What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-04-30 · 146 added, 91 removed, 313 unchanged (43% of the section changed)

21 unchanged sentences

Our Response to the COVID-19 Pandemic

Due to the uncertainty caused by the COVID-19 pandemic, we continue to:

• Protect our team.

We instituted a work-from-home policy for substantially all employees in March 2020.

This allowed responsible social distancing to keep our team safe.

We are also providing technology support, training and other resources to support our team members during this unique time.

• Leverage our data about COVID-19.

There has been understandable concern about whether COVID-19 is communicable to and from pets.

Using our extensive, proprietary database, we have closely monitored veterinary invoice data and shared our data with veterinarians, our members and the broader community that, to date, we have not seen any material COVID-19-related veterinary invoices.

• Provide relief and support to members.

We value our members and understand the economic and health challenges COVID-19 has created for many of them.

We slowed our process on subscription cancellations related to payments that fail, reverting to our historical 60-day process.

We also continue to provide a superior member experience with our claims, call center and broader team working to ensure pets receive the care they need during this pandemic.

• Carefully monitor the financial impact to our business.

We have not experienced a material adverse impact on our business due to COVID-19, but we are carefully monitoring new enrollments and retention, veterinary invoice expense, and other expenses, as well as the impact of COVID-19 on our partners.

The impacts of COVID-19 and related economic conditions on our results are highly uncertain and in many ways outside of our control.

We have not experienced a material adverse impact on our business due to COVID-19, but we continue to monitor conditions closely and adapt our operations to meet federal, state and local guidance.

Our focus remains on promoting employee health and safety, serving our members and ensuring business continuity.

Our Seattle headquarters is now open for those who want to work in that office, in compliance with applicable regulations and guidance.

While conditions appear to be improving, particularly as more people get vaccinated, the impacts of COVID-19 and related economic conditions on our results are highly uncertain and in many ways outside of our control.

The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult, if possible, to anticipate.

For additional details, see the section titled "Risk Factors."

Key Operating Metrics

The following table sets forth total pets enrolled and key operating metrics for our subscription business for each of the last eight fiscal quarters.

The following tables set forth total pets enrolled and key operating metrics for our subscription business for the six months ended June 30, 2021 and 2020 and for each of the last eight fiscal quarters.

Six Months Ended June 30,

Total Business:

Total pets enrolled (at period end) 1,024,226 744,727

Subscription Business:

Total subscription pets enrolled (at period end) 643,395 529,400

Monthly average revenue per pet $ 63.34 $ 59.19

Lifetime value of a pet, including fixed expenses $ 681 $ 597

Average pet acquisition cost (PAC) $ 281 $ 222

Average monthly retention 98.72 % 98.66 %

Three Months Ended

30, 2021 Mar.

31, 2021 Dec.

4 unchanged sentences

31, 2019 Sept.

30, 2019 Jun.

Total Business:

32 unchanged sentences

Average monthly retention is measured as the monthly retention rate of enrolled subscription pets for each applicable period averaged over the 12 months prior to the period end date.

As such, our average monthly retention rate as of March 31, 2021 is an average of each month’s retention from April 1, 2020 through March 31, 2021.

As such, our average monthly retention rate as of June 30, 2021 is an average of each month’s retention from July 1, 2020 through June 30, 2021.

We calculate monthly retention as the number of pets that remain after subtracting all pets that cancel during a month, including pets that enroll and cancel within that month, divided by the total pets enrolled at the beginning of that month.

6 unchanged sentences

The presentation and utilization of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

The following table reconciles net acquisition cost to sales and marketing expense (in thousands) for each of the last eight fiscal quarters:

The following tables reconcile net acquisition cost to sales and marketing expense (in thousands) for the six months ended June 30, 2021 and 2020 and for each of the last eight fiscal quarters:

Six Months Ended June 30,

Sales and marketing expense $ 39,094 $ 19,684

Net of sign-up fee revenue (2,524) (1,546)

Stock-based compensation expense (4,912) (1,231)

Other business segment sales and marketing expense (289) (354)

Net acquisition cost $ 31,369 $ 16,553

Three Months Ended

30, 2021 Mar.

