10q10k10q10k.net

What changed in TRUPANION, INC.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of TRUPANION, INC.'s 2023 and 2024 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 2024 report.

+386 added−410 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-27)

Top changes in TRUPANION, INC.'s 2024 10-K

386 paragraphs added · 410 removed · 315 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

63 edited+16 added−19 removed26 unchanged
Biggest changeIn 2021, we established two new wholly-owned insurance subsidiaries, ZPIC Insurance Company (ZPIC) and QPIC Insurance Company (QPIC), domiciled in Missouri and Nebraska, respectively. ZPIC is currently licensed to do business in 41 states and the District of Colombia. QPIC is currently licensed to do business in 30 states and the District of Colombia.
Biggest changeThe values for assets, liabilities and equity reflected in these financial statements are usually different from those reflected in financial statements prepared under SAP. 8 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.
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.
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 provides a unique and unmatched moat in our industry.
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.
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 reporting segments: subscription business and other business.
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.
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. 7 We have a large representation of women at Trupanion including 61% of leadership positions.
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
We regularly 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
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.
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 catalog 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.
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.
Using our software, veterinary hospitals can receive payment from us directly for approved invoices in seconds, with 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 our members, transforms the pet insurance experience.
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.
The vast majority of pet parents 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.
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.
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 parents do not know how to budget for the “average” cost of medical care for their pets.
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.
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, we are subject to laws governing insurance holding companies in New York.
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.
Average veterinary expenses often greatly exceed the expectations of pet parents 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.
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.
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, the cost of which increases as the pet ages.
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. 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.
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. 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 our members.
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.
Our subscription products, priced specifically for each pet’s unique characteristics and coverage level, help pet parents budget for unforeseen medical expenses. Through our high quality medical insurance products, pet parents are able to ensure coverage for the best care for their pet and avoid treatment decisions being made due to financial constraints.
We leverage this to price our subscription plan for each pet based on their specific circumstances such as breed, age (at enrollment), geography, desired deductible or co-payment and coverage level, so that, in aggregate, the amounts paid by owners of lucky pets helps to cover the veterinary costs incurred by unlucky pets.
We leverage this data to price our subscription plan for each pet based on their specific circumstances such as breed, age, geography, desired deductible or co-payment and coverage level, so that, in aggregate, the amounts paid by parents of lucky pets helps to cover the veterinary costs incurred by unlucky pets.
Omega’s Canadian insurance operations are supervised and regulated by Canadian federal, provincial and territorial governments and Omega is a fully licensed insurer in all of the Canadian provinces and territories in which we do business. In addition, we are required to fund a Canadian trust account in accordance with Canadian regulations.
Accelerant’s Canadian insurance operations are supervised and regulated by Canadian federal, provincial and territorial governments and Accelerant is a fully licensed insurer in all of the Canadian provinces and territories in which we do business. In addition, we are required to fund a Canadian trust account in accordance with Canadian regulations.
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.
Item 1. Business Our Mission Our mission is to help loving, responsible pet parents budget and care for their pets. Company Overview We provide medical insurance for cats and dogs in the United States, Canada, certain countries in Continental Europe, and Australia.
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.
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 core Trupanion branded product offerings favorably compared to other brands offered in the marketplace.
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.
Consequently, self-insuring is not an effective solution for many pet parents 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 care options.
As of December 31, 2023, the account held CAD $15.7 million. In 2022, we incorporated a new wholly-owned insurance subsidiary, GPIC Insurance Company (GPIC), domiciled in Canada. GPIC is currently licensed to do business in all provinces and territories in Canada except for Nunavut.
As of December 31, 2024, the account held CAD $19.9 million. In 2022, we incorporated a new wholly-owned insurance subsidiary, GPIC Insurance Company (GPIC), domiciled in Canada. GPIC is currently licensed to do business in all provinces and territories in Canada except for Nunavut.
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.
Human Capital Resources Our Team We are a mission driven organization with a diverse team united by a shared passion for pets. Our employees and independent contractors, which we refer to as 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.
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.
Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties, low and medium average revenue per pet products marketed under the brand names Furkin and PHI Direct in Canada, and a Trupanion branded product in Germany and Switzerland.
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.
We are investing to increase the rate at which we convert pet parents receiving quotes for our subscription plan into enrolled members. Targeting a 71% value proposition. We aim to pay veterinary invoices promptly and return 71% of premiums we collect, in the aggregate, to members, which we believe is the highest targeted value proposition in our industry.
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.
APIC is subject to these risk-based capital requirements that require us to maintain certain levels of surplus 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.
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.
As of December 31, 2024, we employed 1,130 people across the U.S., Canada and Europe. Our team is further supported by 171 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.
We control access to our proprietary technology, software, and documentation by entering into confidentiality and invention assignment agreements with our employees and partners, and confidentiality and, in some cases, exclusive agreements with third parties, such as service providers, vendors, individuals and entities that may be exploring a business relationship with us.
We control access to our proprietary technology, software, and documentation by entering into confidentiality and invention assignment agreements with our employees and independent contractors and non-disclosure agreements with third parties, such as service providers, vendors, individuals and entities that may be exploring a business relationship with us.
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.
Other Jurisdictions Regulations In Canada, our insurance is currently written by an unaffiliated Canadian-licensed insurer, Accelerant Insurance Company of Canada (Accelerant), formerly known as Omega General Insurance Company. Under the terms of our agreements with Accelerant, we retain any financial risk associated with our Canadian business.
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.
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.
Sales and Marketing (New Pet Acquisition) We generate leads through a diverse set of member acquisition channels, which we then convert into members primarily through our contact center, website and other direct-to-consumer activities. These channels primarily include leads from third-parties such as veterinarians, strategic partners and referrals from existing members.
Sales and Marketing (New Pet Acquisition) We generate leads for our core Trupanion product through a diverse set of pet parent acquisition channels, which we then aim to convert into members primarily through our website and contact center. These acquisition channels include leads from third-parties such as veterinarians, strategic partners and referrals from existing members.
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.
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 25 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. 6 Intellectual Property We rely on federal, state, common law, and international rights, as well as contractual restrictions, to protect our intellectual property.
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 have 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. Our Seattle headquarters is pet friendly.
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.
Our key markets are large and under-penetrated, as measured by insured pets: North America 1 Continental Europe 2 Household dogs and cats (in thousands) 213,300 160,599 Pet insurance market penetration 3.6 % 8.5 % 1 According to IBIS World and Canadian Animal Health Institute, there are approximately 213.3 million household dogs and cats in the United States and Canada.
To comply with these regulations, we may be required to maintain capital that we would otherwise invest in our growth and operations. Refer to Item 1A. “Risk Factors” for additional details of these requirements.
To comply with these regulations, we may be required to maintain capital that we would otherwise invest in our growth and operations. ZPIC will be subject to similar regulations after it begins underwriting insurance policies. Refer to Item 1A. “Risk Factors” for additional details of these requirements.
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.
To execute on our strategy, we concentrate on the following: Increasing leads from veterinary hospitals. Our outside team of Territory Partners (who interface directly with veterinarians) work to increase the number of veterinary hospitals that educate their clients about high quality medical insurance, and to increase the rate at which veterinary hospitals refer leads to us. Increasing referrals from members.
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.
As a result, we are focused primarily on expanding the overall size of our markets by providing pet parents with high value, transparent medical coverage designed for each pet's unique characteristics and coverage level. Throughout our operating history we have competed, and continue to compete, against numerous pet insurance brands.
We seek to protect our proprietary position by filing patent applications in the United States and in jurisdictions outside of the United States related to our technology, inventions, and improvements that are important to our business.
We seek to protect our proprietary position by filing patent applications in the United States and in jurisdictions outside of the United States related to our technology, inventions, and improvements that are important to our business. We hold several U.S. utility and design patents related to our proprietary software, and we have additional patent applications pending in the United States.
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.
Pet parents 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.
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.
Our other business segment is comprised of a collective of other product offerings with third parties with whom we generally have a business-to-business relationship, and this business segment has, and targets, a different margin profile than our subscription business segment.
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.
As a result, our revenue has grown from $19.1 million in 2010 to $1.3 billion in 2024, which represents a compound annual growth rate of 32%. 4 Our Strategy We are focused on attracting and retaining members by providing the highest customer value proposition and best-in-class member experience.
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.
We also have several issued utility and design patents in other jurisdictions, as well as additional patent applications pending. 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.
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.
Given the comprehensive and broad coverage of our subscription products and the capabilities of our software to collect and assess date, 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.
For example, we have invested in a pet food initiative to explore whether pets on a calorie-controlled, high-quality diet have improved health outcomes that can justify a decrease in the cost of their medical insurance. We also sell software solutions to third parties.
We intend to continue pursuing opportunities to provide pet parents with complementary products and services. For example, we have invested in a pet food initiative to explore whether pets on a calorie-controlled, high-quality diet have improved health outcomes that can justify a decrease in the cost of their medical insurance.
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 total enrolled pets has grown from 31,207 pets on January 1, 2010 to 1,677,570 pets on December 31, 2024, which represents a compound annual growth rate of 30%.
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.
Our subscription business’s cost-plus model is designed to spread the risk evenly within categories of pets so our policy holders, which we refer to as members, can better budget for unexpected veterinary costs. We have been collecting comprehensive pet health data for over 25 years.
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.
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.
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.
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, and targets, a lower margin profile than our subscription business segment and is not part of our core business strategy.
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.
We believe our actuarial team, working with our granular data, is able to price our subscription products 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 in our industry. 3 Since launch, our core “Trupanion” branded product has been designed by veterinarians to enable them to practice best medicine – thus recommending the optimal treatment for the pet.
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.
Our ability to target the highest value proposition stems from our low cost operating model and requires we increase our subscription payments in-line with the cost of veterinary care. Improving retention. Member retention is a key part of our strategy.
