What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-04-30 compared with 2020-10-30 · 80 added, 71 removed, 603 unchanged (20% of the section changed)

5 unchanged sentences

In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Summary of Material Risk Factors

Our business is subject to numerous risks and uncertainties of which you should be aware.

Among others, these risks relate to:

• Our results of operations, including adverse impacts from the COVID-19 pandemic, our significant net losses since inception, our ability to achieve or maintain profitability in the future, and our ability to maintain our rate of revenue growth;

• Our ability to grow our member base, including by attracting new members from internet searches and from leads generated from Territory Partners, veterinarians and other third parties, to retain these members, and to recover our member acquisition costs;

• Our engagement of Territory Partners as independent contractors rather than employees;

• The pricing of our subscription, the actual levels of our veterinary invoice expense (which may increase with use of our patented software for direct payment of invoices), and our ability to timely and accurately process valid invoices and to identify improper invoices;

• Our need to maintain certain levels of surplus capital under applicable insurance regulations;

• Competitive challenges and our ability to maintain and enhance our brand;

• Emerging claim and coverage issues;

• Our ability to maintain and scale our infrastructure, to invest in or acquire businesses, products and technologies, and otherwise to manage our growth;

• Our reliance on key personnel, strategic relationships and a Canadian insurance company for our Canadian operations;

• Variations in our operating results, fluctuations in foreign exchange rates, other issues relating to expanding our operations internationally, and general changes in the economy;

• Our efforts to establish multiple insurance subsidiaries;

• Our ability to maintain effective internal controls and security measures;

• Our acceptance of automatic fund transfers and credit card and debit card payments;

• Owning an office building;

• Our ability to protect our intellectual property (IP), to avoid violating IP rights of other, and to maintain relationships with third parties providing necessary IP and technology to us;

• Litigation or regulatory proceedings;

• Compliance with covenants in our current credit agreement and limitations that may arise in connection with any future indebtedness we may incur;

• Tax liabilities and our ability to use net operating loss carryforwards;

• Compliance with the numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance, privacy, the internet, email and texting, and accounting matters;

• Our common stock, including trading price declines from missed earnings guidance, inadequate analyst coverage, trading volatility, lack of dividends, concentrated ownership, and anti-takeover provisions in our governing documents.

Risks Related to Our Business and Industry

1 unchanged sentence

The global spread of the COVID-19 pandemic and related containment efforts have created significant economic disruption.

To date, the pandemic has not had a material adverse impact on our business, although we expect that our near-term growth rate may decline slightly.

For example, COVID-19 has resulted in a significant unemployment.

The related economic impact on consumers may result in decreased new enrollments and increased cancellations.

Our Territory Partners are less able to drive new enrollments by conducting face-to-face visits with veterinarians and their staff.

In addition, veterinarians have reported that pets may contract COVID-19, and the extent to which COVID-19 may be communicable among humans, dogs and cats and its health impact on pets is somewhat uncertain.

To date, the pandemic has not had a material adverse impact on our business, although it could impact growth rates in the future.

• The COVID-19 pandemic and related public health measures have resulted in significant unemployment.

The related economic impact on consumers may result in decreased new enrollments in our subscription and increased cancellations.

• The global work-from-home operating environment has restricted some of our Territory Partners from conducting face-to-face visits with veterinarians and their staff.

• Veterinarians have reported that pets may contract COVID-19, and the extent to which COVID-19 may be communicable among humans, dogs and cats and its health impact on pets is somewhat uncertain.

An increase in COVID-19 among pets may cause our veterinary invoice expense to increase.

Meanwhile, while we are not currently experiencing any meaningful decreases in veterinary invoice expenses, many insurance companies within the property and casualty insurance space are providing refunds to policyholders in light of reduced claims trends they are experiencing, and it is possible that state insurance regulators may require us to change our behavior.