31, 2021 Dec.

4 unchanged sentences

31, 2019 Sept.

30, 2019 Jun.

Sales and marketing expense $ 19,390 $ 19,704 $ 14,809 $ 13,344 $ 9,242 $ 10,442 $ 9,212 $ 9,255

43 unchanged sentences

Stock-based compensation will vary depending on corporate performance, measured by the estimated increase in our intrinsic value.

For example, when the company has delivered strong performance, stock compensation may increase as a result of incentive-based grants being awarded according to our equity incentive plan.

For example, when the company has delivered strong performance, stock-based compensation may increase as a result of incentive-based grants being awarded according to our equity incentive plan.

Factors Affecting Our Performance

11 unchanged sentences

Timing of initiatives.

Over time we plan to implement new initiatives to improve our member experience, make modifications to our subscription plan, improve our technology, and find other ways to maintain a strong value proposition for our members.

Over time we plan to implement new initiatives to improve our member experience, make modifications to our subscription plan, introduce new coverage plans, pursue pet food or other adjacent opportunities, improve our technology, increase the veterinary hospitals using our direct pay software, and find other ways to maintain a strong value proposition for our members.

These initiatives will sometimes be accompanied by price adjustments, in order to compensate for an increase in benefits received by our members.

15 unchanged sentences

The period-to-period comparison of financial results is not necessarily indicative of future results.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(in thousands)

9 unchanged sentences

Technology and development (1)

4,079 2,293 7,810 4,413

General and administrative (1)

7,435 5,073 14,651 9,933

Sales and marketing (1)

3 unchanged sentences

Gain (loss) from investment in joint venture 5 (27) (80) (86)

Operating loss (12,729) (1,010)

Operating (loss) income (9,512) 1,509 (22,241) 499

Interest expense 3 341 1 720

Other income, net (99) (202) (161) (484)

Loss before income taxes (12,665) (1,107)

(Loss) income before income taxes (9,416) 1,370 (22,081) 263

Income tax (benefit) expense (195) 17 (412) 43

Net loss $ (12,448) $ (1,133)

Net (loss) income $ (9,221) $ 1,353 $ (21,669) $ 220

(1) Includes stock-based compensation expense as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(in thousands)

4 unchanged sentences

Total stock-based compensation expense $ 6,527 $ 2,227 $ 14,975 $ 3,880

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(as a percentage of revenue)

8 unchanged sentences

Gain (loss) from investment in joint venture — — — —

Operating loss (8) (1)

Operating (loss) income (6) 1 (7) —

Interest expense — — — —

Other income, net — — — —

Loss before income taxes (8) (1)

(Loss) income before income taxes (6) 1 (7) —

Income tax (benefit) expense — — — —

Net loss (8) % (1) %

Net (loss) income (5) % 1 % (7) % — %

Stock-based compensation expense:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(as a percentage of revenue)

4 unchanged sentences

Total stock-based compensation expense 4 % 2 % 5 % 2 %

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

(as a percentage of

2 unchanged sentences

Subscription business cost of revenue 83 81 84 81

Comparison of the Three Months Ended March 31, 2021 and 2020

Three Months Ended March 31, % Change

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2021 2020 2021 2020

(in thousands, except percentages, pet and per pet data)

10 unchanged sentences

Average monthly retention 98.72 % 98.66 % 98.72 % 98.66 %

Three months ended March 31, 2021 compared to three months ended March 31, 2020.

Total revenue increased by $43.4 million, or 39%, to $154.7 million for the three months ended March 31, 2021.

Revenue from our subscription business segment increased by $23.8 million, or 27%, to $113.3 million for the three months ended March 31, 2021.

This increase in subscription business revenue was primarily due to a 20% increase in total subscription pets enrolled as of March 31, 2021 compared to March 31, 2020, and an increase in average revenue per pet of 7% for the same period.