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.
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.
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.
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.
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.
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.
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.
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.
Members with a Trupanion-branded product visit their veterinarian more frequently and spend more money on the best course of treatment for their pet.
As a result, we believe our Trupanion-branded products (the products with our most comprehensive coverage options) enable veterinarians to establish stronger ties and better alignment with our members. Members with a Trupanion-branded product visit their veterinarian more frequently and spend more money on the best course of treatment for their pet.
The financial statements included in this document are prepared in accordance with U.S. generally accepted accounting principles. The values for assets, liabilities and equity reflected in these financial statements are usually different from those reflected in financial statements prepared under SAP.
The financial statements included in this document are prepared in accordance with U.S. generally accepted accounting principles.
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.
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, providing settlement at check-out and therefore enhancing our member and veterinary support, while lowering our cost of operations. Expanding our insurance product offerings.
We view our primary competitive challenge as educating pet owners on why high-quality medical insurance for pets is a better alternative to self-insuring.
Competition We compete primarily with pet parents who choose to self-fund their veterinary costs, mainly via credit cards, as well as new and existing pet medical insurance brands. We view our primary competitive challenge as educating pet parents on why high-quality medical insurance for pets is a better alternative to self-insuring.
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.
We either directly underwrite or assume full insurance risk for these products through reinsurance arrangements. 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.
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.
North American Pet Health Insurance Association estimates that the penetration rate for medical insurance for cats and dogs in North America is less than four percent. 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 and the estimated penetration rate for medical insurance for cats and dogs is approximately eight and a half percent.
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).
Benefits We offer each employee 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). 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, including their pets.
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.
Our culture of inclusion at Trupanion is in part reflected by, in 2024, 39% of our US new hires self-identifying that they are from an underrepresented group. 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.
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.
In line with our low-cost operating model, we use artificial intelligence and machine learning to leverage data to automate the payment of a portion of our veterinary invoices.
It standardizes how insurers enforce waiting periods, certain policy conditions, and the sale of pet insurance in general.
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. This act standardizes how insurers enforce waiting periods, certain policy conditions, and the sale of pet insurance in general.
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 have funded required statutory capital to this new subsidiary and expect our underwriting activity to ramp up significantly in 2025 and our business with Accelerant to diminish. We have three segregated accounts with Wyndham Insurance Company (SAC) Limited ("WICL"), located in Bermuda. WICL is regulated by the Bermuda Monetary Authority (BMA).
Removed
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.
Added
We generate revenue in our subscription business segment primarily through insurance premiums, which we refer to as subscription payments, from direct-to-consumer products.
Removed
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.
Added
Within this segment we also offer products in certain countries in Continental Europe which are currently underwritten using third-party underwriters. Going forward our intent is to assume full insurance risk for these products, either through direct underwriting or reinsurance arrangements.
Removed
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.
Added
The largest source of revenue within this segment is from our long-standing contractual relationship with Pets Best Insurance Services ("Pets Best"), a third-party partner we have worked with since 2015. Our Business It is very difficult for pet owners, who we refer to as pet parents, to budget for veterinary expenses when their pets become sick or injured.
Removed
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.
Added
We believe, due to the nature of the reliability of our coverage and the satisfaction of our member base, our subscription business model also provides us with highly predictable and recurring revenue.
Removed
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.
Added
Our "Powered by Trupanion" products offer the same experience members with Trupanion branded products receive but with options for varying levels of coverage to meet the different needs of our target pet parents and associated budgetary requirements.
Removed
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.
Added
In addition, our Furkin and PHI Direct products are currently distributed direct-to-consumer in Canada and offer similar optionality of coverage at different price points.
Removed
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.
Added
The largest source of revenue within this segment is from our long-standing contractual relationship with Pets Best, an unaffiliated pet insurance company we have worked with since 2015. Additional products in this segment include the U.S. Department of Veterans Affairs program and certain employer sponsored programs.
Removed
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.
Added
We believe that, over the long-term, pet insurance penetration rates in the markets we currently operate in could approach those seen in the United Kingdom or Sweden where approximately 28% and 67%, respectively, of household dogs and cats are insured.
Removed
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.

… 18 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

137 edited+33 added−57 removed189 unchanged
Biggest changeAmong 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.
Biggest changeAmong others, these risks relate to: • Our significant net losses since inception, ability to achieve and maintain profitability and 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 ability to maintain certain levels of surplus capital, and access excess capital for other parts of our business, under applicable insurance regulations; • Our reliance on Territory Partners, whom we engage as independent contractors rather than employees, and other third parties; • 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 comply with numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance, privacy, e-commerce, email and texting, and accounting matters; • 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; • Our 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; • 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 initiate substantial underwriting activity by our Canadian subsidiary GPIC in connection with rolling off business and ending our contractual relationship with our fronting partner Accelerant; • Our ability to utilize net operating loss carryforwards and potential increases in our tax liabilities; 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.
Substantial indebtedness, and the fact that a substantial portion of our cash flow from operating activities could be needed to make payments on this indebtedness, could have adverse consequences, including the following: • reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities and other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which could place us at a competitive disadvantage compared to our competitors that may have less debt; • limiting our ability to borrow additional funds; and • increasing our vulnerability to general adverse economic and industry conditions.
Substantial indebtedness, and the fact that a substantial portion of our cash flow from operating activities could be needed to make payments on this indebtedness, could have adverse consequences, including the following: 26 • reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities and other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which could place us at a competitive disadvantage compared to our competitors that may have less debt; • limiting our ability to borrow additional funds; and • increasing our vulnerability to general adverse economic and industry conditions.
In general, international sales and operations may be subject to a number of risks, including the following: • regulatory rules and practices, foreign exchange controls, tariffs, tax laws and treaties that are different than those we operate under currently; • the costs and resources required to modify our subscription appropriately to suit the needs and expectations of residents and veterinarians in such foreign countries; • our data analytics platform may have limited applicability in foreign countries, which may impact our ability to develop adequate underwriting criteria and accurately price subscriptions in such countries; • increased expenses incurred in establishing and maintaining office space and equipment for our international operations; • technological incompatibility between our patented proprietary software and software used by veterinarians; • difficulties in modifying our business model or subscription in a manner suitable for any particular foreign country, including any modifications to our Territory Partner model to the extent we determine that our existing model is not suitable for use in foreign countries; • our lack of experience in marketing to consumers and veterinarians and online engagement in foreign countries, especially if doing so in a foreign language; • our relative lack of industry connections in many foreign countries; • our ability to locally hire, integrate and retain highly skilled and motivated employees and establish and improve systems for operational and financial management where appropriate; • difficulties in managing operations due to language barriers, distance and time zone differences, staffing, cultural differences and business infrastructure constraints, including difficulty in obtaining foreign and domestic visas; • the uncertainty of protection for intellectual property rights in some countries; and • general economic and political conditions in these foreign markets.
In general, international sales and operations may be subject to a number of risks, including the following: • regulatory rules and practices, including robust privacy regulations, foreign exchange controls, tariffs, tax laws and treaties that are different than those we operate under currently; • the costs and resources required to modify our subscription appropriately to suit the needs and expectations of residents and veterinarians in such foreign countries; • our data analytics platform may have limited applicability in foreign countries, which may impact our ability to develop adequate underwriting criteria and accurately price subscriptions in such countries; • increased expenses incurred in establishing and maintaining office space and equipment for our international operations; • technological incompatibility between our patented proprietary software and software used by veterinarians; • difficulties in modifying our business model or subscription in a manner suitable for any particular foreign country, including any modifications to our Territory Partner model to the extent we determine that our existing model is not suitable for use in foreign countries; • our lack of experience in marketing to consumers and veterinarians and online engagement in foreign countries, especially if doing so in a foreign language; • our relative lack of industry connections in many foreign countries; • our ability to locally hire, integrate and retain highly skilled and motivated employees and establish and improve systems for operational and financial management where appropriate; • difficulties in managing operations due to language barriers, distance and time zone differences, staffing, cultural differences and business infrastructure constraints, including difficulty in obtaining foreign and domestic visas; • the uncertainty of protection for intellectual property rights in some countries; and • general economic and political conditions in these foreign markets.
We devote substantial resources to compliance with accounting requirements and we base our estimates on our best judgment, historical experience, information derived from third parties, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources.
We devote substantial resources to compliance with accounting requirements and we base our estimates on our best judgment, historical experience, information derived from third parties, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources.
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.
Members may choose to terminate their subscription for a variety of reasons, including, loss of a pet, increased subscription payments, 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.
Those processes, programs and procedures could become increasingly complex and difficult to manage as we grow. Veterinary leads represent our largest member acquisition channel. We spend significant time and resources attracting qualified Territory Partners and providing them with current information about our business and they, in turn, communicate the benefits of medical insurance for pets to veterinarians.
Those processes, programs and procedures could become increasingly complex and difficult to manage as we grow. Veterinary leads represent our largest member acquisition channel. We spend significant time and resources attracting qualified and engaging Territory Partners and providing them with current information about our business and they, in turn, communicate the benefits of medical insurance for pets to veterinarians.
It is possible that we may pay a veterinary invoice which appears authentic but in fact reflects false products or prices. It is also possible that veterinarians will charge insured customers higher amounts than they would charge their non-insured clients for the same service or product, or may alter medical records or exclude information from records.
It is possible that we may pay a veterinary invoice which appears authentic but in fact reflects false services, products or prices. It is also possible that veterinarians will charge insured customers higher amounts than they would charge their non-insured clients for the same service or product, or may alter medical records or exclude information from records.
If we do not effectively manage growth at any time, our financial condition could be harmed and the quality of our services could suffer. In order to successfully expand our business, we need to hire, integrate and retain highly skilled and motivated employees and continue to improve our existing systems for operational and financial management.
