What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-02-16 compared with 2022-02-17 · 97 added, 90 removed, 627 unchanged (23% of the section changed)

Market for Registrant ’ s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Recent Sales of Unregistered Securities

Pursuant to a marketing agreement between us and a strategic distributor, we agreed to issue shares of our common stock to the distributor as partial consideration for sales made through the distributor’s marketing channels of white-label pet insurance and wellness products that we create and administer under the agreement.

The number of shares we issue is determined quarterly, based on a percentage of revenue from such product sales divided by the volume weighted average price per share for the preceding quarter or, if lower, for the three months ended December 5, 2021.

The shares we issue are subject to various restrictions, including a minimum holding period of two years and customary transfer restrictions for shares acquired in a private placement.

On October 28, 2022, we issued 60 shares of our common stock to the distributor in respect of product sales that occurred in the quarter ended September 30, 2022.

We offered and sold these shares in reliance upon the exemption from the registration set forth under Section 4(a)(2) of the Securities Act, and the regulations promulgated thereunder relating to sales by an issuer not involving any public offering, and in reliance on similar exemptions under applicable state laws.

Market for our Common Stock

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Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

We provide medical insurance for cats and dogs throughout the United States, Canada, Puerto Rico, and Australia.

Our data-driven, vertically-integrated approach enables us to provide pet owners with products that offer what we believe is the highest value medical insurance, priced specifically for each pet’s unique characteristics and coverage level.

We provide medical insurance for cats and dogs throughout the United States, Canada, Europe, Puerto Rico, and Australia.

Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level.

Our growing and loyal membership base provides us with highly predictable and recurring revenue.

We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.

We operate in two business segments:

subscription business and other business.

We generate revenue in our subscription business segment primarily by subscription fees from our “Trupanion” branded products.

Fees are paid at the beginning of each subscription period, which automatically renews on a monthly basis.

We generate revenue in our other business segment primarily by writing policies on behalf of third parties.

We generate revenue in our subscription business segment primarily by subscription fees from our direct-to-consumer products.

We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our new pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.

We generate revenue in our other business segment primarily by underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand.

We do not undertake the marketing efforts for these policies and have a business-to-business relationship with these third parties.

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Total subscription pet months in a period represents the sum of all subscription pets enrolled for each month during the period.

We exclude revenue from our managing general agent product lines because their ARPU is representative of commission earnings versus underwriting premiums.

We monitor monthly average revenue per pet because it is an indicator of the per pet unit economics of our subscription business.

* Total pets enrolled and total subscription pets enrolled metrics include managing general agent pets acquired.

† Excluding activity relating to managing general agent policies.

Lifetime value of a pet, including fixed expenses.

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† Average pet acquisition cost (PAC) is calculated as net acquisition cost divided by the total number of new subscription pets enrolled in that period.

Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as new pet acquisition expense, excluding stock-based compensation expense and other business segment expense, offset by sign-up fee revenue.

Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as new pet acquisition expense, excluding stock-based compensation expense, other business segment expense and managing general agent expense, offset by sign-up fee revenue.

We exclude stock-based compensation expense because the amount varies from period to period based on number of awards issued and market-based valuation inputs.

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We exclude other business segment pet acquisition expense because that does not relate to subscription enrollments.

We exclude managing general agent pet acquisition expense because the ARPU of these products is representative of commission earnings versus underwriting premiums.

We monitor average pet acquisition cost to evaluate the efficiency in acquiring new members and measure effectiveness based on our targeted return on investment.

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We monitor average monthly retention because it provides a measure of member satisfaction and allows us to calculate the implied average subscriber life in months.

† Excluding activity relating to managing general agent policies.

Non-GAAP Financial Measures

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We define non-GAAP development expenses as operating expenses incurred to develop new products and offerings that are pre-revenue.

We define non-GAAP fixed expenses as the total of Technology and Development expense and General and Administrative expense, less stock-based compensation expense, business combination transaction cost, and non-GAAP development expenses.

The following tables present the reconciliation of our non-GAAP financial measures from corresponding GAAP measures for the periods presented:

We define non-GAAP fixed expenses as the total of technology and development expense and general and administrative expense, less stock-based compensation expense, business combination transaction cost, and development expenses related to exploring and developing new products and offerings that are in the pre-revenue stage.