In addition, the duration of the pandemic, whether it may recur, and its other long-term impacts are highly uncertain and cannot be predicted.

These risks and uncertainties make it challenging to manage our growth, maintain business relationships, price our subscription and otherwise plan for our business.

• While we are not currently experiencing any meaningful decreases in veterinary invoice expenses, many insurance companies within the property and casualty insurance space are providing refunds to policyholders in light of reduced claims trends they are experiencing, and it is possible that state insurance regulators may require us to provide refunds or otherwise change our behavior.

• The duration of the pandemic, whether it may recur, and its other long-term impacts are highly uncertain and cannot be predicted.

These risks and uncertainties make it challenging to manage our growth, maintain business relationships, price our subscription plans and otherwise plan for our business.

In accordance with local and state directives, we have shifted our operations from our corporate office facility located in Seattle, Washington, and substantially all of our personnel are working from home.

We have not conducted business in this manner previously, do not know how long we may need to continue in this manner, and may experience reduced productivity of our employees, greater exposure to cybersecurity threats, or other operational risks.

Similarly, many of our Territory Partners, our vendors, the businesses for which we write policies in our other business segment, and our strategic partners are working from home, and many veterinary hospitals are working at reduced staffing levels.

The extent to which these parties suffer inefficiencies or other risks from their work-from-home arrangements, and the extent to which those risks may impact us, is impossible to predict.

3 unchanged sentences

We have funded our operations through equity financings, borrowings under a revolving line of credit and term loans and, since 2016, positive cash flows from operations.

Our ability to maintain profitability will depend in significant part on our obtaining new members, retaining our existing members and ensuring that our expenses, including our sales and marketing expenses, does not exceed our revenue.

We expect to make significant expenditures and investments in member acquisition.

Our ability to achieve and maintain profitability will depend in significant part on our obtaining new members, retaining our existing members and ensuring that our expenses, including our sales and marketing expenses, do not exceed our revenue.

We expect to make significant expenditures and investments in member acquisition and product initiatives and these expenditures may not result in additional growth.

Our recent growth in revenue and membership may not be sustainable or may decrease, and we may not generate sufficient revenue to maintain profitability.

11 unchanged sentences

• maintain positive relationships with and increase the number and efficiency of Territory Partners;

• continue to offer a superior value with competitive features and rates;

• create and maintain positive relationships with strategic partners, particularly partners who create software solutions for veterinary practices;

• continue to offer products with a superior value with competitive features and rates;

• price our subscriptions in relation to actual operating expenses and achieve required regulatory approval for pricing changes;

3 unchanged sentences

• react to existing and new competitors;

• protect and defend our critical intellectual property;

• increase awareness of and positive associations with our brand;

27 unchanged sentences

For the year ended December 31, 2020, we generated 77.0% of our revenue from subscriptions.

In order to continue to increase our membership, we must continue to convince prospective members of the benefits of pet insurance and existing members of the continuing value of our product.

We utilize Territory Partners, who are paid fees based on enrollments in their regions, to communicate the benefits of medical insurance to veterinarians through in-person visits.

In order to continue to increase our membership, we must continue to convince prospective members of the benefits of pet insurance in general and our subscription in particular.

To maintain our existing member base, we need to continue to reinforce the value of our subscription.

We utilize Territory Partners, who are paid fees based on enrollments in their regions, to communicate the benefits of medical insurance to veterinarians through, prior to the COVID-19 pandemic, in-person visits and more recently, through remote communications.

Veterinarians then educate pet owners, who visit our website or call our contact center to learn more about these benefits, and potentially become members.

We also invest in other third-party and direct to consumer member acquisition channels, though we have limited experience with some of them.

We plan to expand the number of our Territory Partners and other lead-generation sources and to engage in other marketing activities, including direct to consumer advertising, which are likely to increase our acquisition costs.

We plan to expand the number of our Territory Partners and other lead-generation sources and to engage in other marketing activities, including direct to consumer advertising and increasing our social media footprint, which are likely to increase our acquisition costs.