If we do not effectively manage growth at any time, our financial condition could be harmed and the quality of our services could suffer. In order to successfully expand our business, we need to hire, integrate and retain in-demand highly skilled and motivated employees and continue to improve our existing systems for operational and financial management.
In addition, California recently adopted two new climate-related bills, which require companies doing business in California that meet certain revenue thresholds to publicly disclose certain greenhouse gas emissions data and climate-related financial risk reports, and compliance with such requirements could require significant effort and resources.
California recently adopted two new climate-related bills, which require companies doing business in California that meet certain revenue thresholds to publicly disclose certain greenhouse gas emissions data and climate-related financial risk reports, and compliance with such requirements could require significant effort and resources.
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.
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; • 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 (or the cessation of coverage by key financial analysts); • the number of shares of our stock trading on a regular basis; and • any other factors discussed in these risk factors.
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.
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.
If we decide to attempt to replace this traffic, we may be required to increase our pet acquisition expenditures, including by utilizing paid search advertising. Certain of our competitors have spent additional funds to promote their products in search results over us.
If we attempt to replace this traffic, we may be required to increase our pet acquisition expenditures, including by utilizing paid search advertising. Certain of our competitors have spent additional funds to promote their products in search results over us.
Any increases in our credit card and debit card fees could adversely affect our operating results, particularly if we elect not to raise our subscription fees. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.
Any increases in our credit card and debit card fees could adversely affect our operating results, particularly if we elect not to raise our fees. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.
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.
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.
In addition, we have posted privacy policies and practices concerning the collection, use and disclosure of member data on our website. Several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices.
In addition, we have posted privacy policies and practices concerning the collection, use and disclosure of member data on our website. Several companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices.
We have also acquired technology intended to enable us to improve our back-end software and facilitate certain expansion efforts, but technology integration is complicated, expensive and time consuming, and it may not result in us realizing the intended benefits from the acquisition. 21 The pursuit of potential new products, investments or acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not they are consummated.
We have also acquired technology intended to enable us to improve our back-end software and facilitate certain expansion efforts, but technology integration is complicated, expensive and time consuming, and it may not result in us realizing the intended benefits from the acquisition. 20 The pursuit of potential new products, investments or acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not they are consummated.
We are subject to a number of risks related to accepting automatic fund transfers and credit card and debit card payments. We accept payments of subscription fees from our members through automatic fund transfers and payments via credit and debit card and mobile payment applications.
We are subject to a number of risks related to accepting automatic fund transfers and credit card and debit card payments. We accept subscription payments from our members through automatic fund transfers and payments via credit and debit card and mobile payment applications.
The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources, which may detract from management attention and financial resources otherwise available to our existing business.
The expansion of our existing international operations and entry into 22 additional international markets will require significant management attention and financial resources, which may detract from management attention and financial resources otherwise available to our existing business.
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.
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.
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.
In addition, 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.
Third parties to whom we outsource certain of our functions are also subject to these risks. While we review and assess our third-party providers’ cybersecurity controls, as appropriate, and make changes to our business processes to manage these risks, we cannot ensure that our attempts to keep such information confidential will always be successful.
Third parties to whom we outsource certain of our functions are also subject to these risks. While we can review and assess our third-party providers’ cybersecurity controls, as appropriate, and make changes to our business processes to manage these risks, 17 we cannot ensure that our attempts to keep such information confidential will always be successful.
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.
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. 32 Item 1B. Unresolved Staff Comments None.
If the actual costs, including veterinary invoice expenses, operating costs and expenses within anticipated pricing allowances, are greater than our assumptions and estimates such that the premiums we collect are insufficient to cover these expenses, then our results could be adversely affected and our revenue may be insufficient to consistently maintain profitability.
If the actual costs, including veterinary invoice expenses, operating costs and expenses within anticipated pricing allowances, are greater than our assumptions and estimates such that the premiums we collect are insufficient to cover these expenses, then our results could be adversely affected and our revenue may be insufficient to consistently achieve or maintain profitability.
We also collect and utilize demographic and other information from and about our members when they visit our website, call our contact center and apply for enrollment. Further, we use tracking technologies, including “cookies,” to help us manage and track our members’ interactions and deliver relevant advice and advertising.
We also collect and utilize demographic and other information from and about prospective and existing members when they visit our website, call our contact center and apply for enrollment. Further, we use tracking technologies, including “cookies,” to help us manage and track our members’ interactions and deliver relevant advice and advertising.
Further, our development and implementation activities may not be successful, may not be well-received by veterinarians or by new or existing members, particularly if they are costly, cumbersome or unreliable, and we may incur delays or cost overruns or elect to curtail our currently planned expenditures related to them.
Further, our development and implementation activities may not be successful, may not be well-received by veterinarians or by prospective or existing members, particularly if they are costly, cumbersome or unreliable, and we may incur delays or cost overruns or elect to curtail our currently planned expenditures related to them.
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.
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, 2024, we issued term loans totaling $135.0 million under the Credit Facility.
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.
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 seek to convert pet owners who visit our website and call our contact center into members. The rate at which we convert these visitors into members is a significant factor in the growth of our member base.
We seek to convert pet parents who visit our website and call our contact center into members. The rate at which we convert these visitors into members is a significant factor in the growth of our member base.
If we are unsuccessful in our strategic relationships, we may not realize the intended benefits of these relationships, lose the investment we have made in these relationships, face difficulty entering into other relationships, and our business may suffer. Our business and financial condition is subject to risks related to our writing of policies for unaffiliated third parties.
If we are unsuccessful in our strategic relationships, we may not realize the intended benefits of these relationships, lose the investment we have made in these relationships, face difficulty entering into other relationships, and our business may suffer. Our business and financial condition is subject to risks related to our writing of policies for unaffiliated third parties, including Pets Best.
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.
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, stockholders, prospective, current or former members, or business partners.
APIC’s ability to pay dividends is limited by New York state insurance laws, and WICL Segregated Account AX’s ability to pay dividends is limited by our agreements with WICL as well as WICL’s regulatory requirements. Any return to stockholders will therefore be limited to the increase, if any, of our stock price.
APIC’s ability to pay dividends is limited by New York state insurance laws, and the ability of our WICL segregated accounts to pay dividends is limited by our agreements with WICL as well as WICL’s regulatory requirements. Any return to stockholders will therefore be limited to the increase, if any, of our stock price.
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.
Our estimates and assumptions may not accurately reflect our future results - we may over, or underspend 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.
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.
Strategic relationships also involve various risks, depending on their structure, including the following: • our strategic partnerships 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 • negative publicity and other issues faced by our strategic partners could adversely impact us.
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. 15 We operate in a competitive market which could adversely affect our prospects, operating results and financial condition.
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.
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. 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.
If our actual experience differs from the assumptions and estimates used in pricing our subscriptions or if we are unable to obtain any necessary regulatory approval for our pricing, our revenue and financial condition could be adversely affected.
The prices of our subscriptions are based on assumptions and estimates. If our actual experience differs from the assumptions and estimates used in pricing our subscriptions or if we are unable to obtain any necessary regulatory approval for our pricing, our revenue and financial condition could be adversely affected.
If we fail to establish new or are unable to maintain our existing member acquisition channels, if the cost of our existing sources increases or does not scale as we anticipate, or if we are unable to continue to use any existing channels or programs in any jurisdiction, including our exam day offer program, our member levels and pet acquisition expenses may be adversely affected.
If we fail to establish new or are unable to maintain our existing member acquisition channels, if the cost of our existing sources increases or does not scale as we anticipate, or if we are unable to continue to use any existing channels or programs in any jurisdiction, our member levels and pet acquisition expenses may be adversely affected.
Our ability to generate leads through veterinary hospitals could be negatively impacted if our policy is perceived to be inadequate, unreliable, cumbersome or otherwise does not provide sufficient value, or if our process for paying veterinary invoices is unsatisfactory to the veterinarians and their clients.
Our ability to generate leads through veterinary hospitals could be negatively impacted if any of our products are perceived to be inadequate, unreliable, cumbersome or otherwise does not provide sufficient value, or if our process for paying veterinary invoices is unsatisfactory to the veterinarians and their clients.
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.
We believe member satisfaction and retention depends in part on our ability to accurately evaluate and pay veterinary invoices in a timely manner.
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 provisions, among other things: • permit only the board of directors to establish the number of directors and fill vacancies on the board; • 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 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.
These factors include: • the pricing of our subscriptions, including their perceived value, simplicity, and fairness; • consumers' perception of our subscription compared to offerings from our competitors; • changes in consumer shopping behaviors due to circumstances outside of our control, such as increased inflation and other economic conditions, and consumers’ ability or willingness to pay for our product; • 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; • 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 average pet acquisition cost and the number of new pets we enroll depends on a number of factors and assumptions, including 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 average pet acquisition cost and the number of new pets we enroll depends on a number of factors and assumptions, including 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 average pet acquisition cost has significantly varied over time.
As we expand internationally, compliance with insurance-related laws, rules and regulations becomes even more difficult and imposes significant costs on our business. Each applicable regulator has broad supervisory power over all insurance-related operations, which can include granting and revoking licenses to transact insurance business, and imposing fines and other penalties.
Furthermore, as we expand internationally, compliance with insurance-related laws, rules and regulations becomes even more difficult and imposes significant costs on our business. Each applicable regulator has broad supervisory power over all insurance-related operations (and certain regulatory oversight of our group of companies), which can include granting and revoking licenses to transact insurance business, and imposing fines and other penalties.
In addition, even if we decrease our average pet acquisition cost, our operating margins may differ from our expectations due to incorrect assumptions relating to existing members adding new pets or referring friends, expenses for member support, and other factors, some of which we do not control. The prices of our subscriptions are based on assumptions and estimates.
