What changed in this filing

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Item 1A. Risk Factors

2023-02-16 compared with 2022-02-17 · 241 added, 251 removed, 445 unchanged (53% of the section changed)

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Among others, these risks relate to:

• Our results of operations may be adversely affected by the ongoing COVID-19 pandemic and future variants of the virus;

• We have incurred significant net losses since inception and may not be able to maintain profitability or our rate of revenue growth in the future;

• Our ability to grow and retain our member base, including uncertainties in the assumptions we use to determine our new pet acquisition spend, variable costs of attracting new members from internet searches and from leads generated from Territory Partners, veterinarians and other third parties;

• We rely heavily on our Territory Partners and engage them as independent contractors rather than employees;

• Our significant net losses since inception, ability to achieve and maintain profitability or our ability to maintain our rate of revenue growth in the future;

• Our ability to grow and retain our member base, including uncertainties in the assumptions we use to determine our new pet acquisition spend, variable costs of attracting new members through online channels such as social media or search engines and from leads generated from Territory Partners, veterinarians and other third parties;

• Our reliance on Territory Partners, whom we engage as independent contractors rather than employees, and other third parties;

• 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;

• We are required to maintain certain levels of surplus capital under applicable insurance regulations;

• We face a number of competitive challenges and our business and operating results could suffer if we are unable to maintain and enhance our brand;

• We may not be able to maintain and scale our infrastructure, to invest in or acquire businesses, products or technologies, or otherwise manage our growth;

• Changes in legal, judicial, social and other environmental conditions could result in unexpected claim and coverage liability;

• We rely on key personnel, strategic partners and a Canadian insurance company for our Canadian operations and we may not be able to maintain these relationships;

• Fluctuations in foreign exchange rates, other issues relating to expanding our operations internationally, and general changes in the economy can all cause our operating results to vary;

• We may not be successful in our efforts to establish multiple insurance subsidiaries;

• We may not be able to maintain effective internal controls and security measures;

• Risks and uncertainties related to our acceptance of automatic fund transfers and credit card and debit card payments;

• We have limited experience owning an office building;

• We may not be able to protect our intellectual property (IP), avoid violating IP rights of others, or maintain relationships with third parties providing necessary IP and technology to us;

• The outcome of litigation or regulatory proceedings may restrict our ability to conduct our business;

• We may not be able to utilize net operating loss carryforwards and our tax liabilities could increase beyond our expectations;

• We are required to comply with 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;

• The value of our common stock may decline, including as a result of missed earnings guidance, inadequate analyst coverage, trading volatility, lack of dividends, concentrated ownership, and anti-takeover provisions in our governing documents.

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

• Our ability to react to competitors and alternative financing methods for pet related medical costs;

• Our ability to maintain and enhance our brand;

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

• Changes in legal, judicial, social and other environmental conditions, which could result in unexpected claim and coverage liability;

• Our reliance on key personnel and strategic relationships and our ability to maintain these relationships;

• Fluctuations in foreign exchange rates, other issues relating to expanding our operations internationally, and general changes in the global economy that can cause our operating results to vary;

• Ownership of multiple insurance subsidiaries in different jurisdictions;

• Our ability to maintain effective internal controls and security measures, including measures to mitigate cyber-attacks;

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

• Ownership of an office building;

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

• The outcome of litigation or regulatory proceedings;

• Our level of indebtedness, our ability to service our debt, and our ability to comply with covenants that may restrict our operations and limit our ability to expand our business;

• Our ability to utilize net operating loss carryforwards and potential increases in our tax liabilities;

• The possible resurgence of the COVID-19 pandemic or a different variation of the virus or pandemic;

• Our ability to comply with 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 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

Our results of operations may be adversely impacted by the COVID-19 pandemic.

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

While, to date, the pandemic has not had a material adverse impact on our business, it could impact our growth rates and our volume of claims in the future.

• The economic impact on consumers resulting from the COVID-19 pandemic, including the spread of recent variants, and related public health measures may result in decreased new enrollments in our subscription and increased cancellations, as consumers may shift their spending in response to economic uncertainty.

Such a shift could materially adversely affect us if we are unable to adjust our products to match consumer needs.

• Governmental lockdowns, restrictions or new regulations have and could in the future impact the ability of our Territory Partners to conduct face-to-face visits with veterinarians and their staff.

The extent and/or duration of these restrictions and limitations could impact our ability to promote and support our subscription through the veterinary channel.

• While we have not seen definitive evidence, some veterinarians have reported that pets may contract COVID-19.

The extent to which COVID-19 may be communicable among humans, dogs and cats and its health impact on pets is somewhat uncertain, and an increase in COVID-19 among pets may cause our veterinary invoice expense to increase.

• While we are not currently experiencing any meaningful decreases in veterinary invoice expenses, several insurance companies within the property and casualty insurance industry have provided 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.

Beginning in spring 2020, in accordance with local and state directives, we shifted our operations from our corporate office facility located in Seattle, Washington and substantially all of our personnel began working from home.

As COVID-19 related restrictions eased and more people received vaccinations, we began the process of transitioning those personnel who are comfortable working in an office setting back to our corporate office facility but a significant number of our personnel continue to work from home.

While we learned that we can work very effectively in a fully-remote environment, the partial return to in-office work and the potential transition to permanent remote working arrangements for some employees may result in increased costs, decreased efficiency, deterioration of corporate culture, 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 may continue to work from home, and many veterinary hospitals are working at reduced staffing levels and hours of operation.

In addition, our management team has spent, and will likely continue to spend, significant time, attention and resources monitoring the COVID-19 pandemic and associated global economic uncertainty and seeking to manage its effects on our business and workforce.

Our efforts to re-open our corporate office facility safely may also expose our employees and other third parties to health risks and us to associated liability, and they will involve additional financial burdens.

The impacts of COVID-19 and related economic conditions on our results remain 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.

We have incurred significant cumulative net losses since our inception and may not be able to maintain profitability in the future.

We have incurred significant cumulative net losses since our inception and may not be able to achieve or maintain profitability in the future.

We have incurred significant cumulative net losses since our inception.

We incurred net losses of $44.7 million and $35.5 million in the years ended December 31, 2022 and 2021, respectively, and as of December 31, 2022, we had an accumulated deficit of $171.6 million.

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.

We have funded our operations through equity financings, and borrowings under revolving lines of credit and term loans.

Our ability to achieve and maintain profitability will depend, in significant part, on obtaining new members, retaining our existing members, maintaining relationships with our strategic partners, and ensuring that our expenses, including new pet acquisition expense, do not exceed our revenue.

We expect to make significant expenditures and investments in new pet 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.

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

Additionally, we budget for our expenses based, in significant part, on our estimates of future revenue and many of these expenses are fixed in the short term.

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We may not maintain our current rate of revenue growth.

Our revenue has increased quickly and substantially in recent periods.

Our revenue has increased quickly and substantially in recent years.

We believe that our continued revenue growth will depend on, among other factors, our ability to:

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

• successfully integrate entities we recently acquired into our business;

• expand our business internationally;

• create and maintain positive relationships with strategic partners, particularly partners who present us with new sales channels and those who create software solutions for veterinary practices;

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• protect and defend our critical intellectual property;

• increase awareness of and positive associations with our brand;

• react to unexpected developments and general macroeconomic conditions, including pandemics and related economic impacts;

• increase awareness of and positive associations with pet insurance and our brand;

• react to unexpected developments and general macroeconomic conditions, including pandemics and unfavorable changes in economic conditions, such as inflation, rising interest rates, or a recession;

• successfully respond to and comply with regulations affecting our business and defend or prosecute any litigation.

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We have made and plan to continue to make significant investments to grow our member base.

We spent $69.5 million new pet acquisition expense to acquire new members for the year ended December 31, 2021.

In addition to our acquisitions of Smart Paws GmbH (Smart Paws) and Royal Blue s.r.o, the parent company of PetExpert Europe s.r.o.

(PetExpert), which added to our member base, we spent $80.4 million in new pet acquisition expense to acquire new members for the year ended December 31, 2022.

