Trupanion Q2 2025 Earnings Report

Trupanion EPS Results

• Actual EPS: $0.22
• Consensus EPS: -$0.03
• Beat/Miss: Beat by +$0.25
• One Year Ago EPS: -$0.14

Trupanion Revenue Results

• Actual Revenue: $353.56 million
• Expected Revenue: $346.73 million
• Beat/Miss: Beat by +$6.82 million
• YoY Revenue Growth: +12.30%

Trupanion Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 4:30PM ET

Trupanion (NASDAQ:TRUP), together with its subsidiaries, provides medical insurance for cats and dogs on a monthly subscription basis in the United States, Canada, Continental Europe, and Australia. The company operates in two segments, Subscription Business and Other Business. It serves pet owners and veterinarians. The company was formerly known as Vetinsurance International, Inc. changed its name to Trupanion, Inc. in 2013. Trupanion, Inc. was founded in 2000 and is headquartered in Seattle, Washington.

Trupanion Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Trupanion’s subscription revenue rose 16% year-over-year in Q2 while subscription adjusted operating income jumped 45%, driving margins up 280 basis points to 13.8%.
• Positive Sentiment: The company increased pet acquisition spend by 16%, adding approximately 62,700 new pets at an average cost of $276 per pet and generating an estimated 30% internal rate of return.
• Positive Sentiment: Average monthly retention improved to 98.4% on a trailing three-month basis, reversing last year’s dip and reflecting stronger member loyalty.
• Positive Sentiment: Management cited a deceleration in veterinary cost inflation and reduced operating assumptions for H2, boosting confidence in the value proposition and margin stability.
• Positive Sentiment: Trupanion raised its full-year 2025 guidance, now expecting total revenue of $1.417–1.434 billion and adjusted operating income of $141–151 million, both up across the range.

Presentation

[Operator]

Good day, and welcome to the Trupanion Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Gil Melkior, director of investor relations. Please go ahead.

[Gil Melchior, Director of Investor Relations at Trupanion]

Good afternoon, and welcome to Japanion's second quarter twenty twenty five financial results conference call. Participating on today's call are Margituth, chief executive officer and president, and Fouad Queshi, chief financial officer. For ease of reference, we've included a slide presentation to accompany today's discussion, which will be made available on our Investor Relations website under our quarterly earnings tab. Before we begin, please be advised that remarks today will contain forward looking statements. All statements other than statements of historical facts are forward looking statements.

[Gil Melchior, Director of Investor Relations at Trupanion]

These include, but are not limited to, statements regarding our future operations, key operating metrics, opportunities and financial performance, pricing, and veterinary industry inflation. These statements involve a high degree of known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed. A detailed discussion of these and other risks and uncertainties are included in today's earnings release as well as the company's most recent reports, including forms 10 k, 10 q, and eight k filed with the Securities and Exchange Commission. Today's presentation contains references to non GAAP financial measures that management uses to evaluate the company's performance, including without limitation, cost of paying veterinary invoices, variable expenses, fixed expenses, adjusted operating income, acquisition costs, internal order return, adjusted EBITDA, and free cash flow. When we use the term adjusted operating income or margin, it is intended to refer to a non GAAP operating income or margin before new pet acquisition and development expenses.

[Gil Melchior, Director of Investor Relations at Trupanion]

Unless otherwise noted, all margins and expenses will be presented on a non GAAP basis and excluding stock based compensation expense and depreciation expense. These non GAAP measures are in addition to and not a substitute for measures of financial performance prepared in accordance with The US GAAP. Investors are encouraged to review the reconciliations of these non GAAP financial measures to the most directly comparable GAAP results, which can be found in today's press release. Lastly, I would like to remind everyone that today's conference call is also available via webcast on Japan's Investor Relations website. A replay will also be available on the site. I will now hand over the call to Margie.

[Margi Tooth, President, CEO & Director at Trupanion]

Thank you, Gil, and good afternoon, everyone. I'll briefly touch on our financial highlights and we'll provide more context after Pawad completes his detailed review of our Q2 results. I'm delighted to share that Q2 was one of the strongest financial quarters in the history of Trupanion underscored by consistent top line growth, robust margin expansion and strengthening retention. Within our subscription segment, revenue rose 16% year over year and adjusted operating income increased 45% over $33,000,000 for the quarter. This translates to a 13.8% subscription adjusted operating margin, up two eighty basis points versus the prior year period, performance well ahead of plan.