In addition, even if we decrease our average pet acquisition cost, our operating margins may differ from our expectations due to incorrect assumptions relating to existing members adding new pets or referring friends, expenses for member support, and other factors, some of which we do not control.
Conversely, if our pricing assumptions differ from actual results such that we overprice risks, our competitiveness and growth prospects could be adversely affected. In addition, most states require licensure and regulatory approval prior to marketing new insurance products.
Conversely, if our pricing assumptions differ from actual results such that we overprice risks, our competitiveness, retention rates, and growth prospects could be adversely affected. In addition, most states require licensure and regulatory approval prior to marketing new insurance products and increasing prices of our existing products.
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.
We rely significantly on Territory Partners, veterinarians and other third parties, including strategic partners, to generate leads. 14 In order for us to continue 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 veterinary 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.
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.
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; • price our subscriptions in relation to actual operating expenses and achieve required regulatory approval for pricing changes; • achieve our target margin profile to allow continued reinvestment in growth and member experience; • maintain and increase positive relationships with veterinarians and other lead sources; • maintain high-performing Territory Partners in our target markets; • administer and continue to grow 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; • 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 business to replace revenue generated through our relationship with Pets Best, since we expect our relationship with Pets Best will diminish and our business activity with them will terminate over future periods; • 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.
Claims or allegations that we have violated applicable laws or regulations related to privacy and data security could in the future result in negative publicity and a loss of confidence in us by our members, our participating service providers or team members, and may subject us to fines by credit card companies and the loss of our ability to accept credit and debit card payments.
Claims or allegations that we, or the vendors with whom we have contracted, have violated applicable laws or regulations related to privacy and data security could result in negative publicity and a loss of confidence in us by our members, our participating service providers or team members, and may subject us to litigation and/or regulatory action and/or fines, including by credit card companies and the loss of our ability to accept credit and debit card payments.
The sale of medical insurance for cats and dogs is heavily regulated. In the United States, insurance is regulated by each state in which we operate, and it is challenging to comply with the requirements of each of these jurisdictions along with the different Canadian federal provincial, and territorial requirements.
In the United States, insurance is regulated by each state in which we operate, and it is challenging to comply with the requirements of each of these jurisdictions along with the different Canadian federal provincial, and territorial requirements.
We may require additional capital to meet our risk-based capital requirements, pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us at any time, our business, operating results and financial condition may be harmed.
If capital is not available to us at any time, our business, operating results and financial condition may be harmed. 23 We may require additional capital to meet our risk-based capital requirements, operate or expand our business or respond to unforeseen circumstances.
These improvements could require significant capital expenditures and place increasing demands on our management. If we do not successfully implement improvements in these areas, our business, operating results and financial condition will be harmed. Emerging claim and coverage issues may adversely affect our business.
These improvements could require significant capital expenditures and place increasing demands on our management. If we do not successfully implement improvements in these areas, our business, operating results and financial condition will be harmed.
As our member base continues to grow, the amount of information collected and stored on the systems and infrastructure supporting our technology platform will continue to grow, and we expect to require an increasing amount of network capacity, computing power and information technology personnel to develop and maintain our technology platform and service our departments involved in member interaction.
As our member base continues to grow, the amount of information collected and stored on the systems and infrastructure supporting our technology platform will continue to grow, and we expect to require an increasing amount of network capacity, computing power and information technology personnel to develop and maintain our technology platform and service our departments involved in member interaction and comply with regulations governing the collection, use, retention, sharing and security of personal information.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge, including new or expanded theories of liability.
Emerging claim and coverage issues may adversely affect our business. 19 As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge, including new or expanded theories of liability.
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 experienced, and expect to continue to experience, significant growth in an underpenetrated market, which has placed, and may continue to place, significant demands on our management and our operational, technological and financial systems and infrastructure.
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 success depends to a significant extent on the continued services of our leadership team, such as Margi Tooth, our Chief Executive Officer and President. Moreover, the loss of key executives or employees or the departure of members of our board within a short time frame could have a material adverse effect on our business.
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.
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.
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.
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.
Such activity could lead to unanticipated costs to us and/or to time and expense to recover such costs. They could also lead to strained relationships with veterinarians and/or members, and could adversely affect our competitiveness, financial results and liquidity. If we are unable to maintain and enhance our brand recognition and reputation, our business and operating results will be harmed.
They could also lead to strained relationships with veterinarians and/or members, and could adversely affect our competitiveness, financial results and liquidity. 18 If we are unable to maintain and enhance our brand recognition and reputation, our business and operating results will be harmed.
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.
As of December 31, 2024, we had U.S. federal net operating loss carryforwards of approximately $256.9 million that will begin to expire in 2026.
Failure to comply with insurance laws, regulations and guidelines or other laws and regulations applicable to our business could result in significant liability, additional department of insurance licensing requirements, the revocation of licenses in a particular jurisdiction or our inability to sell insurance products, which could significantly increase our operating expenses, result in the loss of our revenue and otherwise harm our business, operating results and financial condition.
Failure to comply with insurance laws, regulations and guidelines or other laws and regulations applicable to our business could result in significant liability, additional department of insurance licensing requirements, the revocation of licenses in a particular jurisdiction or our inability to sell insurance products, which could significantly increase our operating expenses, result in the loss of our revenue and otherwise harm our business, operating results and financial condition. 27 Moreover, adverse regulatory action in one jurisdiction could result in penalties and adversely affect our license status or reputation in other jurisdictions.
Our accounting is becoming more complex, and relies upon estimates or judgments relating to our critical accounting policies. If our accounting is erroneous or based on assumptions that change or prove to be incorrect, our operating results could fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
If our accounting is erroneous or based on assumptions that change or prove to be incorrect, our operating results could fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
In August 2022 we purchased Smart Paws, a managing general agent for pet insurance with operations based in Germany and Switzerland, and in November 2022 we acquired PetExpert, a managing general agent for pet insurance with operations based in the Czech Republic and Slovakia.
For instance, in August 2022 we purchased Smart Paws, an MGA for pet insurance with operations based in Germany and Switzerland, and in November 2022 we acquired PetExpert, an MGA for pet insurance with operations based in the Czech Republic and Slovakia.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this report, or the other reports we file from time to time, could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this report, or the other reports we file from time to time, could result in the actual operating results being different from our guidance, and the differences may be adverse and material. 30 Future securities issuances could result in significant dilution to our stockholders and impair the market price of our common stock.
Many laws governing general commerce on the Internet remain unsettled and it may take years to fully determine whether and how existing laws such as those governing insurance, intellectual property, privacy and taxation apply to the Internet.
Law and regulations of the Internet, email and texting could adversely affect our business. Many laws governing general commerce on the Internet remain unsettled and it may take years to fully determine whether and how existing laws such as those governing insurance, intellectual property, privacy and taxation apply to the Internet.
Failure to compete effectively against our current or future competitors could result in loss of current or potential members, which could adversely affect our pricing, lower our revenue, prevent us from maintaining profitability and diminish our brand strength. We depend in part on Internet search engines to attract potential new members to visit our website.
Failure to compete effectively against our current or future competitors could result in loss of current or potential members, which could adversely affect our pricing, lower our revenue, prevent us from maintaining profitability and diminish our brand strength.
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.
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. Newer tools enhanced by artificial intelligence including large language models are swiftly changing the search and display landscape.
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.
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 of the foregoing circumstances could have a material adverse impact on our operating results and financial condition.
We could also become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
We could also become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources. If we fail to effectively manage our growth, our business, operating results and financial condition may suffer.
Any modification of our marketing or business practices in response to regulatory inquiries could harm our business, operating results or financial condition and lead to reputational harm. New laws may be adopted that may adversely affect our operating results and financial condition.
Any modification of our marketing or business practices in response to regulatory inquiries could harm our business, operating results or financial condition and lead to reputational harm. New laws may be adopted that may adversely affect our operating results and financial condition. Existing laws and regulations impose limits on, for instance, our ability to enact price increases for our products.
Future securities issuances could result in significant dilution to our stockholders and impair the market price of our common stock. Future issuances of shares of our common stock, or the perception that these sales may occur, could depress the market price of our common stock and result in dilution to existing holders of our common stock.
Future issuances of shares of our common stock, or the perception that these sales may occur, could depress the market price of our common stock and result in dilution to existing holders of our common stock. Acquisitions, strategic investments, partnerships, or alliances could also result in dilutive issuances of equity securities.
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 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. 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.
The ultimate cost of paying veterinary invoices and the related administration may vary materially from recorded reserves, and such variance may result in adjustments to the reserve for veterinary invoices, which could have a material effect on our operating results and resources available for acquiring additional members.
The ultimate cost of paying veterinary invoices and the related administration may vary materially from recorded reserves, and such variance may result in adjustments to the reserve for veterinary invoices, which could have a material effect on our operating results and resources available for acquiring additional members. 16 As more veterinary hospitals install and use our patented proprietary software, the number of veterinary invoices we receive, and our associated expenses, are likely to increase.
In addition, there is risk that laws and regulations or any particular regulator’s or enforcement authority’s interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may, even absent any particular regulator’s or enforcement authority’s interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thus necessitating changes to our practices that may, in some cases, increase our costs and limit our ability to grow or to improve our results of operations.
There is risk that laws and regulations or any particular regulator’s or enforcement authority’s interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may necessitate changes to our practices that may, in some cases, increase our costs and limit our ability to grow or to improve our results of operations.
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.
We may need to enforce our rights internationally 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. 25 Our proprietary software is protected by patents which may not be sufficient to maintain effective product exclusivity because patent rights are limited in time and do not always provide effective protection.
It is difficult to predict all costs associated with maintaining the building and ensuring it is suitable for our use and that of other tenants and maintain compliance with all environmental and other regulations applicable to ownership of real estate.