Increases in pricing were primarily due to the increased cost and utilization of veterinary care.

Revenue from our other business segment increased by $19.6 million, or 90%, to $41.4 million for the three months ended March 31, 2021, primarily due to an 87% increase in enrolled pets in this segment.

Three months ended June 30, 2021 compared to three months ended June 30, 2020.

Total revenue increased by $50.3 million, or 43%, to $168.3 million for the three months ended June 30, 2021.

Revenue from our subscription business segment increased by $27.9 million, or 30%, to $120.4 million for the three months ended June 30, 2021.

This increase in subscription business revenue was primarily due to a 22% increase in total subscription pets enrolled as of June 30, 2021 compared to a year ago, and a 7% year over year increase in average revenue per pet (approximately 4% on a constant currency basis).

Increases in pricing were primarily due to the increased cost and utilization of veterinary care, as well as changes in the Canadian currency exchange rate.

Revenue from our other business segment increased by $22.4 million, or 88%, to $47.9 million for the three months ended June 30, 2021, primarily due to a 77% increase in enrolled pets in this segment.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.

Total revenue increased by $93.7 million, or 41%, to $322.9 million for the six months ended June 30, 2021.

Revenue from our subscription business segment increased by $51.7 million, or 28%, to $233.7 million.

Increases in pricing were primarily due to the increased cost and utilization of veterinary care, as well as changes in the Canadian currency exchange rate.

Revenue from our other business segment increased by $42.0 million, or 89%, to $89.3 million for the six months ended June 30, 2021, primarily due to a 77% increase in enrolled pets in this segment.

Cost of Revenue

Three Months Ended March 31, % Change

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2021 2020 2021 2020

(in thousands, except percentages, pet and per pet data)

20 unchanged sentences

Monthly average revenue per pet $ 63.69 $ 59.40 7 $ 63.34 $ 59.19 7

Three months ended March 31, 2021 compared to three months ended March 31, 2020.

Cost of revenue for our subscription business segment was $95.5 million for the three months ended March 31, 2021, compared to $73.4 million for the same period in the prior year.

Excluding stock-based compensation, cost of revenue for the subscription business was $92.2 million, or 81% of revenue in the first quarter of 2021, compared to 82% of revenue in prior year.

The increase of $22.1 million in subscription cost of revenue was primarily the result of a 20% increase in subscription pets enrolled and an increase of 6% in veterinary invoice expense per pet due to increases in the cost and utilization of veterinary care.

Additionally, stock-based compensation expense increased $3.0 million during the period due to grants related to performance in the prior year, including the full impact of one-time team grants during the period of $2.3 million.

The cost of revenue for our other business segment increased by $18.0 million, or 90%, to $38.0 million for the three months ended March 31, 2021, primarily due to the increase in enrolled pets in this segment.

Three months ended June 30, 2021 compared to three months ended June 30, 2020 .

Cost of revenue for our subscription business segment was $99.7 million for the three months ended June 30, 2021, compared to $74.6 million for the same period in the prior year.

The increase of 34% in subscription cost of revenue was primarily the result of a 22% increase in subscription pets enrolled and the increase in veterinary invoice expense per pet, which was attributable to both increased cost and utilization of veterinary care and lower than normal veterinary invoice expense in the second quarter of the prior year due to the impacts of COVID-19.

Additionally, stock-based compensation expense increased $0.9 million during the period due to new performance grants in the first quarter of this year.

Cost of revenue for our other business segment increased by $20.5 million, or 87%, to $44.0 million for the three months ended June 30, 2021, primarily due to the increase in enrolled pets in this segment.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.

Cost of revenue for our subscription business segment was $195.3 million for the six months ended June 30, 2021, compared to $148.0 million for the same period in the prior year.

The increase of 32% in subscription cost of revenue was primarily the result of a 22% increase in subscription pets enrolled and an increase of 7% in veterinary invoice expense per pet due to increases in the cost and utilization of veterinary care.