Our average pet acquisition cost and the number of new pets we enroll depends on a number of factors and assumptions, including the effectiveness of our sales execution and marketing initiatives, changes in costs of media, the mix of our pet acquisition expenditures and the competitive environment.

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In the future, our average pet acquisition cost may continue to rise and significantly vary period to period based upon specific marketing initiatives.

We also regularly test new member acquisition channels and marketing initiatives, which often are more expensive than our traditional marketing channels and generally increase our average acquisition costs.

We also regularly test new member acquisition channels and marketing initiatives, including direct-to-consumer initiatives, which often are more expensive than our traditional veterinarian-focused marketing channels and generally increase our average acquisition costs.

In addition, we base our decisions regarding our new pet acquisition expenditures primarily on our internal rate of return generated on an average pet.

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Moreover, if our new pet acquisition expenses increase or we invest in member acquisition channels that do not ultimately result in the expected number of new member enrollments, the return on our investment may be lower than we anticipate irrespective of the lifetime value of the pets that we project to acquire as a result of the new members.

If we cannot generate profits from this investment, we may need to alter our growth strategy, and our growth rate and operating results may be adversely affected.

We depend in part on Internet search engines to attract potential new members to visit our website.

If Internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, our new member growth could decline, and our business and operating results could be harmed.

We derive a significant amount of traffic to our website from consumers who search for pet medical insurance through Internet search engines, such as Google, Bing and Yahoo!.

A critical factor in attracting consumers searching for pet medical insurance on the Internet to our website is whether we are prominently displayed in response to an Internet search relating to pet insurance.

Algorithmic search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet search engine, which may change from time to time.

If we are listed less prominently in, or removed altogether from, search result listings for any reason, the traffic to our websites would decline and we may not be able to replace this traffic, which in turn would harm our business, operating results and financial condition.

If we decide to attempt to replace this traffic, we may be required to increase our pet acquisition expenditures, including by utilizing paid search advertising.

Certain of our competitors have spent additional funds to promote their products in search results over us.

If we decide to respond by purchasing search advertising, our pet acquisition costs would increase which may harm our business, operating results and financial condition.

If we cannot generate profits from this investment, we may need to alter our growth strategies, and our growth rate and operating results may be adversely affected.

In addition, even if we decrease our average pet acquisition cost, our operating margins may differ from our expectations due to incorrect assumptions relating to existing members adding new pets or referring friends, expenses for member support, and other factors, some of which we do not control.

The prices of our subscriptions are based on assumptions and estimates.

If our actual experience differs from the assumptions and estimates used in pricing our subscriptions or if we are unable to obtain any necessary regulatory approval for our pricing, our revenue and financial condition could be adversely affected.

The pricing of our subscriptions reflects amounts we expect to pay for a pet’s medical care and we derive these prices from assumptions that we make based on our analytics platform.

Our analytics platform draws upon pet data we collect and we use this data to price our policy in response to a number of factors, including a pet’s species, breed, age, gender and location.

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.

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.

The prices of our subscriptions also reflect assumptions and estimates regarding our own operating costs and expenses.

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 results could be adversely affected and our revenue may be insufficient to consistently 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.

In addition, most states require licensure and regulatory approval prior to marketing new insurance products.

Our practice has been to regularly reevaluate and adjust the price of our subscriptions, with a goal of achieving our targeted payout ratio, subject to the review and approval of applicable state regulators, who may reduce or disallow our pricing changes.

Such review has in the past resulted, and may in the future result, in delayed implementation of pricing changes, which could adversely affect our operating results and financial condition.

In addition, we may be prevented by regulators from implementing significant pricing changes, requiring us to raise rates more quickly than we otherwise may desire.

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.

If we are unable to grow our member base and maintain high member retention rates, our growth prospects and revenue will be adversely affected.

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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 a hybrid of remote and in-person communications.

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

We seek to convert consumers who visit our website and call our contact center into members.

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

In addition, these go-to-market plans may face unexpected delays, costs or other challenges, such as decreased ability of Territory Partners to conduct in-person visits with veterinarians.

We seek to convert pet owners who visit our website and call our contact center into members.

The rate at which we convert these visitors into members is a significant factor in the growth of our member base.

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

• as we add more products, consumer confusion;

• 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;

• potential consumer confusion as we add more products;

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

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

• system failures or interruptions in our website or contact center;

• changes in the mix of consumers who learn about us through various member acquisition channels.

We have made and plan to continue to make substantial investments in features and functionality for our website and training and staffing for our contact center that are designed to generate traffic, increase member engagement and improve member service.

We have made and plan to continue to make substantial investments in features and enhanced functionalities for our website and support our contact center.

These enhancements are designed to help appropriately direct pet owner traffic to the enrollment journey of their choice, increase member engagement, and improve member service.

These activities do not directly generate revenue, however, and we may never realize any benefit from these investments.

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For example, our average monthly retention rate between 2010 and 2022 was 98.6%.

We expect to continue to make significant expenditures relating to the retention of existing members, including an increase in the number of inside account managers and development and implementation of new technology platforms designed to encourage retention of these members.

We expect to continue to make significant expenditures relating to the retention of existing members.

If we do not retain our existing members or if our marketing initiatives do not result in enrolling more pets or result in enrolling pets that inherently have a lower retention rate, we may not be able to maintain our retention and new pet acquisition rates.

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Our cost of acquiring a new member is substantially greater than the cost involved in maintaining our relationship with an existing member.

If we are not able to successfully retain existing members and limit terminations, our revenue and operating margins will be adversely impacted and our business, operating results and financial condition would be harmed.

If we are not able to successfully retain existing members and limit cancellations, our revenue and operating margins will be adversely impacted and our business, operating results and financial condition would be harmed.

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, 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.

Those processes, programs and procedures could become increasingly complex and difficult to manage as we grow and as a result of the COVID-19 pandemic.

Veterinary leads represent our largest member acquisition channel.

We spend significant time and resources attracting qualified Territory Partners and providing them with current information about our business and they, in turn, communicate the benefits of medical insurance for pets to veterinarians.

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.

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 products, and the relationship developed by that Territory Partner would be unsupported until such time a new Territory Partner is installed.

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.

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 execute 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 and their 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 pet acquisition expenses may be adversely affected.

If we fail to establish new or are unable to maintain our existing 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 pet acquisition expenses may be adversely affected.

Territory Partners are independent contractors and, as such, may pose additional risks to our business.

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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.

Moreover, applicable law might prevent or limit our ability to include non-compete obligations in our contracts with Territory Partners.

Similarly, Territory Partners may not require, or applicable law may not permit or may limit a Territory Partner’s ability to subject their employees or service providers to non-compete obligations.

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.

Our sole recourse against Territory Partners who fail to perform is to terminate their contract, which could also trigger contractually obligated termination payments or result in disputes, including threatened or actual legal or regulatory proceedings.

If we terminate a contract with a Territory Partner, such termination could also trigger contractually obligated termination payments or result in disputes, including threatened or actual legal or regulatory proceedings.

We believe that Territory Partners are not and should not be classified as employees under existing interpretations of the applicable laws of the jurisdictions in which we operate.

We do not pay or withhold any employment tax with respect to or on behalf of Territory Partners or extend any benefits to them that we generally extend to our employees, and we otherwise treat Territory Partners as independent contractors.

Applicable authorities or the Territory Partners have in the past questioned and may in the future challenge this classification.

Applicable authorities or Territory Partners may in the future challenge this classification.

Further, the applicable laws or regulations, including tax laws or interpretations, may change.

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Any of the foregoing circumstances could have a material adverse impact on our operating results and financial condition.

The prices of our subscriptions are based on assumptions and estimates.

The pricing of our subscriptions reflects amounts we expect to pay for a pet’s medical care and we derive these prices from assumptions that we make based on our analytics platform.

Our analytics platform draws upon pet data we collect and we use this data to price our policy in response to a number of factors, including a pet’s species, breed, age, gender and location.