Our financial condition and cash flow could be materially affected by changes in costs associated with maintaining the building and ensuring it is suitable for our use and that of other tenants and maintain compliance with all environmental and other regulations applicable to ownership of real estate.
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.
Moreover, in the future, we may continue to 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.
If we are restricted or unable to communicate by phone, text or email with our members and potential members as a result of legislation, blockage or otherwise, our business, operating results and financial condition would be harmed. Our segregated account in Bermuda, WICL segregated account AX, could be adversely impacted by regulatory compliance of an unaffiliated third party.
If we are restricted or unable to communicate by phone, text or email with our members and potential members as a result of legislation, blockage or otherwise, our business, operating results and financial condition would be harmed.
Moreover, our use of third-party services (e.g. cloud technology and software as a service) can make it more difficult to identify and respond to cyberattacks in any of the above situations due to the dynamic nature of these technologies. If we fail to effectively manage our growth, our business, operating results and financial condition may suffer.
Moreover, our use of third-party services (e.g. cloud technology and software as a service) can make it more difficult to identify and respond to cyberattacks in any of the above situations due to the dynamic nature of these technologies and because we do not directly control these services.
We would be adversely affected if we fail to adequately plan for the succession of our senior management and other key employees.
We have experienced turnover in our management team in the past and may experience similar turnover in the future. We would be adversely affected if we fail to adequately plan for the succession of our senior management and other key employees.
Furthermore, we may issue additional equity securities that could have rights senior to those of our common stock, such as pursuant to the “blank check” preferred stock contained in our certificate of incorporation.
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. Furthermore, we may issue additional equity securities that could have rights senior to those of our common stock, such as pursuant to the “blank check” preferred stock contained in our certificate of incorporation.

… 147 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

1 edited+0 added−0 removed18 unchanged
Biggest changeOur Information Security Committee and vCISO annually report on the status of our cybersecurity program and meet with our board of directors to discuss our approach to cybersecurity and risk management. 34 Our Information Security Committee and vCISO, in coordination with management's Risk Committee, work collaboratively to implement a program designed to protect our assets from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with our incident response and recovery plans.
Biggest changeOur Information Security Committee and vCISO annually report on the status of our cybersecurity program and meet with our board of directors to discuss our approach to cybersecurity and risk management. 33 Our Information Security Committee and vCISO, in coordination with management's Risk Committee, work collaboratively to implement a program designed to protect our assets from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with our incident response and recovery plans.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
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
Biggest changeItem 3. Legal Proceedings Information with respect to this item may be found in Note 8 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. 34 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−0 removed9 unchanged
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
Biggest changeThe stockholder return on the following graph is not necessarily indicative of future performance. 35 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Trupanion Inc. $ 100.00 $ 325.65 $ 359.17 $ 129.30 $ 83.00 $ 131.12 S&P Small Cap 600 Index $ 100.00 $ 109.57 $ 137.26 $ 113.35 $ 129.09 $ 137.90 NASDAQ-100 Technology Sector Index $ 100.00 $ 138.58 $ 175.96 $ 105.70 $ 176.19 $ 188.76 Russell 2000 Index $ 100.00 $ 118.67 $ 134.92 $ 105.83 $ 121.81 $ 134.01 36 Item 6. [Reserved] 37
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.
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 2025.
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.
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, 2024, we issued 2,881 shares of our common stock to the distributor in respect of product sales that occurred in the quarter ended September 30, 2024.
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.
This chart compares the stockholder return on an investment of $100 over the five years from December 31, 2019 through December 31, 2024 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 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.
Holders of Record As of February 14, 2025, there were 24 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.

Item 7. Management's Discussion & Analysis

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

103 edited+22 added−19 removed42 unchanged
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.
Biggest changeConsolidated Statements of Operations Data: Three Months Ended Dec. 31, 2024 Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 (in thousands) Revenue: Subscription business $ 227,783 $ 218,986 $ 208,618 $ 201,134 $ 191,537 $ 182,906 $ 173,253 $ 165,210 Other business 109,524 108,470 106,182 104,987 104,320 102,947 97,313 91,119 Total revenue 337,307 327,456 314,800 306,121 295,857 285,853 270,566 256,329 Cost of revenue: Subscription business 181,614 177,365 175,740 172,132 158,631 157,444 151,520 146,091 Other business 102,770 100,712 98,791 97,762 97,162 93,176 89,673 83,892 Total cost of revenue (1) 284,384 278,077 274,531 269,894 255,793 250,620 241,193 229,983 Operating expenses: Technology and development (1) 8,172 7,933 8,190 6,960 5,969 5,302 5,232 4,900 General and administrative (1) 16,828 16,977 15,253 14,673 13,390 12,664 13,136 21,017 New pet acquisition expense (1) 18,354 18,308 17,874 16,843 17,189 17,772 20,769 21,642 Goodwill impairment charges 5,299 — — — — — — — Depreciation and amortization 3,924 4,381 4,376 3,785 3,029 2,990 3,253 3,202 Total operating expenses 52,577 47,599 45,693 42,261 39,577 38,728 42,390 50,761 Gain (loss) from investment in joint venture 2 (34) (47) (103) (79) 4 (73) (71) Operating income (loss) 348 1,746 (5,471) (6,137) 408 (3,491) (13,090) (24,486) Interest expense 3,427 3,820 3,655 3,596 3,697 3,053 2,940 2,387 Other expense (income), net (4,773) (3,538) (3,220) (2,843) (1,256) (2,465) (2,078) (1,902) Income (loss) before income taxes 1,694 1,464 (5,906) (6,890) (2,033) (4,079) (13,952) (24,971) Income tax expense (benefit) 38 39 (44) (38) 130 (43) (238) (191) Net income (loss) $ 1,656 $ 1,425 $ (5,862) $ (6,852) $ (2,163) $ (4,036) $ (13,714) $ (24,780) (1) Includes stock-based compensation expense as follows (in thousands): Three Months Ended Dec. 31, 2024 Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 (in thousands) Cost of revenue $ 1,337 $ 1,401 $ 1,395 $ 1,390 $ 1,478 $ 1,176 $ 1,307 $ 1,318 Technology and development 1,160 1,259 1,261 1,254 861 650 627 708 General and administrative 4,261 4,125 3,861 3,449 3,269 3,281 2,948 8,219 New pet acquisition expense 1,536 1,555 2,129 2,059 1,693 1,785 1,755 2,086 Total stock-based compensation expense $ 8,294 $ 8,340 $ 8,646 $ 8,152 $ 7,301 $ 6,892 $ 6,637 $ 12,331 53 Three Months Ended Dec. 31, 2024 Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Other Financial and Operational Data: Total Business: Total pets enrolled (at period end) 1,677,570 1,688,903 1,699,643 1,708,017 1,714,473 1,712,177 1,679,659 1,616,865 Subscription Business: Total subscription pets enrolled (at period end) 1,041,212 1,032,042 1,020,934 1,006,168 991,426 969,322 943,958 906,369 Monthly average revenue per pet $ 76.02 $ 74.27 $ 71.72 $ 69.79 $ 67.07 $ 65.82 $ 64.41 $ 63.58 Average pet acquisition cost (PAC) $ 261 $ 243 $ 231 $ 207 $ 217 $ 212 $ 236 $ 247 Average monthly retention 98.25 % 98.29 % 98.34 % 98.41 % 98.49 % 98.55 % 98.61 % 98.65 % Three Months Ended Dec. 31, 2024 Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 (as a percentage of revenue) Revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Cost of revenue 84 85 87 88 86 88 89 90 Operating expenses: Technology and development 2 2 3 2 2 2 2 2 General and administrative 5 5 5 5 5 4 5 8 New pet acquisition expense 5 6 6 6 6 6 8 8 Goodwill impairment charges 2 — — — — — — — Depreciation and amortization 1 1 1 1 1 1 1 1 Total operating expenses 15 14 15 14 14 13 16 19 Gain (loss) from investment in joint venture — — — — — — — — Operating income (loss) — 1 (2) (2) — (1) (5) (10) Interest expense 1 1 1 1 1 1 1 1 Other expense (income), net (1) (1) (1) (1) — (1) (1) (1) Income (loss) before income taxes 1 — (2) (2) (1) (1) (5) (10) Income tax expense (benefit) — — — — — — — — Net income (loss) — % — % (2) % (2) % (1) % (1) % (5) % (10) % Three Months Ended Dec. 31, 2024 Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 (as a percentage of subscription revenue) Subscription business revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Subscription business cost of revenue 80 81 84 86 83 86 87 88 54 Liquidity and Capital Resources The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2024 2023 2022 Net cash provided by (used in) operating activities $ 48,287 $ 18,638 $ (8,000) Net cash provided by (used in) investing activities (13,457) 7,639 (67,516) Net cash provided by (used in) financing activities (3,957) 59,126 60,743 Effect of foreign exchange rates on cash, cash equivalents, and restricted cash, net (1,877) 424 (1,459) Net change in cash, cash equivalents, and restricted cash $ 28,996 $ 85,827 $ (16,232) Our primary requirements for liquidity are paying veterinary invoices, funding and growing our operations, funding our capital requirements, investing in new member acquisition, investing in enhancements to our member experience, and servicing debt.
(2) Consists of business acquisition transaction expenses, severance and legal costs due to certain executive departures, and a $3.8 million non-recurring settlement of accounts receivable in the first quarter of 2023 related to uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.
(2) Consists of business acquisition transaction expenses, severance and legal costs due to certain executive departures, and a $3.8 million non-recurring settlement of accounts receivable in the first quarter of 2023 related to uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.
We also regularly test new member acquisition channels and marketing initiatives, which may be more expensive than our traditional marketing channels and may increase our average acquisition costs. We continually assess our pet acquisition activities by monitoring the estimated return on PAC spend both on a detailed level by acquisition channel and in the aggregate. Timing of price adjustments.
