Trupanion(TRUP) - 2025 Q2 - Quarterly Report

FORM 10-Q Cover Page This is a Quarterly Report (Form 10-Q) for the period ended June 30, 2025, filed by TRUPANION, INC. - This is a Quarterly Report (Form 10-Q) for the period ended June 30, 2025, filed by TRUPANION, INC. (Commission File Number: 001-36537)[2] - The registrant's common stock trades under the symbol 'TRUP' on The Nasdaq Stock Market LLC[3] - Trupanion, Inc. is classified as a 'Large accelerated filer' and is not a shell company[5] TABLE OF CONTENTS This section provides an organized listing of all major sections and financial statements included in the Form 10-Q report Note About Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties, and the company undertakes no obligation to update them - The report contains forward-looking statements regarding future results, financial position, business strategy, and operational objectives, identified by words like 'believe,' 'may,' 'will,' 'anticipate,' and 'expect'[9] - These statements are subject to risks, uncertainties, and assumptions, including those discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[10] - The Company undertakes no obligation to publicly update any forward-looking statements, except as required by law[11] PART I - FINANCIAL INFORMATION This section presents Trupanion, Inc.'s unaudited condensed consolidated financial statements for the quarter and six months ended June 30, 2025, along with management's discussion and analysis of financial condition and results of operations, market risk disclosures, and controls and procedures Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, investments, debt, stock-based compensation, and segment performance Condensed Consolidated Statements of Operations This statement presents the company's revenues, costs, and net income (loss) for the reported periods | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Revenue | $353,557 | $314,800 | $695,532 | $620,921 | | Total cost of revenue | $298,730 | $274,531 | $589,602 | $544,425 | | Operating income (loss) | $2,314 | $(5,471) | $841 | $(11,608) | | Net income (loss) | $9,413 | $(5,862) | $7,930 | $(12,714) | | Basic EPS | $0.22 | $(0.14) | $0.19 | $(0.30) | | Diluted EPS | $0.22 | $(0.14) | $0.18 | $(0.30) | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement details net income (loss) and other comprehensive income (loss) components | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) | $9,413 | $(5,862) | $7,930 | $(12,714) | | Other comprehensive income (loss), net of taxes | $3,372 | $(190) | $5,269 | $(2,174) | | Comprehensive income (loss) | $12,785 | $(6,052) | $13,199 | $(14,888) | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at period end | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total assets | $847,789 | $806,853 | | Total liabilities | $492,335 | $483,585 | | Total stockholders' equity | $355,454 | $323,268 | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in stockholders' equity, including net income and stock-based compensation - Total stockholders' equity increased from $323,268 thousand at January 1, 2025, to $355,454 thousand at June 30, 2025, driven by stock-based compensation expense ($19,344 thousand), other comprehensive income ($5,269 thousand), and net income ($7,930 thousand)[26] Condensed Consolidated Statements of Cash Flows This statement categorizes cash flows from operating, investing, and financing activities | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $30,989 | $9,290 | | Net cash used in investing activities | $(51,440) | $(30,454) | | Net cash used in financing activities | $(16,346) | $(1,244) | | Net change in cash, cash equivalents, and restricted cash | $(35,059) | $(22,871) | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, estimates, and financial statement line items Note 1. Nature of Operations and Significant Accounting Policies This note describes Trupanion's business, recent IP acquisition, and evaluation of new accounting pronouncements - Trupanion, Inc. provides medical insurance for cats and dogs in the US, Canada, and certain countries in Continental Europe, utilizing a data-driven, vertically-integrated approach to offer high-value, uniquely priced products[30] - The company acquired intellectual property from Baystride, Inc. for $14.9 million, recorded as a patent, resulting in a $7.8 million gain from the nonmonetary exchange of preferred stock[33][47] - The FASB issued ASU 2023-09 (effective after Dec 15, 2024) and ASU 2024-03 (effective after Dec 15, 2026), which the company is currently evaluating for impact on its financial statements[36][37] Note 2. Net Income (Loss) per Share This note details basic and diluted earnings per share calculation, including dilutive securities treatment | EPS Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Basic | $0.22 | $(0.14) | $0.19 | $(0.30) | | Diluted | $0.22 | $(0.14) | $0.18 | $(0.30) | - Potentially dilutive equity securities (stock options and restricted stock units) were not included in diluted earnings per share calculation in periods of net loss as they would have had an antidilutive effect[39] Note 3. Investments This note breaks down the investment portfolio and discusses unrealized losses on available-for-sale securities | Investment Type (in thousands) | Fair Value (June 30, 2025) | Fair Value (December 31, 2024) | | :----------------------------- | :------------------------- | :----------------------------- | | Long-term held-to-maturity | $167 | $372 | | Short-term available-for-sale | $178,432 | $134,466 | | Short-term held-to-maturity | $18,414 | $12,638 | - Unrealized losses on available-for-sale investments are primarily due to interest rate changes, and the Company does not anticipate material credit losses or intend to sell these securities prior to cost basis recovery[43] Note 4. Other Investments This note describes the nonmonetary exchange of preferred stock for intellectual property and a revolving line of credit - The Company completed a nonmonetary exchange during Q2 2025, transferring its $14.8 million fair value preferred stock investment in Baystride, Inc. for $14.9 million of intellectual property (a patent), resulting in a $7.8 million realized gain[46][47] - A $7.0 million revolving line of credit extended to Baystride had an outstanding balance of $0.4 million as of June 30, 2025, down from $1.6 million at December 31, 2024, and was extinguished in July 2025[48] Note 5. Fair Value This note presents fair value measurements of financial assets, categorized by valuation input levels | Asset Type (in thousands) | Fair Value (June 30, 2025) | Fair Value (December 31, 2024) | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | | :------------------------ | :------------------------- | :----------------------------- | :---------------------- | :---------------------- | :---------------------- | | Money market funds | $57,309 | $91,534 | $57,309 | $— | $— | | Fixed maturities | $178,432 | $134,466 | $— | $178,432 | $— | | Preferred stock investment | $— | $7,916 | $— | $— | $— | | Total | $235,741 | $233,916 | $57,309 | $178,432 | $— | - The preferred stock investment, previously a Level 3 measurement, was exchanged for intellectual property during Q2 2025, resulting in a zero balance at period end[52][54] Note 6. Commitments and Contingencies This note addresses legal proceedings and other commitments, anticipating no material individual or aggregate impact - The Company is subject to various legal proceedings in the ordinary course of business but does not believe any current matters are material individually or in the aggregate[57] Note 7. Reserve for Veterinary Invoices This note explains the actuarial estimation for unpaid claims and details development patterns for business segments - The reserve for veterinary invoices is an actuarial estimate for unpaid claims and related processing costs, continually refined based on claims development patterns[58] | Segment | Reserve at Beginning of Year (2025) | Total Veterinary Invoice Expense (2025) | Total Paid (2025) | Reserve at End of Period (2025) | | :------ | :---------------------------------- | :-------------------------------------- | :---------------- | :------------------------------ | | Subscription Business | $23,084 | $341,055 | $336,608 | $25,907 | | Other Business | $28,551 | $161,975 | $163,910 | $26,616 | - The subscription business experienced $2.1 million in unfavorable development on veterinary invoice reserves for the six months ended June 30, 2025, primarily due to slower claims reporting and higher frequency than expected[60] - The other business segment experienced $5.5 million in favorable development on veterinary invoice reserves for the six months ended June 30, 2025, driven by faster claims reporting and lower frequency/severity than anticipated[61] Note 8. Debt This note outlines the Credit Facility, including term loans, recent principal repayments, and interest rates - The Company has a $150.0 million Credit Facility, including $60.0 million Initial Term Loan, $75.0 million Delayed Draw Term Loans, and $15.0 million Revolving Loans[64][65] - In June 2025, the Company made a $14.9 million principal repayment on the Initial Term Loan, in addition to the 0.25% quarterly mandatory repayment[67] - The Credit Facility bears interest at approximately 9.45% as of June 30, 2025, and is secured by substantially all Company assets[68][69] Note 9. Stock-Based Compensation This note breaks down stock-based compensation expense and details outstanding stock options and restricted stock units | Expense Category (in thousands) | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------------------ | :------------------------------- | :------------------------------- | | Veterinary invoice expense | $774 | $1,544 | | Other cost of revenue | $605 | $1,094 | | Technology and development | $1,470 | $2,621 | | General and administrative | $5,047 | $9,575 | | New pet acquisition expense | $1,560 | $4,452 | | Total expensed stock-based compensation | $9,456 | $19,286 | - As of June 30, 2025, 237,699 stock options were outstanding and exercisable with a weighted average remaining contractual life of 1.4 years; no new stock options have been granted since 2017[72][73] - Unvested restricted stock units totaled 1,393,567 shares as of June 30, 2025, with $55.3 million in related compensation expense expected to be recognized over approximately 2.0 years[74] Note 10. Stockholders' Equity This note specifies common shares outstanding and the company's policy on cash dividends and share repurchases - As of June 30, 2025, the Company had 42,987,772 shares of common stock outstanding and no preferred stock outstanding[75] - The Company does not intend to declare or pay cash dividends in the foreseeable future and made no share repurchases under its program during the six months ended June 30, 2025[75][76] Note 11. Accumulated Comprehensive Income (Loss) This note details components of accumulated comprehensive income (loss), including foreign currency translation | Component (in thousands) | Balance as of April 1, 2025 | Other Comprehensive Income (Loss) | Balance as of June 30, 2025 | | :----------------------- | :-------------------------- | :-------------------------------- | :-------------------------- | | Foreign Currency Translation | $(1,761) | $3,202 | $1,441 | | Net Unrealized Gain (Loss) on Available-for-Sale Securities | $1,046 | $170 | $1,216 | | Total | $(715) | $3,372 | $2,657 | - A $0.9 million previously unrealized gain was reclassified from Accumulated other comprehensive income (loss) to Other (income), net during the six months ended June 30, 2025, due to a nonmonetary exchange[77] Note 12. Segments This note describes Trupanion's subscription and other business segments, along with geographic revenue breakdown - Trupanion operates two segments: subscription business (direct-to-consumer pet medical insurance, higher margin) and other business (underwriting for third parties, lower margin, not core strategy)[80][89] | Segment Performance (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Subscription business revenue | $242,156 | $208,618 | $475,220 | $409,752 | | Subscription business operating income (loss) | $4,523 | $(3,420) | $5,590 | $(7,939) | | Other business revenue | $111,401 | $106,182 | $220,312 | $211,169 | | Other business operating loss | $(2,209) | $(2,004) | $(4,444) | $(3,519) | | Geographic Region | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :---------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | United States | $293,979 | $263,220 | $579,803 | $519,193 | | Canada and other | $59,578 | $51,580 | $115,729 | $101,728 | | Total revenue | $353,557 | $314,800 | $695,532 | $620,921 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Trupanion's financial performance, including an overview of its business segments, key operating metrics, non-GAAP financial measures, detailed analysis of operating results, factors affecting performance, and a discussion of liquidity and capital resources Overview This section provides a high-level description of Trupanion's business model, operating segments, and customer acquisition channels - Trupanion provides medical insurance for cats and dogs in the US, Canada, and parts of Continental Europe, using a data-driven, vertically-integrated approach[86] - The company operates two segments: subscription business (direct-to-consumer, target margin focus) and other business (underwriting for third parties, lower margin, not core strategy)[87][89] - Veterinary hospitals are the largest referral source for the subscription business, with 'Territory Partners' cultivating direct relationships[88] Key Operating Metrics This section presents crucial operational performance indicators, including pet enrollment, revenue per pet, and retention | Metric | June 30, 2025 | June 30, 2024 | YoY Change | | :-------------------------------- | :------------ | :------------ | :--------- | | Total pets enrolled (at period end) | 1,660,455 | 1,699,643 | (2)% | | Total subscription pets enrolled (at period end) | 1,066,354 | 1,020,934 | 4% | | Monthly average revenue per pet | $79.93 (Q2) | $71.72 (Q2) | 11% | | Average pet acquisition cost (PAC) | $276 (Q2) | $231 (Q2) | 19% | | Average monthly retention | 98.29% | 98.34% | (0.05)% | - Total pets enrolled decreased by 2% YoY, while total subscription pets enrolled increased by 4% YoY, indicating a shift towards the core subscription business[91][92][93] - Monthly average revenue per