Executive Summary

Solid Q4 close with revenue of $337.3M (+14% YoY), subscription revenue up 19% to $227.8M, and adjusted EBITDA up to $19.4M; GAAP net income was $1.7M ($0.04), vs. $(2.2)M/$(0.05) LY .
Subscription profitability inflected: subscription adjusted operating margin reached a record 15.3% (vs. 13.0% LY) as the subscription “value proposition” improved to 70.0% from 72.7% (lower is better) on pricing and claims processing efficiency .
Cash generation strong: operating cash flow $23.7M and FCF $21.8M in Q4; FY24 FCF hit a record $38.6M (3% margin), above the 2.5% target, bolstering capacity to ramp PAC in 2025 .
2025 outlook: FY revenue $1.379B–$1.414B; subscription revenue $961M–$984M; total adjusted operating income $120M–$140M; Q1 guide implies ~15% subscription growth with AOI up ~29% YoY at midpoint; plan to step up PAC through the year; assumptions include ~15% vet inflation and 69% USD/CAD rate .
Catalyst setup: narrative shift from margin repair to measured growth; management flagged vet leads +30% YoY and record hospital adoption of direct pay, with PAC dollars expected to ramp and pet growth to contribute more in 2H25 .

What Went Well and What Went Wrong

What Went Well
- Record subscription adjusted operating margin in Q4; “the highest subscription adjusted operating margin in our company’s history” — Margi Tooth, CEO .
- Pricing/ops drove better value proposition (70.0%) and sub margin expansion (+230 bps YoY) despite 30 bps headwind from adverse development (~$0.7M) .
- Cash execution: Q4 FCF $21.8M; FY24 FCF $38.6M (3% of revenue) exceeding the 2.5% target; capital surplus strengthened materially at APIC (+$78.2M vs YE23) .
What Went Wrong
- Gross adds remained modest (approx. 60,200 new subscription pets), PAC rose to $261 (vs. $217 LY), and retention slipped YoY (98.25% TTM vs. 98.49%), pointing to a conversion/retention rebuild in 2025 .
- Other business margin compressed to 0.8% (vs. 2.4% LY) including a $0.9M A/R write-down; segment expected to decelerate as Pets Best underwrites with a new carrier .
- $5.3M goodwill impairment in Europe (SmartPaws and PetExpert) due to delayed launches and narrowed market focus; SmartPaws goodwill reduced to zero .

Financial Results

Metric	Q4 2023	Q3 2024	Q4 2024
Total Revenue ($M)	$295.857	$327.456	$337.307
Subscription Revenue ($M)	$191.537	$218.986	$227.783
Other Business Revenue ($M)	$104.320	$108.470	$109.524
Net Income ($M)	$(2.163)	$1.425	$1.656
Diluted EPS ($)	$(0.05)	$0.03	$0.04
Adjusted EBITDA ($M)	$8.487	$14.527	$19.381
Subscription Adjusted Op Margin (%)	13.0%	14.0%	15.3%
Subscription “Value Proposition” (% of sub revenue)	72.7%	71.0%	70.0%
Operating Cash Flow ($M)	$17.507	$15.296	$23.701
Free Cash Flow ($M)	$13.537	$13.382	$21.843

Segment performance (non-GAAP AOI focus)

Segment	Q4 2023	Q3 2024	Q4 2024
Subscription Revenue ($M)	$191.537	$218.986	$227.783
Subscription Adjusted Op Income ($M)	$24.902	$30.751	$34.964
Other Business Revenue ($M)	$104.320	$108.470	$109.524
Other Business Adjusted Op Income ($M)	$2.555	$1.816	$0.834

Key operating metrics (end of period or period averages)

KPI	Q4 2023	Q3 2024	Q4 2024
Total Pets Enrolled (end)	1,714,473	1,688,903	1,677,570
Subscription Pets (end)	991,426	1,032,042	1,041,212
Monthly Avg Revenue per Pet ($)	$67.07	$74.27	$76.02
Average PAC ($)	$217	$243	$261
Average Monthly Retention (%)	98.49%	98.29%	98.25%

Notes:

Non-GAAP definitions and reconciliations provided by the company; subscription “value proposition” equals subscription cost of paying vet invoices as % of subscription revenue (lower = better) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue	FY 2025	N/A	$1.379B–$1.414B	New
Subscription Revenue	FY 2025	N/A	$961M–$984M	New
Adjusted Operating Income (Total)	FY 2025	N/A	$120M–$140M	New
Total Revenue	Q1 2025	N/A	$334M–$340M	New
Subscription Revenue	Q1 2025	N/A	$230M–$233M	New
Adjusted Operating Income (Total)	Q1 2025	N/A	$26M–$29M	New