Additionally, stock-based compensation expense increased $3.8 million during the period due to new performance grants in the first quarter of this year, including the full impact of one-time team grants of $2.3 million in the first quarter of this year.

Cost of revenue for our other business segment increased by $38.5 million, or 89%, to $82.0 million for the six months ended June 30, 2021, primarily due to the increase in enrolled pets in this segment.

Technology and Development Expenses

Three Months Ended March 31, % Change

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2021 2020 2021 2020

(in thousands, except percentages)

1 unchanged sentence

Percentage of total revenue 2 % 2 % 2 % 2 %

Three months ended March 31, 2021 compared to three months ended March 31, 2020.

Technology and development expenses increased by $1.6 million, or 76%, to $3.7 million for the three months ended March 31, 2021.

Excluding stock-based compensation, technology and development expenses were $3.1 million, consistent with the prior period at 2% of revenue.

The increase in expense was primarily due to development expenses of $0.8 million related to new product offerings and $0.6 million of increased stock-based compensation during the period due to grants related to performance in the prior year, including the full impact of one-time team grants during the period of $0.3 million.

Three months ended June 30, 2021 compared to three months ended June 30, 2020.

Technology and development expenses increased by $1.8 million, or 78%, to $4.1 million for the three months ended June 30, 2021.

The increase was primarily driven by development expenses of $1.1 million related to new product offerings, or 0.7% of total revenue, and $0.7 million of increased stock-based compensation during the period due to new performance grants in the first quarter of this year.

Overall, technology and development expenses remained consistent at approximately 2% of revenue year over year.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.

Technology and development expenses increased by $3.4 million, or 77%, to $7.8 million for the six months ended June 30, 2021.

The increase was primarily driven by development expenses of $1.9 million related to new product offerings, or 0.6% of total revenue, and $1.2 million of increased stock-based compensation during the period due to new performance grants in the first quarter of this year.

Overall, technology and development expenses remained consistent at approximately 2% of revenue year over year.

General and Administrative Expenses

Three Months Ended March 31, % Change

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2021 2020 2021 2020

(in thousands, except percentages)

1 unchanged sentence

Percentage of total revenue 4 % 4 % 5 % 4 %

Three months ended March 31, 2021 compared to three months ended March 31, 2020.

General and administrative expenses increased by $2.4 million, or 48%, to $7.2 million for the three months ended March 31, 2021.

Excluding stock-based compensation, general and administrative expenses were $5.4 million, consistent with the prior period at 4% of revenue.

The increase in expense was primarily due to a $0.5 million increase in compensation expense related primarily to increased headcount, a $0.4 million increase in legal, tax and other professional service fees, and a $0.3 million increase in facilities-related expenses.

Additionally, stock-based compensation expense increased $1.1 million during the period due to grants related to performance in the prior year, including the full impact of one-time team grants during the period of $0.4 million.

Three months ended June 30, 2021 compared to three months ended June 30, 2020.

General and administrative expenses increased by $2.4 million, or 47%, to $7.4 million for the three months ended June 30, 2021.

The increase in expense was primarily due to a $1.2 million increase in stock-based compensation, a $0.5 million increase in compensation expense related primarily to increased headcount, a $0.4 million increase in facilities-related expenses, and a $0.3 million increase in legal, tax and other professional service fees.

Overall, general and administrative expenses remained consistent at 4% of revenue year over year.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.

General and administrative expenses increased by $4.7 million, or 47%, to $14.7 million for the six months ended June 30, 2021.

The increase in expense was primarily due to a $2.3 million increase in stock-based compensation, a $1.0 million increase in compensation expense related primarily to increased headcount, a $0.8 million increase in facilities-related expenses, and a $0.7 million increase in legal, tax and other professional service fees.

Overall, general and administrative expenses remained consistent at approximately 4% to 5% of revenue year over year.