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.

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.

The prices of our subscriptions also reflect assumptions and estimates regarding our own operating costs and expenses.

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 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.

In addition, many states have adopted laws or are considering proposed legislation that, among other things, limit the ability of insurance companies to effect rate increases or to cancel, reduce or not renew existing policies, and many state regulators have the power to reduce, or to disallow increases in premium rates.

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 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.

If external factors caused veterinary invoice expenses to significantly decrease, the review and approval of our proposed pricing may be impacted.

In addition, we may be prevented by regulators from limiting significant pricing changes, requiring us to raise rates more quickly than we otherwise may desire.

We depend in part on Internet search engines to attract potential new members to visit our website.

We endeavor to drive significant traffic to our website from consumers who search for pet medical insurance through Internet search engines such as Google, Bing and Yahoo!.

A critical factor in attracting consumers searching for pet medical insurance on the Internet to our website is whether we are prominently displayed in response to Internet searches relating to pet insurance.

If we decide to attempt to replace this traffic, we may be required to increase our pet acquisition expenditures, including by utilizing paid search advertising.

Certain of our competitors have spent additional funds to promote their products in search results over us.

If we decide to respond by purchasing search advertising, our pet acquisition costs would increase which may harm our business, operating results and financial condition.

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

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If more veterinary hospitals install and use our patented proprietary software, the number or amounts of veterinary invoices we receive is likely to increase.

Our patented proprietary software is designed to integrate directly with most software systems used by veterinary hospitals and allow us to receive and pay veterinarian invoices directly.

Our patented proprietary software is designed to integrate directly with most practice management software systems used by veterinary hospitals and allow us to receive and pay veterinarian invoices directly to the hospital.

We believe that it is critical to our long-term success to improve the member experience so we encourage veterinary hospitals to install and use our software.

We have found that installation and use of our software by a veterinary hospital could increase the number of invoices we receive from that practice.

We have found that installation and use of our software by a veterinary hospital could increase the number of invoices we receive from that hospital.

As more veterinary hospitals install our software, we expect the number or amounts of veterinary invoices to increase and result in an increase in our cost of revenue, which may have a material adverse effect on our financial condition.

Our use of capital may be constrained by risk-based capital regulations or contractual obligations.

Our insurance subsidiaries are subject to risk-based capital regulations that require us to maintain certain levels of surplus to support our overall business operations in consideration of our size and risk profile.

We have in the past and may in the future fail to maintain the amount of risk-based capital required to avoid additional regulatory oversight, which was $116.0 million as of December 31, 2021.

We are also subject to a contractual obligation related to our reinsurance agreement with Omega, who writes our policies in Canada.

Our use of capital may be constrained by minimum capital requirements or contractual obligations.

Our insurance subsidiaries are required to maintain minimum levels of surplus to support our overall business operations in consideration of our size and risk profile.

We have in the past and may in the future fail to maintain the amount of risk-based capital required to avoid potentially costly additional regulatory oversight.

For example, we maintained in excess of $142.4 million in risk-based capital as of December 31, 2022.

We are also subject to a contractual obligation related to our reinsurance agreement with Omega, who currently writes our policies in Canada.

Under this agreement, we are required to fund a Canadian trust account in accordance with Canadian regulations.

As of December 31, 2022, the account held CAD $10.4 million.

To comply with these regulations and contractual obligations, we may be required to maintain capital that we would otherwise invest in our growth and operations, which may require us to modify our operating plan or marketing initiatives, delay the implementation of new solutions or development of new technologies, decrease the rate at which we hire additional personnel and enter into relationships with Territory Partners, incur indebtedness or pursue equity or debt financings or otherwise modify our business operations, any of which could have a material adverse effect on our operating results and financial condition.

Our success depends on our ability to review, process, and pay veterinary invoices timely and accurately.

We believe member satisfaction depends on our ability to accurately evaluate and pay veterinary invoices in a timely manner.

To comply with these regulations and contractual obligations, we may be required to maintain capital that we would otherwise invest in our growth and operations, which may require us to modify our operating plan or marketing initiatives, delay the implementation of new initiatives or development of new technologies, decrease the rate at which we hire additional personnel and enter into relationships with Territory Partners, incur indebtedness or pursue equity or debt financings or otherwise modify our business operations, any of which could have a material adverse effect on our operating results and financial condition.

For the year ended December 31, 2022, we accessed our line of credit, in part, to ensure we maintained the necessary amount of risk-based capital.

Our success depends in part on our ability to review, process, and pay veterinary invoices timely and accurately.

We believe member satisfaction and retention depends in part on our ability to accurately evaluate and pay veterinary invoices in a timely manner.

Many factors can affect our ability to do this, including the training, experience and skill of our personnel, our ability to reduce the number of payment requests made for services not included in our subscription, effectiveness of management, our ability to develop or select and implement appropriate procedures, supporting technologies and systems, changes in our policy and veterinarian compliance with our protocols and procedures.

Our failure to pay veterinary invoices, accurately and in a timely manner, or to deploy resources appropriately, could result in unanticipated costs to us, lead to material litigation, undermine member goodwill and our reputation, and impair our brand image and, as a result, materially and adversely affect our competitiveness, financial results, prospects and liquidity.

In addition, we use artificial intelligence and machine learning to leverage data so we can automate the payment of veterinary invoices.

Although we intend to increase the percentage of veterinary invoices paid without human intervention and process veterinary invoices in seconds, our efforts may be unsuccessful for a number of reasons.

The data we gather is extensive, and the development, maintenance and operation of our data analytics engine is novel, expensive and complex.

We may face unforeseen difficulties, including material performance problems, undetected defects or technical obstacles, for example, with new capabilities incorporating machine learning.

If such problems, defects, or obstacles prevent our proprietary algorithms from operating properly, we may incorrectly pay or deny claims made by our customers.

Such errors could result in existing customers canceling their policies, prospective customers declining to purchase our subscription, or improper payments that reduce our resources.

Additionally, our artificial intelligence and machine learning algorithms may lead to unintentional bias or discrimination, which could subject us to legal or regulatory liability that has a material and adverse effect on our business, results of operations and financial condition.

We may not identify fraudulent or improperly inflated veterinary invoices.

It is possible that a member, or a third-party could submit a veterinary invoice which we would then pay that appears authentic but in fact does not reflect services provided or products purchased for which the member paid.

It is also possible that veterinarians will charge insured customers higher amounts than they would charge their non-insured clients for the same service or product.

It is possible that we may pay a veterinary invoice which appears authentic but in fact reflects false, products or prices.

It is also possible that veterinarians will charge insured customers higher amounts than they would charge their non-insured clients for the same service or product, or may alter medical records or exclude information from records.

Such activity could lead to unanticipated costs to us and/or to time and expense to recover such costs.

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Additionally, there are traditional insurance companies that provide pet insurance products, either as a stand-alone product or along with a broad range of other insurance products, such as wellness.

In addition, new entrants backed by large insurance companies, such as Marsh, Nationwide, and Geico, have attempted to enter the pet insurance market in the past and may do so again in the future.

In addition, new entrants backed by large insurance companies have entered the pet insurance market in the past and more may do so in the future.

Further, traditional “pet insurance” providers may consolidate or take other actions to mimic the efficiencies from our vertically-integrated structure or create other operational efficiencies, which could lead to increased competition.

Some of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, technical, marketing and other resources than we do.

Some of our competitors may be able to undertake more extensive marketing initiatives for their brands and services, devote more resources to website and systems development and make offers that are more attractive to potential employees, referral sources and third-party service providers.

In addition to competing for new enrollments, such competitors may drive up pet acquisition costs and/or make offers that are more attractive to potential employees, referral sources and third-party service providers.

Moreover, some of our existing competitors may consolidate or be acquired, or may enter into new alliances with each other or establish or strengthen cooperative relationships.

Any such consolidation, acquisition, alliance or cooperative relationship could adversely affect our ability to compete effectively and result in our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our business, financial condition, cash flows and results of operations.