pet for the subscription business increased by 11% YoY, reflecting improved unit economics[91][94] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures used to assess operating performance - Non-GAAP financial measures are used to evaluate operating performance by excluding non-cash or non-recurring expenses like stock-based compensation, non-recurring transactions, restructuring, and pre-revenue development expenses[98][99] | Non-GAAP Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % of Subscription Revenue (2025) | % of Subscription Revenue (2024) | | :----------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Subscription cost of paying veterinary invoices | $339,533 | $306,130 | 71.4% | 74.7% | | Subscription variable expenses | $43,223 | $39,222 | 9.1% | 9.6% | | Fixed expenses | $42,531 | $33,036 | 6.1% (of total revenue) | 5.3% (of total revenue) | | Subscription acquisition cost | $35,892 | $30,771 | 7.6% | 7.5% | - Net acquisition cost, a non-GAAP measure, excludes stock-based compensation, other business segment expense, and pet acquisition expense for commission-based policies, offset by sign-up fee revenue, to provide a more comparable metric across periods[103] | Net Acquisition Cost (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | | New pet acquisition expense | $40,359 | $34,717 | | Net of sign-up fee revenue | $(2,101) | $(2,055) | | Excluding stock-based compensation expense | $(4,390) | $(3,923) | | Excluding other business pet acquisition expense | $(77) | $(23) | | Excluding pet acquisition expense for commission-based policies | $(1,524) | $(1,586) | | Net acquisition cost | $32,267 | $27,130 | Components of Operating Results This section explains the various components contributing to the company's operating results by segment General This subsection outlines the strategic focus and offerings of the subscription business and the nature of the other business segment - The Company's subscription business focuses on achieving a target margin before pet acquisition expense, while the other business segment has a lower margin profile and is not part of the core strategy[105][106] - The subscription business includes 'Powered by Trupanion' offerings, Furkin and PHI Direct in Canada, and Trupanion branded products in Germany and Switzerland, with an intent to assume full insurance risk for European products[105] - The other business segment's largest revenue source is from underwriting policies for Pets Best, alongside programs for the U.S. Department of Veterans Affairs and employer-sponsored programs[106] Revenue This subsection describes the primary sources and recognition methods for revenue within both business segments - Subscription business revenue is primarily from subscription payments recognized pro rata over the policy term, with a small amount from one-time sign-up fees and commissions in European markets[107] - Other business segment revenue is primarily from writing policies for third parties without direct consumer marketing, often with different margin profiles[108] Cost of Revenue This subsection details the components of cost of revenue, including veterinary invoice expense and other direct costs - Veterinary invoice expense includes costs to review, pay, and administer invoices, plus accruals for incurred but unpaid invoices and internal processing costs[109] - Other cost of revenue for the subscription business includes member service expenses, Territory Partner fees, payment processing, and premium taxes; for the other business, it includes commissions to general agents, program administration, and premium taxes[110] Operating Expenses This subsection categorizes and explains the company's operating expenses, such as technology, G&A, and pet acquisition - Operating expenses are categorized into technology and development, general and administrative, new pet acquisition, and depreciation and amortization, with personnel costs being the largest component for most categories[111] - Technology and development expenses cover IT staff, infrastructure, and new product/geography development. General and administrative expenses include personnel for finance, actuarial, HR, legal, and management, plus facilities and professional services. New pet acquisition expenses cover educating consumers/veterinarians, lead generation, conversion, and advertising[112][113][114] Gain (loss) from investment in joint venture This subsection explains the restructuring of the Australian joint venture to a brand license arrangement - The Company's relationship with its Australian joint venture was restructured from an equity method investment to a brand license and services arrangement in March 2025[116] Stock-based compensation This subsection clarifies that stock-based compensation expense is allocated across various cost and expense lines - Stock-based