Sales and Marketing Expenses

Three Months Ended March 31, % Change

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2021 2020 2021 2020

(in thousands, except percentages, pet and per pet data)

4 unchanged sentences

Average pet acquisition cost (PAC) $ 284 $ 199 43 $ 281 $ 222 27

Three months ended March 31, 2021 compared to three months ended March 31, 2020.

Sales and marketing expenses increased by $9.3 million, or 89%, to $19.7 million for the three months ended March 31, 2021.

Excluding stock-based compensation, sales and marketing expenses were $17.0 million or 11% of revenue in the first quarter of 2021, compared to 9% of revenue in the prior year.

The increase was primarily due to new subscription pet enrollments increasing 54% year over year.

The increase in total expense was primarily due to a $4.0 million increase in sales and marketing expenses to generate leads and increase conversion rates and a $3.3 million increase in compensation expenses primarily related to headcount increases, partially offset by a $0.3 million decrease in travel and conference expenses.

Additionally, stock-based compensation expense increased $2.2 million during the period due to grants related to performance in the prior year, including the full impact of one-time team grants during the period of $1.3 million.

Three months ended June 30, 2021 compared to three months ended June 30, 2020.

Sales and marketing expenses increased by $10.1 million, or 110%, to $19.4 million for the three months ended June 30, 2021, driving new subscription pet enrollments to increase 46% year over year.

The $10.1 million increase was primarily attributable to a $5.4 million increase in sales and marketing expenses to generate leads and increase conversion rates and a $3.1 million increase in compensation expenses primarily related to headcount increases.

Additionally, stock-based compensation expense increased $1.5 million during the period due to new performance grants in the first quarter of this year.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.

Sales and marketing expenses increased by $19.4 million, or 99%, to $39.1 million for the six months ended June 30, 2021, driving new subscription pet enrollments to increase 50% year over year.

The $19.4 million increase was attributable to a $9.1 million increase in sales and marketing expenses to generate leads and increase conversion rates and a $6.5 million increase in compensation expenses primarily related to headcount increases.

Additionally, stock-based compensation expense increased $3.7 million during the period due to new performance grants in the first quarter of this year.

Depreciation and Amortization

Three Months Ended March 31, % Change

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2021 2020 2021 2020

(in thousands, except percentages)

3 unchanged sentences

We elected to present depreciation and amortization expenses as a separate line item to better align with management's view of our operating results.

Three months ended March 31, 2021 compared to three months ended March 31, 2020.

Depreciation and amortization expense increased by $1.7 million, or 124%, to $3.1 million for the three months ended March 31, 2021.

The change was primarily due to a $1.1 million incremental amortization as a result of acquired intangible assets from the newly acquired software business.

Three months ended June 30, 2021 compared to three months ended June 30, 2020.

Depreciation and amortization expense increased by $1.4 million, or 83%, to $3.2 million for the three months ended June 30, 2021.

The change was primarily due to $1.1 million incremental amortization as a result of acquired intangible assets in the fourth quarter of 2020.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.

Depreciation and amortization expense increased by $3.1 million, or 101%, to $6.3 million for the six months ended June 30, 2021.

In addition to increased depreciation that is in line with business growth, the change was primarily due to $2.1 million incremental amortization as a result of acquired intangible assets in the fourth quarter of 2020.

Stock-based compensation

Three months ended March 31, 2021 compared to three months ended March 31, 2020.

Stock-based compensation is included in the cost and expense line items in the consolidated statements of operations.

Stock-based compensation expense was $8.4 million during the quarter, up from $1.7 million in the prior year period.

The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, including grants for the strong 2020 performance, calculated according to our equity incentive plan.

Of the $8.4 million, $4.3 million related to a one-time 2020 performance grant, shared with the entire team, which was fully recognized during the quarter.

Three months ended June 30, 2021 compared to three months ended June 30, 2020.

Stock-based compensation is included in the cost and expense line items in the consolidated statements of operations, discussed above.