Assumptions/qualifiers mentioned by management: ~15% vet inflation carried into 2025; 69% USD/CAD rate used in guidance .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3 2024)	Current Period (Q4 2024)	Trend
Margin trajectory	Q2: sub VP 74.1% (improving vs LY); AOI building; FCF returning . Q3: reached target VP ~71%; sub AOI margin 14.0% .	Record sub AOI margin 15.3%; VP 70.0%; AOI +30% YoY .	Improving
Pricing & vet inflation	Pricing alignment emphasized; ongoing rate actions .	Assume ~15% vet inflation; rate flow normalizing; earned rate >15% in 2025 but lower than last two years .	Normalizing with elevated baseline
PAC & growth mix	Pullback in PAC to protect margins; still growing pets modestly .	PAC to ramp gradually in 2025 toward 2022 levels (~$80M); expect pet growth to contribute more in 2H25 .	Accelerating through 2025
Leads/hospital channel	Ongoing investment; >1M pets; direct pay tech .	Vet leads +30% YoY; record hospitals using direct pay; >15,000 active hospitals .	Strengthening funnel top
Retention	TTM retention ~98.3% in 1H/3Q .	TTM 98.25% (down YoY) but improving sequentially; focus to raise first-year retention .	Stabilizing with initiatives
Other business	Lower-margin B2B; decelerating as Pets Best transitions .	Margin 0.8% including $0.9M write-down; secular decline to continue; growth ARPU-driven .	Declining
Internal controls	Material weaknesses disclosed earlier; remediation underway .	On track to remediate both weaknesses in 2024 audit; file 10-K on schedule .	Improving
International expansion	Early investments; development expenses .	Launch of Trupanion Europe in Germany/Switzerland; goodwill impairment due to timing/focus .	Strategic refocus

Management Commentary

“The last quarter of 2024 marked the highest subscription adjusted operating margin in the history of Trupanion.” — Margi Tooth, CEO .
“Our subscription business delivered adjusted operating income of $35 million… approximately 230 basis points of margin expansion… the highest subscription adjusted operating margin in our company's history.” — Fawwad Qureshi, CFO .
“Q4… achieved our industry-leading 71% value proposition for the second consecutive quarter… we saw a 45% increase in our per pet profit even with the anticipated pullback in retention.” — Margi Tooth .
“Vet leads overall were up 30% year-over-year… record number of hospitals using our direct payment solution and over 15,000 active hospitals.” — Margi Tooth .
“We exceeded [our 2.5% FCF] goal in 2024 by generating free cash flow of $38.6 million, a margin of 3%… puts us in a very strong position to further increase… pet acquisition.” — Fawwad Qureshi .

Q&A Highlights

Growth cadence and PAC: Management plans a gradual ramp of PAC through 2025, aiming to approach 2022’s ~$80M spend, expecting pet growth to weigh more in 2H25; mix in 2024 was ~60% price / 40% pet count .
Conversion vs. gross adds: 4Q gross adds modest; focus in 2025 is improving conversion and retention with more brand spend; phone conversion at an all-time high despite higher ARPU .
Pricing/earned rate: Expect earned rate increases to remain >15% in 2025, albeit lower than prior two years; pricing refinement should aid retention .
Other business trajectory: Secular decline continues as pets roll off; revenue buoyed by ARPU increases; segment margin hit by $0.9M A/R write-down .
Goodwill impairment: $5.3M related to SmartPaws (reduced to zero goodwill) and PetExpert, reflecting delayed EU launch and focusing on fewer markets .

Estimates Context

S&P Global consensus for Q4 2024 (EPS/revenue/EBITDA/target price) was unavailable due to a temporary request limit exceeded during retrieval; as a result, we do not present consensus comparisons in this recap. Values would typically be retrieved from S&P Global.

Key Takeaways for Investors

The quarter confirms a successful pivot from margin repair to profitable growth: record subscription margin (15.3%) and improved value proposition (70.0%) provide a stronger base for reinvesting in PAC .
Cash flow discipline is now a material lever: Q4 FCF $21.8M and FY24 FCF $38.6M (3% margin) fund a planned 2025 PAC ramp without stressing the balance sheet; capital surplus at APIC is robust .
2025 setup relies on execution in conversion and retention: management will ramp brand and funnel spend, expecting pet growth to be a bigger driver in 2H25 as rate flow normalizes .
Watch vet inflation and CAD/USD: guidance assumes ~15% vet inflation and a 69% rate—deviations could shift margins and reported revenue .
Other business is a headwind but de-risking: declining pet months and margin pressure persist; the core subscription engine is the driver of value .
International expansion continues with more focus: EU launch live in DE/CH, but impaired legacy assets reflect a narrower, more disciplined approach .
Tactical implication: Near-term stock reaction likely hinges on confidence in 2025 PAC ramp translating into accelerating net adds by 2H, while sustaining subscription margins amid price normalization and inflation .

All source data and quotes are drawn from Trupanion’s Q4/FY24 8-K and earnings materials, and prior quarter press releases: .

TRUPANION, INC. (TRUP)·Q4 2024 Earnings Summary