock-based compensation expense (1) (5,019) (4,805) (4,085) (3,226) (3,293) (3,020) (3,122) (2,483) Business combination transaction costs (193) (179) — — — — — (82) Development expenses (2,084) (2,435) (2,012) (1,258) (858) (919) (1,121) (821) Fixed expenses (non-GAAP) $ 10,131 $ 9,448 $ 9,526 $ 10,111 $ 9,510 $ 8,698 $ 7,271 $ 7,561 % of total revenue 4.1 % 4.0 % 4.3 % 4.9 % 4.9 % 4.8 % 4.3 % 4.9 % New pet acquisition expense $ 22,457 $ 22,434 $ 22,982 $ 21,627 $ 19,845 $ 19,708 $ 19,390 $ 19,704 Less: Stock-based compensation expense (1) (2,079) (2,108) (2,601) (2,328) (2,136) (2,112) (2,181) (2,731) Other business pet acquisition expense (65) (181) (186) (109) (76) (134) (118) (171) Subscription acquisition cost (non-GAAP) $ 20,313 $ 20,145 $ 20,195 $ 19,190 $ 17,633 $ 17,462 $ 17,091 $ 16,802 % of subscription revenue 12.5 % 13.2 % 13.9 % 13.7 % 13.1 % 13.7 % 14.2 % 14.8 % (1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.
These development expenses are costs related to product exploration and development that are pre-revenue and historically have been insignificant. 43 Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Veterinary invoice expense $ 217,739 $ 212,441 $ 206,738 $ 194,137 $ 176,083 $ 171,112 $ 157,616 $144,926 Less: Stock-based compensation expense (1) (885) (870) (856) (839) (899) (960) (1,022) (1,173) Other business cost of paying veterinary invoices (77,572) (72,694) (72,443) (65,149) (59,946) (58,197) (50,378) (44,336) Subscription cost of paying veterinary invoices (non-GAAP) $ 139,282 $ 138,877 $ 133,439 $ 128,149 $ 115,238 $ 111,955 $ 106,216 $ 99,417 % of subscription revenue 72.7 % 75.9 % 77.0 % 77.6 % 72.7 % 73.5 % 72.8 % 71.1 % Other cost of revenue $ 38,054 $ 38,179 $ 34,455 $ 35,846 $ 36,277 $ 32,589 $ 33,212 $ 31,179 Less: Stock-based compensation expense (1) (386) (282) (428) (448) (414) (433) (754) (631) Other business variable expenses (19,301) (20,482) (17,230) (18,743) (20,591) (17,346) (18,010) (16,506) Subscription variable expenses (non-GAAP) $ 18,367 $ 17,415 $ 16,797 $ 16,655 $ 15,272 $ 14,810 $ 14,448 $ 14,042 % of subscription revenue 9.6 % 9.5 % 9.7 % 10.1 % 9.6 % 9.7 % 9.9 % 10.0 % Technology and development expense $ 5,969 $ 5,302 $ 5,232 $ 4,900 $ 6,955 $ 6,553 $ 6,396 $ 5,229 General and administrative expense 13,390 12,664 13,136 21,017 10,472 10,314 9,227 9,366 Less: Stock-based compensation expense (1) (3,797) (3,754) (3,497) (8,821) (5,019) (4,805) (4,085) (3,226) Non-recurring transaction or restructuring expenses (2) — (8) (65) (4,102) (193) (179) — — Development expenses (3) (1,683) (1,594) (925) (898) (2,084) (2,435) (2,012) (1,258) Fixed expenses (non-GAAP) $ 13,879 $ 12,610 $ 13,881 $ 12,096 $ 10,131 $ 9,448 $ 9,526 $ 10,111 % of total revenue 4.7 % 4.4 % 5.1 % 4.7 % 4.1 % 4.0 % 4.3 % 4.9 % New pet acquisition expense $ 17,189 $ 17,772 $ 20,769 $ 21,642 $ 22,457 $ 22,434 $ 22,982 $ 21,627 Less: Stock-based compensation expense (1) (1,567) (1,679) (1,722) (2,032) (2,079) (2,108) (2,601) (2,328) Other business pet acquisition expense (77) (10) (62) (51) (65) (181) (186) (109) Subscription acquisition cost (non-GAAP) $ 15,545 $ 16,083 $ 18,985 $ 19,559 $ 20,313 $ 20,145 $ 20,195 $ 19,190 % of subscription revenue 8.1 % 8.8 % 11.0 % 11.8 % 12.5 % 13.2 % 13.9 % 13.7 % (1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.