Stock-based compensation expense in total was $6.5 million during the quarter, up from $2.2 million in the prior year period.

The amount of stock-based compensation recognized largely reflects the timing and vesting of our annual performance grants, including grants in the first quarter of this year for the strong 2020 performance, calculated according to our equity incentive plan.

Six months ended June 30, 2021 compared to six months ended June 30, 2020.

Stock-based compensation is included in the cost and expense line items in the consolidated statements of operations, discussed above.

Stock-based compensation expense in total was $15.0 million during the quarter, up from $3.9 million in the prior year period.

Of the $15.0 million, $4.3 million was related to a one-time 2020 performance grant, shared with the entire team and fully recognized in the first quarter of this year.

Liquidity and Capital Resources

The following table summarizes our cash flows for the periods indicated (in thousands):

Three months ended March 31,

Six months ended June 30,

Net cash provided by (used in) operating activities $ (3,922) $ 7,774

3 unchanged sentences

Net change in cash, cash equivalents and restricted cash $ (22,543) $ 845

As of March 31, 2021, we had $224.5 million in cash, cash equivalents and short-term investments.

Most of the assets in our insurance subsidiary, American Pet Insurance Company (APIC), and our segregated cell entity, Wyndham Insurance Company (SAC) Limited (WICL) Segregated Account AX, are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

As of March 31, 2021, total assets and liabilities held outside of our insurance entities were $252.0 million and $30.3 million, respectively, including $7.2 million of cash and cash equivalents that were segregated from other operating funds and held in trust for the payment of veterinary invoices on behalf of our insurance subsidiaries.

As of June 30, 2021, we had $219.4 million in cash, cash equivalents and short-term investments.

Most of the assets in our insurance subsidiaries are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

As of June 30, 2021, total assets and liabilities held outside of our insurance entities were $237.8 million and $28.5 million, respectively, including $6.8 million of cash and cash equivalents that were segregated from other operating funds and held in trust for the payment of veterinary invoices on behalf of our insurance subsidiaries.

For further information, refer to "—Regulation".

4 unchanged sentences

Additional financing may not be available to us on acceptable terms, or at all.

Our primary requirements for liquidity are paying veterinary invoices, funding operations and capital requirements, investing in new member acquisition, investing in enhancements to our member experience, and servicing debt.

Our primary requirements for liquidity are paying veterinary invoices, funding operations and capital requirements, investing in new member acquisition, and investing in enhancements to our member experience.

In December 2020, we elected to terminate our line of credit facility and repaid all then outstanding obligations.

In April 2021, our Board approved a share repurchase program, pursuant to which the Company may, between May 2021 and May 2026, repurchase outstanding shares of our common stock.

While the Board has approved the program, any repurchase will be subject to quarterly assessments based on parameters we set.

We cannot predict the timing or extent of any repurchases of shares of common stock, as such repurchases will depend on a number of factors, some of which are beyond our control.

These include uses of capital in a given quarter, available cash, our stock price relative to our estimated intrinsic value, and general market conditions.

We did not repurchase any shares under this program during the quarter ended June 30, 2021.

Operating Cash Flows

We derive operating cash flows from the sale of our subscription plans, which is used to pay veterinary invoices and other cost of revenue.

We derive operating cash flows primarily from the sale of our subscription plans, which is used to pay veterinary invoices and other cost of revenue.

Additionally, cash is used to support the growth of our business by reinvesting to acquire new pet enrollments and to fund projects that improve our members' experience.

Net cash used in operating activities was $1.7 million for the three months ended March 31, 2021, compared to a $2.9 million net cash provided by operating activities for the three months ended March 31, 2020.

The change was primarily driven by increased pet acquisition spend during the quarter to drive new pet enrollments and future growth, as well as timing differences between collections from members and payments of veterinary invoices and payments to vendors.

Net cash used in operating activities was $3.9 million for the six months ended June 30, 2021, compared to a $7.8 million net cash provided by operating activities for the six months ended June 30, 2020.

