TRUP Trupanion Inc

Trupanion, Inc. (Nasdaq: TRUP), a leading provider of medical insurance for cats and dogs, today announced financial results for the fourth quarter and full year ended December 31, 2024.

“2024 was a milestone year for Trupanion. Strong execution drove 20% subscription revenue growth, the doubling of our subscription margin in Q4 from its quarterly low in 2023, and a record $39 million in free cash flow,” said Margi Tooth, Chief Executive Officer and President of Trupanion. “As we look to 2025, our focus remains on sustainable, measured growth while enhancing the member experience and improving retention.”

Fourth Quarter 2024 Financial and Business Highlights

• Total revenue was $337.3 million, an increase of 14% compared to the fourth quarter of 2023.
• Total enrolled pets (including pets from our other business segment) was 1,677,570 at December 31, 2024, a decrease of 2% over December 31, 2023.
• Subscription business revenue was $227.8 million, an increase of 19% compared to the fourth quarter of 2023.
• Subscription enrolled pets was 1,041,212 at December 31, 2024, an increase of 5% over December 31, 2023.
• Net income was $1.7 million, or $0.04 per basic and diluted share, compared to a net loss of $(2.2) million, or $(0.05) per basic and diluted share, in the fourth quarter of 2023.
• Adjusted EBITDA was $19.4 million, compared to adjusted EBITDA of $8.5 million in the fourth quarter of 2023.
• Operating cash flow was $23.7 million and free cash flow was $21.8 million in the fourth quarter of 2024. This compared to operating cash flow of $17.5 million and free cash flow of $13.5 million in the fourth quarter of 2023.

Full Year 2024 Financial and Business Highlights

• Total revenue was $1,286 million, an increase of 16% compared to 2023.
• Subscription business revenue was $856.5 million, an increase of 20% compared to 2023.
• Net loss was $(9.6) million, or $(0.23) per basic and diluted share, compared to a net loss of $(44.7) million, or $(1.08) per basic and diluted share, in 2023.
• Adjusted EBITDA was $46.1 million, compared to adjusted EBITDA of $6.4 million in 2023.
• Operating cash flow was $48.3 million and free cash flow was $38.6 million in 2024. This compared to operating cash flow of $18.6 million and free cash flow of $0.4 million in 2023.
• At December 31, 2024, the Company held $307.4 million in cash and short-term investments, including $35.4 million held outside the insurance entities, with an additional $15 million available under its credit facility.
• The Company maintained $288.0 million of capital surplus at its insurance subsidiaries. The largest insurance subsidiary, APIC, maintained $245.5 million of capital surplus, which was $140.2 million more than the company action level risk-based capital requirement.

Conference CallTrupanion’s management will host a conference call today to review its fourth quarter and full year 2024 results. The call is scheduled to begin shortly after 1:30 p.m. PT/ 4:30 p.m. ET. A live webcast will be accessible through the Investor Relations section of Trupanion’s website at https://investors.trupanion.com/ and will be archived online for 3 months upon completion of the conference call. Participants can access the conference call by dialing 1-877-300-8521 (United States) or 1-412-317-6026 (International). A telephonic replay of the call will also be available after the completion of the call, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 10194900.

About TrupanionTrupanion is a leader in medical insurance for cats and dogs throughout the United States, Canada, certain countries in Continental Europe, and Australia with over 1,000,000 pets currently enrolled. For over two decades, Trupanion has given pet owners peace of mind so they can focus on their pet's recovery, not financial stress. Trupanion is committed to providing pet parents with the highest value in pet medical insurance with unlimited payouts for the life of their pets. With its patented process, Trupanion is the only North American provider with the technology to pay veterinarians directly in seconds at the time of checkout. Trupanion is listed on NASDAQ under the symbol "TRUP". The company was founded in 2000 and is headquartered in Seattle, WA. Trupanion policies are issued, in the United States, by its wholly-owned insurance entity American Pet Insurance Company and, in Canada, by Accelerant Insurance Company of Canada. Trupanion Australia is a partnership between Trupanion and Hollard Insurance Company. Policies are sold and administered in Canada by Canada Pet Health Insurance Services, Inc. dba Trupanion 309-1277 Lynn Valley Road, North Vancouver, BC V7J 0A2 and in the United States by Trupanion Managers USA, Inc. (CA license No. 0G22803, NPN 9588590). Canada Pet Health Insurance Services, Inc. is a registered damage insurance agency and claims adjuster in Quebec #603927. Trupanion Australia is a partnership between Trupanion and Hollard Insurance Company. For more information, please visit trupanion.com.