New pet acquisition expenses as a percentage of revenue was 10% for the year ended December 31, 2022, compared to 11% in the same period last year. 50 Depreciation and Amortization Year Ended December 31, % Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in thousands, except percentages) Depreciation and amortization $ 10,921 $ 11,965 $ 7,071 (9)% 69% Percentage of total revenue 1 % 1 % 1 % Year ended December 31, 2022 compared to year ended December 31, 2021.
New pet acquisition expense as a percentage of revenue was 7% for the year ended December 31, 2023 compared to 10% in the same period last year, as we were able to stay disciplined with our discretionary pet acquisition spend, while still managing to grow total enrolled subscription pets, excluding those related to managing general agent policies, by 13%. 52 Depreciation and Amortization Year Ended December 31, % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (in thousands, except percentages) Depreciation and amortization $ 12,474 $ 10,921 $ 11,965 14% (9)% Percentage of total revenue 1 % 1 % 2 % Year ended December 31, 2023 compared to year ended December 31, 2022.
The change was primarily driven by increased pet acquisition spend during the current period to drive new pet enrollments and future growth and faster payment of veterinary invoices. Changes in accounts receivable and deferred revenue were primarily related to annual policies with monthly payment terms within our other business segment.
Changes in accounts receivable and deferred revenue were primarily related to annual policies with monthly payment terms within our other business segment.
We exclude managing general agent pet acquisition expense because the ARPU of these products is representative of commission earnings versus underwriting premiums. We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.
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.
Total revenue increased by $206.2 million to $905.2 million for the year ended December 31, 2022, or 29%. Revenue from our subscription business segment increased by $101.7 million to $596.6 million for the year ended December 31, 2022, or 21%.
Revenue from our other business segment increased by $87.1 million to $395.7 million, or 28%, for the year ended December 31, 2023.
As of December 31, 2022, we reevaluated the remaining reserve for those periods prior to December 31, 2021 and recorded an adjustment to our income statement to decrease it by $1.7 million. Income Taxes We determine our deferred tax assets and liabilities based on the differences between the financial reporting and tax basis of assets and liabilities.
As of December 31, 2023, we had unfavorable development on veterinary invoice reserves of $3.3 million for the year ended December 31, 2022. Income Taxes We determine our deferred tax assets and liabilities based on the differences between the financial reporting and tax basis of assets and liabilities.
Year Ended December 31, 2022 2021 2020 Total Business: Total pets enrolled (at period end) 1,537,573 1,176,778 862,928 Subscription Business: Total subscription pets enrolled (at period end) 869,862 704,333 577,957 Monthly average revenue per pet $ 63.82 $ 63.56 $ 60.37 Lifetime value of a pet, including fixed expenses $ 641 $ 717 $ 653 Average pet acquisition cost (PAC) $ 289 $ 287 $ 247 Average monthly retention 98.69 % 98.74 % 98.71 % Three Months Ended Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Dec. 31, 2021 Sept. 30, 2021 Jun. 30, 2021 Mar. 31, 2021 Total Business: Total pets enrolled (at period end) 1,537,573 1,439,605 1,348,145 1,267,253 1,176,778 1,104,376 1,024,226 943,854 Subscription Business: Total subscription pets enrolled (at period end) 869,862 808,077 770,318 736,691 704,333 676,463 643,395 609,835 Monthly average revenue per pet $ 63.11 $ 63.80 $ 64.26 $ 64.21 $ 63.89 $ 63.60 $ 63.69 $ 62.97 Lifetime value of a pet, including fixed expenses $ 641 $ 673 $ 713 $ 730 $ 717 $ 697 $ 681 $ 684 Average pet acquisition cost (PAC) $ 283 $ 268 $ 309 $ 301 $ 306 $ 280 $ 284 $ 279 Average monthly retention 98.69 % 98.71 % 98.74 % 98.75 % 98.74 % 98.72 % 98.72 % 98.73 % 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.