To compete effectively, we believe we will need to continue to invest significant resources in pet acquisition, in improving our member service levels, in the online experience and functionalities of our website and in other technologies and infrastructure.

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Our success in this area will depend on a wide range of factors, some of which are out of our control, including the following:

• the efficacy and viability of our pet acquisition programs;

• the efficacy and viability of our pet acquisition programs and initiatives;

• the perceived value of our subscription;

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The promotion of our brand will require us to make substantial investments, and we anticipate that, as our market becomes increasingly competitive, these branding initiatives may become increasingly difficult and expensive.

For instance, we have found that search engine optimization costs have increased as competitors have spent additional funds to promote their products in search results over us.

Our brand promotion activities may not be successful or yield increased revenue, and to the extent that these activities result in increased revenue, the increased revenue may not offset the expenses we incur and our operating results could be harmed.

If we do not successfully maintain and enhance our brand, our business may not grow and could be adversely affected, which would harm our business, operating results and financial condition.

Furthermore, negative publicity, whether or not justified, relating to events or activities attributed to us, our employees, our strategic partners, our affiliates, or others associated with any of these parties, may tarnish our reputation and reduce the value of our brands.

If we do not successfully maintain and enhance our brand, our business may not grow which would harm our operating results and financial condition.

Furthermore, negative publicity, whether or not justified, relating to events or activities attributed to us, our employees, Territory Partners, our strategic partners, our affiliates, or others associated with any of these parties, may tarnish our reputation and reduce the value of our brands.

Damage to our reputation and loss of brand equity may reduce demand for our services and have an adverse effect on our business, operating results, and financial condition.

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We use these technology frameworks to price our subscriptions, enroll members, engage with current members and pay veterinary invoices.

Our members review and purchase subscriptions through our website and contact center, and for those veterinary hospitals who have installed our patented proprietary software, we receive and pay veterinarian invoices directly through our software.

Our reputation and ability to acquire, retain and serve our members depends on the reliable performance of our technology platform and the underlying network systems and infrastructure, and on providing best-in-class member service, including through our contact center and website.

Our reputation and ability to acquire, retain and serve our members and support our partners depends on the reliable performance of our technology platform and the underlying network systems and infrastructure, and on providing best-in-class member service, including through our contact center and website.

As our member base continues to grow, the amount of information collected and stored on the systems and infrastructure supporting our technology platform will continue to grow, and we expect to require an increasing amount of network capacity, computing power and information technology personnel to develop and maintain our technology platform and service our departments involved in member interaction.

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We have recently experienced, and expect to continue to experience, significant growth, which has placed, and may continue to place, significant demands on our management and our operational and financial systems and infrastructure.

We expect that our growth strategy will require us to commit substantial financial, operational and technical resources and this commitment may also result in increased costs (such as member acquisition costs or costs associated with increases in the number or amounts of veterinary invoices received) generated by our business, which could prevent us from remaining profitable and could impair our ability to compete effectively for business.

We expect that our growth strategy will require us to commit substantial financial, operational and technical resources and this commitment may also result in increased costs (such as member acquisition costs or costs associated with increases in the number or amounts of veterinary invoices received) generated by our business, which could prevent us from achieving profitability and remaining profitable and could impair our ability to compete effectively for business.

If we do not effectively manage growth at any time, our financial condition could be harmed and the quality of our services could suffer.

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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, particularly as the COVID-19 pandemic evolves.

We have historically and may in the future experience fluctuations in our revenue, expenses and operating results.

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

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Enrollment in our subscription tends to be discretionary in nature and may be sporadic, reflecting overall economic conditions, budgeting constraints, pet-buying patterns and a variety of other factors, many of which are outside our control.

For example, we have experienced some effects of seasonal trends in visits to veterinarians in the fourth quarter and in the beginning of the first quarter of each year in connection with the traditional holiday season.

While we believe seasonal trends have affected and will continue to affect our quarterly results, our growth may have overshadowed these effects to date.

We believe that our business will continue to be subject to seasonality in the future, which may result in fluctuations in our financial results.

Due to these and other factors, our financial results for any quarterly or annual period may not meet our expectations or the expectations of investors or analysts that follow our stock and may not be meaningful indications of our future performance.

Mergers or other strategic transactions involving our competitors could weaken our competitive position, which could adversely affect our ability to compete effectively and harm our results of operations.

Our industry is highly fragmented, and we believe it is likely that some of our existing competitors will consolidate or be acquired.

In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with systems integrators, third-party consulting firms or other parties.

Any such consolidation, acquisition, alliance or cooperative relationship could adversely affect our ability to compete effectively and lead to pricing pressure and our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our business, financial condition, cash flows and results of operations.

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.

Medical insurance for cats and dogs is a discretionary purchase, and members may reduce or eliminate their discretionary spending during an economic downturn, resulting in an increase in terminations and a reduction in the number of new member enrollments.

We may experience a material increase in terminations or a material reduction in our member retention rate in the future, especially in the event of a prolonged recessionary period or a downturn in economic conditions.

Medical insurance for cats and dogs is a discretionary purchase, and members may reduce or eliminate their discretionary spending during an economic downturn, resulting in an increase in subscription cancellations and a reduction in the number of new member enrollments.

We may experience a material increase in cancellations or a material reduction in our member retention rate in the future, especially in the event of a prolonged recessionary period or a downturn in economic conditions.

Conversely, consumers may have more income to pay veterinary costs out-of-pocket and less desire to purchase our subscription during a period of economic growth.

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We depend on key personnel to operate our business and, if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

Our success depends to a significant extent on the continued services of our current management team, including Darryl Rawlings, our founder and Chief Executive Officer.

Our success depends to a significant extent on the continued services of our current management team, including Darryl Rawlings, our founder, Chief Executive Officer and Chairperson of the Board.

The loss of Mr.

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 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.

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.

While we may in the future grant equity awards tied to company performance, if we do not achieve certain financial goals, we will not grant equity awards and this may affect our ability to retain employees.

The value to employees of stock options and restricted stock that vest over time will be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to maintain their retention benefit or counteract offers from other companies.

We would be adversely affected if we fail to adequately plan for the succession of our senior management and other key employees.

Additionally, if we were to lose a large percentage of our current employees in a relatively short time period, or our employees were to engage in a work stoppage or unionize, we may be unable to hire and train new employees quickly enough to prevent disruptions in our operations, which may result in the loss of members, Territory Partners or referral sources.

Our success also depends on our ability to attract, retain and motivate additional skilled management personnel.

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Many of the other companies with which we compete for qualified personnel have greater financial and other resources than we do.

New hires require significant training and, in most cases, take significant time before they achieve full productivity.

New hires require significant training, capital expenditures and, in most cases, significant time before they achieve full productivity.

New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals.

If we do not successfully hire and integrate new employees in accordance with our plans, our business, operating results and financial condition will be harmed.

We may continue to create, invest in or acquire businesses, products and technologies, which could divert our management’s attention, result in additional dilution to our stockholders, otherwise disrupt our operations or harm our operating results.

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We do not have experience manufacturing, selling, or distributing food products and pet food manufacturing facilities and pet food products are subject to many laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug Administration, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental agencies relating to the production, packaging, labelling, storage, distribution, quality, and safety of food products and the health and safety of employees.

We have also recently acquired technology intended to enable us to improve our back-end software and facilitate certain expansion efforts, but technology integration is complicated, expensive and time consuming, and it may not result in us realizing the intended benefits from the acquisition.

We have also acquired technology intended to enable us to improve our back-end software and facilitate certain expansion efforts, but technology integration is complicated, expensive and time consuming, and it may not result in us realizing the intended benefits from the acquisition.

The pursuit of potential new products, investments or acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not they are consummated.

Further, even if we successfully invest in or acquire additional businesses or technologies, we may not achieve the anticipated benefits from the transaction.

The investment or acquisition may also expose us to additional risks, including from unknowingly inheriting liabilities that are not adequately covered by indemnities.

The investment or acquisition may also expose us to additional risks, including from unknowingly inheriting liabilities that are not adequately covered by contractual remedies.