The change was primarily driven by increased pet acquisition spend during the quarter to drive new pet enrollments and future growth, faster payment of veterinary invoices as a result of increased utilization of claim automation, as well as timing differences between collections from members and payments of veterinary invoices and payments to vendors.

Changes in accounts receivable and deferred revenue were primarily related to annual policies with monthly payment terms within our other business segment.

Investing Cash Flows

Net cash used in investing activities was $4.6 million for the three months ended March 31, 2021, primarily related to the net purchase of investments to increase our statutory capital, as well as purchases of property, equipment and intangible assets, primarily related to development of internal use software focused on new product initiatives and member experience improvements.

Net cash used in investing activities was $18.6 million for the six months ended June 30, 2021, primarily related to the net purchase of investments to increase our statutory capital, as well as purchases of property, equipment and intangible assets, primarily related to development of internal use software focused on new product initiatives and member experience improvements.

Financing Cash Flows

Net cash used in financing activities was $0.6 million for the three months ended March 31, 2021, compared to $3.9 million net cash provided by financing activities during the same period in the prior year, primarily due to a $3.7 million decrease of borrowings from the line of credit facility.

Net cash used in financing activities was $0.4 million for the six months ended June 30, 2021, compared to $2.4 million net cash provided by financing activities during the same period in the prior year, primarily due to a decrease in borrowings under the line of credit facility.

In December 2020, we elected to terminate the facility and repaid all then outstanding obligations.

As of March 31, 2021, our insurance entities, APIC and WICL Segregated Account AX, held $91.3 million in short-term investments and $145.4 million in other current assets, including $26.8 million held in cash and cash equivalents to be used for operating expenses of our insurance subsidiaries.

Most of the assets in APIC and WICL Segregated Account AX are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

As of June 30, 2021, our insurance entities collectively held $102.0 million in short-term investments and $162.8 million in other current assets, including $22.0 million held in cash and cash equivalents to be used for operating expenses of our insurance subsidiaries.

Most of the assets in our insurance entities are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate.

We expect our required capital held within our insurance entities to grow as our business grows.

American Pet Insurance Company (APIC)

The majority of our investments are held by our insurance entities to satisfy risk-based capital requirements of the National Association of Insurance Commissioners (NAIC).

5 unchanged sentences

As of that date, APIC maintained $93.2 million of risk-based capital.

WICL Segregated Account AX

ZPIC Insurance Company (ZPIC)

We established a new wholly-owned insurance subsidiary, ZPIC, in the second quarter of 2021.

ZPIC is domiciled in the state of Missouri.

As of June 30, 2021, ZPIC has not started underwriting any insurance policies.

Wyndham Insurance Company (SAC) Limited (WICL) Segregated Account AX

WICL Segregated Account AX was established by WICL, with Trupanion, Inc.

1 unchanged sentence

All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL, and all shares of the segregated account are owned by Trupanion, Inc.

During February 2020, our parent entity received a dividend of $4.7 million from WICL Segregated Account AX as allowed under our agreements with WICL.

In April 2021, our parent entity received a dividend of $5.6 million from WICL Segregated Account AX as allowed under our agreements with WICL.

As required by the Office of the Superintendent of Financial Institutions regulations related to our reinsurance agreement with Omega General Insurance Company, we are required to maintain a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims.

10 unchanged sentences

We enter into long-term contractual obligations and commitments in the normal course of business, primarily debt obligations and non-cancellable vendor service agreements.

Management believes there have been no material changes to our contractual obligation disclosure as of March 31, 2021, compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Management believes there have been no material changes to our contractual obligation disclosure as of June 30, 2021, compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Critical Accounting Policies and Significant Estimates

6 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risks

Management believes there have been no material changes to our quantitative and qualitative disclosures about market risks during the three months ended March 31, 2021, compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Management believes there have been no material changes to our quantitative and qualitative disclosures about market risks during the six months ended June 30, 2021, compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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 2. Management’s Discussion and Analysis