In addition, these plans may face unexpected delays, costs or other challenges, such as decreased ability of Territory Partners to conduct in-person veterinarian or less effective development of other third-party relationships.

4 unchanged sentences

• the competitiveness of our subscription, including its perceived value, simplicity, and fairness;

• changes in consumer shopping behaviors due to circumstances outside of our control, such as economic conditions and consumers’ ability or willingness to pay for our product;

• changes in consumer shopping behaviors due to circumstances outside of our control, such as economic conditions, the COVID-19 pandemic and containment efforts, and consumers’ ability or willingness to pay for our product;

• regulatory requirements, including those that make the experience on our website cumbersome or difficult to navigate or that hinder our ability to speak with potential members quickly and in a way that is conducive to conversion;

14 unchanged sentences

We rely significantly on Territory Partners, veterinarians and other third parties, including strategic partners, to generate leads.

In order for us to implement our business strategy and grow our revenue, we must effectively maintain and increase the number and quality of our relationships with Territory Partners, veterinarians, existing members, online and other businesses, animal shelters, breeders and veterinary affiliates, including veterinarian purchasing groups and associations and other referral sources, and continue to scale and improve our processes, programs and procedures that support them.

In order for us to implement our business strategy and grow our revenue, we must effectively maintain and increase the number and quality of our relationships with Territory Partners, veterinarians, existing members, complementary online and other businesses, animal shelters, breeders and veterinary affiliates, including veterinarian purchasing groups and associations and other referral sources, and continue to scale and improve our processes, programs and procedures that support them.

Those processes, programs and procedures could become increasingly complex and difficult to manage as we grow.

2 unchanged sentences

Our relationship with our Territory Partners may be terminated at any time (for instance, if they feel unsupported or undervalued by us), and, if terminated, we may not recoup the costs associated with educating them about our subscription or be able to maintain any relationships they may have developed with veterinarians within their territories.

Sometimes a single relationship may be used to cover multiple territories so that a terminated relationship could significantly affect our company.

Sometimes a single relationship may be used to cover multiple territories so that a terminated relationship with a Territory Partner could significantly affect our company.

Further, if we experience an increase in the rate at which Territory Partner relationships are terminated, we may not develop or maintain relationships with veterinarians as quickly as we have in the past or need to in order to implement our business strategy and our growth and financial performance could be adversely affected.

Our ability to generate leads through veterinary hospitals could be negatively impacted if our policy is perceived to be inadequate, unreliable, cumbersome or otherwise does not provide sufficient value, or if our process for paying veterinary invoices is unsatisfactory to the veterinarians’ clients.

If we fail to establish or are unable to maintain our existing member acquisition channels and/or continue to add new member acquisition channels, if the cost of our existing sources increases or does not scale as we anticipate, or if we are unable to continue to use any existing channels or programs in any jurisdiction, including our exam day offer program, our member levels and sales and marketing expenses may be adversely affected.

4 unchanged sentences

We do not control a Territory Partner’s employment or engagement of others, and it is possible that the actions of their employees and/or contractors could create threatened or actual legal proceedings against us.

Moreover, Territory Partners may not require, or applicable law may not permit, that employees or other service providers engaged by Territory Partners be subject to non-compete obligations and these employees and service providers may provide services to our competitors.

Territory Partners may decide not to participate in our marketing initiatives and/or training opportunities, accept our introduction of new solutions or comply with our policies and procedures applicable to them, any of which may adversely affect our ability to develop relationships with veterinarians and grow our membership.

12 unchanged sentences

Factors related to pet location include the current and assumed changes in the cost and availability of veterinary technology and treatments and local veterinary hospital preferences.

The assumptions we make about breeds and other factors in pricing may prove to be inaccurate and, accordingly, these pricing analytics may not accurately reflect the expense that we will ultimately incur.