Year Ended December 31, 2023 2022 2021 Total Business: Total pets enrolled (at period end) 1,714,473 1,537,573 1,176,778 Subscription Business: Total subscription pets enrolled (at period end) 991,426 869,862 704,333 Monthly average revenue per pet $ 65.26 $ 63.82 $ 63.56 Lifetime value of a pet, including fixed expenses $ 419 $ 641 $ 717 Average pet acquisition cost (PAC) $ 228 $ 289 $ 287 Average monthly retention 98.49 % 98.69 % 98.74 % Three Months Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 Total Business: Total pets enrolled (at period end) 1,714,473 1,712,177 1,679,659 1,616,865 1,537,573 1,439,605 1,348,145 1,267,253 Subscription Business: Total subscription pets enrolled (at period end) 991,426 969,322 943,958 906,369 869,862 808,077 770,318 736,691 Monthly average revenue per pet $ 67.07 $ 65.82 $ 64.41 $ 63.58 $ 63.11 $ 63.80 $ 64.26 $ 64.21 Lifetime value of a pet, including fixed expenses $ 419 $ 428 $ 470 $ 541 $ 641 $ 673 $ 713 $ 730 Average pet acquisition cost (PAC) $ 217 $ 212 $ 236 $ 247 $ 283 $ 268 $ 309 $ 301 Average monthly retention 98.49 % 98.55 % 98.61 % 98.65 % 98.69 % 98.71 % 98.74 % 98.75 % Total pets enrolled and total subscription pets enrolled include pet enrollments in European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker.
Our other business segment primarily includes other product offerings that generally have a business-to-business relationship. These products have been, and we expect will be in the future, materially different from our subscription business segment. Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive.
Our other business segment primarily includes other product offerings that have been, materially different from those in our subscription business segment. We expect this difference to continue. In addition, we expect the growth rate of this segment to be materially different from our subscription business segment.
For additional details, see the section titled "Risk Factors." 37 Key Operating Metrics The following tables set forth total pets enrolled and key operating metrics for our subscription business for the years ended December 31, 2022, 2021 and 2020, and for each of the last eight fiscal quarters.
We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment. 39 Key Operating Metrics The following tables set forth total pets enrolled and key operating metrics for our subscription business for the years ended December 31, 2023, 2022 and 2021, and for each of the last eight fiscal quarters.
General and administrative expenses increased by $7.5 million, or 23%, to $39.4 million for the year ended December 31, 2022. The increase was primarily due to a $4.0 million increase in stock-based compensation and a $3.1 million increase in compensation expense. General and administrative expenses decreased from 5% to 4% of total revenue year over year.
Technology and development expenses decreased by $3.7 million, or 15%, to $21.4 million for the year ended December 31, 2023. This decrease was primarily due to a decrease of $5.0 million in development expense as several initiatives that were pre-revenue in the prior year were launched and have begun generating revenue.
These initiatives will sometimes be accompanied by price adjustments, in order to compensate for an increase in benefits received by our members. The implementation of such initiatives may not always coincide with the timing of price adjustments, resulting in fluctuations in revenue and profitability in our subscription business segment. Geographic mix of sales.
The implementation of such initiatives could impact our expense profile and result in us incurring expenses that may not always directly coincide with revenue increases, resulting in fluctuations in revenue and profitability in our subscription business segment. Mix of sales.
We generate revenue in our other business segment primarily by underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand. We do not undertake the marketing efforts for these policies and have a business-to-business relationship with these third parties.