[Margi Tooth, President, CEO & Director at Trupanion]

We were able to deploy 16% more into pet acquisition in the quarter as we continue on the pathway to return to prior investment levels, setting up pet growth for the years to come. These results reflect the team's operational rigor and continued discipline related to execution, honoring our value proposition, member experience, and commitment to the veterinary industry. It's highly encouraging to see the results of that work reflected in our performance. Let me now turn it over to Fawad to walk us through the numbers in more detail.

[Fawwad Qureshi, CFO at Trupanion]

Thanks, Margie, and good afternoon, everyone. Today, I will share additional details around our second quarter performance as well as provide our outlook for the third quarter and full year 2025. Total revenue for the quarter was $353,600,000 up 12% year over year. Within our subscription business, revenue was $242,200,000 up 16% year over year. Total subscription pets increased 4% year over year to over 1,066,000 pets as of June 30.

[Fawwad Qureshi, CFO at Trupanion]

This includes over 56,000 pets in Europe, a majority of which are currently underwritten through an MGA structure. Average monthly retention for the trailing twelve months was 98.29%, down versus the second quarter last year, which was 98.34%. On a trailing three month basis, retention was 98.4%, up from the second quarter last year and up sequentially from the first quarter this year. The subscription business cost of paying veterinary invoices was $172,100,000 resulting in a value proposition of 71.1%, a healthy improvement from 74.1% in the prior year period. The quarter benefited from prior period development of 1,400,000 or approximately 60 basis points of revenue.

[Fawwad Qureshi, CFO at Trupanion]

As a percentage of subscription revenue, variable expenses were 9.1%, down from 9.5% a year ago. Fixed expenses as a percentage of revenue were 6%, up from 5.3% in the prior year period and down sequentially from 6.2 in q one. This is in line with our expectations, and we continue to expect expense leverage as we transition to our wholly owned insurance entity for our Canadian business. Our subscription business delivered adjusted operating income of $33,400,000 an increase of 45% from last year and contributed 96% of our total AOI for the quarter. Subscription adjusted operating margin was 13.8%, up from 11% in the prior year and represents approximately two eighty basis points of margin expansion.

[Fawwad Qureshi, CFO at Trupanion]

Now I'll turn to our other business segment, which is comprised of revenue from other products and services that have a lower margin profile than our subscription business. Our other business revenue was $111,400,000 for the quarter, an increase of 5% year over year. We expect growth for this segment to continue to decelerate as we are no longer enrolling new pets in the majority of U. S. States for our largest partner in this segment.

[Fawwad Qureshi, CFO at Trupanion]

Adjusted operating income for this segment was 1,400,000.0 or 1.3% of revenue. In total, adjusted operating income was $34,800,000 in Q2, up 40% from Q2 last year. We deployed $18,300,000 of this AOI to acquire approximately 62,700 new subscription pets. Excluding the pets that are underwritten through an MGA structure, this translated into an average pet acquisition cost of $276 per pet in the quarter, up from $231 in the prior year period. The estimated internal rate of return on this spend was 30% in the quarter.

[Fawwad Qureshi, CFO at Trupanion]

We invested $900,000 in the quarter in development costs. Stock based compensation expense was $9,300,000 During the quarter, we also recorded a onetime gain of $7,800,000 on our preferred stock in Baystride as part of an exchange of our preferred interest for intellectual property related to our food initiative. As a result, net income for the quarter improved to $9,400,000 or $0.22 per basic and diluted share as compared to a net loss of 5,900,000.0 or $0.14 per basic and diluted share in the prior year period. In terms of cash flow, operating cash flow was $15,000,000 in the quarter compared to $6,900,000 in the prior year period. Capital expenditures totaled $3,000,000 largely consistent with Q2 last year.

[Fawwad Qureshi, CFO at Trupanion]

As a result, free cash flow was $12,000,000 up from $4,000,000 last year. Over the last four quarters, free cash flow reached 61,300,000.0 Turning to the balance sheet. We ended the quarter with $319,600,000 in cash and short term investments. Our largest insurance entity, APIC, continues to be strongly capitalized, which in the quarter enabled us to pay an extraordinary dividend to our operating company of $26,000,000 We used approximately $15,000,000 of the proceeds to pay down debt, ending the quarter with a reduced debt balance of $116,400,000 and plan to use the remaining $11,000,000 for growth investments and strategic initiatives. Now I'll turn to our outlook.