Acquisitions or investments could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results.

If we do not spend our development budget efficiently or effectively on commercially successful and innovative offerings and products, we may not realize the expected benefits of our strategy.

Further, our development efforts with respect to new products and offerings could distract management from current operations, and will divert capital and other resources from our more established products and offerings.

Further, our development efforts with respect to new products and offerings and integrations of acquired businesses could distract management from current operations, and will divert capital and other resources from our more established products and offerings.

If an investment or acquisition fails to meet our expectations, our business, operating results and financial condition may suffer.

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For example, in October 2020, we entered into a Strategic Alliance Agreement and certain related agreements with Aflac Incorporated (Aflac).

We generally pursue strategic relationships with industry leaders that may offer us expanded access to segments of the pet insurance market.

We generally pursue strategic relationships with industry leaders that may offer us expanded access to segments of the pet owner market.

For these efforts to be successful, we must successfully enter into agreements with these third parties on terms that are attractive to us, and then successfully implement the arrangement, which requires integrating and coordinating their resources and capabilities with our own, which may present challenges relating to technology integration, marketing, regulatory matters, customer support, and other operational matters.

We may be unsuccessful in entering into agreements with acceptable partners, negotiating favorable terms in these agreements, or implementing the relationship.

We may be unsuccessful in entering into agreements with acceptable third parties, negotiating favorable terms in these agreements, or achieving the anticipated results.

In addition, our strategic relationships may require us to agree to exclusivity or other terms that may limit our ability to pursue opportunities we might otherwise pursue.

For example, we have agreed with Aflac not to develop with a third party any worksite employee benefit regarding its pet insurance in the United States or Japan and to work exclusively with Aflac to develop opportunities in Japan’s pet insurance marketplace, which may prevent us from pursuing alternative opportunities.

For example, we have agreed to work exclusively with Aflac to develop opportunities in Japan’s pet insurance marketplace, which may prevent us from pursuing alternative opportunities.

In connection with our strategic relationships, we have in the past and may in the future provide equity consideration, impose contractual holding periods for such securities, impose standstill obligations or include other requirements that terminate in the event the strategic relationship ceases, which may have an adverse effect on our stock price and otherwise cause our business to suffer.

Strategic partnerships also involve various risks, depending on their structure, including the following:

Strategic relationships also involve various risks, depending on their structure, including the following:

• our strategic partners may not be successful in creating leads;

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• our strategic partners may acquire or form alliances with our competitors, thereby reducing their business with us;

• we may not experience a consistent correlation between revenues and expenditures related to the partnership;

• we may overpay strategic partners relative to the business the relationship generates;

• bad publicity and other issues faced by our strategic partners could negatively impact us.

If we are unsuccessful in our strategic relationships, we may not realize the intended benefits of these relationship, lose the investment we have made in these relationships, face difficulty entering into other relationships, and our business may suffer.

If we are unsuccessful in our strategic relationships, we may not realize the intended benefits of these relationships, lose the investment we have made in these relationships, face difficulty entering into other relationships, and our business may suffer.

Our business and financial condition is subject to risks related to our writing of policies for unaffiliated third parties.

Our other business segment includes revenues and expenses involving contractual relationships with unaffiliated third parties and related marketing to enterprises.

We have relatively limited experience in writing policies for unaffiliated third parties.

This business is not expected to grow at the same rate as our core business and may decline.

Our other business segment includes revenues and expenses related to underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand.

The contractual relationships with these third parties may be terminated by either party or the third party may choose to begin a relationship with a different underwriter.

Any termination of these relationships could result in a reduction in our revenue.

For the year ended December 31, 2022, premiums from policies sourced by general agents accounted for 32% of our total revenue, and one general agent sourced members whose premiums accounted for over 10% of our total revenue.

Further, in administering or marketing a product to consumers, if an unaffiliated third party makes an operating decision that adversely affects its business or brand, our business or brand could also be adversely impacted.

We expect to roll off a portion of our other business starting in 2023 in order to allow us to utilize capital for other purposes, but we do not control the timing or extent of this roll off and, accordingly, it may not proceed as we expect, which could cause our results to fluctuate or have other unexpected impacts on our business.

Changes to this business may be volatile due to the nature of the relationships.

Further, this business historically has had, and we expect it to continue to have, lower margins than our core business.

As a result of this line of business, we are subject to additional regulatory requirements and scrutiny, which increase our costs and risks, and may have an adverse effect on our operations.

As a result of this business, we are subject to additional regulatory requirements and scrutiny, which increase our costs and risks, and may have an adverse effect on our operations.

Further, administration of this business and any similar business in the future may divert our time and attention away from our core business, which could adversely affect our operating results in the aggregate.

For example, the pet insurance policies we write for general agents are subject to materially different terms and conditions than our subscription.

They are typically annual policies with monthly payment terms, which can result in accounts receivable balances and payment timing patterns we do not experience in our subscription business.

The relationships with these general agents may be terminated by either party and, if terminated, would result in a reduction in our revenue to the extent we cannot enter other relationships and generate equivalent revenue with different general agents.

For the year ended December 31, 2021, premiums from policies sourced by general agents accounted for 27% of our total revenue, and one general agent sourced members whose premiums accounted for over 10% of our total revenue.

Further, the unaffiliated general agents administer these policies and market them to consumers.

If the general agents make operating decisions that adversely affect its business or brand, our business or brand could also be adversely affected.

In Canada, our medical plan is written by Omega General Insurance Company.

If Omega were to terminate its underwriting arrangement with us, our business could be adversely affected.

In Canada, our pet insurance subscription is written by Omega, and we assume all premiums written by Omega and the related veterinary invoice expense through an agency agreement and a fronting and administration agreement.

If Omega were to terminate our agreement or be unable to write insurance for regulatory or other reasons, we may have to terminate subscriptions with our existing Canadian members, or suspend member enrollment and renewals in Canada until we enter into a relationship with another third party to write our subscription or we set up an entity able to perform this service, which may take a significant amount of time and require significant expense.

We may not be able to enter into a new relationship, and any new relationship would likely be on less favorable terms.

Any delay in entry into a new relationship or suspension of member enrollment and renewals could have a material adverse effect on our operating results and financial condition.

Changes in foreign exchange rates may adversely affect our revenue and operating results.

We offer our subscription in Canada and in the future may offer it in other countries, which exposes us to the risk of changes in currency exchange rates.

For the year ended December 31, 2021, approximately 16% of our total revenue was generated in Canada.

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.

In Canada, our pet insurance subscription is currently written by Omega, and we assume all premiums written by Omega and the related veterinary invoice expense through an agency agreement and a fronting and administration agreement.

We expect to begin to underwrite our own products in Canada through our wholly-owned subsidiary, GPIC Insurance Company (GPIC).

If Omega were to terminate our agreement or be unable to write insurance for regulatory or other reasons, in particular before GPIC is duly authorized to write insurance across all Canadian jurisdictions, we may have to terminate subscriptions with our existing Canadian members and/or suspend member enrollment and renewals in Canada.

In addition, as we move business from Omega to GPIC, we may be required to contribute more risk-based capital than expected into GPIC.

We are expanding our operations internationally, and we may therefore become subject to a number of risks associated with international expansion and operations.

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

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.

We are expanding our operations internationally and expect to continue exploring outside of North America.

For instance, we have entered the Australian market in 2019 through a joint venture.

In August 2022 we purchased Smart Paws, a managing general agent for pet insurance with operations based in Germany and Switzerland, and in November 2022 we acquired PetExpert, a managing general agent for pet insurance with operations based in the Czech Republic and Slovakia.

We have limited history of marketing, selling, administering and supporting our subscription product for consumers outside of the North America.