Some data that feeds into our analytics platform is provided by third-party sources and these sources may limit or prevent us from accessing the data.

Additionally, the assumptions we make about breeds and other factors in pricing may prove to be inaccurate and, accordingly, these pricing analytics may not accurately reflect the expense that we will ultimately incur.

Furthermore, if any of our competitors develop similar or better data systems, adopt similar or better underwriting criteria and pricing models or receive our data, our competitive advantage could decline or be lost.

1 unchanged sentence

We monitor and manage our pricing and overall sales mix to achieve our target returns.

If the actual costs, including veterinary invoice expenses, operating costs and expenses within anticipated pricing allowances, are greater than our assumptions and estimates such that the premiums we collect are insufficient to cover these expenses, then our gross profit could be adversely affected and our revenue may be insufficient to maintain profitability.

If the actual costs, including veterinary invoice expenses, operating costs and expenses within anticipated pricing allowances, are greater than our assumptions and estimates such that the premiums we collect are insufficient to cover these expenses, then our profitability could be adversely affected and our revenue may be insufficient to maintain profitability.

Conversely, if our pricing assumptions differ from actual results such that we overprice risks, our competitiveness and growth prospects could be adversely affected.

1 unchanged sentence

Most states require licensure and regulatory approval prior to marketing new insurance products.

Our practice has been to regularly reevaluate the price of our subscriptions, with any pricing changes implemented at least annually, subject to the review and approval of the state regulators, who may reduce or disallow our pricing changes.

Our practice has been to regularly reevaluate the price of our subscriptions, with any pricing changes implemented at least annually, subject to the review and approval of applicable state regulators, who may reduce or disallow our pricing changes.

Such review has often in the past resulted, and may in the future result, in delayed implementation of pricing changes and prevent us from making changes we believe are necessary to achieve our targeted payout ratio, which could adversely affect our operating results and financial condition.

3 unchanged sentences

Our actual veterinary invoice expense may exceed our current reserve established for veterinary invoices and may adversely affect our operating results and financial condition.

Our recorded reserve for veterinary invoices is based on our best estimates of the amount of veterinary invoices we expect to pay, inclusive of an estimate for veterinary invoices we have not yet received, after considering internal factors, including data from our proprietary data analytics platform, experience with similar cases, actual veterinary invoices paid, historical trends involving veterinary invoice payment patterns, patterns of receipt of veterinary invoices, seasonality, pending levels of unpaid veterinary invoices, veterinary invoice processing programs and contractual terms.

We maintain a recorded reserve for veterinary invoices that is based on our best estimates of the amount of veterinary invoices we expect to pay, inclusive of an estimate for veterinary invoices we have not yet received, after considering internal factors, including data from our proprietary data analytics platform, experience with similar cases, actual veterinary invoices paid, historical trends involving veterinary invoice payment patterns, patterns of receipt of veterinary invoices, seasonality, pending levels of unpaid veterinary invoices, veterinary invoice processing programs and contractual terms.

We may also consider external factors, including changes in the law, court decisions, changes to regulatory requirements and economic conditions.

85 unchanged sentences

Our operating results may vary, which could make period-to-period comparisons less meaningful, and make our future results difficult to predict.

We may experience fluctuations in our revenue, expenses and operating results in future periods.

We may experience fluctuations in our revenue, expenses and operating results in future periods, particularly as the COVID-19 pandemic evolves.

Our operating results may fluctuate in the future as a result of a number of factors, many of which are beyond our control.

16 unchanged sentences

Rawlings or several other key executives or employees within a short time frame could have a material adverse effect on our business.

We employ all of our executive officers and key employees on an at-will basis, and their employment can be terminated by us or them at any time, for any reason and without notice, subject, in certain cases, to severance payment rights.

We employ all of our employees, including executive officers and key employees on an at-will basis, and their employment can be terminated by us or them at any time, for any reason and without notice, subject, in certain cases, to severance payment rights.