We also regularly test new member acquisition channels and marketing initiatives, which may be more expensive than our traditional marketing channels and may increase our average pet acquisition costs. We continually assess our pet acquisition activities by monitoring the estimated return on PAC spend both on a detailed level by acquisition channel and in the aggregate. Timing of price adjustments.
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.
Our pet 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 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 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 9, Reserve for Veterinary Invoices, included in Item 8 of Part II of this 10-K, for further details on anticipated cash outflows.
Investing Cash Flows Net cash provided by investing activities was $7.6 million for the year ended December 31, 2023, primarily consisting of $24.3 million in sales and maturities of investment securities, net of purchases, offset by $18.3 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing, and internal policy management improvements.
Net cash provided by investing activities was $7.6 million for the year ended December 31, 2023, primarily consisting of $24.3 million in sales and maturities of investment securities, net of purchases, offset by $18.3 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing, and internal policy management improvements.
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 leads for our subscription business segment from a diverse set of member acquisition channels, which we then seek to 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.
As our business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements also generally will increase, though risk-based capital requirements also take our overall rate of growth into consideration. Recently, our other business segment growth has slowed and, currently, we expect that to continue, which would reduce our capital requirements.
As our business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements will also increase, though risk-based capital requirements also take our overall rate of growth into consideration. Recently, our other business segment growth has slowed and, currently, we expect that to continue, which would reduce capital requirements.
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.
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.
The Segregated Accounts Company Act of 2000 further requires that dividends out of a segregated account can only be paid to the extent that the cell remains solvent and the value of its assets remain greater than the aggregate of its liabilities and its issued share capital and share premium accounts.
The Segregated Accounts Company Act of 2000 further requires that dividends out of a segregated account can only be paid to the extent that the account remains solvent and the value of its assets remain greater than the aggregate of its liabilities and its issued share capital and share premium accounts.
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.
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, 2024.
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.
Overview We provide medical insurance for cats and dogs in the United States, Canada, certain countries in 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.
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.
We generate revenue in our subscription business segment primarily by subscription payments 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.
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.
We believe the reserve amount as of December 31, 2024 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 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 monitor average monthly retention because it provides a measure of member satisfaction and allows us to calculate the implied average subscriber life in months. 40 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.
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.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 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, 2023.
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.
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 margins. 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.
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.
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. 46 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.
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.
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 the claims process.
Total pets enrolled reflects the number of subscription pets or pets enrolled in one of the insurance products offered in our other business segment at the end of each period presented. We monitor total pets enrolled because it provides an indication of the growth of our consolidated business. Total subscription pets enrolled.
Total pets enrolled reflects the number of pets enrolled in one of the insurance products offered in our subscription business segment and our other business segment at the end of each period presented. We monitor total pets enrolled because it provides an indication of the growth of our consolidated business. Total subscription pets enrolled.
Veterinarians then educate pet owners, who visit our website or call our contact center to learn more about, and potentially enroll in, Trupanion. We also receive a significant number of new leads from existing members adding pets and referring their friends and family members.
Veterinarians then educate pet parents, who visit our website or call our contact center to learn more about, and potentially enroll in, a Trupanion product. We also receive a significant number of new leads from existing members adding pets and referring their friends and family members.
As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Omega General Insurance Company, we are required to maintain a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims.
As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Accelerant Insurance Company of Canada, we are required to maintain a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims.
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.
As of December 31, 2024, 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 10, Debt, included in Item 8 of this report, for further details.
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 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 $0.3 million and $0.7 million for the three months ended December 31, 2024 and 2023, respectively.
We exclude pet acquisition expense for commission-based policies because the revenue of these products is earned from commissions from a third party underwriter, as opposed to the gross underwriting premiums earned by the remainder of our subscription business.
We exclude pet acquisition expense for commission-based policies because the revenue of these products is earned from commissions from a third-party underwriter, as opposed to the subscription payments earned by the remainder of our subscription business.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
Operating Expenses Our operating expenses are classified into four categories: technology and development, general and administrative, new pet acquisition expense, and depreciation and amortization. For each category, except depreciation and amortization, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and stock-based compensation expense.
Operating Expenses Our operating expenses are classified into five categories: technology and development, general and administrative, new pet acquisition expense, goodwill impairment charges, and depreciation and amortization. For each category, except goodwill impairment charges and depreciation and amortization, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and stock-based compensation expense.
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.
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, and targets, a different margin profile than our subscription business segment and includes revenue from writing policies on behalf of third parties and revenue from other pet insurance 44 products.
Per pet metrics, however, exclude these European policies, as their revenue is currently earned from commissions, as opposed to the gross underwriting premiums earned by the remainder of our subscription business. Total pets enrolled.
Per pet metrics, however, exclude these European policies, as their revenue is currently earned from commissions, as opposed to the subscription payments earned by the remainder of our subscription business. Total pets enrolled.
As we continue to grow and consider strategic opportunities, however, we may explore additional financing to fund our operations and growth or to meet capital requirements. Financing could include equity, equity-linked, or debt financing. Additional financing may not be available to us on acceptable terms, or at all.
As we continue to grow and consider strategic opportunities, however, we may explore additional financing to fund our operations and growth or for strategic purposes. Financing could include equity, equity-linked, or debt financing. Additional financing may not be available to us on acceptable terms, or at all.
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.
Other cost of revenue Other cost of revenue for the subscription business segment includes direct and indirect member service expenses, Territory Partner fees upon policy renewals, payment processing fees and premium tax expenses.
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.
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 $1.5 million and $1.3 million for the years ended December 31, 2024 and 2023, respectively.
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.
New pet acquisition expense as a percentage of revenue was 6% for the year ended December 31, 2024 compared to 7% 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 5%. 51 Depreciation and Amortization Year Ended December 31, % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (in thousands, except percentages) Depreciation and amortization $ 16,466 $ 12,474 $ 10,921 32% 14% Percentage of total revenue 1 % 1 % 1 % Year ended December 31, 2024 compared to year ended December 31, 2023.
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.
The ultimate liability, however, may be in excess of or less than the amount we have reserved. For the year ended December 31, 2024, we paid $60.1 million for veterinary invoices dated on or before December 31, 2023, including related processing costs. Our reserve estimate for these expenses was $63.2 million as of December 31, 2023.
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.
Accordingly, we have limited influence on the volume of business of this segment. 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.
Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties, and, in Canada, low and medium ARPU products marketed under the brand names Furkin and PHI Direct.
Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties, low and medium average revenue per pet products marketed under the brand names Furkin and PHI Direct in Canada, and a Trupanion branded product in Germany and Switzerland.
Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties and, in Canada, low and medium ARPU products marketed under the brand names Furkin and PHI Direct.
Within our subscription business, we also provide "Powered by Trupanion" pet insurance product offerings marketed by third parties, low and medium average revenue per pet products marketed under the brand names Furkin and PHI Direct in Canada, and a Trupanion branded product in Germany and Switzerland.
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.
Net cash provided by financing activities was $59.1 million for the year ended December 31, 2023, primarily consisting of $60.1 million in proceeds from the Credit Facility, partially offset by $1.7 million in debt repayments. 55 Long-Term Debt Our Credit Facility provides us with up to $150.0 million of credit.
Wyndham Insurance Company (SAC) Limited (WICL) Segregated Account AX WICL Segregated Account AX was established by WICL, with Trupanion, Inc. as the shareholder, to enter into a reinsurance agreement with Omega General Insurance Company.
WICL Segregated Account AX was established by WICL, with Trupanion, Inc. as the shareholder, to enter into a reinsurance agreement with Accelerant Insurance Company of Canada, formerly known as Omega General Insurance Company.
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.
Operating Cash Flows Net cash provided by operating activities was $48.3 million for the year ended December 31, 2024, compared to $18.6 million net cash provided by operating activities for the year ended December 31, 2023.
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.
Our other business segment primarily includes other product offerings that are materially different from those in our subscription business segment. In addition, we expect the growth rate and margin profile of this segment to be significantly different from our subscription business segment.
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.
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. 41 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, 2024 2023 2022 Veterinary invoice expense $ 949,148 $ 831,055 $ 649,737 Less: Stock-based compensation expense (1) (3,335) (3,450) (4,054) Other business cost of paying veterinary invoices (4) (324,720) (287,858) (212,857) Subscription cost of paying veterinary invoices (non-GAAP) $ 621,093 $ 539,747 $ 432,826 % of subscription revenue 72.5 % 75.7 % 72.5 % Other cost of revenue $ 157,738 $ 146,534 $ 133,257 Less: Stock-based compensation expense (1) (1,955) (1,544) (2,232) Other business variable expenses (4) (75,050) (75,756) (72,453) Subscription variable expenses (non-GAAP) $ 80,733 $ 69,234 $ 58,572 % of subscription revenue 9.4 % 9.7 % 9.8 % Technology and development expense $ 31,255 $ 21,403 $ 25,133 General and administrative expense 63,731 60,207 39,379 Less: Stock-based compensation expense (1) (19,742) (19,869) (17,135) Non-recurring transaction or restructuring expenses (2) — (4,175) (372) Development expenses (3) (5,624) (5,100) (7,789) Fixed expenses (non-GAAP) $ 69,620 $ 52,466 $ 39,216 % of total revenue 5.4 % 4.7 % 4.3 % New pet acquisition expense $ 71,379 $ 77,372 $ 89,500 Less: Stock-based compensation expense (1) (6,908) (7,000) (9,116) Other business pet acquisition expense (4) (39) (200) (541) Subscription acquisition cost (non-GAAP) $ 64,432 $ 70,172 $ 79,843 % of subscription revenue 7.5 % 9.8 % 13.3 % (1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.
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.