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

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• difficulties in modifying our business model or subscription in a manner suitable for any particular foreign country, including any modifications to our Territory Partner model to the extent we determine that our existing model is not suitable for use in foreign countries;

• our lack of experience in marketing to consumers and veterinarians and online marketing in foreign countries;

• our lack of experience in marketing to consumers and veterinarians and online engagement in foreign countries, especially if doing so in a foreign language;

• our relative lack of industry connections in many foreign countries;

• our ability to locally hire, integrate and retain highly skilled and motivated employees and establish and improve systems for operational and financial management where appropriate;

• difficulties in managing operations due to language barriers, distance and time zone differences, staffing, cultural differences and business infrastructure constraints, including difficulty in obtaining foreign and domestic visas;

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• general economic and political conditions in these foreign markets.

These and other factors could harm our ability to gain future international revenue and, consequently, materially impact our business and operating results.

The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources, detracting from management attention and financial resources otherwise available to our existing business.

These and other factors could harm our ability to gain future international revenue and increase our expenses, which would materially impact our business and operating results.

The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources, which may detract from management attention and financial resources otherwise available to our existing business.

Our failure to successfully manage our international operations and the associated risks effectively could limit the future growth of our business and could have an adverse effect on our operating results and financial condition.

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.

subscription products, and Omega, a third party, underwrites memberships for our Canadian subscription products.

We have set up two new wholly-owned insurance companies in the U.S.

and are in the process of setting up an additional insurance company in Canada and in the future we may decide to set up and operate additional wholly-owned insurance companies in the U.S., Canada or a different country.

The pursuit of acquiring or forming a new insurance subsidiary may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the formation or acquisition is completed.

Further, even if we are successful in forming or acquiring a new insurance subsidiary we may not achieve the anticipated benefits.

In addition, we may require additional capital to meet our risk-based capital requirements for the new insurance subsidiaries and will be subject to additional regulatory scrutiny in the jurisdiction of incorporation and any additional jurisdictions the insurance subsidiary operates.

Changes in foreign exchange rates may adversely affect our revenue and operating results.

In addition to the United States, we offer products in Canada, several European countries, and Australia, and we are pursuing operations in other jurisdictions such as Japan.

These activities expose us to the risk of changes in currency exchange rates.

For the year ended December 31, 2022, approximately 15% of our total revenue was generated in Canada.

While we have not experienced material exposure to exchange rates in Australia or Europe, that may not continue.

Fluctuations in the relative strength of the US dollar compared to the currencies of other jurisdictions in which we operate has in the past and could in the future adversely affect our revenue and operating results.

Moreover, in the future, we may expand the number of countries in which we offer products and operate and this could increase our exposure to currency exchange rate fluctuations.

Owning multiple insurance subsidiaries may harm our results of operations.

We currently own one of the insurers through which we are issuing products - APIC, a New York domiciled insurer.

We also own and have regulatory approvals for two new insurers domiciled respectively in Missouri and Nebraska, ZPIC Insurance Company and QPIC Insurance Company.

We are currently pursuing so-called expansion applications for these entities in most United States jurisdictions.

In addition, we own and are pursuing Canadian regulatory approvals for our Canadian insurer GPIC and we may also seek to acquire or establish other insurers.

Acquisitions and operations of these insurers presents a number of risks, including the following:

• Acquiring or forming a new insurance subsidiary may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the acquisition or formation is completed.

• Even if we are successful in forming or acquiring a new insurance subsidiary we may not achieve the anticipated benefits.

• Each insurance entity will likely require a significant initial minimum capital contribution.

• Each insurance entity will be subject to additional regulatory scrutiny in the jurisdiction of incorporation and any additional jurisdictions in which the insurance subsidiary operates.

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.

• A supervisory regulator may increase the amount of capital we must hold in an insurance subsidiary, especially if it shows material growth.

We may not have easy access to such capital, and using it for this purpose may prevent us from investing in our growth and operations, which may require us to modify our operating plan, delay new initiatives, interfere with personnel growth, incur indebtedness or pursue financings, or otherwise modify our operations, any of which could have a material adverse effect on our operating results and financial condition.

• If the required minimum capital in one of our insurers falls below the required threshold, the responsible regulator may take action, or such a reduction may result in a breach of various contractual relationships, including, for example, with the unaffiliated general agents for which we write pet insurance policies, which may give such parties the ability to cancel their contracts with us and/or sue us for damages related to our risk-based capital levels, which could have a material adverse effect on our financial condition.

• We may not obtain required regulatory approvals in connection with potentially investing a portion of an insurer’s assets, for example in real property.

We may require additional capital to meet our risk-based capital requirements, pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances.

If capital is not available to us at any time, our business, operating results and financial condition may be harmed.

We may require additional capital to meet our risk-based capital requirements, operate or expand our business or respond to unforeseen circumstances.

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.

Further, volatility in the equity markets may have an adverse effect on our ability to obtain equity financing or the cost of such financing and, in the event we require additional debt financing, volatility in the debt markets may have an adverse effect on our ability to obtain debt financing or the cost of such financing.

Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us.

If a combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient and, in such case, we may not be able to successfully obtain additional financing on favorable terms.

If funds are unavailable to us on reasonable terms when we need them, we may be unable to meet our risk-based capital requirements, train and support our employees, support Territory Partners, maintain the competitiveness of our technology, pursue business opportunities, service our existing debt, pay veterinary invoices or acquire new members, any of which could have an adverse effect on our business, operating results and financial condition.

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.

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We have limited experience owning an office building and may face unexpected costs.

In August 2018, we purchased our home office building.

In August 2018, we purchased our headquarters office building in Seattle, Washington, USA.

Prior to this purchase, we had no experience owning an office building.

It is difficult to predict all costs associated with maintaining the building and ensuring it is suitable for our use and that of other tenants and maintain compliance with all environmental and other regulations applicable to ownership of real estate.

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.

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, could cause a reduction in the value of the building.

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

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Moreover, policing our proprietary rights is difficult and may not always be effective.

If we continue to expand internationally, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States, which may be expensive and divert management’s attention away from other operations.

As we continue to expand internationally, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States, which may be expensive and divert management’s attention away from other operations.

Our proprietary software is protected by patents.

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

Our current and future indebtedness could 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.

In March 2022, we entered into a credit agreement with Piper Sandler Finance, LLC that provides us with up to $150.0 million of credit (the Credit Facility).

As of December 31, 2022, we issued term loans totaling $75.0 million under the Credit Facility.

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 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.

Covenants in our Credit Facility 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.

Our Credit Facility contains various restrictive covenants, including limitations on our ability to incur other indebtedness or liens, make investments, and merge with or acquire other entities.

Our Credit Facility also contains certain financial covenants, including minimum quarterly revenue and liquidity thresholds.

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

We are also obligated to pay interest under the Credit Facility at a floating base rate plus an applicable margin, which rate will increase based on prevailing rates.

Our Credit Facility provides that our breach or failure to satisfy various covenants and obligations 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 Facility to be immediately due and payable.

The Credit Facility is secured by substantially all of our assets and those of our subsidiaries.

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

We may have additional tax liabilities.

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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.

Our results of operations may be adversely impacted by the possible resurgence of the COVID-19 pandemic or a different variation of the virus or pandemic.

The global spread of the COVID-19 pandemic, including the spread of recent variants, and related containment efforts created significant economic disruption.

A resurgence of the pandemic or variations of the virus or other pandemics could impact our growth rates and our volume of claims in the future.

For example, the economic impact on consumers may result in decreased new enrollments in our subscription and increased cancellations, as consumers may shift their spending in response to economic uncertainty.

COVID-19 resulted in substantially all our personnel working from home from mid-March 2020 until June 2021, following which we have hybrid work arrangements.

Having far fewer people working in our main office has resulted in increased costs, decreased efficiency, deterioration of corporate culture, greater exposure to cybersecurity threats, or other operational risks.

Future COVID-19 surges or new virus variants may result in us again closing our office or otherwise increasing work-from-home arrangements, which could adversely impact costs, operations and morale.

Governmental lockdowns and other restrictions at the onset of the COVID-19 pandemic impacted, and in the event of a future resurgence or a different pandemic may again impact, the ability of our Territory Partners to conduct face-to-face visits with veterinarians and their staff.