Forward-Looking StatementsThis press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to, among other things, expectations, plans, prospects and financial results for Trupanion, including, but not limited to, its expectations regarding its ability to continue to grow its enrollments and revenue, and otherwise execute its business plan. These forward-looking statements are based upon the current expectations and beliefs of Trupanion’s management as of the date of this press release, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. All forward-looking statements made in this press release are based on information available to Trupanion as of the date hereof, and Trupanion has no obligation to update these forward-looking statements.

In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the ability to achieve or maintain profitability and/or appropriate levels of cash flow in future periods; the ability to keep growing our membership base and revenue; the accuracy of assumptions used in determining appropriate member acquisition expenditures; the severity and frequency of claims; the ability to maintain high retention rates; the accuracy of assumptions used in pricing medical plan subscriptions and the ability to accurately estimate the impact of new products or offerings on claims frequency; actual claims expense exceeding estimates; regulatory and other constraints on the ability to institute, or the decision to otherwise delay, pricing modifications in response to changes in actual or estimated claims expense; the effectiveness and statutory or regulatory compliance of our Territory Partner model and of our Territory Partners, veterinarians and other third parties in recommending medical plan subscriptions to potential members; the ability to retain existing Territory Partners and increase the number of Territory Partners and active hospitals; compliance by us and those referring us members with laws and regulations that apply to our business, including the sale of a pet medical plan; the ability to maintain the security of our data; fluctuations in the Canadian currency exchange rate; the ability to protect our proprietary and member information; the ability to maintain our culture and team; the ability to maintain the requisite amount of risk-based capital; our ability to implement and maintain effective controls, including to remediate material weaknesses in internal controls over financial reporting; the ability to protect and enforce Trupanion’s intellectual property rights; the ability to successfully implement our alliance with Aflac; the ability to continue key contractual relationships with third parties; third-party claims including litigation and regulatory actions; the ability to recognize benefits from investments in new solutions and enhancements to Trupanion’s technology platform and website; our ability to retain key personnel; and deliberations and determinations by the Trupanion board based on the future performance of the company or otherwise.

For a detailed discussion of these and other cautionary statements, please refer to the risk factors discussed in filings with the Securities and Exchange Commission (SEC), including but not limited to, Trupanion’s Annual Report on Form 10-K for the year ended December 31, 2024 and any subsequently filed reports on Forms 10-Q, 10-K and 8-K. All documents are available through the SEC’s Electronic Data Gathering Analysis and Retrieval system at https://www.sec.gov or the Investor Relations section of Trupanion’s website at https://investors.trupanion.com.

Non-GAAP Financial MeasuresTrupanion’s stated results may include certain non-GAAP financial measures. These non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in its industry as other companies in its industry may calculate or use non-GAAP financial measures differently. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on Trupanion’s reported financial results. The presentation and utilization of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. Trupanion urges its investors to review the reconciliation of its non-GAAP financial measures to the most directly comparable GAAP financial measures in its consolidated financial statements, and not to rely on any single financial or operating measure to evaluate its business. These reconciliations are included below and on Trupanion’s Investor Relations website.

Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash expenses, Trupanion believes that providing various non-GAAP financial measures that exclude stock-based compensation expense and depreciation and amortization expense allows for more meaningful comparisons between its operating results from period to period. Trupanion offsets new pet acquisition expense with sign-up fee revenue in the calculation of net acquisition cost because it collects sign-up fee revenue from new members at the time of enrollment and considers it to be an offset to a portion of Trupanion’s new pet acquisition expense. Trupanion believes this allows it to calculate and present financial measures in a consistent manner across periods. Trupanion’s management believes that the non-GAAP financial measures and the related financial measures derived from them are important tools for financial and operational decision-making and for evaluating operating results over different periods of time.