compensation expense, included across various cost and expense lines, varies based on corporate performance and the timing/vesting of annual performance grants under the equity incentive plan[117][145][146] Factors Affecting Our Performance This section identifies key internal and external factors influencing the company's financial and operational performance - Key performance factors include average monthly retention (influenced by value, member experience, claims process, veterinary inflation, pricing adjustments, and new pet enrollment rates), investment in pet acquisition (cost, channels, effectiveness), and timing of price adjustments (cost-plus model, regulatory approval, timing mismatches)[118][119][120] - Other factors include the timing of new initiatives (member experience, plan modifications, technology, direct pay software), mix of sales (geography, pet age/species/breed impacting revenue per pet and foreign exchange exposure), and the other business segment's lower margin, non-core strategy, and potential for contract termination[121][122][123] Results of Operations This section provides a detailed comparison of Trupanion's financial results for the three and six months ended June 30, 2025, versus 2024, highlighting changes in revenue, cost of revenue, operating expenses, and other income/expense Revenue This subsection analyzes changes in revenue for both subscription and other business segments | Revenue (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :--------------------- | :----------- | :----------- | :------------- | :----------- | :----------- | :------------- | | Subscription business | $242,156 | $208,618 | 16% | $475,220 | $409,752 | 16% | | Other business | $111,401 | $106,182 | 5% | $220,312 | $211,169 | 4% | | Total revenue | $353,557 | $314,800 | 12% | $695,532 | $620,921 | 12% | - Subscription business revenue increased by 16% for both the three and six months ended June 30, 2025, primarily due to an 11% increase in monthly average revenue per pet and growth in subscription pet months[127][128] - Other business revenue increased by 5% (QoQ) and 4% (YoY), driven by a 20% (QoQ) and 19% (YoY) increase in monthly average revenue per pet, partially offset by a decrease in pet months due to the expected run-off of Pets Best policies[127][128] Cost of Revenue This subsection examines changes in cost of revenue for both segments, noting the impact of veterinary invoice expense | Cost of Revenue (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :----------------------------- | :----------- | :----------- | :------------- | :----------- | :----------- | :------------- | | Subscription business total | $195,488 | $175,740 | 11% | $385,333 | $347,871 | 11% | | Other business total | $103,242 | $98,791 | 5% | $204,269 | $196,554 | 4% | - Subscription business cost of revenue increased by 11% for both periods, but decreased as a percentage of revenue from 84% to 81% (QoQ) and 85% to 81% (YoY), indicating revenue growth outpaced cost growth[129][131][132] - Other business cost of revenue increased by 5% (QoQ) and 4% (YoY), remaining constant at 93% of revenue, driven by a 25% (QoQ) and 18% (YoY) increase in veterinary invoice expense per pet, partially offset by decreased pet months[130][133] Technology and Development Expenses This subsection discusses drivers behind changes in technology and development expenses | Expense (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :--------------------- | :--------- | :--------- | :------------- | :--------- | :--------- | :------------- | | Technology and development | $8,586 | $8,190 | 5% | $16,658 | $15,150 | 10% | | % of total revenue | 2% | 3% | | 2% | 2% | | - The increase was primarily due to higher general compensation and employee-related expenses and reduced capitalized expenditures for internal software, partially offset by decreases in development and infrastructure expenses[134][135] General and Administrative Expenses This subsection explains the increase in general and administrative expenses due to compensation and underwriting fees | Expense (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :--------------------- | :--------- | :--------- | :------------- | :--------- | :--------- | :------------- | | General and administrative | $20,122 | $15,253 | 32% | $40,014 | $29,926 | 34% |\ | % of total revenue | 6% | 5% | | 6% | 5% | | - The significant increase was driven by higher general compensation and employee-related expenses and increased underwriting fees related to the Canadian business[136][137] New Pet Acquisition Expense This subsection analyzes the increase in new pet acquisition expense and average pet acquisition cost | Expense (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :--------------------- | :--------- | :--------- | :------------- | :--------- | :--------- | :------------- | | New