In order to retain valuable employees, in addition to salary and cash incentives, we have provided stock options and restricted stock that vest over time and may in the future grant equity awards tied to company performance.

22 unchanged sentences

We may not realize the benefits of our current and planned transactions with Aflac.

In October 2020, we entered into an Strategic Alliance Agreement, a Stock Purchase Agreement and a Shareholder Agreement with Aflac.

Aflac has purchased $60.0 million and has agreed to purchase an additional $140.0 million following the expiration or termination of the antitrust waiting period and subject to certain other terms and conditions.

These closing conditions may not be satisfied, in which event the second closing would not occur, the contractual three-year holding period would not apply to the shares we have already sold to Aflac, and Aflac may terminate the Alliance.

The Strategic Alliance Agreement sets forth the structure for the Alliance, including its intended benefits to us relating to brand, access and distribution as well as go-to-market matters.

In October 2020, we entered into a Strategic Alliance Agreement, a Stock Purchase Agreement and a Shareholder Agreement with Aflac Incorporated (Aflac).

Aflac purchased an aggregate of $200.0 million of our common stock.

The Strategic Alliance Agreement sets forth the structure for an alliance with Aflac, including its intended benefits to us relating to brand, access and distribution as well as go-to-market matters.

We and Aflac have agreed to negotiate in good faith and to act reasonably with each other in order to agree on such terms as are necessary to fully implement the alliance.

37 unchanged sentences

Fluctuations in the relative strength of the US dollar has in the past and could in the future adversely affect our revenue and operating results.

We may decide to set up multiple insurance subsidiaries, which may complicate our business and harm our results of operations.

Our decision to set up multiple insurance subsidiaries may complicate our business and harm our results of operations.

Currently, APIC, our wholly owned subsidiary, underwrites memberships for our U.S.

6 unchanged sentences

Failure to comply with laws, regulations and guidelines applicable to a new insurance subsidiary could result in significant liability, result in the loss of revenue and otherwise harm our business, operating results and financial condition.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

If we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on the internal control over financial reporting, which must be attested to by our independent registered public accounting firm.

1 unchanged sentence

We have had in the past, and may have in the future, material weaknesses and significant deficiencies in our internal control over financial reporting.

we or our independent registered public accounting firm identify future material weaknesses in our internal control over financial reporting, we are unable to comply with the requirements of Section 404 in a timely manner, we are unable to assert that our internal control over financial reporting is effective or our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

If we or our independent registered public accounting firm identify future material weaknesses in our internal control over financial reporting, we are unable to comply with the requirements of Section 404 in a timely manner, we are unable to assert that our internal control over financial reporting is effective or our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

We could also become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

38 unchanged sentences

It is possible that the other current tenants in the building may cease to rent space in the building, which would decrease rental income we expect to receive from them.

We recently learned that one tenant has decided not to continue leasing space in the building and we are evaluating use of the newly vacant space.

Tenants may also negotiate tenant improvements, requiring capital expenditures that may adversely impact our financial position.

24 unchanged sentences

Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.

Third parties have in the past and may in the future claim that our services or technologies infringe or otherwise violate their intellectual property rights.

Third parties have in the past and may in the future claim that our services or technologies, including our proprietary software, infringe or otherwise violate their intellectual property rights.

We may be subject to legal proceedings and claims, including claims of alleged infringement by us of the intellectual property rights of third parties.

Any dispute or litigation regarding intellectual property could be expensive and time consuming, regardless of the merits of any claim, and could divert our management and key personnel from our operations.

If we were to discover or be notified that our services potentially infringe or otherwise violate the intellectual property rights of others, we may need to obtain licenses from these parties in order to avoid infringement.

If we were to discover or be notified that our services or our proprietary software potentially infringe or otherwise violate the intellectual property rights of others, we may need to obtain licenses from these parties in order to avoid infringement.