Trupanion, Inc.Condensed Consolidated Statements of Operations(in thousands, except share data)
	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
	(unaudited)
Revenue:
Subscription business	$	227,783			$	191,537			$	856,521			$	712,906
Other business		109,524				104,320				429,163				395,699
Total revenue		337,307				295,857				1,285,684				1,108,605
Cost of revenue:
Subscription business		181,614				158,631				706,851				613,686
Other business		102,770				97,162				400,035				363,903
Total cost of revenue(1), (2)		284,384				255,793				1,106,886				977,589
Operating expenses:
Technology and development(1)		8,172				5,969				31,255				21,403
General and administrative(1)		16,828				13,390				63,731				60,207
New pet acquisition expense(1)		18,354				17,189				71,379				77,372
Goodwill impairment charges		5,299				—				5,299				—
Depreciation and amortization		3,924				3,029				16,466				12,474
Total operating expenses		52,577				39,577				188,130				171,456
Gain (loss) from investment in joint venture		2				(79	)			(182	)			(219	)
Operating income (loss)		348				408				(9,514	)			(40,659	)
Interest expense		3,427				3,697				14,498				12,077
Other expense (income), net		(4,773	)			(1,256	)			(14,374	)			(7,701	)
Income (loss) before income taxes		1,694				(2,033	)			(9,638	)			(45,035	)
Income tax expense (benefit)		38				130				(5	)			(342	)
Net income (loss)	$	1,656			$	(2,163	)		$	(9,633	)		$	(44,693	)
Net income (loss) per share:
Basic	$	0.04			$	(0.05	)		$	(0.23	)		$	(1.08	)
Diluted	$	0.04			$	(0.05	)		$	(0.23	)		$	(1.08	)
Weighted average shares of common stock outstanding:
Basic		42,402,323				41,716,527				42,158,773				41,436,882
Diluted		42,903,536				41,716,527				42,158,773				41,436,882
(1)Includes stock-based compensation expense as follows:	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
Cost of revenue	$	1,337			$	1,478			$	5,523			$	5,279
Technology and development		1,160				861				4,934				2,846
General and administrative		4,261				3,269				15,696				17,717
New pet acquisition expense		1,536				1,693				7,279				7,319
Total stock-based compensation expense	$	8,294			$	7,301			$	33,432			$	33,161
(2)The breakout of cost of revenue between veterinary invoice expense and other cost of revenue is as follows:
	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
Veterinary invoice expense	$	245,663			$	217,739			$	949,148			$	831,055
Other cost of revenue		38,721				38,054				157,738				146,534
Total cost of revenue	$	284,384			$	255,793			$	1,106,886			$	977,589

Trupanion, Inc.Condensed Consolidated Balance Sheets(in thousands, except share data)
	December 31, 2024				December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	160,295			$	147,501
Short-term investments		147,089				129,667
Accounts and other receivables, net of allowance for credit losses of $1,117 at December 31, 2024 and $1,085 at December 31, 2023		274,031				267,899
Prepaid expenses and other assets		15,912				17,022
Total current assets		597,327				562,089
Restricted cash		39,235				22,963
Long-term investments		373				12,866
Property, equipment and internal-use software, net		102,191				103,650
Intangible assets, net		13,177				18,745
Other long-term assets		17,579				18,922
Goodwill		36,971				43,713
Total assets	$	806,853			$	782,948
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,532			$	10,505
Accrued liabilities and other current liabilities		33,469				34,052
Reserve for veterinary invoices		51,635				63,238
Deferred revenue		251,640				235,329
Long-term debt - current portion		1,350				1,350
Total current liabilities		349,626				344,474
Long-term debt		127,537				127,580
Deferred tax liabilities		1,946				2,685
Other liabilities		4,476				4,487
Total liabilities		483,585				479,226
Stockholders’ equity:
Common stock: $0.00001 par value per share, 100,000,000 shares authorized; 43,516,631 and 42,488,445 shares issued and outstanding at December 31, 2024 and 42,887,052 and 41,858,866 shares issued and outstanding at December 31, 2023		—				—
Preferred stock: $0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding		—				—
Additional paid-in capital		568,302				536,108
Accumulated other comprehensive income (loss)		(2,612	)			403
Accumulated deficit		(225,888	)			(216,255	)
Treasury stock, at cost: 1,028,186 shares at December 31, 2024 and December 31, 2023		(16,534	)			(16,534	)
Total stockholders’ equity		323,268				303,722
Total liabilities and stockholders’ equity	$	806,853			$	782,948