These restrictions and limitations could impact our ability to promote and support our subscription through the veterinary channel.

Risks Related to Compliance with Laws and Regulations

We may not maintain the amount of risk-based capital required to avoid additional regulatory oversight, which may adversely affect our ability to operate our business.

Memberships in our U.S.

subscription product are currently underwritten by APIC.

APIC is an insurance company domiciled in the state of New York and licensed by the New York Department of Financial Services (NY DFS).

Regulators in the states in which we do business impose risk-based capital requirements on APIC that generally are approved by the National Association of Insurance Commissioners (NAIC) to ensure APIC maintains reasonably appropriate levels of surplus to protect our members against adverse developments in APIC’s financial circumstances, taking into account the risk characteristics of our assets, liabilities and certain other items.

Generally, state insurance regulators will compare, on an annual basis as of December 31 or more often as deemed necessary, an insurer’s total adjusted capital and surplus to assess an insurer’s capital adequacy.

If an insurer’s risk-based capital falls below a specific threshold, the regulator may take action, which can range from directing an insurer to propose a plan to increase its capital to an acceptable level to placing the insurer under regulatory control.

Applicable regulations regarding risk-based capital may change, and/or the NY DFS may increase APIC’s required levels of risk-based capital in the future.

Regardless, we anticipate that we will need to maintain greater amounts of risk-based capital if our pet enrollment continues to grow.

Additionally, a reduction in our risk-based capital may result in a breach of various contractual relationships, including, for example, with the unaffiliated general agents for which we write pet insurance policies, which may give such parties the ability to cancel their contracts with us and/or sue us for damages related to our risk-based capital levels, which could have a material adverse effect on our financial condition.

We may require additional capital to meet our risk-based capital requirements, pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances.

If capital is not available to us at any time, our business, operating results and financial condition may be harmed.

We may require additional capital to meet our risk-based capital requirements, operate or expand our business or respond to unforeseen circumstances.

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

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

Further, volatility in the credit or equity markets may have an adverse effect on our ability to obtain debt or equity financing or the cost of such financing.

Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us.

Our business is heavily regulated, and if we fail to comply with the numerous applicable laws and regulations our business and operating results could be harmed.

The sale of medical insurance for cats and dogs, which is considered a type of property and casualty insurance in most jurisdictions, is heavily regulated by federal, state, provincial and territorial governments in each jurisdiction in which we operate.

In the United States, state insurance regulators are charged with protecting policyholders and have broad regulatory, supervisory and administrative powers over our business practices.

Because we do business in all 50 states, the District of Columbia, all Canadian provinces and territories, and Puerto Rico, compliance with insurance-related laws, rules and regulations is difficult and imposes significant costs on our business.

Each jurisdiction’s insurance department typically has the power, among other things, to:

• grant and revoke licenses to transact insurance business;

• conduct inquiries into the insurance-related activities and conduct of agents and agencies and others in the sales, marketing and promotional channels;

• require and regulate disclosure in connection with the sale and solicitation of insurance policies;

• authorize how, by which personnel and under what circumstances insurance premiums can be quoted and published and an insurance policy sold;

• regulate how sales incentives may be structured;

• regulate the content of insurance-related advertisements, including web pages, and other marketing practices;

• approve policy forms, require specific benefits and benefit levels;

• regulate premium rates;

• impose fines and other penalties;

• impose continuing education requirements.

While the U.S.

federal government does not directly regulate the insurance industry, federal legislation and administrative policies can also affect us.

Congress and various federal agencies periodically discuss proposals that would provide for federal oversight of insurance companies.

We cannot predict whether any such laws will be enacted or the effect that such laws would have on our business.

We also do business in all ten provinces and three territories of Canada.

The provincial and territorial insurance regulators have the power to regulate the market conduct of insurers and insurance intermediaries, and the licensing and supervision of insurance agents, and brokers, along with enforcement rights, including the right to assess administrative monetary penalties in certain provinces.

Insurance companies are also regulated at the federal level in Canada, and the Insurance Companies Act prohibits a foreign entity from insuring risks in Canada unless it is authorized by an Order made by the Superintendent of Financial Institutions (Canada) permitting it to do so.

The sale of medical insurance for cats and dogs, which is considered a type of property and casualty insurance in most jurisdictions, is heavily regulated by federal, state, provincial and/or territorial governments in each jurisdiction in which we operate.

In the United States, insurance is regulated by each state in which we operate, and it is challenging to comply with the requirements of each of these jurisdictions along with the different Canadian federal provincial, and territorial requirements.

As we expand internationally, compliance with insurance-related laws, rules and regulations becomes even more difficult and imposes significant costs on our business.

Each applicable regulator has broad supervisory power over all insurance-related operations, which can include granting and revoking licenses to transact insurance business, and imposing fines and other penalties.

Due to the complexity, periodic modification and differing interpretations of insurance laws and regulations, we have not always been, and we may not always be, in compliance with them.

A regulator’s interpretation of existing laws or regulations may change without notice.

Failure to comply with insurance laws, regulations and guidelines or other laws and regulations applicable to our business could result in significant liability, additional department of insurance licensing requirements, the revocation of licenses in a particular jurisdiction or our inability to sell subscriptions, which could significantly increase our operating expenses, result in the loss of our revenue and otherwise harm our business, operating results and financial condition.

Moreover, because adverse regulatory actions in one jurisdiction must be reported to other jurisdictions, an adverse regulatory action in one jurisdiction could result in penalties and adversely affect our license status or reputation in other jurisdictions.

Failure to comply with insurance laws, regulations and guidelines or other laws and regulations applicable to our business could result in significant liability, additional department of insurance licensing requirements, the revocation of licenses in a particular jurisdiction or our inability to sell insurance products, which could significantly increase our operating expenses, result in the loss of our revenue and otherwise harm our business, operating results and financial condition.

Moreover, because adverse regulatory actions in one jurisdiction may be required to be reported to other jurisdictions, an adverse regulatory action in one jurisdiction could result in penalties and adversely affect our license status or reputation in other jurisdictions.

Even if the allegations in any regulatory or other action against us ultimately are determined to be unfounded, we could incur significant time and expense defending against the allegations, and any related negative publicity could harm consumer and third-party confidence in us, which could significantly damage our brand.

In addition, we have received, and may in the future receive, inquiries from regulators regarding our marketing and business practices.

These inquires may include investigations regarding a number of our business practices, including the manner in which we market and sell subscriptions, the manner in which we write policies for any unaffiliated general agent, and whether any amounts we pay to hospitals or hospital groups is appropriate.

These inquires may include investigations regarding a number of our business practices, including the manner in which we market and sell products, the manner in which we write policies for any unaffiliated general agent, and whether any amounts we pay to hospitals or hospital groups is appropriate.

Any modification of our marketing or business practices in response to regulatory inquiries could harm our business, operating results or financial condition and lead to reputational harm.

States may adopt new laws that may adversely affect our operating results and financial condition.

The NAIC may draft model laws that focus on medical insurance for pets.

States may enact new laws to adopt what the NAIC drafts, or a state may enact its own new laws or regulations that could affect our industry.

Many states have considered and may continue to consider proposed legislation that could significantly affect our operations, including, for example, our ability to effect rate increases, to cancel or not issue existing policies, or how to market our product.

New laws may be adopted that may adversely affect our operating results and financial condition.

Existing laws and regulations impose limits on, for instance, our ability to enact price increases for our products, among other things.

New laws may be adopted that could further affect our business, for example our ability to effect rate increases, to cancel or not issue existing policies, to use artificial intelligence or machine learning, or to market our products in various ways.

Implementing changes in order to comply with new laws or regulations could also be time-consuming and costly.

We may not receive approval for changes to an existing product, for a proposed new product or for pricing changes, or we may not receive such approvals in a timely manner.

Most states require licensure and regulatory approval prior to marketing new insurance products or changing premiums for existing products.

From time to time, we seek to make updates to our existing subscription product.

We may also introduce new products that make changes that are more extensive to the product approved in a state.