We may not be able to obtain the necessary licenses on acceptable terms, or at all, and any such license may substantially restrict our use of the intellectual property.

1 unchanged sentence

Any of the foregoing could cause us to incur significant costs and prevent us from selling or properly administering subscriptions or performing under our other contractual relationships.

We rely on third parties to provide intellectual property and technology necessary for the operation of our business.

We utilize intellectual property and technology owned and/or hosted by third parties in developing and operating our technology platform and operating our business.

From time to time, we may be required to renegotiate with these third parties or negotiate with other third parties to include or continue using their intellectual property or technology in our existing technology platform or business operations or in modifications or enhancements to our technology platform or business operations.

We may not be able to obtain the necessary rights from these third parties on commercially reasonable terms, or at all, and the third-party intellectual property and technology we use or desire to use may not be appropriately supported, maintained or enhanced by the third parties.

If we are unable to obtain the rights necessary to use or continue to use third-party intellectual property and technology in our operations, or if those third parties are unable to support, maintain and enhance their intellectual property and technology, we could experience increased costs or delays, which in turn may harm our financial condition, damage our brand and result in the loss of members.

Our technology platform and our data are also hosted by a third-party service provider.

The terms under which such third-party service provider provides us services may change and we may be required to renegotiate with that third party.

If we are unable to renegotiate satisfactory terms, we may not be able to transition to an alternative service provider without interrupting the availability of our technology platform and any interruption could materially and adversely affect our business.

Additionally, if our third-party service provider experiences any disruptions, outages or catastrophes, or if it ceases to conduct business for any reason, we could experience an interruption in our business, which in turn may damage our brand, result in a loss of members and harm our financial condition.

The outcome of litigation or regulatory proceedings could subject us to significant monetary damages, restrict our ability to conduct our business, harm our reputation and otherwise negatively impact our business.

6 unchanged sentences

These claims may be costly to defend and may result in assessment of damages, adverse tax consequences and harm to our reputation.

Covenants in the credit agreement governing our revolving line of credit may restrict our operations, and if we do not effectively manage our business to comply with these covenants, our financial condition could be adversely affected.

The credit agreement governing our revolving line of credit contains various restrictive covenants, including restrictions on our ability to dispose of our assets, merge with or acquire other entities, incur other indebtedness, make investments, and engage in transactions with our affiliates.

Our credit agreement also contains certain financial covenants.

Our ability to meet these restrictive covenants can be affected by events beyond our control.

Our credit agreement provides that our breach or failure to satisfy certain covenants constitutes an event of default.

Upon the occurrence of an event of default, our lenders could elect to declare any future amounts outstanding under our credit agreement to be immediately due and payable.

If we are unable to repay those amounts, our financial condition could be adversely affected.

Any indebtedness we incur could adversely affect our business and limit our ability to expand our business or respond to changes, and we may be unable to generate sufficient cash flow to satisfy any of our debt service obligations.

As of December 31, 2019, we had $26.2 million outstanding indebtedness under our revolving line of credit and may incur indebtedness in the future, including any additional borrowings available under our revolving line of credit.

Any substantial indebtedness, and the fact that a substantial portion of our cash flow from operating activities could be needed to make payments on this indebtedness, could have adverse consequences, including the following:

• reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities and other purposes;

• limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which could place us at a competitive disadvantage compared to our competitors that may have less debt;

• limiting our ability to borrow additional funds;

• increasing our vulnerability to general adverse economic and industry conditions.

Our ability to borrow any funds needed to operate and expand our business will depend in part on our ability to generate cash.

If our business does not generate sufficient cash flow from operating activities or if future borrowings, under our revolving credit facility or otherwise, are not available to us in amounts sufficient to enable us to fund our liquidity needs, our operating results, financial condition and ability to expand our business and meet our risk-based capital requirements may be adversely affected.

We may have additional tax liabilities.