We do not undertake marketing efforts for and are not the primary interface with the customers of the third parties for whom we write other business segment policies. Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive. Accordingly, we have limited influence on the volume of business of this segment.
Revenue We generate revenue in our subscription business segment primarily from subscription fees for our pet medical insurance. Fees are paid at the beginning of each subscription period. In most cases, our members authorize us to directly charge their credit card, debit card or bank account through automatic funds transfer.
This business segment has different margin profile than our subscription segment and includes revenue from writing policies on behalf of third parties and revenue from other products and insurance software solutions. 45 Revenue We generate revenue in our subscription business segment primarily from subscription fees for our pet medical insurance. Fees are paid at the beginning of each subscription period.
Cost of revenue for our subscription business segment was $497.7 million, or 83% of revenue, for the year ended December 31, 2022, compared to $407.7 million, or 82%, of revenue, for the year ended December 31, 2021.
Total cost of revenue for our subscription business segment increased $116.0 million, or 23%, to $613.7 million for the year ended December 31, 2023. This increase was driven by a $106.3 million, or 24%, increase in veterinary invoice expense and a $9.7 million, or 16%, increase in other cost of revenue.
Technology and development expenses increased by $8.3 million, or 49%, to $25.1 million for the year ended December 31, 2022. The increase was primarily due to increased headcount and $1.7 million increase in associated stock-based compensation.
Total other expense (income), net increased by $3.2 million to $4.4 million for the year ended December 31, 2023 primarily due to an increase in interest expense incurred on the Credit Facility, which was partially offset by an increase in interest earned on our investment portfolio. Stock-Based Compensation Year ended December 31, 2023 compared to year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+2 added−2 removed5 unchanged
Biggest changeA 10% change in market interest rates would not be expected to have a material impact on our consolidated financial condition or results of operations. Foreign Currency Exchange Risk We generate approximately 15% of our revenue in Canada.
Biggest changeA 100 basis points of hypothetical interest rate increase would not have a material effect on the fair value of our investments. Foreign Currency Exchange Risk We generate approximately 15% of our revenue in Canada.
Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of our primary market risk exposures and how those exposures are managed as of December 31, 2022. Our market risk sensitive instruments are primarily entered into for purposes other than trading.
Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of our primary market risk exposures and how those exposures are managed as of December 31, 2023. Our market risk sensitive instruments are primarily entered into for purposes other than trading.
A hypothetical change of this magnitude would have increased or decreased our total revenues by approximately $13.7 million, total expenses by approximately $9.9 million, and have a net impact of $3.8 million of income or loss for the year ended December 31, 2022.
A hypothetical change of this magnitude would have increased or decreased our total revenues by approximately $16.8 million, total expenses by approximately $16.2 million, and have a net impact of $0.6 million of income or loss for the year ended December 31, 2023.
To date, we have not entered into any material foreign currency hedging contracts although we may do so in the future. 56
To date, we have not entered into any material foreign currency hedging contracts although we may do so in the future. Other foreign currency risk in European currencies is currently immaterial. 59
Removed
As of December 31, 2022, our aggregate outstanding indebtedness was $69.5 million. A 10% change in market interest rates would not be expected to have a material impact on our consolidated financial condition or results of operations. For additional information regarding our debt, refer to Note 11, Debt, included in Item 8 of this report.
Added
As of December 31, 2023, our aggregate outstanding indebtedness was $128.9 million. A 100 basis points of hypothetical interest rate increase would increase our annual interest expense by $1.3 million. Our fixed maturities portfolio is also exposed to interest rate risk. Changes in interest rates have a direct impact on the market valuation of these securities.
Removed
We may be exposed to interest rate risk as a result of our debt and our investment activities. The primary objective of our investment activities is to maintain principal and the majority of our investments are short-term in nature.
Added
Certain securities are held in an unrealized loss position, but we do not intend to sell and believe we will not be required to sell any of these securities held in an unrealized loss position before their anticipated recovery. We manage interest rate risk by investing in securities with relatively short durations.

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