With respect to pricing, 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.

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

We may be affected by mandatory participation in plans that could result in contributions from insurance subsidiaries we own.

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In these markets, if the state reinsurance facilities, wind pools, FAIR plans or JUAs recognize a financial deficit, they may in turn have the ability to assess participating insurers, adversely affecting our operating results and financial condition if we are a part of such state reinsurance facilities, wind pools, FAIR plans or JUAs.

Additionally, certain states require insurers to participate in guaranty funds for impaired or insolvent insurance companies.

These funds periodically assess losses against all insurance companies doing business in the state.

Additionally, certain jurisdictions require insurers to participate in guaranty funds for impaired or insolvent insurance companies.

These funds periodically assess losses against all insurance companies doing business in the jurisdiction.

Our operating results and financial condition could be adversely affected by any of these factors.

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Consequently, we are subject to the risk that compliance with any particular regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same issue, particularly when compliance is judged in hindsight.

In addition, there is risk that laws and regulations or any particular regulator’s or enforcement authority’s interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may, even absent any particular regulator’s or enforcement authority’s interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thus necessitating changes to our practices that may, in some cases, increase our costs and limit our ability to grow or to improve the profitability of our business.

Further, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies.

For example, state insurance laws and regulations generally are intended to protect or benefit purchasers or users of insurance products, not holders of securities, which generally is the jurisdiction of the SEC.

In many respects, these laws and regulations limit our ability to grow or to improve the profitability of our business.

In many respects, these laws and regulations limit our ability to grow or to improve our results of operations.

Failure to comply with federal, state and provincial laws and regulations relating to privacy and security of personal information, and civil liabilities relating to breaches of privacy and security of personal information, could create liabilities for us, damage our reputation and harm our business.

A variety of U.S.

and Canadian federal, state and provincial laws and regulations govern the collection, use, retention, sharing and security of personal information.

Claims or allegations that we have violated applicable laws or regulations related to privacy and data security could in the future result in negative publicity and a loss of confidence in us by our members and our participating service providers, and may subject us to fines by credit card companies and the loss of our ability to accept credit and debit card payments.

A variety of regulations govern the collection, use, retention, sharing and security of personal information.

Claims or allegations that we have violated applicable laws or regulations related to privacy and data security could in the future result in negative publicity and a loss of confidence in us by our members, our participating service providers or team members, and may subject us to fines by credit card companies and the loss of our ability to accept credit and debit card payments.

In addition, we have posted privacy policies and practices concerning the collection, use and disclosure of member data on our website.

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We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols for personal information imposed by law, regulation, self-regulatory bodies, industry standards and contractual obligations.

Such laws, standards and regulations, however, are evolving and subject to potentially differing interpretations, and federal, state and provincial legislative and regulatory bodies may expand current or enact new laws or regulations regarding privacy matters.

Such laws, standards and regulations, however, are evolving and subject to potentially differing interpretations, and new privacy laws are frequently enacted.

We are unable to predict what additional legislation, standards or regulation in the area of privacy and security of personal information could be enacted or its effect on our operations and business.

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If we are restricted or unable to communicate by phone, text or email with our members and potential members as a result of legislation, blockage or otherwise, our business, operating results and financial condition would be harmed.

Applicable insurance laws regarding the change in control of our company may impede potential acquisitions that our stockholders might consider to be desirable.

We are subject to statutes and regulations of the state of New York that generally require that any person or entity desiring to acquire direct or indirect control of APIC obtain prior regulatory approval.

These laws may discourage potential acquisition proposals and may delay, deter or prevent a change in control of our company, including through transactions, and in particular unsolicited transactions, that some of our stockholders might consider to be desirable.

Similar laws or regulations may also apply in other states in which we may operate.

Our segregated account in Bermuda, WICL segregated account AX, could be adversely impacted by regulatory compliance of an unaffiliated third party.

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We devote substantial resources to compliance with accounting requirements and we base our estimates on our best judgment, historical experience, information derived from third parties, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources.

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, further international expansion, and entry into complementary businesses such as pet food, may compound these complexities.

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

The ongoing evolution of our business, 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.

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Accordingly, no such person expresses any opinion or any other form of assurance with respect to the projections.

In addition, we have recently provided information regarding how we think about the drivers of and our method of calculating our intrinsic value, including related statements regarding discounted cash flows and underlying assumptions (such as pet enrollment, revenue per pet, lifetime values of a pet, pet acquisition costs, and other costs and expenses).

In addition, from time to time we provided information regarding how we think about the drivers of and our method of calculating our intrinsic value, including related statements regarding discounted cash flows and underlying assumptions (such as pet enrollment, revenue per pet, lifetime values of a pet, pet acquisition costs, and other costs and expenses).

These statements are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond our control, including those described in these “Risk Factors” and elsewhere in this report.

We intend to state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are not intended to imply that actual results could not fall outside of the suggested ranges.

When we state possible outcomes as high and low ranges, these are intended to provide a sensitivity analysis as variables are changed but are not intended to imply that actual results could not fall outside of the suggested ranges.

The principal reason that we release guidance and other information regarding our view of the drivers and calculation method of our intrinsic value is to provide a basis for our management to discuss our business and outlook with analysts and investors.

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Actual results may vary and the variations may be material.

In light of the foregoing, investors are urged not to rely upon our guidance or other information regarding our view of the drivers and calculation method of our intrinsic value in making an investment decision regarding our common stock.

In light of the foregoing, we urge investors not to rely upon our guidance or other information regarding our view of the drivers and calculation method of our intrinsic value in making an investment decision regarding our common stock.

In addition, we do not accept any responsibility for any projections or reports published by any such third parties, and we urge you not to place undue reliance on those statements.

Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this report could result in the actual operating results being different from our guidance, and the differences may be adverse and material.

Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this report, or the other reports we file from time to time, could result in the actual operating results being different from our guidance, and the differences may be adverse and material.

Future securities issuances could result in significant dilution to our stockholders and impair the market price of our common stock.

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In addition, we may issue options, restricted stock units, or other stock-based awards to those providing services to us, and to the extent outstanding or future options are exercised or restricted stock units or other stock-based awards are settled for shares of our common stock, there will be further dilution.

The amount of dilution could be substantial depending upon the size of the issuances or exercises.

These equity incentives are generally granted under our 2014 Equity Incentive Plan, which provides for automatic annual increases in the number of shares or our common stock available for issuance under the plan equal to 4% of our issued and outstanding shares of common stock, or any lesser number determined by our board of directors.

Our board of directors approved the 4% increase for 2022.

The amount of dilution could be substantial depending upon the size of our future issuances of securities or exercises or settlement of stock-based awards.

Furthermore, we may issue additional equity securities that could have rights senior to those of our common stock, such as pursuant to the “blank check” preferred stock contained in our certificate of incorporation.

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• variations in our operating results, earnings per share, cash flows from operating activities, and key operating metrics, and how those results compare to analyst expectations;

• forward-looking guidance that we provide to the public and industry and financial analysts related to future revenue and profitability, and any change in that guidance or our failure to achieve the results reflected in that guidance;

• forward-looking guidance that we provide to the public and industry and financial analysts related to future revenue and results of operations, and any change in that guidance or our failure to achieve the results reflected in that guidance;

• the net increases in the number of members, either independently or as compared with published expectations of industry, financial or other analysts that cover our company;

• announcements of changes to our subscription, strategic alliances, acquisitions or significant agreements by us or by our competitors;

• changes to our subscription, strategic alliances, acquisitions or significant agreements by us or by our competitors;

• recruitment or departure of key personnel;

• recent private sale of our securities to Aflac;

• factors relating to our other business segment;

• issuance of common stock or other securities to certain partners;

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

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

Moreover, applicable insurance laws require that any person or entity acquiring direct or indirect control of an insurer obtain prior regulatory approval, which may impede potential acquisitions.

We have an Employee Severance and Change in Control Plan that applies to each employee of our company.

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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-K

Item 1A. Risk Factors