[Fawwad Qureshi, CFO at Trupanion]

For the full year of 2025, we are raising our guidance to account for Q2 overperformance, updated assumptions for the second half as well as favorable conversion rate movements. We now expect total revenue in the range of $1,417,000,000 to 1,434,000,000.000 Subscription revenue is now expected to be in the range of $983,000,000 to $992,000,000, representing approximately 15% year over year growth at the midpoint. We now expect total adjusted operating income to be in the range of 141,000,000 to 151,000,000. We are raising both ends of the range, and the new midpoint represents 28% year over year growth. For the 2025, total revenue is expected to be in the range of 359,000,000 to 365,000,000.

[Fawwad Qureshi, CFO at Trupanion]

Subscription revenue is expected to be in the range of 251,000,000 to 254,000,000, representing approximately 15% year over year growth at the midpoint. Total adjusted operating income is expected to be in the range of 37,000,000 to 40,000,000. This represents approximately 18% growth year over year at the midpoint. As a reminder, our revenue projections are subject to conversion rate movements predominantly between The U. S.

[Fawwad Qureshi, CFO at Trupanion]

And Canadian currencies. For our third quarter and full year guidance, we used a 73% conversion rate in our projections. Let me now pass it back to Margie.

[Margi Tooth, President, CEO & Director at Trupanion]

Thank you, Fuad. Our financial results and guidance for the year demonstrate that Trupanion is positioned exceptionally well for the future. I am so proud of the team and thank them for their focus and discipline over the last twelve months and for their unwavering support of the veterinary industry. We understand the current pressures within the veterinary field and the ongoing challenge to strike a careful balance to support the practice of best medicine while enabling access to care. Most recently, we've observed a modest but clear deceleration trend in our cost of goods, giving us confidence to marginally decrease our operating assumptions related to veterinary invoice trends for the second half of this year.

[Margi Tooth, President, CEO & Director at Trupanion]

Our results today show that we have now caught up with the cost of veterinary care with our value proposition restored to Target. This allows us to deliver a strong and sustainable offering to our members while generating the adjusted operating income needed for Trupanion to reinvest, ensuring more pets get the care they need. Results of this caliber do not come through pricing alone. Our longer term investments in technology are beginning to pay dividends by improving our cost to process invoices, increasing the penetration of our direct payment software at veterinary hospitals, and creating efficiencies across the organization, all while enhancing our overall member experience. The combination of this improved experience and industry leading coverage is driving our impressive retention of 98.4% for the quarter, especially for those with pricing changes of over 20%, which far exceeded expectations.

[Margi Tooth, President, CEO & Director at Trupanion]

This rebounding level of retention demonstrates the exceptional and measurable durability of our product and the value realized by our members. Furthermore, we've been disciplined with our acquisition efforts and have been very focused on ensuring the right pets at the appropriate level of investment, which long term will be a foundational driver of healthy margins and a more resilient member experience. This quarter's results serve as tangible proof of this discipline and will serve as a catalyst for compounding growth as we continue to lean more aggressively into the opportunity in front of us. In closing, we enter the 2025 from a position of financial strength and an exciting point in our growth journey. We're buoyed by our continued efficiency and motivated by a highly resilient member base whose retention rate and thus lifetime value continues to increase.

[Margi Tooth, President, CEO & Director at Trupanion]

Most crucially, the team is ready to deploy our AOI to enable high quality sustainable growth for the years to come. With a vast global addressable market ahead of us and a business model compounding at high and proven internal rates of return, we are uniquely positioned to grow and to scale with confidence. With that, we'll open it up for questions.

[Operator]

We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And please, we ask that you limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question is from John Barnidge with Piper Sandler. Please go ahead.

[John Barnidge, MD & Senior Research Analyst at Piper Sandler Companies]

Thank you for the opportunity. You're talking about a clear or deceleration trend in the elevated input cost and then it seems like growth is returning. Isn't the loss ratio typically more elevated seasonally in the first half of the year due to the calendar? That that wasn't really the case here this year. And given that seasonal makeup, should we be expecting the loss ratio to further improve from here beyond the targeted 71% margin?

[Margi Tooth, President, CEO & Director at Trupanion]

Yeah. Hi, John. Thanks for the question. So I'll start off and then pass over to Pawel as well. From our perspective, typically, we do see a seasonal lift in Q1, Q2.

[Margi Tooth, President, CEO & Director at Trupanion]

And as we take more rate through the year, we'll see that rate start to realize and therefore brings down that cost of goods. That hasn't been the case this quarter. As we know, so we've seen a mild deceleration, which is encouraging. And, you know, at the moment, that's kind of what we're assuming and within our operating assumptions. So that being equal, we would expect to see that reflect in our guidance, which is what Pawan shared earlier. Want anything to add?

[Fawwad Qureshi, CFO at Trupanion]

Yeah. The only thing I'd add is just from an inflation perspective. In the quarter, we saw a little bit of an abatement of inflation down about 1%. So baked into our guidance for second half is an assumption that that 1%, continues. And in the prepared remarks, I mentioned that we had about 60 basis points of favorable development in q two.

[John Barnidge, MD & Senior Research Analyst at Piper Sandler Companies]

Great. Thank you. And my follow-up question, can you maybe talk a little bit more about the food initiative benefit that you talked about in your prepared remarks? Are we closer to that business launching? Thank you.

[Fawwad Qureshi, CFO at Trupanion]

Yeah. I think we took a a step in in a in a positive direction as business is still nascent. We're just beginning, but this is an opportunity for us to acquire IP. The company had made an investment in a partner called Baystride some years ago, and so being able to get access to an IP, that's a foundational element for this business. Again, the business is still in the very early stages, but this IP is a critical foundation.

[Fawwad Qureshi, CFO at Trupanion]

It's a building block that will be important for the business. We're we're very optimistic about this business. We think it has significant potential over time.

[John Barnidge, MD & Senior Research Analyst at Piper Sandler Companies]

Thank you.

[Operator]

The next question is from Jon Block with Stifel. Please go ahead.

[Jonathan Block, Managing Director at Stifel Financial Corp]

Thanks, guys. Good afternoon. Know, Marty, the slides sort of come out late, so I'm trying to run some math. You know, I have pack up about 20% year over year, but the gross adds down low single digits year over year and just a real sort of stagnant gross adds over the past five quarters or so. So can you explain the inability to accelerate gross adds despite spending more and more on each pet in an industry that's arguably a growth industry where we hear some 20%, 30%, 40% growth numbers from some of your competitors? Thank you.

[Margi Tooth, President, CEO & Director at Trupanion]

Yeah. Hi, John. Thanks for the question. So I would say overall, when we think about growth, our growth plans are right in line with expectations as our guidance show as guidance shows. For the last year, we've been really focusing on how do we refine our approach to ensure that we're priced appropriately for each pet.

[Margi Tooth, President, CEO & Director at Trupanion]

So a year ago, we talked about as pricing flows through, we'll target those pets that have the the right pricing and the higher lifetime value, which means we haven't been growing for quantity, but we've been growing for quality, if you will. So when you think about what that means, essentially, it's looking at pets that will deliver the highest lifetime value, and and that's from the vet channel, from out of pet, which we're seeing performing really well. The LVP of our core book of business is higher today than it was a year ago, and I think that's reflected in the bottom line. And you can see that we've been working on the pets we've been adding for the last year have been consistently at a higher LBP level, which ultimately makes them more sustainable. When we think about focusing on those, just to put that in perspective, what it means in reality is we're turning off some of the less profitable channels.

[Margi Tooth, President, CEO & Director at Trupanion]

So things like wellness versus insurance, things where we know we're not priced appropriately sustainably, we're not gonna grow there to add a pet. We're gonna grow there to put the right pet on the book. And then we've been spending more on retention, which has really been our main focus for last year. So work that's working really well considering the the rate increases have come through. I think that shows up on our netback growth.

[Margi Tooth, President, CEO & Director at Trupanion]

So it's up for two consecutive quarters now. Core chipania is performing ahead in the blended mix, which is incredibly encouraging, and we'll continue to build on the investment. I think the the key thing for us now is we have the money to grow. We've got that nice free cash flow, and we're starting to deploy more. We we saw that pet the pack was up 16% year over year, which is encouraging, and we expect that to continue into the back half of this year.

[Jonathan Block, Managing Director at Stifel Financial Corp]

Okay. That that was helpful. Thank you.

[Jonathan Block, Managing Director at Stifel Financial Corp]

But maybe I'll just follow-up and and continue on that same theme. I mean, if I remember, think it was September, so about a year ago, we were out at the Analyst Day. I might have my months a little bit off, but it was roughly twelve months ago. And in that time, you were conveying that we were going to start to see a pickup in overall gross adds. You were getting the MLR back in place.

[Jonathan Block, Managing Director at Stifel Financial Corp]

It's been in place now for some time or back around where you wanted after the hyperinflationary time. So like what's changed, right? I mean that's what you were conveying twelve months ago that, in my view clearly hasn't played out. I know you're still beating the drum on the profitability, lifetime value for Pet. I mean that's just going up because you're taking more price and price.

[Jonathan Block, Managing Director at Stifel Financial Corp]

So like can you talk to us about what you saw ten or eleven months ago that I don't think has really played out? And then when should we expect real growth in gross adds, which I think is the ultimate driver of arguably the long term value of the company in growth market?

[Margi Tooth, President, CEO & Director at Trupanion]

Yeah. No. I mean, growth comes through a number of different areas for us. Nothing has changed in terms of our expectations, and nothing has changed in terms of that mentality around growth and growth that adds ultimately. When we think about what we were trying to do beginning of it was September.

[Margi Tooth, President, CEO & Director at Trupanion]

You're right. So in terms of the timing, twelve months ago was the first quarter and a number of quarters we actually started to increase our pack spend. Did it again in q four, q one, and now q two is our biggest step up, which is encouraging. It gives us more more room to move. We expect to see that a modest pick up in the second half of this year, which is right in line with with expectations that we set at the beginning of this year.

[Margi Tooth, President, CEO & Director at Trupanion]

And as we move into the following quarters and years, you expect to see more and more of that turnaround. So we we're still, from a pack perspective, 25% down on those big quarters where we were spending close to $20,000,000 a year, and that was back in 2022. So as we build that back up to that level, we expect to see more from a brand halo effect, which will help us to make a a more rapid rapid growth build. But the plan this year was always to see modest pickup in the back half of the year, and that remains the case today.

[Jonathan Block, Managing Director at Stifel Financial Corp]

Perfect. Thank you, guys.

[Margi Tooth, President, CEO & Director at Trupanion]

Thank you.

[Operator]

The next question is from Brandon Vazquez with William Blair. Please go ahead.

[Brandon Vazquez, Research Analyst at William Blair & Company, L.L.C]

Hey, everyone. Thanks for the question and congrats on the quarter. Maybe I'll ask somewhat of a similar question, but I'll tackle it a little bit different, maybe for Margie and follow-up for both of you. As we look at the kind of the sequentials from here and we go into the back half of the year, help us think about the mix of subscription business. Let's just focus on that subscription business growth that's coming from price versus coming from, pet subscription growth or the the number of pets.

[Brandon Vazquez, Research Analyst at William Blair & Company, L.L.C]

And then really what that base means for, our models as we go into 2026.

[Fawwad Qureshi, CFO at Trupanion]

Yeah. I can help with the the next part. So, in the quarter, it breaks the 16%, year over year revenue growth per subscription. About 11% came from ARPU, and about 5% came from us. That's roughly consistent with what we saw in q one.

[Fawwad Qureshi, CFO at Trupanion]

What we've said at the beginning of the year, and it remains what we're on track for, is for pets to contribute at a higher level than they are today as a percent of revenue, I think, contribution to revenue growth and ARPU to contribute less. So ARPU peaked in '23. That was our assumption at the time, and that has largely played out in q one and q two. So kind of looking at the second half of the year, I would expect to see more contribution from pets, less contribution from ARPU on a on a relative basis. Pricing will still be the way, but pet count will will come up.

[Brandon Vazquez, Research Analyst at William Blair & Company, L.L.C]

And just a quick follow-up on that, Pawad. If, like, sequentially, can gross new adds, I think this is part of what, John was trying to ask earlier, pack spend has been ramping up for a couple of quarters now. Do you think sequentially we can start to expect the gross new adds in the core business can increase in the back half of this year?

[Fawwad Qureshi, CFO at Trupanion]

Yes. Our expectation is back half of the year gross adds will be positive. In terms of the specific timing on on quarterization, I I would think about the timing of the pack spend, the point that Margie made. So we had talked last year about very gradually increasing the pack spend. We increased it modestly in q three of last year about 4%, about 8% in q four.

[Fawwad Qureshi, CFO at Trupanion]

We only just, in q one, began to increase the double digits. On total dollar spend, it's still less than what we were spending a couple of years ago in the first half. So we're happy to be able to redeploy those dollars. But from a second half perspective, yes, our assumption in our model is that gross adds will turn positive.

[Brandon Vazquez, Research Analyst at William Blair & Company, L.L.C]

Okay. And, Margie, maybe just a quick update on PHI and Perkin. Any progress that you can update with there and potential timing of a broader launch for either one of those products, especially in The US? Thanks.

[Margi Tooth, President, CEO & Director at Trupanion]

Yeah. Thank you. We we've got a lot of learnings from these products. They've been in market now in in Canada for around four years. So so a fair amount of time.

[Margi Tooth, President, CEO & Director at Trupanion]

We've actually invested small amounts of money into these products. So they're not consuming a huge amount of capital, but they're giving us a of learnings. So we're taking those learnings and building on them. As we've mentioned before, we've been focusing on the highest LBP product, which in turn means we've turned down some focus on these these smaller products because we're looking at the core champion. But as we, you know, we recognize the market grows, it's evolving.

[Margi Tooth, President, CEO & Director at Trupanion]

We think there's absolutely a place from the learnings that we found that we can redeploy those into The US market more broadly. So as our pack investment steps up longer term, we have the optionality to deploy that against different marketing segments and market segments. So we're fine tuning our learnings. We'll build on them in time, and we won't share more for competitive reasons, but we're well positioned for growth across the ecosystem. And these products have definitely helped bolster our our education there.

[Operator]

Again, if you have a question, please press star then one. The next question is from Katie Sakies with Autonomous Research. Please go ahead.

[Katie Sakys, Senior Research Associate at Autonomous Research]

Hi. Thank you. I I want to circle back to some comments you've made, Margie, on retention previously. I think we discussed, you know, expecting to see a little bit of of the headwind abate in in February and three q. And I can appreciate that on a sequential basis, there's there's been a modest improvement there.

[Katie Sakys, Senior Research Associate at Autonomous Research]

But but thinking about that cadence of improvement, I mean, should we expect to see more significant improvement in March? And and where are you guys really trying to end the year at in terms of retention?

[Margi Tooth, President, CEO & Director at Trupanion]

Yeah. Thanks for the question, Katie. Retention for the quarter was strong. I mean, I think kind of sequential movement based on when you think about how much of a compounding increase most of our members have received. We're really pleased to see them move in a positive direction.

[Margi Tooth, President, CEO & Director at Trupanion]

I'd expect us to continue in this direction for the foreseeable future as we work on our learnings. We keep building on hopefully having that tailwind of consistently lower pricing increases with now caught up. So when we think about our our value proposition, we're at that value proposition today. So the times where we were playing catch up initially and then having to kind of really put that rate above 20% behind us. So seeing that from a member perspective and their experiences are gonna be a lot softer.

[Margi Tooth, President, CEO & Director at Trupanion]

So in terms of budgetability, which is what we aim to to be, we see a nice tailwind in front of us there. So they expect us to continue moving in a positive direction. We've got a long way to go. We've got a lot of opportunity in front of us given that this was, you know, a high with a a ninety eight eight. You know, that's that's something that we're always gonna strive to do again, but it's gonna take a long time to get there.

[Margi Tooth, President, CEO & Director at Trupanion]

We'll just keep moving forward. And I would say the the strength of the over and the under 20% buckets give us a lot of encouragement.

[Katie Sakys, Senior Research Associate at Autonomous Research]

Okay. Maybe going at this from a different direction. You you've previously discussed, you know, having almost half of the book kind of priced ahead of where it needs to be. What's what's the strategy with those customers looking into the back half of the year? I mean, can they expect to see price decreases?

[Katie Sakys, Senior Research Associate at Autonomous Research]

And if so, I mean, how much of a tailwind can we expect that to be to retention overall? And subsequently, how much of a headwind might that be to ARPU in the back half of the year?

[Margi Tooth, President, CEO & Director at Trupanion]

Yeah. I mean, our pricing is set for the back half of the year. So we're not going to be adjusting any rates that our members are going to be seeing right now because we set them around a year to eighteen months in advance. This really talking about 2026 and beyond as we look at those overall trends. In terms of pricing ahead, when we price ahead, we we always price ahead.

[Margi Tooth, President, CEO & Director at Trupanion]

We're always thinking about what is the projected cost of that pet that risk of that pet every for the next twelve months. So we feel like we're now in good shape, which means we're gonna see a lot softer increases for members on a regular basis moving forwards because we've hit that value proposition overall. And what that means is you there may be some areas that have a price decrease. There will be a lot of areas that have a significantly reduced increase for 2026 and beyond as we've caught up with that price. Our value proposition goal is still to maintain that '71.

[Margi Tooth, President, CEO & Director at Trupanion]

We're not gonna change that and deviate it. So what it means is we will be going through in a far more granular level to refine our value proposition, not just from a geography perspective, but breed and age, which is what we used to do historically prior to those those big inflationary periods. In our business, retention is a primary growth lever, and we're really excited about momentum on this front. And considering those compounding increases experience, we're now in a position to move forward. And there is a tailwind in front of us, and we're operating from a a very healthy margin position.

[Katie Sakys, Senior Research Associate at Autonomous Research]

Understood. Thank you.

[Margi Tooth, President, CEO & Director at Trupanion]

Thank you.

[Operator]

The next question is from Wilma Burdis with Raymond James. Please go ahead.

[Wilma Burdis, Director at Raymond James Financial]

Hey. What was the other income, which was 12,000,000, which contributed at least partly to the large net EPS fee? Thanks.

[Fawwad Qureshi, CFO at Trupanion]

Yeah. So that well, thanks a for the question. Yeah. That was related to the onetime gain that we got from the exchange of our preferred stock in base run. So that's what I was describing earlier with.

[Fawwad Qureshi, CFO at Trupanion]

We returned our preferred stock to base run-in exchange for IP. The IP is gonna be used for enantamab.

[Wilma Burdis, Director at Raymond James Financial]

Okay. And then I understand that the margin appears to be near the target and and obviously very solid, but do you expect fifth 15% inflation will continue to recur next year? And how are you guys thinking about rate even even with the margin being in a good position? Because just, you know, levels of inflation have been high, so how are you thinking about going forward? Thanks.

[Margi Tooth, President, CEO & Director at Trupanion]

Yeah. So what we're seeing right now, as Ford mentioned, is definitely a deceleration in in inflation. So we've seen that trend over the last few months, and and we said we would share more as that came through, we we have done and we'll continue to do so. So we're obviously monitoring this very closely. I expect given the challenges in the veterinary industry that we may see further moderation.

[Margi Tooth, President, CEO & Director at Trupanion]

We're not seeing that yet, but we will tell you and we'll take them into account. As we think about 2026, we're using that assumption, that operating assumption with that that slight deceleration in our rates for next year and beyond. So that will mean that there will still be increases coming through because the cost of goods will continue to go up, and therefore, that will that will be justified in our numbers. But if it needs to abate further, then we will we'll take the necessary steps to ensure that happens for our members so we honor that value prop.

[Wilma Burdis, Director at Raymond James Financial]

K. Thank you.

[Operator]

This concludes the question and answer session. I would like to turn the conference back over to Margie Tooth for any closing remarks.

[Margi Tooth, President, CEO & Director at Trupanion]

Thank you, Debbie, and thank you everyone for joining the call today and for the questions. As hopefully you heard, we're very pleased with the strong results we shared today, and we look forward to building on this momentum in the coming months and the quarters ahead. With this in mind, we invite you to our upcoming investor day, which will be held here in Seattle, Washington on September 17, is just six weeks away. The event annually provides a unique opportunity for our investors to connect with our team and hear from all of the leaders across the business. So registration and additional details can be found on the investor relations website.

[Margi Tooth, President, CEO & Director at Trupanion]

So please do go there and check that out. So in closing, we're now in the third quarter of the year. We have just five months left to run-in our sixty month plan. The team is executing really well. We've improved the financial health of the business immeasurably over the last year.

[Margi Tooth, President, CEO & Director at Trupanion]

And based on the guidance you heard today, our adjusted operating income will have compounded 21% over the last five years. Thank you for your time and for your questions today.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Gil Melchior, Director of Investor Relations
• Margi Tooth, President, CEO & Director
• Fawwad Qureshi, CFO

Analysts

• John Barnidge, MD & Senior Research Analyst at Piper Sandler Companies
• Jonathan Block, Managing Director at Stifel Financial Corp
• Brandon Vazquez, Research Analyst at William Blair & Company, L.L.C
• Katie Sakys, Senior Research Associate at Autonomous Research
• Wilma Burdis, Director at Raymond James Financial