The following tables present the reconciliation of our non-GAAP financial measures from corresponding GAAP measures for the periods presented (in thousands):

Year Ended December 31,

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Stock-based compensation expense (1)

(4,054) (4,538) (1,118)

Other business cost of paying veterinary invoices (212,857) (129,614) (72,119)

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Stock-based compensation expense (1)

(2,232) (2,610) (468)

Other business variable expenses (72,453) (57,367) (33,133)

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Stock-based compensation expense (1)

(17,135) (11,918) (4,553)

Business combination transaction costs (372) (82) (522)

Development expenses (non-GAAP) (3,719) (339) —

Development expenses (7,789) (3,719) (339)

Fixed expenses (non-GAAP) $ 39,216 $ 33,040 $ 26,380

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Stock-based compensation expense (1)

(9,116) (9,160) (2,773)

Other business pet acquisition expense (541) (499) (820)

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% of subscription revenue 13.3 % 13.9 % 11.4 %

Technology and development expense $ 16,866 $ 9,947 $ 7,025

General and administrative expense 31,893 21,847 18,384

Stock-based compensation expense (11,918) (4,553) (3,676)

Business combination transaction costs (82) (522) —

Fixed expenses (non-GAAP) (33,040) (26,380) (21,733)

Development expenses (non-GAAP) $ 3,719 $ 339 $ —

% of total revenue 0.5 % 0.1 % — %

(1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.

We account for such expense as stock-based compensation in accordance with GAAP, but we do not include it in any non-GAAP adjustments.

Stock-based compensation associated with bonuses was approximately $0.9 million for the year ended December 31, 2022.

Three Months Ended

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Stock-based compensation expense (1)

(899) (960) (1,022) (1,173) (798) (769) (672) (2,299)

Other business cost of paying veterinary invoices (59,946) (58,197) (50,378) (44,336) (38,009) (34,432) (31,029) (26,144)

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Stock-based compensation expense (1)

(414) (433) (754) (631) (581) (542) (552) (935)

Other business variable expenses (20,591) (17,346) (18,010) (16,506) (17,208) (15,315) (12,940) (11,904)

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Stock-based compensation expense (1)

(5,019) (4,805) (4,085) (3,226) (3,293) (3,020) (3,122) (2,483)

Business combination transaction costs (193) (179) — — — — — (82)

Development expenses (non-GAAP) (858) (919) (1,121) (821) (339) — — —

Development expenses (2,084) (2,435) (2,012) (1,258) (858) (919) (1,121) (821)

Fixed expenses (non-GAAP) $ 10,131 $ 9,448 $ 9,526 $ 10,111 $ 9,510 $ 8,698 $ 7,271 $ 7,561

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Stock-based compensation expense (1)

(2,079) (2,108) (2,601) (2,328) (2,136) (2,112) (2,181) (2,731)

Other business pet acquisition expense (65) (181) (186) (109) (76) (134) (118) (171)

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% of subscription revenue 12.5 % 13.2 % 13.9 % 13.7 % 13.1 % 13.7 % 14.2 % 14.8 %

Technology and development expense $ 4,665 $ 4,391 $ 4,079 $ 3,731 $ 3,108 $ 2,426 $ 2,293 $ 2,120

General and administrative expense 8,996 8,246 7,435 7,216 6,502 5,412 5,073 4,860

Stock-based compensation expense (3,293) (3,020) (3,122) (2,483) (1,275) (1,241) (1,208) (829)

Business combination transaction costs — — — (82) (522) — — —

Fixed expenses (non-GAAP) (9,510) (8,698) (7,271) (7,561) (7,474) (6,597) (6,158) (6,151)

Development expenses (non-GAAP) $ 858 $ 919 $ 1,121 $ 821 $ 339 $ — $ — $ —

% of total revenue 0.4 % 0.5 % 0.7 % 0.5 % 0.2 % — % — % — %

(1) Trupanion employees may elect to take restricted stock units in lieu of cash payment for their bonuses.

