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Trupanion (TRUP) has been barking up a storm since reporting impressive Q2 results a couple of weeks ago. As a provider of medical insurance plans for cats and dogs, it would make sense if consumers decided to cut back on this spending given how tight consumer budgets are these days. However, Trupanion surprised the market with a good Q2 report. The stock has made quite a move since the Q2 report (+33%), trading to a new 52-week high.

• The company reported a loss as expected, but it was narrower than analysts had been expecting. Also, revenue rose nicely, up 16% yr/yr to $314.8 mln, which also was better than expected. What's more and we think the metric investors liked most was subscription revenue jumping 20% yr/yr to $208.6 mln. TRUP says its subscription business is the financial engine behind its business.
• Breaking down the components of its subscription growth, ARPU increased by 11% yr/yr, a record pace since TRUP became publicly traded 10 years ago and pet count increased by 8%. Within its core Trupanion brand, ARPU expanded even faster at 13%. Modulating between growth and pricing is a key focus for TRUP.
• An issue the company has been dealing with rising veterinary pricing, so it works hard to get that right balance between its prices and vet inflation. What really helped with Q2 subscription revenue is that TRUP had approximately 24% pricing rolling through its book, and veterinary inflation remained consistent with expectations at 15%. Against this backdrop, retention in the quarter was strong with the average pets staying with TRUP for over 60 months. Of note, within its core Trupanion product, approximately half of its Trupanion members have received a pricing increase of 20% or more over the last 12 months.
• Unlike other direct-to-consumer subscription models, because TRUP is an insurance provider which is more regulated, it is limited in how quickly it can adjust and implement pricing. However, TRUP recently received meaningful rate approvals in two of its largest states that are beginning to take effect. While these new rates will take time to run through its book, they should enable TRUP to increase acquisition spending and pet growth in these regions now that the company has reestablished pricing.

Overall, we just wanted to flag the big move recently in Trupanion. It seems like US consumers are willing to keep spending on their pets despite the macro pressures. Also, we think consumers are seeing the rising cost of veterinary care and having health insurance is way to mitigate those increased costs. It also tells us sentiment around this stock finally seems to be improving. It has been under pressure in recent years, but the durability of its subscription base and favorable rate increases from state regulators are convincing the skeptics.