New Pet Acquisition Expense Year Ended December 31, % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (in thousands, except pet and per pet data) New pet acquisition expense $ 71,379 $ 77,372 $ 89,500 (8)% (14)% Percentage of total revenue 6 % 7 % 10 % Subscription Business: Total subscription pets enrolled (at period end) 1,041,212 991,426 869,862 5 14 Average pet acquisition cost (PAC) $ 235 $ 228 $ 289 3 (21) Year ended December 31, 2024 compared to year ended December 31, 2023.
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.
Year Ended December 31, 2024 2023 2022 (in thousands) Revenue: Subscription business $ 856,521 $ 712,906 $ 596,610 Other business 429,163 395,699 308,569 Total revenue 1,285,684 1,108,605 905,179 Cost of revenue: Subscription business 706,851 613,686 497,684 Other business 400,035 363,903 285,310 Total cost of revenue (1) 1,106,886 977,589 782,994 Operating expenses: Technology and development (1) 31,255 21,403 25,133 General and administrative (1) 63,731 60,207 39,379 New pet acquisition expense (1) 71,379 77,372 89,500 Goodwill impairment charges 5,299 — — Depreciation and amortization 16,466 12,474 10,921 Total operating expenses 188,130 171,456 164,933 Gain (loss) from investment in joint venture (182) (219) (253) Operating loss (9,514) (40,659) (43,001) Interest expense 14,498 12,077 4,267 Other expense (income), net (14,374) (7,701) (3,072) Loss before income taxes (9,638) (45,035) (44,196) Income tax expense (benefit) (5) (342) 476 Net loss $ (9,633) $ (44,693) $ (44,672) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2024 2023 2022 (in thousands) Cost of revenue $ 5,523 $ 5,279 $ 6,484 Technology and development 4,934 2,846 4,742 General and administrative 15,696 17,717 12,831 New pet acquisition expense 7,279 7,319 9,336 Total stock-based compensation expense $ 33,432 $ 33,161 $ 33,393 47 Year Ended December 31, 2024 2023 2022 (as a percentage of revenue) Revenue 100 % 100 % 100 % Cost of revenue 86 88 87 Operating expenses: Technology and development 2 2 3 General and administrative 5 5 4 New pet acquisition expense 6 7 10 Goodwill impairment charges — — — Depreciation and amortization 1 1 1 Total operating expenses 14 15 18 Gain (loss) from investment in joint venture — — — Operating loss (1) (4) (5) Interest expense 1 1 — Other expense (income), net (1) (1) — Loss before income taxes (1) (4) (5) Income tax expense (benefit) — — — Net loss (1) % (4) % (5) % Stock-based compensation expense: Year Ended December 31, 2024 2023 2022 (as a percentage of revenue) Cost of revenue — % — % 1 % Technology and development — — % 1 General and administrative 1 2 % 1 New pet acquisition expense 1 1 % 1 Total stock-based compensation expense 2 % 3 % 4 % Year Ended December 31, 2024 2023 2022 (as a percentage of subscription revenue) Subscription business revenue 100 % 100 % 100 % Subscription business cost of revenue 83 86 83 48 Comparison of the years ended December 31, 2024, 2023, and 2022 Revenue Year Ended December 31, % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (in thousands, except percentages, pet and per pet data) Revenue: Subscription business $ 856,521 $ 712,906 $ 596,610 20% 19% Other business 429,163 395,699 308,569 8 28 Total revenue $ 1,285,684 $ 1,108,605 $ 905,179 16 22 Percentage of Revenue by Segment: Subscription business 67 % 64 % 66 % Other business 33 36 34 Total revenue 100 % 100 % 100 % Total pets enrolled (at period end) 1,677,570 1,714,473 1,537,573 (2) 12 Total subscription pets enrolled (at period end) 1,041,212 991,426 869,862 5 14 Monthly average revenue per pet $ 72.98 $ 65.26 $ 63.82 12 2 Average monthly retention 98.25 % 98.49 % 98.69 % Year ended December 31, 2024 compared to year ended December 31, 2023.
All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL, and all shares of the segregated account are owned by Trupanion, Inc. In February 2023, our parent entity received a dividend of $7.3 million from WICL Segregated Account AX as allowed under our agreements with WICL.
All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL, and all shares of the segregated account are owned by Trupanion, Inc. In April 2024, our parent company received a dividend of $8.6 million from WICL Segregated Account AX as permitted under our agreements with WICL.
Total Other Expense (Income), Net Year Ended December 31, % Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (in thousands, except percentages) Interest expense $ 12,077 $ 4,267 $ 10 183% 42,570% Other expense (income), net (7,701) (3,072) 14 151 (22,043) Total other (income) expense, net $ 4,376 $ 1,195 $ 24 266% 4,879% Percentage of total revenue — % — % — % Year ended December 31, 2023 compared to year ended December 31, 2022.
Total Other Expense (Income), Net Year Ended December 31, % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (in thousands, except percentages) Interest expense $ 14,498 $ 12,077 $ 4,267 20% 183% Other expense (income), net (14,374) (7,701) (3,072) 87 151 Total other (income) expense, net $ 124 $ 4,376 $ 1,195 (97)% 266% Percentage of total revenue — % — % — % Year ended December 31, 2024 compared to year ended December 31, 2023.
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.
Our “Territory Partners” travel through their territories to have face-to-face visits with veterinarians and their staff. Territory Partners are dedicated to cultivating direct veterinary relationships and helping those veterinarians understand the benefits of high-quality medical insurance.
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.
Cost of revenue for the other business segment increased from 92% to 93% of revenue year-over-year. 50 Technology and Development Expenses Year Ended December 31, % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (in thousands, except percentages) Technology and development $ 31,255 $ 21,403 $ 25,133 46% (15)% Percentage of total revenue 2 % 2 % 3 % Year ended December 31, 2024 compared to year ended December 31, 2023.
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.
We do not undertake marketing efforts for and are not the primary interface with the customers of the third parties for whom we underwrite other business segment policies. Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive, including our contractual relationship with Pets Best.
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.
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 certain countries in Continental Europe, which are underwritten by third parties who pay us commissions that we recognize as revenue.
Regulation As of December 31, 2023, our insurance entities collectively held $101.0 million in cash and cash equivalents, to be used for operating expenses of our insurance entities, $129.6 million in short-term investments and $268.0 million in other current assets.
Regulation As of December 31, 2024, our insurance entities collectively held $125.5 million in cash and cash equivalents, to be used for operating expenses of our insurance entities, $146.4 million in short-term investments and $270.2 million in other current assets.
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.
General and Administrative Expenses Year Ended December 31, % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (in thousands, except percentages) General and administrative $ 63,731 $ 60,207 $ 39,379 6% 53% Percentage of total revenue 5 % 5 % 4 % Year ended December 31, 2024 compared to year ended December 31, 2023.
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.
We operate in two reporting segments: subscription business and other business. We generate revenue in our subscription business segment primarily through insurance premiums, which we refer to as subscription payments from direct-to-consumer products.
Under the Insurance Act, WICL, as a class 3 insurer, is required to maintain available statutory capital and surplus at a level equal to or in excess of a prescribed minimum established by reference to net written premiums and loss reserves. 57 Under the Bermuda Companies Act 1981, as amended, a Bermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that: (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the company’s assets would thereby be less than its liabilities.
Under the Bermuda Companies Act 1981, as amended, a Bermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that: (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the company’s assets would thereby be less than its liabilities.
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.
The following tables reconcile GAAP new pet acquisition expense to non-GAAP net acquisition cost (in thousands) for the years ended December 31, 2024, 2023, and 2022, and for each of the last eight fiscal quarters: Year Ended December 31, 2024 2023 2022 New pet acquisition expense $ 71,379 $ 77,372 $ 89,500 Net of sign-up fee revenue (4,061) (4,527) (4,984) Excluding: Stock-based compensation expense (6,908) (7,000) (9,116) Other business pet acquisition expense (39) (200) (541) Pet acquisition expense for commission-based policies (3,345) (3,443) (443) Net acquisition cost $ 57,026 $ 62,202 $ 74,416 Three Months Ended Dec. 31, 2024 Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 New pet acquisition expense $ 18,354 $ 18,308 $ 17,874 $ 16,843 $ 17,189 $ 17,772 $ 20,769 $ 21,642 Net of sign-up fee revenue (906) (1,100) (1,036) (1,019) (1,035) (1,084) (1,189) (1,219) Excluding: Stock-based compensation expense (1,482) (1,503) (2,066) (1,857) (1,567) (1,679) (1,722) (2,032) Other business pet acquisition expense (8) (8) (10) (13) (77) (10) (62) (51) Pet acquisition expense for commission-based policies (1,125) (634) (754) (832) (802) (826) (888) (927) Net acquisition cost $ 14,833 $ 15,063 $ 14,008 $ 13,122 $ 13,708 $ 14,173 $ 16,908 $ 17,413 Components of Operating Results General We operate in two reporting segments: subscription business and other business.
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.
Total cost of revenue for our subscription business segment increased $93.2 million, or 15%, to $706.9 million for the year ended December 31, 2024. This increase was driven by a $81.2 million, or 15%, increase in veterinary invoice expense and a $11.9 million, or 17%, increase in other cost of revenue.
ZPIC Insurance Company (ZPIC), QPIC Insurance Company (QPIC), and GPIC Insurance Company (GPIC) In 2021, we established two new wholly-owned insurance subsidiaries, ZPIC and QPIC, domiciled in Missouri and Nebraska, respectively, and in 2023 we established a new wholly-owned insurance subsidiary, GPIC, domiciled in Canada. We have funded required statutory capital to each of these new subsidiaries.
ZPIC Insurance Company ("ZPIC"), QPIC Insurance Company ("QPIC"), and GPIC Insurance Company ("GPIC") In 2021, we established two new wholly-owned U.S. insurance subsidiaries, ZPIC and QPIC, domiciled in Missouri and Nebraska, respectively, and in 2022 we established a new wholly-owned insurance subsidiary, GPIC, domiciled in Canada.