We account for such expense as stock-based compensation in accordance with GAAP, but we do not include it in any non-GAAP adjustments.

Stock-based compensation associated with bonuses was approximately $0.2 million for the three months ended December 31, 2022.

When determining our PAC, we calculate net acquisition cost for a more comparable metric across periods.

Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as GAAP new pet acquisition expense, excluding stock-based compensation expense and other business segment expense, offset by sign-up fee revenue.

Net acquisition cost, a non-GAAP financial measure, is calculated in a reporting period as GAAP new pet acquisition expense, excluding stock-based compensation expense, other business segment expense, and managing general agent expense, offset by sign-up fee revenue.

We exclude stock-based compensation expense because the amount varies from period to period based on the number of awards issued and market-based valuation inputs.

We offset sign-up fee revenue because it is a one-time charge to new members collected at the time of enrollment used to partially offset initial setup costs, which are included in new pet acquisition expenses.

We exclude other business segment pet acquisition expense because it does not relate to subscription enrollments.

We exclude managing general agent pet acquisition expense because the ARPU of these products is representative of commission earnings versus underwriting premiums.

The following tables reconcile GAAP new pet acquisition expense to non-GAAP net acquisition cost (in thousands) for the years ended December 31, 2022, 2021, and 2020, and for each of the last eight fiscal quarters:

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Stock-based compensation expense (9,116) (9,160) (2,773)

Other business segment pet acquisition expense (499) (820) (414)

Other business pet acquisition expense (541) (499) (820)

Pet acquisition expense for managing general agent policies (443) — —

Net acquisition cost $ 74,416 $ 64,034 $ 40,952

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Stock-based compensation expense (2,079) (2,108) (2,601) (2,328) (2,136) (2,112) (2,181) (2,731)

Other business segment pet acquisition expense (76) (134) (118) (171) (201) (265) (191) (163)

Other business pet acquisition expense (65) (181) (186) (109) (76) (134) (118) (171)

Pet acquisition expense for managing general agent policies (443) — — — — — — —

Net acquisition cost $ 18,679 $ 18,806 $ 18,943 $ 17,988 $ 16,471 $ 16,194 $ 15,831 $ 15,538

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subscription business and other business.

Our subscription business segment primarily relates to subscription fees from our “Trupanion” branded products.

Our other business segment includes revenue from other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.

Our subscription business segment primarily relates to subscription fees from our direct-to-consumer products.

Our other business segment includes revenue from other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription business segment, including revenue from writing policies on behalf of third parties and revenue from other products and software solutions.

We generate revenue in our subscription business segment primarily from subscription fees for our pet medical insurance.

Fees are paid at the beginning of each subscription period, which automatically renews on a monthly basis.

Fees are paid at the beginning of each subscription period.

In most cases, our members authorize us to directly charge their credit card, debit card or bank account through automatic funds transfer.

Subscription revenue is recognized on a pro rata basis over the monthly enrollment term.

Subscription revenue is recognized on a pro rata basis over the enrollment term.

Membership may be canceled at any time without penalty, and we issue a refund for the unused portion of the canceled membership.

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technology and development, general and administrative, new pet acquisition expense, and depreciation and amortization.

For each category, excluding depreciation and amortization, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and stock-based compensation expense.

For each category, except depreciation and amortization, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and stock-based compensation expense.

Technology and development

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Stock-based compensation is included in the cost and expense line items above.

Stock-based compensation will vary depending on corporate performance pursuant to our pre-approved equity incentive plan.

Stock-based compensation will vary depending on corporate performance and terms of the awards under our equity incentive plan.

For example, when we have delivered strong performance, stock-based compensation may increase as a result of incentive-based awards under our equity incentive plan.

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We continually assess our pet acquisition activities by monitoring the estimated return on PAC spend both on a detailed level by acquisition channel and in the aggregate.

Timing of price adjustments.

Our subscription business’s cost-plus model depends on our ability to estimate our operating costs and expenses, including veterinary invoice expenses, and to adjust our pricing to achieve our target returns.

We 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.

This makes it important for us to accurately estimate our costs and to promptly pursue regulatory approval of pricing adjustments.

We may, though, have timing mismatches during which our pricing does not reflect our current expense profile.