pet acquisition expense | $19,843 | $17,874 | 11% | $40,359 | $34,717 | 16% | | % of total revenue | 6% | 6% | | 6% | 6% | | | Average pet acquisition cost (PAC) | $276 | $231 | 19% | $272 | $219 | 24% | - The increase in new pet acquisition expense and average PAC reflects increased marketing spend to acquire new pets in a disciplined manner, while maintaining a constant percentage of total revenue[138][139] Depreciation and Amortization This subsection details the decrease in depreciation and amortization expenses due to fewer software projects | Expense (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :--------------------- | :--------- | :--------- | :------------- | :--------- | :--------- | :------------- | | Depreciation and amortization | $3,962 | $4,376 | (9)% | $7,753 | $8,161 | (5)% | | % of total revenue | 1% | 1% | | 1% | 1% | | - The decrease was primarily due to fewer internally developed software projects being placed in-service during the period[141][142] Total Other (Income) Expense, Net This subsection explains the significant change in other income (expense), net, from a nonmonetary exchange | Metric (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :-------------------- | :----------- | :--------- | :------------- | :----------- | :--------- | :------------- | | Interest expense | $3,682 | $3,655 | 1% | $6,893 | $7,251 | (5)% | | Other (income), net | $(11,914) | $(3,220) | 270% | $(15,154) | $(6,063) | 150% | | Total other (income) expense, net | $(8,232) | $435 | (1,992)% | $(8,261) | $1,188 | (795)% | - The significant increase in other income was primarily due to a $7.8 million realized gain from the nonmonetary exchange of Baystride preferred stock for intellectual property[143][144] Stock-Based Compensation This subsection highlights the increase in total stock-based compensation expense from equity grants | Metric (in thousands) | Q2 2025 | Q2 2024 | % Change (QoQ) | YTD 2025 | YTD 2024 | % Change (YoY) | | :-------------------- | :--------- | :--------- | :------------- | :--------- | :--------- | :------------- | | Total stock-based compensation expense | $9,456 | $8,646 | 9% | $19,286 | $16,798 | 15% | - The increase in stock-based compensation expense reflects the timing and vesting of annual performance grants under the equity incentive plan[145][146] Liquidity and Capital Resources This section discusses Trupanion's cash flows, primary liquidity sources, capital requirements, debt obligations, and regulatory capital requirements for its insurance entities, highlighting an increase in operating cash flow and strategic capital deployment Operating Cash Flows This subsection analyzes the substantial increase in net cash provided by operating activities | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change (YoY) | | :-------------------- | :------------------------------- | :------------------------------- | :------------- | | Net cash provided by operating activities | $30,989 | $9,290 | 233.6% | - The significant increase in operating cash flow was driven by improved operating results, higher revenue, and better Subscription Business margins, along with timing differences in working capital[151] Investing Cash Flows This subsection details the increase in net cash used in investing activities due to higher investment security purchases | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Net cash used in investing activities | $(51,440) | $(30,454) | | Purchases of investment securities | $(142,000) | $(81,249) | | Sales and maturities of investment securities | $94,264 | $55,678 | | Capital expenditures (property, equipment, internal-use software) | $(4,904) | $(5,945) | - Net cash used in investing activities increased due to higher purchases of investment securities, partially offset by sales and maturities, and a decrease in capital expenditures for internal-use software[152] Financing Cash Flows This subsection explains the increase in net cash used in financing activities, driven by a significant debt repayment | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Net cash used in financing activities | $(16,346) | $(1,244) | | Repayment of debt financing | $(15,525) | $(675) | - The increase in cash used in financing activities was primarily due to a significant $15.5 million repayment on the Credit Facility in 2025[153] Long-Term Debt This subsection provides an overview of outstanding term loans and details recent principal repayments - As of June 30, 2025, the Company had $116.4 million in outstanding term loans under its $150.0 million Credit Facility, secured by substantially all assets[154] - A $14.9 million principal repayment was made on the Initial Term Loan in June 2025[154] Regulation This subsection discusses regulatory capital requirements for insurance entities and details extraordinary dividends - Trupanion's insurance entities held $266.3 million in cash, cash equivalents, and short-term investments as of June 30, 2025, subject to capital and dividend regulations by various jurisdictions[149][155] - APIC distributed an extraordinary dividend of $26.0 million to Trupanion, Inc. in May 2025, while WICL Segregated Account AX distributed $15.6 million and $7.0 million in March and July 2025, respectively[156][158] - The Company established new insurance subsidiaries, ZPIC (US) and GPIC (Canada), in 2021 and 2022, respectively, to provide flexibility in underwriting policies, with GPIC beginning to underwrite business in 2025[157] Contractual Obligations This subsection identifies primary long-term contractual obligations, including debt and vendor service agreements - The Company's long-term contractual obligations primarily consist of debt obligations under its $150.0 million Credit Facility and non-cancellable vendor service agreements[162] Critical Accounting Policies and Significant Estimates This section confirms no material changes to critical accounting policies or estimates since the last annual report - There have been no material changes to the Company's critical accounting policies or estimates as compared to those described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk Management states there have been no material changes to the Company's quantitative or qualitative disclosures about market risk during the first six months ended June 30, 2025, referring to the 2024 Form 10-K for further discussion - No material changes to market risk disclosures were reported for the first six months ended June 30, 2025[167] Item 4. Controls and Procedures The CEO and CFO concluded that Trupanion's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This subsection states the CEO and CFO concluded disclosure controls and procedures were effective - As of June 30, 2025, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[168] Changes in Internal Control This subsection reports no material changes in internal control over financial reporting during the quarter - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2025[169] Limitations on Effectiveness of Controls and Procedures This subsection acknowledges inherent limitations of controls and procedures, providing only reasonable assurance - Management acknowledges that controls and procedures provide only reasonable assurance due to inherent limitations and resource constraints, requiring judgment in evaluating benefits versus costs[170] PART II - OTHER INFORMATION This section covers non-financial information, including legal proceedings, risk factors, unregistered sales of equity securities, defaults on senior securities, mine safety disclosures, other information (Rule 10b5-1 plans), and a list of exhibits Item 1. Legal Proceedings The Company is subject to ordinary course litigation but does not believe any current matters are individually or aggregately material - The Company is subject to litigation in the ordinary course of business, but no material matters are currently identified[172] Item 1A. Risk Factors There have been no material changes to the risk factors previously identified in the Company's Annual Report on Form 10-K - No material changes to risk factors were identified compared to the Annual Report on Form 10-K[173] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2025, Trupanion issued 3,571 shares of common stock to a strategic distributor as partial consideration for sales, relying on Section 4(a)(2) of the Securities Act for exemption from registration - Trupanion issued 3,571 shares of common stock to a strategic distributor in Q2 2025 for product sales, relying on Section 4(a)(2) exemption from registration[174] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - No defaults upon senior securities were reported[175] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[176] Item 5. Other Information This section details Rule 10b5-1 trading plans adopted or terminated by company officers during the quarter, including plans by the CFO and CEO - CFO Fawwad Qureshi adopted a Rule 10b5-1 plan on May 19, 2025, to sell up to 49,561 shares by August 31, 2026[177] - CEO Margi Tooth terminated a previous Rule 10b5-1 plan on June 5, 2025, and adopted a new one on June 6, 2025, to sell up to 9,253 shares and exercise/sell up to 28,000 options by December 31, 2025[178][179] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and corporate governance documents incorporated by reference - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[181] Signatures This section confirms the official signing of the Quarterly Report on Form 10-Q by the CEO and CFO - The Quarterly Report on Form 10-Q was signed by Margi Tooth (Chief Executive Officer) and Fawwad Qureshi (Chief Financial Officer) on August 7, 2025[187]