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.
This increase was primarily driven by a 17% increase in monthly average revenue per pet in this segment, partially offset by a decrease in pet months in this segment primarily reflecting the expected run off of pets we historically insured for a third-party. 49 Cost of Revenue Year Ended December 31, % Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (in thousands, except percentages, pet and per pet data) Cost of Revenue: Subscription business: Veterinary invoice expense $ 624,428 $ 543,196 $ 436,880 15% 24% Other cost of revenue 82,423 70,490 60,804 17 16 Total cost of revenue $ 706,851 $ 613,686 $ 497,684 15 23 Other business: Veterinary invoice expense $ 324,720 $ 287,859 $ 212,857 13 35 Other cost of revenue 75,315 76,044 72,453 (1) 5 Total cost of revenue $ 400,035 $ 363,903 $ 285,310 10 28 Percentage of Revenue by Segment: Subscription business: Veterinary invoice expense 73 % 76 % 73 % Other cost of revenue 10 10 10 Total cost of revenue 83 86 83 Other business: Veterinary invoice expense 76 73 69 Other cost of revenue 18 19 23 Total cost of revenue 94 92 92 Total pets enrolled (at period end) 1,677,570 1,714,473 1,537,573 (2) 12 Total subscription pets enrolled (at period end) 1,041,212 991,426 869,862 5 14 Monthly average revenue per pet $ 72.98 $ 65.26 $ 63.82 12 2 Year ended December 31, 2024 compared to year ended December 31, 2023.
These development expenses are costs related to product exploration and development that are pre-revenue and historically have been insignificant. 44 When determining our PAC, we calculate net acquisition cost for a more comparable metric across periods.
(3) Consists of costs related to product exploration and development that are pre-revenue and historically have been insignificant (4) Excludes the portion of stock-based compensation expense attributable to the other business segment 43 When determining our PAC, we calculate net acquisition cost for a more comparable metric across periods.
New pet acquisition expense decreased by $12.1 million, or 14%, to $77.4 million for the year ended December 31, 2023. This decrease was attributable to a decrease in expenses to generate leads and conversion, as we focused on growth in our more efficient channels.
New pet acquisition expense decreased by $6.0 million, or 8%, to $71.4 million for the year ended December 31, 2024. This decrease was primarily due to a decrease in expenses related to generating leads and driving conversion, particularly in the first half of 2024, as we focused on growth in our more efficient channels.
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.
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, and targets, a lower margin profile than our subscription segment and is not part of our core business strategy.
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).
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.
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.
Subscription payments 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. Subscription revenue is recognized on a pro rata basis over the policy term.
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.
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. We exclude stock-based compensation expense because the amount varies from period to period based on number of awards issued and market-based valuation inputs.
We apply judgment in the determination of the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be recovered. We apply judgment in the determination of the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
We exclude stock-based compensation expense because the amount varies from period to period based on number of awards issued and market-based valuation inputs. We offset sign-up fee revenue because it is a one-time charge to new members collected at the time of enrollment used to partially offset initial setup costs, which are included in new pet acquisition expenses.
We 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.
Net cash used by investing activities was $67.5 million for the year ended December 31, 2022, primarily consisting of $33.8 million in purchases of investment securities, net of sales and maturities, $17.1 million of capital expenditures primarily related to the development of internal-use software, and $15.0 million in net cash paid for business acquisitions.
Investing Cash Flows Net cash used by investing activities was $13.5 million for the year ended December 31, 2024, primarily consisting of $9.7 million of capital expenditures primarily related to the development of internal-use software focused on member experience, claims processing, and internal policy management improvements and $5.8 million in purchases, net of sales and maturities, of investment securities.
Reserve for Veterinary Invoices We use the chain-ladder method and other actuarial methods to estimate reserves for veterinary invoices for our subscription business and for the majority of our other business segment. Paid loss development factors are estimated based on historical paid loss triangles.
We use the paid development method and other commonly used actuarial methods to estimate reserves for veterinary invoices for our subscription business and for the majority of our other business segment. Paid loss development factors measure the pattern of veterinary invoice payments over time and are used to estimate ultimate loss incurred.
The 24% increase in veterinary invoice expense was driven by a 17% increase in total subscription pet months for policies underwritten by Trupanion and a 7% increase in veterinary invoice expense per pet.
The 15% increase in veterinary invoice expense was driven by an increase in total subscription pet months for policies underwritten by Trupanion and a 7% increase in veterinary invoice expense per pet. The 17% increase in other cost of revenue was primarily driven by general increases in costs attributable to growth in our membership and subscription revenue.
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.
Sign-up fees are related to Trupanion’s obligation to provide insurance coverage and are recognized over the policy term. 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.
Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
Refer to Note 10, Debt, included in Item 8 of Part II of this report, for further details, including interest and future principal repayments. Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
The increase in expense was primarily due to a $4.8 million increase in stock-based compensation related to charges after certain executive departures and a $3.8 million increase related to the negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.
These increases were offset by two charges that were recorded during the first quarter of 2023 that led to a decrease in expense when comparing periods, a $4.8 million stock-based compensation charge following certain executive departures and a $3.8 million charge related to a negotiated settlement of uncollected premiums in connection with the transition of underwriting a third-party business to other insurers.
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.
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.
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.
Year Ended December 31, 2024 2023 2022 Total Business: Total pets enrolled (at period end) 1,677,570 1,714,473 1,537,573 Subscription Business: Total subscription pets enrolled (at period end) 1,041,212 991,426 869,862 Monthly average revenue per pet $ 72.98 $ 65.26 $ 63.82 Average pet acquisition cost (PAC) $ 235 $ 228 $ 289 Average monthly retention 98.25 % 98.49 % 98.69 % Three Months Ended Dec. 31, 2024 Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Total Business: Total pets enrolled (at period end) 1,677,570 1,688,903 1,699,643 1,708,017 1,714,473 1,712,177 1,679,659 1,616,865 Subscription Business: Total subscription pets enrolled (at period end) 1,041,212 1,032,042 1,020,934 1,006,168 991,426 969,322 943,958 906,369 Monthly average revenue per pet $ 76.02 $ 74.27 $ 71.72 $ 69.79 $ 67.07 $ 65.82 $ 64.41 $ 63.58 Average pet acquisition cost (PAC) $ 261 $ 243 $ 231 $ 207 $ 217 $ 212 $ 236 $ 247 Average monthly retention 98.25 % 98.29 % 98.34 % 98.41 % 98.49 % 98.55 % 98.61 % 98.65 % Total pets enrolled and total subscription pets enrolled include certain pet enrollments in European markets, where policies are currently underwritten by third parties and Trupanion is acting as an insurance broker.
This increase was primarily driven by a 17% increase in total subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion and a 2% increase in monthly average revenue per pet.
This increase was primarily due to a 12% increase in monthly average revenue per pet and an increase in subscription pet months (the sum of pets enrolled for each month during a period) for policies underwritten by Trupanion. Revenue from our other business segment increased by $33.5 million, or 8%, to $429.2 million for the year ended December 31, 2024.
Our direct-to-consumer acquisition channels serve as important resources for pet owner education and drive new member leads and conversion.
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.
As our capital surplus grows relative to the rate of growth of our business, we may also generate cash, via dividends or other methods, from one or more of our underwriting entities. As of December 31, 2023, we had $277.2 million in cash, cash equivalents and short-term investments, of which $230.6 million was held by our insurance entities.
If our capital surplus grows relative to the rate of growth of our business, we may also generate cash for operations and growth, via dividends or other methods, from one or more of our underwriting entities.
Outside of insurance entities, we held $46.6 million in cash, cash equivalents and short-term investments with an additional $15.0 million available under our Credit Facility. Our insurance entities maintained $241.3 million of capital surplus, which was $64.1 million in excess of the estimated risk-based capital requirement of $177.2 million.
As of December 31, 2024, we had $307.4 million in cash, cash equivalents and short-term investments, of which $272.0 million was held by our insurance entities. Outside of insurance entities, we held $35.4 million in cash, cash equivalents and short-term investments with an additional $15.0 million available under our Credit Facility. Our insurance entities maintained $288.0 million of capital surplus.
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.
Reserve for Veterinary Invoices The reserve for veterinary invoices represents our estimate of future amounts we will pay for veterinary claims that have been incurred but not yet paid as of the reporting date. The reserve also includes our best estimate of related internal processing costs.
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.
We either directly underwrite or assume full insurance risk for these products through reinsurance arrangements. 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.

… 64 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed6 unchanged
Biggest changeAs 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.
Biggest changeAs of December 31, 2024, our aggregate outstanding indebtedness was $128.9 million. A hypothetical 100 basis point 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.
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.
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, 2024. Our market risk sensitive instruments are primarily entered into for purposes other than trading.
For additional information regarding our investments, refer to Note 6, Investments, included in Item 8 of this report. Additionally, we are exposed to interest rate risk as a result of our debt and our investment activities. Our Credit Facility bears interest at a floating base rate plus an applicable margin.
For additional information regarding our investments, refer to Note 5, Investments, included in Item 8 of this report. Additionally, we are exposed to interest rate risk as a result of our debt and our investment activities. Our Credit Facility bears interest at a floating base rate plus an applicable margin.
A 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.
A hypothetical 100 basis point interest rate increase would not have a material effect on the fair value of our investments. Foreign Currency Exchange Risk We generate approximately 16% of our revenue in Canada.
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.
A hypothetical change of this magnitude would have increased or decreased our total revenues by approximately $20.7 million, total expenses by approximately $19.3 million, and have a net impact of $1.4 million on income or loss for the year ended December 31, 2024.

Other TRUP 10-K year-over-year comparisons