Timing of initiatives.

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Geographic mix of sales.

The relative mix of our business between the United States and Canada impacts the monthly average revenue per pet we receive.

Prices for our plan in Canada are generally higher than in the United States (in local currencies), which is consistent with the relative cost of veterinary care in each country.

As our mix of business between the United States and Canada changes, our metrics, such as our monthly average revenue per pet, and our exposure to foreign exchange fluctuations will be impacted.

Any expansion into other international markets could have similar effects.

The relative mix of our business between the United States, Canada, and other jurisdictions, and between areas within those geographies, impacts the monthly average revenue per pet we receive.

For example, prices from our plans could vary depending on the relative cost of veterinary care in different countries or areas.

As our mix of business between geographies changes, our metrics, such as our monthly average revenue per pet, and our exposure to foreign exchange fluctuations will be impacted.

As we expand into international markets and continue to explore other opportunities, we expect these effects to increase.

Other business segment.

Our other business segment primarily includes other product offerings that generally have a business-to-business relationship.

These products have been in the past, and may be in the future, materially different from our subscription segment.

These products have been, and we expect will be in the future, materially different from our subscription business segment.

Our relationships in our other business segment are generally subject to termination provisions and are non-exclusive.

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Revenue from our subscription business segment increased by $101.7 million to $596.6 million for the year ended December 31, 2022, or 21%.

This increase was primarily due to a 22% increase in total subscription pets enrolled as of December 31, 2021 compared to December 31, 2020 and increased average revenue per pet of 5% for the same period.

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

Revenue from our other business segment increased by $89.8 million to $204.1 million for the year ended December 31, 2021, or 79%, primarily due to a 66% increase in enrolled pets in this segment.

This increase was primarily due to a 19% increase in total subscription pets enrolled as of December 31, 2022 compared to a year ago, excluding pets acquired as part of business combinations in 2022.

Average revenue per pet increased by 0.4% year over year, or 1.3% on a constant currency basis.

Revenue from our other business segment increased by $104.4 million to $308.6 million, or 51%, for the year ended December 31, 2022, primarily due to a 41% increase in enrolled pets in this segment.

Cost of Revenue

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Cost of revenue for our subscription business segment was $497.7 million, or 83% of revenue, for the year ended December 31, 2022, compared to $407.7 million, or 82%, of revenue, for the year ended December 31, 2021.

This increase of 29% in subscription cost of revenue was primarily the result of a 22% increase in subscription pets enrolled and an increase of 5% in veterinary invoice expense per pet due to increases in the cost and utilization of veterinary care.

Additionally, stock-based compensation expense increased $5.6 million during the period due to new performance grants in the first quarter of this year, including the full impact of one-time team grants in the first quarter of $2.3 million.

This increase of 22% in subscription cost of revenue was primarily the result of a 19% increase in subscription pets enrolled, excluding pets acquired as part of business combinations, and a 2.5% increase in veterinary invoice expense per pet, or 2.9% on a constant currency basis.

This was attributable to both increased cost and utilization of veterinary care.

Cost of revenue for our other business segment increased by $98.3 million, or 53%, to $285.3 million for the year ended December 31, 2022, primarily due to the increase in enrolled pets in this segment.

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Technology and development expenses increased by $8.3 million, or 49%, to $25.1 million for the year ended December 31, 2022.

Technology expense increased by $3.9 million year over year, primarily due to $2.3 million of increased stock-based compensation during the period due to new performance grants in the first quarter of this year, as well as $1.6 million increase in general technology expense to support the business growth.

Development expense associated with developing new products and offerings was $3.7 million, or 0.5% of our total revenue, for the twelve months ended December 31, 2021.

It increased by $3.0 million year over year, as a result of expenditures and investment in several pre-revenue initiatives.

Excluding stock-based compensation, technology and development expenses in total remained consistent at approximately 2% as a percentage of revenue year over year.

The increase was primarily due to increased headcount and $1.7 million increase in associated stock-based compensation.

Additionally, development expense, which totaled $7.8 million or 1% of total revenue, increased $4.1 million year over year as a result of investments in several pre-revenue initiatives.

