Trupanion’s Strong Financial Performance Driven by Subscription Growth and Operational Efficiency

Trupanion, a leading provider of pet medical insurance in North America and Europe, has reported impressive financial results for the year ended December 31, 2024. The company’s data-driven, vertically-integrated approach has enabled it to develop and offer high-value insurance products tailored to each pet’s unique characteristics.

Subscription Business Drives Revenue Growth

Trupanion’s revenue grew by 16% in 2024 to $1.29 billion, with the subscription business segment accounting for 67% of total revenue. This segment, which generates revenue primarily through insurance premiums, saw a 20% increase in revenue to $856.5 million. The growth was driven by a 12% increase in monthly average revenue per pet and an increase in subscription pet months for policies underwritten by Trupanion.

The company’s other business segment, which includes revenue from other pet insurance products and relationships with third-party partners, also contributed to the overall revenue growth, increasing by 8% to $429.2 million.

Improved Subscription Business Margins

Trupanion’s subscription business segment saw a significant improvement in margins, with the cost of revenue decreasing from 86% to 83% of revenue year-over-year. This was primarily driven by the company’s ongoing pricing actions and continued efficiency gains in the cost of processing claims.

The subscription business segment’s veterinary invoice expense increased by 15% to $624.4 million, while other cost of revenue increased by 17% to $82.4 million. The increase in veterinary invoice expense was driven by an increase in total subscription pet months and a 7% increase in veterinary invoice expense per pet.

Disciplined Approach to Pet Acquisition

Trupanion’s new pet acquisition expense decreased by 8% to $71.4 million in 2024, as the company focused on growth in more efficient channels. New pet acquisition expense as a percentage of revenue was 6% in 2024, compared to 7% in the previous year, demonstrating the company’s ability to manage its discretionary pet acquisition spend while still growing its total enrolled subscription pets, excluding those related to managing general agent policies, by 5%.

Investments in Technology and Development

Trupanion’s technology and development expenses increased by 46% to $31.3 million in 2024, primarily due to a reduction in capitalized expenditures related to internally-developed software projects launched in early 2024, as well as increases in general compensation, infrastructure-related expenses, and development expenses. These investments are aimed at improving the company’s member experience, claims processing, and internal policy management.

Strengthening the Balance Sheet

As of December 31, 2024, Trupanion had $307.4 million in cash, cash equivalents, and short-term investments, of which $272.0 million was held by its insurance entities. The company’s insurance entities maintained $288.0 million of capital surplus, which provides financial stability and flexibility.

Trupanion’s net cash provided by operating activities increased to $48.3 million in 2024, compared to $18.6 million in the previous year. This was primarily driven by improved operating results and timing differences in working capital activities.

Regulatory Oversight and Capital Requirements

Trupanion’s insurance entities are subject to various capital and dividend rules and regulations prescribed by the jurisdictions in which they operate. The company’s largest insurance subsidiary, American Pet Insurance Company (APIC), maintained $245.5 million of capital surplus as of December 31, 2024, up from $199.6 million in the previous year. APIC distributed an ordinary dividend of $4.2 million to Trupanion, Inc. in 2024.

The company also established two new wholly-owned U.S. insurance subsidiaries, ZPIC and QPIC, in 2021, and a new wholly-owned Canadian insurance subsidiary, GPIC, in 2022. During 2024, the company fully dissolved QPIC, which included a distribution of $7.0 million of previously required capital to Trupanion, Inc.

Trupanion’s international operations, including its Bermuda-based reinsurance subsidiary, WICL, are also subject to regulatory oversight. The company’s WICL segregated accounts received a dividend of $8.6 million in 2024, as permitted under its agreements with WICL.

Outlook and Risks

Trupanion’s strong financial performance and operational efficiency have positioned the company for continued growth. However, the company faces several risks and challenges, including:

• Retention Rates: Trupanion’s ability to retain its existing and newly enrolled pets is crucial to its performance. Factors such as the perceived value of its services, the quality of the member experience, and the rate of veterinary inflation could impact retention rates.

• Pet Acquisition Costs: The company’s ability to effectively manage its pet acquisition costs and maintain a targeted return on investment is essential to its growth strategy.

• Timing of Price Adjustments: Trupanion’s cost-plus model requires accurate estimation of operating costs and timely implementation of pricing adjustments, which can be challenging during periods of rapid increases in veterinary invoice expenses.

• Product and Geographic Mix: Changes in the relative mix of Trupanion’s business by geography, pet age, species, breed, and other factors can impact its monthly average revenue per pet and exposure to foreign exchange fluctuations.

• Regulatory Environment: The company’s insurance entities are subject to various capital and dividend rules and regulations, which could impact their ability to distribute funds to the parent company and the timing of such distributions.

Overall, Trupanion’s strong financial performance, operational efficiency, and disciplined approach to growth have positioned the company for continued success in the pet insurance market. By addressing the challenges and risks it faces, Trupanion can maintain its momentum and deliver value to its shareholders.