Trupanion, Inc.Condensed Consolidated Statements of Cash Flows(in thousands)
	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
	(unaudited)
Operating activities
Net income (loss)	$	1,656			$	(2,163	)		$	(9,633	)		$	(44,693	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization		3,924				3,029				16,466				12,474
Stock-based compensation expense		8,294				7,301				33,432				33,161
Goodwill impairment charges		5,299				—				5,299				—
Other, net		(1,294	)			2,481				(1,748	)			1,347
Changes in operating assets and liabilities:
Accounts and other receivables		15,303				10,153				(6,717	)			(35,440	)
Prepaid expenses and other assets		817				854				3,215				(1,907	)
Accounts payable, accrued liabilities, and other liabilities		2,433				5,476				2,084				1,644
Reserve for veterinary invoices		(4,841	)			1,788				(11,310	)			19,485
Deferred revenue		(7,890	)			(11,412	)			17,199				32,567
Net cash provided by (used in) operating activities		23,701				17,507				48,287				18,638
Investing activities
Purchases of investment securities		(26,118	)			(56,547	)			(133,493	)			(165,936	)
Maturities and sales of investment securities		45,886				42,905				127,653				190,270
Purchases of property, equipment, and internal-use software		(1,858	)			(3,970	)			(9,716	)			(18,280	)
Other		548				165				2,099				1,585
Net cash provided by (used in) investing activities		18,458				(17,447	)			(13,457	)			7,639
Financing activities
Proceeds from debt financing, net of financing fees		—				—				—				60,102
Repayments of debt financing		(338	)			(337	)			(1,350	)			(1,717	)
Proceeds from exercise of stock options		36				1,374				752				2,655
Shares withheld to satisfy tax withholding		(1,142	)			(240	)			(2,519	)			(1,536	)
Other		(230	)			(228	)			(840	)			(378	)
Net cash provided by (used in) financing activities		(1,674	)			569				(3,957	)			59,126
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net		(1,826	)			1,254				(1,807	)			424
Net change in cash, cash equivalents, and restricted cash		38,659				1,883				29,066				85,827
Cash, cash equivalents, and restricted cash at beginning of period		160,871				168,581				170,464				84,637
Cash, cash equivalents, and restricted cash at end of period	$	199,530			$	170,464			$	199,530			$	170,464

The following tables set forth our key operating metrics.
	Year Ended December 31,
		2024				2023
Total Business:
Total pets enrolled (at period end)		1,677,570				1,714,473
Subscription Business:
Total subscription pets enrolled (at period end)		1,041,212				991,426
Monthly average revenue per pet	$	72.98			$	65.26
Average pet acquisition cost (PAC)	$	235			$	228
Average monthly retention		98.25	%			98.49	%
	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	%

The following table reflects the reconciliation of cash provided by operating activities to free cash flow (in thousands):
	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
Net cash provided by operating activities	$	23,701			$	17,507			$	48,287			$	18,638
Purchases of property, equipment, and internal-use software		(1,858	)			(3,970	)			(9,716	)			(18,280	)
Free cash flow	$	21,843			$	13,537			$	38,571			$	358

The following table reflects the reconciliation between GAAP and non-GAAP measures (in thousands except percentages):
		Three Months Ended December 31,								Year Ended December 31,
			2024				2023				2024				2023
Veterinary invoice expense		$	245,663			$	217,739			$	949,148			$	831,055
Less:
Stock-based compensation expense(1)			(800	)			(885	)			(3,335	)			(3,450	)
Other business cost of paying veterinary invoices(4)			(85,378	)			(77,572	)			(324,720	)			(287,858	)
Subscription cost of paying veterinary invoices (non-GAAP)		$	159,485			$	139,282			$	621,093			$	539,747
% of subscription revenue			70.0	%			72.7	%			72.5	%			75.7	%
Other cost of revenue		$	38,721			$	38,054			$	157,738			$	146,534
Less:
Stock-based compensation expense(1)			(476	)			(386	)			(1,955	)			(1,544	)
Other business variable expenses(4)			(17,336	)			(19,301	)			(75,050	)			(75,756	)
Subscription variable expenses (non-GAAP)		$	20,909			$	18,367			$	80,733			$	69,234
% of subscription revenue			9.2	%			9.6	%			9.4	%			9.7	%
Technology and development expense		$	8,172			$	5,969			$	31,255			$	21,403
General and administrative expense			16,828				13,390				63,731				60,207
Less:
Stock-based compensation expense(1)			(5,277	)			(3,797	)			(19,742	)			(19,869	)
Non-recurring transaction or restructuring expenses(2)			—				—				—				(4,175	)
Development expenses(3)			(1,322	)			(1,683	)			(5,624	)			(5,100	)
Fixed expenses (non-GAAP)		$	18,401			$	13,879			$	69,620			$	52,466
% of total revenue			5.5	%			4.7	%			5.4	%			4.7	%
New pet acquisition expense		$	18,354			$	17,189			$	71,379			$	77,372
Less:
Stock-based compensation expense(1)			(1,482	)			(1,567	)			(6,908	)			(7,000	)
Other business pet acquisition expense(4)			(8	)			(77	)			(39	)			(200	)
Subscription acquisition cost (non-GAAP)		$	16,864			$	15,545			$	64,432			$	70,172
% of subscription revenue			7.4	%			8.1	%			7.5	%			9.8	%
(1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses. We account for such expense as stock-based compensation according to GAAP, but we do not include it in any non-GAAP adjustments. Stock-based compensation associated with bonuses was approximately $0.3 million and $1.5 million for the three and twelve months ended December 31, 2024, respectively.(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. (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.

The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
Operating income (loss)	$	348			$	408			$	(9,514	)		$	(40,659	)
Non-GAAP expense adjustments
Acquisition cost		16,872				15,622				64,471				70,372
Stock-based compensation expense(1)		8,035				6,636				31,940				31,864
Development expenses(3)		1,322				1,683				5,624				5,100
Depreciation and amortization		3,924				3,029				16,466				12,474
Goodwill impairment charges		5,299				—				5,299				—
Non-recurring transaction or restructuring expenses(2)		—				—				—				4,175
Gain (loss) from investment in joint venture		2				(79	)			(182	)			(219	)
Total adjusted operating income (non-GAAP)	$	35,798			$	27,457			$	114,468			$	83,545
Subscription Business:
Subscription operating income (loss)	$	2,995			$	1,300			$	(1,118	)		$	(35,994	)
Non-GAAP expense adjustments
Acquisition cost		16,864				15,545				64,432				70,172
Stock-based compensation expense(1)		6,263				5,006				24,985				24,488
Development expenses(3)		893				1,090				3,745				3,281
Depreciation and amortization		2,650				1,961				10,970				8,021
Goodwill impairment charges		5,299				—				5,299				—
Non-recurring transaction or restructuring expenses(2)		—				—				—				218
Subscription adjusted operating income (non-GAAP)	$	34,964			$	24,902			$	108,313			$	70,186
Other Business:
Other business operating income (loss)	$	(2,649	)		$	(813	)		$	(8,214	)		$	(4,446	)
Non-GAAP expense adjustments
Acquisition cost		8				77				39				200
Stock-based compensation expense(1)		1,772				1,630				6,955				7,376
Development expenses(3)		429				593				1,879				1,819
Depreciation and amortization		1,274				1,068				5,496				4,453
Non-recurring transaction or restructuring expenses(2)		—				—				—				3,957
Other business adjusted operating income (non-GAAP)	$	834			$	2,555			$	6,155			$	13,359
(1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses. 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 $1.5 million for the three and twelve months ended December 31, 2024, respectively.
(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.
(3) Consists of costs related to product exploration and development that are pre-revenue and historically have been insignificant.

The following table reflects the reconciliation of GAAP measures to non-GAAP measures (in thousands, except percentages):
	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
Subscription revenue	$	227,783			$	191,537			$	856,521			$	712,906
Subscription cost of paying veterinary invoices		159,485				139,281				621,093				539,746
Subscription variable expenses		20,909				18,367				80,733				69,234
Subscription fixed expenses*		12,425				8,987				46,382				33,740
Subscription adjusted operating income (non-GAAP)	$	34,964			$	24,902			$	108,313			$	70,186
Other business revenue		109,524				104,320				429,163				395,699
Other business cost of paying veterinary invoices		85,378				77,572				324,720				287,858
Other business variable expenses		17,336				19,301				75,050				75,756
Other business fixed expenses*		5,976				4,892				23,238				18,726
Other business adjusted operating income (non-GAAP)	$	834			$	2,555			$	6,155			$	13,359
Revenue		337,307				295,857				1,285,684				1,108,605
Cost of paying veterinary invoices		244,863				216,854				945,813				827,605
Variable expenses		38,245				37,668				155,783				144,990
Fixed expenses*		18,401				13,879				69,620				52,466
Total business adjusted operating income (non-GAAP)	$	35,798			$	27,457			$	114,468			$	83,545
As a percentage of revenue:	Three Months Ended December 31,								Year Ended December 31,
		2024				2023				2024				2023
Subscription revenue		100.0	%			100.0	%			100.0	%			100.0	%
Subscription cost of paying veterinary invoices		70.0	%			72.7	%			72.5	%			75.7	%
Subscription variable expenses		9.2	%			9.6	%			9.4	%			9.7	%
Subscription fixed expenses*		5.5	%			4.7	%			5.4	%			4.7	%
Subscription adjusted operating income (non-GAAP)		15.3	%			13.0	%			12.6	%			9.8	%
Other business revenue		100.0	%			100.0	%			100.0	%			100.0	%
Other business cost of paying veterinary invoices		78.0	%			74.4	%			75.7	%			72.7	%
Other business variable expenses		15.8	%			18.5	%			17.5	%			19.1	%
Other business fixed expenses*		5.5	%			4.7	%			5.4	%			4.7	%
Other business adjusted operating income (non-GAAP)		0.8	%			2.4	%			1.4	%			3.4	%
Revenue		100.0	%			100.0	%			100.0	%			100.0	%
Cost of paying veterinary invoices		72.6	%			73.3	%			73.6	%			74.7	%
Variable expenses		11.3	%			12.7	%			12.1	%			13.1	%
Fixed expenses*		5.5	%			4.7	%			5.4	%			4.7	%
Total business adjusted operating income (non-GAAP)		10.6	%			9.3	%			8.9	%			7.5	%
*Fixed expenses represent shared services that support both our subscription and other business segments and, as such, are generally allocated to each segment pro-rata based on revenues.

Adjusted operating income is a non-GAAP financial measure that adjusts operating income (loss) to remove the effect of acquisition cost, development expenses, non-recurring transaction or restructuring expenses, and gain (loss) from investment in joint venture. Non-cash items, such as goodwill impairment charges, stock-based compensation expense and depreciation and amortization, are also excluded. Acquisition cost, development expenses, gain (loss) from investment in joint venture, stock-based compensation expense, and depreciation and amortization are expected to remain recurring expenses for the foreseeable future, but are excluded from this metric to measure scale in other areas of the business. Management believes acquisition costs primarily represent the cost to acquire new subscribers and are driven by the amount of growth we choose to pursue based primarily on the amount of our adjusted operating income period over period. Accordingly, this measure is not indicative of our core operating income performance. We also exclude development expenses, gain (loss) from investment in joint venture, stock-based compensation expense, and depreciation and amortization because some investors may not view those items as reflective of our core operating income performance.

Management uses adjusted operating income and the margin on adjusted operating income to understand the effects of scale in its non-acquisition cost and development expenses and to plan future advertising expenditures, which are designed to acquire new pets. Management uses this measure as a principal way of understanding the operating performance of its business exclusive of acquisition cost and new product exploration and development initiatives. Management believes disclosure of this metric provides investors with the same data that the Company employs in assessing its overall operations and that disclosure of this measure may provide useful information regarding the efficiency of our utilization of revenues, return on advertising dollars in the form of new subscribers and future use of available cash to support the continued growth of our business.

The following tables reflect the reconciliation of adjusted EBITDA to net income (loss) (in thousands):
	Year Ended December 31,
		2024				2023
Net loss	$	(9,633	)		$	(44,693	)
Excluding:
Stock-based compensation expense		31,942				31,864
Depreciation and amortization expense		16,466				12,474
Interest income		(12,411	)			(9,011	)
Interest expense		14,498				12,077
Income tax benefit		(5	)			(342	)
Goodwill impairment charges		5,299				—
Non-recurring transaction or restructuring expenses		—				4,175
Gain from equity method investment		(33	)			(110	)
Adjusted EBITDA	$	46,123			$	6,434
	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
Net income (loss)	$	1,656			$	1,425			$	(5,862	)		$	(6,852	)		$	(2,163	)		$	(4,036	)		$	(13,714	)		$	(24,780	)
Excluding:
Stock-based compensation expense		8,036				8,127				8,381				7,398				6,636				6,585				6,503				12,140
Depreciation and amortization expense		3,924				4,381				4,376				3,785				3,029				2,990				3,253				3,202
Interest income		(2,999	)			(3,232	)			(3,135	)			(3,045	)			(2,842	)			(2,389	)			(2,051	)			(1,729	)
Interest expense		3,427				3,820				3,655				3,596				3,697				3,053				2,940				2,387
Income tax expense (benefit)		38				39				(44	)			(38	)			130				(43	)			(238	)			(191	)
Goodwill impairment charges		5,299				—				—				—				—				—				—				—
Non-recurring transaction or restructuring expenses		—				—				—				—				—				8				65				4,102
Gain from equity method investment		—				(33	)			—				—				—				(110	)			—				—
Adjusted EBITDA	$	19,381			$	14,527			$	7,371			$	4,844			$	8,487			$	6,058			$	(3,242	)		$	(4,869	)

Contacts:

Investors:Laura Bainbridge, Senior Vice President, Corporate CommunicationsGil Melchior, Director, Investor RelationsInvestor.Relations@trupanion.com

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