Technology and development expenses increased from 2% to 3% of total revenue year over year.

General and Administrative Expenses

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General and administrative expenses increased by $7.5 million, or 23%, to $39.4 million for the year ended December 31, 2022.

The increase in expense was primarily due to a $5.1 million increase in stock-based compensation, a $2.6 million increase in compensation expense related primarily to increased headcount, a $1.2 million increase in facilities-related expenses, and a $1.0 million increase in legal, tax and other professional service fees.

Excluding stock-based compensation, general and administrative expenses were 3.3% of revenue, compared to 3.6% of revenue in the prior year.

The increase was primarily due to a $4.0 million increase in stock-based compensation and a $3.1 million increase in compensation expense.

General and administrative expenses decreased from 5% to 4% of total revenue year over year.

New Pet Acquisition Expense

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New pet acquisition expense increased by $10.9 million, or 14%, to $89.5 million, for the year ended December 31, 2022.

The increase was primarily attributable to a $13.7 million increase in expenses to generate leads and increase conversion rates and a $10.3 million increase in compensation expenses primarily related to headcount increases.

Additionally, stock-based compensation expense increased $6.4 million during the period due to new performance grants in the first quarter of this year.

This $10.9 million increase was attributable to expenses to generate leads and increase conversion rates.

Specifically, total subscription pets enrolled increased 19%, excluding pets acquired through business combinations, between compared periods.

New pet acquisition expenses as a percentage of revenue was 10% for the year ended December 31, 2022, compared to 11% in the same period last year.

Depreciation and Amortization

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Percentage of total revenue 1 % 1 % 1 %

Depreciation and amortization expenses have been reclassified as a separate line item in the consolidated statement of operations since 2020 and prior period amounts have been reclassified from their original presentation to conform to the current period presentation.

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

Year ended December 31, 2022 compared to year ended December 31, 2021.

Depreciation and amortization expense increased by $4.9 million, or 69%, to $12.0 million for the year ended December 31, 2021.

The increase was primarily due to a $4.1 million incremental amortization in 2021 as a result of acquired intangible assets in the fourth quarter of 2020, as well as increased depreciation in line with business growth.

Depreciation and amortization expense decreased by $1.0 million, or 9%, to $10.9 million for the year ended December 31, 2022.

Stock-Based Compensation

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Stock-based compensation expense in total was $33.4 million for the year ended December 31, 2022, up from $28.2 million in the prior year period.

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

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

Quarterly Results of Operations

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2022 2021 2020

Net cash provided by operating activities $ 7,458 $ 21,544 $ 16,157

Net cash (used in) provided by operating activities $ (8,000) $ 7,458 $ 21,544

Net cash used in investing activities (67,516) (51,913) (76,747)

Net cash (used in) provided by financing activities 60,743 (1,125) 170,848

Effect of exchange rates on cash and cash equivalents 252 (16) 423

Effect of foreign exchange rates on cash, cash equivalents, and restricted cash, net (1,459) 252 (16)

Net change in cash, cash equivalents, and restricted cash $ (16,232) $ (45,328) $ 115,629

As of December 31, 2021, we had $213.4 million in cash, cash equivalents and short-term investments.

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

As of December 31, 2021, total assets and liabilities held outside of our insurance entities were $210.8 million and $31.6 million, respectively, including $8.0 million of cash and cash equivalents that were segregated from other operating funds and held in trust for the payment of veterinary invoices on behalf of our insurance subsidiaries.

For further information, refer to "—Regulation".

Our primary sources of liquidity are our existing cash, cash equivalents, and short-term investments, as well as cash provided by operations.

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

We have certain contractual obligations in the normal course of business, including obligations and commitments relating to our Credit Facility, non-cancellable vendor purchase agreements, as well as future payments of veterinary invoice claims.

Refer to Note 10, Reserve for Veterinary Invoices, included in Item 8 of Part II of this 10-K, for further details on anticipated cash outflows.

Our primary sources of liquidity are cash provided by operations and available borrowings from our Credit Facility, under which we have $75.0 million remaining credit as of December 31, 2022.

We believe these sources are sufficient to fund our operations and capital requirements for the next 12 months.