13 unchanged sentences

Pursuant to Sections 382 and 383 of the Code, annual use of our net operating loss carryforwards and credit carryforwards may be limited by previous and future ownership changes.

Changes in the economy may negatively impact our business, operating results and financial condition.

Changes in the economy may affect consumer spending on our subscription and this may negatively impact our business, operating results and financial condition.

Our business may be affected by changes in the economic environment.

6 unchanged sentences

As part of our growth plan, we have explored, and expect to continue to explore, opportunities to expand our operations internationally.

For instance, we recently entered the Australian market through a joint venture and we may enter other countries.

We have no history of marketing, selling, administrating and supporting our subscription for consumers outside of the United States, Canada, and Puerto Rico.

For instance, we entered the Australian market through a joint venture and we are actively exploring entering other countries.

We have limited history of marketing, selling, administrating and supporting our subscription for consumers outside of the United States, Canada, and Puerto Rico.

In general, international sales and operations may be subject to a number of risks, including the following:

28 unchanged sentences

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all.

For instance, our arrangement with Aflac requires that, before we issue or sell equity to another investor, we are required to provide Aflac an opportunity to purchase equity allowing them to maintain their ownership percentage.

This requirement may introduce delays or prevent us from raising funds through the issuance of securities.

If we raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of our common stock could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of holders of our common stock.

44 unchanged sentences

A delayed approval may require us to raise rates more quickly than we otherwise may desire.

A delayed approval may require us to have larger rate increases in subsequent periods.

This could damage our reputation with our members and reduce our retention rates, which could significantly damage our brand, result in the loss of expected revenue and otherwise harm our business, operating results and financial condition.

61 unchanged sentences

However, various factors are causing our accounting to become complex, such as our recent building acquisition, our investments in strategic opportunities and our test expansion into foreign markets.

Ongoing evolution of our business may compound these complexities.

Ongoing evolution of our business, further international expansion, and entry into complementary businesses such as pet food, may compound these complexities.

Our operating results may be adversely affected if we make accounting errors or our judgments prove to be wrong, assumptions change or actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors or guidance we may have provided, resulting in a decline in our stock price and potential legal claims.

Significant judgments, assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, stock-based compensation, business combinations, and income taxes.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.

A change in these principles or interpretations could have a significant effect on our reported financial results, could affect the reporting of transactions completed before the announcement of a change and could affect our compliance with financial debt covenants.

Significant judgments, assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, reserve for veterinary invoices, business combinations, and income taxes.

Risks Related to Ownership of Our Common Stock

26 unchanged sentences

• recruitment or departure of key personnel;

• recent private sale of our securities to Aflac;

• the economy as a whole and market conditions in our industry;

8 unchanged sentences

Other than potential repurchases of our common stock, we currently intend to retain all available funds and any future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.

In addition, our ability to pay cash dividends on our common stock is limited by the terms of our credit agreement, APIC’s ability to pay dividends is limited by New York state insurance laws, and WICL Segregated Account AX’s ability to pay dividends is limited by our agreements with WICL as well as WICL’s regulatory requirements.

APIC’s ability to pay dividends is limited by New York state insurance laws, and WICL Segregated Account AX’s ability to pay dividends is limited by our agreements with WICL as well as WICL’s regulatory requirements.

Any return to stockholders will therefore be limited to the increase, if any, of our stock price.

14 unchanged sentences

• eliminate the ability of our stockholders to call special meetings of stockholders;

• prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

• prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our

stockholders;

• prohibit cumulative voting;

2 unchanged sentences

Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock.

Our board of directors recently approved an Employee Severance and Change in Control Plan that applies to each employee of our company.

This plan provides certain benefits to our employees in the event there is a change in control of our company and an employee is terminated under certain conditions.

Potential acquirers may determine that the possible payments under this plan make an acquisition of our company unattractive.

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

Mine Safety Disclosures

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors