Trupanion (NASDAQ:TRUP) capped fiscal 2025 with what management described as a record year, highlighting rising adjusted operating income, improving retention, accelerating pet acquisition, and growing free cash flow as the company prepares to launch its next strategic plan.
Management highlights: record year, improving retention, accelerating acquisition
Chief Executive Officer Margi Tooth said 2025 delivered nearly $1 billion in subscription revenue and approximately a 15% adjusted operating margin. She said the company generated $152 million in adjusted operating income (AOI) during the year, which funded $83 million of pet acquisition costs and development spending aimed at long-term growth.
Fourth quarter results: revenue up 12%, subscription AOI sets another record
Chief Financial Officer Fawwad Qureshi reported fourth quarter total revenue of $376.9 million, up 12% year-over-year. Subscription revenue was $261.4 million, up 15% year-over-year.
Total subscription pets increased 5% year-over-year to more than 1,096,000 pets as of December 31, including approximately 63,000 pets in Europe. Average monthly retention for the trailing 12 months was 98.34%, up from 98.25% in the year-ago quarter.
In the subscription segment, the cost of paying veterinary invoices was $180.8 million, resulting in a reported value proposition of 69.1%, compared with 70% in the prior-year period. Qureshi said results included $0.9 million of adverse development from prior periods (about 30 basis points of revenue). On the call, he also noted that absent that adverse development, the loss ratio would have been “a little bit lower.”
Subscription variable expenses were 8.7% of subscription revenue, down from 9.2% a year ago, while fixed expenses were 5.6% of revenue, compared with 5.5% in the prior-year period. Overall fixed and variable spending totaled 14.4% of revenue, an improvement from 14.6% in the year-ago quarter.
Subscription adjusted operating income was $43.1 million, up 23% from last year and representing 96% of total AOI for the quarter. Subscription adjusted operating margin was 16.5%, up from 15.3% a year earlier, which Qureshi said represented about 120 basis points of margin expansion and a new company record for subscription AOI and margin.
Other business segment and investments in growth
Trupanion’s “other business” segment—revenue from other products and services with a lower-margin profile—generated $115.4 million in revenue in Q4, up 5% year-over-year. Qureshi said the company expects growth in this segment to continue to decelerate because it is no longer enrolling new pets in the majority of U.S. states for its largest partner. Adjusted operating income for the segment was $1.9 million, or 1.6% of revenue.
Total adjusted operating income for the quarter was $45.0 million, ahead of management’s expectations and up 26% from Q4 2024. Qureshi said the company deployed $21.6 million of AOI in the quarter to acquire approximately 65,200 new subscription pets. Excluding pets underwritten through an MGA structure, average pet acquisition cost was $320 per pet, up from $261 in the prior-year period. Trupanion also invested $1.8 million in development costs in the quarter.
Non-cash items included $9.4 million in stock-based compensation and a $1.1 million goodwill impairment charge related to European businesses. Net income improved to $5.6 million, or $0.13 per basic and diluted share, compared with $1.7 million, or $0.04 per share, in the prior-year quarter.
Cash flow, balance sheet, and capital allocation priorities
Operating cash flow was $29.3 million in the quarter, up from $23.7 million a year earlier. Capital expenditures were $3.9 million, compared with $1.9 million in Q4 2024, resulting in free cash flow of $25.3 million, up from $21.8 million.
For the full year, free cash flow rose to $75.4 million, which Qureshi said was 5.2% of total revenue and an increase of 95% year-over-year. Trupanion ended 2025 with $370.7 million in cash and short-term investments and total debt of $111.8 million, down $17.1 million from the prior year.
Qureshi also noted that after year-end, the company’s largest insurance entity, APIC, paid a $15 million extraordinary dividend to the operating company in February, following a $26 million extraordinary dividend announced in May of the prior year.
In discussing capital allocation, Qureshi emphasized AOI as a “versatile base of reinvestable dollars” that the company can deploy across pet acquisition costs, strategic initiatives such as Landspath (a food initiative), international expansion, technology investments like claims automation, and financial uses such as paying down debt. He said claims automation is “going north of 60%” and is expected to rise over the next three years, contributing to efficiency and margin expansion.
Asked about Landspath, management said it remains in early stages, focused on building infrastructure to test and deliver the product, with longer-term expectations that it could contribute meaningfully to margin. Tooth added that Landspath is designed as a portion-control food sold through veterinarians, with the goal of improving pet health and potentially allowing savings to be passed back to pet parents, supporting lifetime value and retention.
2026 outlook: revenue growth and higher adjusted operating income
For full-year 2026, Trupanion guided to total revenue of $1.55 billion to $1.582 billion, with subscription revenue of $1.117 billion to $1.137 billion (about 14% year-over-year growth at the midpoint). The company guided to adjusted operating income of $173 million to $187 million, representing 19% year-over-year growth at the midpoint, assuming veterinary inflation remains in line with current trends.
For the first quarter of 2026, the company expects total revenue of $376 million to $382 million, subscription revenue of $265 million to $268 million (about 14% year-over-year growth at the midpoint), and adjusted operating income of $38 million to $41 million (about 27% growth at the midpoint). Qureshi said guidance assumes a 73% U.S.-to-Canadian currency conversion rate.
In Q&A, Qureshi said pricing remained the dominant contributor to revenue growth exiting 2025 and is expected to continue in 2026, though the company expects pricing to contribute less than in 2025 while pet count contributes more, as gross adds improve. Management said inflation remains a key risk factor they are monitoring closely, but Tooth said the company has not seen year-to-date trends that would warrant changing current assumptions.
Tooth also discussed ongoing marketing efforts, saying brand spend is intended to put the Trupanion brand in front of more pet parents both in veterinary settings and earlier in the decision journey. She said concentrated brand spend in the vet space is showing encouraging funnel results, with faster movement to conversion over time, while broader direct-to-consumer education is helping build awareness and lead volume.
On retention, Tooth said improvement was broad-based, and called out a “middle bucket” of members receiving rate increases under 20% that has grown over the past year. She said the company continues to see progress even among members facing increases above 20%, while the first-year cohort remains an area of opportunity.
Looking ahead, Tooth said Trupanion intends to invest aggressively to strengthen acquisition and retention as it enters a new 36-month plan, balancing growth, cash flow, and balance sheet strength. She also said the company is considering both broadening the existing Trupanion offering and developing a newer product offering over the next 36 months to reach additional customers, with more details to come later.
About Trupanion (NASDAQ:TRUP)
Trupanion, Inc is a pet medical insurance company that provides comprehensive insurance coverage for cats and dogs. The company’s core offering is a single, customizable medical policy designed to cover veterinary diagnostic tests, surgeries, hospital stays and congenital or hereditary conditions. Trupanion seeks to streamline the claims process by offering direct payment options to participating veterinarians, reducing the need for upfront payments by pet owners.
Founded in 1999 by Darryl Rawlings and headquartered in Seattle, Washington, Trupanion began operations in the early 2000s and has grown its presence through both digital channels and partnerships with veterinary hospitals.