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

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

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

We have certain contractual obligations in the normal course of business, including obligations and commitments relating to non-cancellable vendor purchase agreements, as well as future payments of veterinary invoice claims.

Refer to Note 10, Reserve for Veterinary Invoices, included in Item 8 of Part II of this 10-K, for further details on anticipated cash outflows.

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

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

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

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

We have not repurchased any shares under this program.

As of December 31, 2022, we had $222.4 million in cash, cash equivalents and short-term investments and $75.0 million available under our Credit Facility.

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

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

As of December 31, 2022, total assets and liabilities held outside of our insurance entities were $211.0 million and $103.9 million, respectively, including $7.2 million of cash and cash equivalents that were segregated from other operating funds and held in trust for the payment of veterinary invoices on behalf of our insurance subsidiaries.

For further information, refer to "—Regulation".

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

While our board of directors has approved the program, any repurchase activity is subject to quarterly assessment and board approval, based on various factors including available cash, stock price relative to our estimated intrinsic value, forecasted operating results, and available opportunities to otherwise deploy capital for business expansion.

We repurchased 95,021 shares under this program during the year ended December 31, 2022.

Operating Cash Flows

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

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

Net cash provided by operating activities was $7.5 million for the year ended December 31, 2021, compared to $21.5 million net cash provided by operating activities for the year ended December 31, 2020.

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

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

Net cash used by operating activities was $8.0 million for the year ended December 31, 2022, compared to $7.5 million net cash provided by operating activities for the year ended December 31, 2021.

The change was primarily driven by increased pet acquisition spend during the current period to drive new pet enrollments and future growth and faster payment of veterinary invoices.

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

Investing Cash Flows

Net cash used in investing activities was $51.9 million for the year ended December 31, 2021, primarily related to net purchase of investments to increase our statutory capital, as well as purchases of property, equipment and intangible assets, primarily related to development of internal use software focused on new product initiatives and member experience improvements.

Net cash used in investing activities was $67.5 million for the year ended December 31, 2022, compared to $51.9 million for the year ended December 31, 2021.

The change was primarily related to cash paid for business acquisitions as well as purchases of property, equipment and intangible assets, primarily related to development of internal use software focused on new product initiatives and member experience improvements.

Financing Cash Flows

Net cash used in financing activities was $1.1 million for the year ended December 31, 2021, compared to $170.8 million net cash provided by financing activities in the prior year.

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

To drive long-term alignment, Aflac invested $200.0 million cash in exchange for 3,636,364 newly issued shares of our common stock at a price of $55 per share, subject to a minimum holding period of three years.

The financing cash flow change year over year was primarily due to net proceeds of $192.3 million received from the sale of common stock to Aflac, partially offset by repayment and termination of the line of credit facility in 2020.

Net cash provided by financing activities was $60.7 million for the year ended December 31, 2022, compared to $1.1 million net cash used by financing activities during the same period in the prior year, primarily due to net proceeds from the term loans under the new Credit Facility which closed in March 2022, partially offset by $5.8 million used for the repurchase of shares of our common stock during the period.

Long-Term Debt

Our Credit Facility provides us with up to $150.0 million of credit.

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

Refer to Note 11, Debt, included in Item 8 of this report, for further details.

Critical Accounting Policies and Significant Estimates

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As of December 31, 2022, we reevaluated the remaining reserve for those periods prior to December 31, 2021 and recorded an adjustment to our income statement to decrease it by $1.7 million.

Accounting for Business Acquisition

As discussed in Item 8, Note 3—Business Combination, we acquired 100% of the equity of Aquarium Software Limited (Aquarium) for total consideration of approximately $48.3 million in net cash on October 30, 2020.

Accounting for this business acquisition requires us to make certain estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed.

We used our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.

We used a discounted cash flow model to measure the acquired intangible assets.

The key assumptions used to estimate the fair value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results.

These key assumptions are forward looking and could be affected by future economic and market conditions.

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

We determine our deferred tax assets and liabilities based on the differences between the financial reporting and tax basis of assets and liabilities.

4 unchanged sentences

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What changed 10-K

Item 5. Market for Registrant’s Common Equity