TRUPANION, INC. Overview
We provide medical insurance for cats and dogs throughoutthe United States ,Canada andPuerto Rico . Our data-driven, vertically-integrated approach enables us to provide pet owners with what we believe is the highest value medical insurance for their pets, priced specifically for each pet's unique characteristics. Our growing and loyal member base provides us with highly predictable and recurring revenue. We operate our business similar to other subscription-based businesses, with a focus on maximizing the estimated internal rate of return of an average pet. We operate in two business segments: subscription business and other business. We generate revenue in our subscription business segment primarily from subscription fees for our medical insurance, which we market to consumers. 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 by writing policies on behalf of third parties. We do not undertake the marketing efforts for these policies and have a business-to-business relationship with these third parties. Our other business segment also includes revenue from companies or organizations that choose to offer medical insurance for cats and dogs as a benefit to their employees or members, and contracts include multiple pets. The products in our other business segment may be materially different from our subscription business. Our ultimate goal is to build the Trupanion brand by continuing to offer the highest value proposition in the industry and maintain strong alignment with the veterinary community. We believe our activities in our other business segment benefit the overall market for pet medical insurance by expanding upon product options and distribution models within other market niches. We generate leads for our subscription business through both third-party referrals and direct-to-consumer acquisition channels, which we then convert into members through our website and contact center. Veterinary hospitals represent our largest referral source. We engage ourTerritory Partners to have face-to-face visits with veterinarians and their staff.Territory Partners are dedicated to cultivating direct veterinary relationships and building awareness of the benefits of high quality medical insurance to veterinarians and their clients. Veterinarians then educate pet owners, who visit our website or call our contact center to learn more about, and potentially enroll in,Trupanion . We also receive a significant number of new leads from existing members adding pets and referring their friends and family members. Our direct-to-consumer acquisition channels serve as important resources for pet owner education and drive new member leads and conversion. We monitor average pet acquisition cost to evaluate the efficiency of our sales and marketing programs in acquiring new members and measure effectiveness based on our targeted return on investment. Our Response to the COVID-19 Pandemic Due to the uncertainty caused by the COVID-19 pandemic, we have taken swift, direct actions to: • Protect our team. We instituted a work-from-home policy for substantially
all employees in early March. This allowed responsible social distancing
to keep our team safe. We are also providing technology support, training
and other resources to support our team members during this unique time.
• Leverage our data about COVID-19. There has been understandable concernabout whether COVID-19 is communicable to and from pets. Using our
extensive, proprietary database, we have closely monitored veterinary
invoice data and shared with veterinarians, our members and the broader
community that, to date, we have not seen any COVID-19-related veterinary
invoices.
• Provide relief and support to members. We value our members and understand
the economic and health challenges COVID-19 has created for many of them.
We slowed our process on subscription cancellations for failed payments,
in most cases extending the time from 30 to 60 days. We also continue to
provide a superior member experience with our claims, call center and
broader team working tirelessly to ensure pets receive the care they need
during this pandemic.
• Carefully monitor the financial impact to our business. We have notexperienced a material adverse impact on our business due to COVID-19, but
we are carefully monitoring new enrollments and retention, veterinary
invoice expense, and other expenses, as well as the impact of COVID-19 on
our partners.
The impacts of COVID-19 and related economic conditions on our results are highly uncertain and in many ways outside of our control. 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.
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Key Operating Metrics
The following table sets forth our key operating metrics for our subscription
business, and total pets enrolled, for each of the last eight fiscal quarters.
Three Months Ended
Mar. 31, 2020 Dec. 31, 2019 Sept. 30, 2019 Jun. 30, 2019 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 Jun. 30, 2018
Total Business:
Total pets
enrolled (at
period end) 687,435 646,728 613,694 577,686 548,002 521,326 497,942 472,480
Subscription
Business:
Total
subscription pets
enrolled (at
period end) 508,480 494,026 479,427 461,314 445,148 430,770 416,527 401,033
Monthly average
revenue per pet $ 58.96 $ 58.58 $ 58.12 $ 57.11 $ 56.13 $ 55.15 $ 54.55 $ 53.96
Lifetime value of
a pet, including
fixed expenses $ 535 $ 523 $ 511 $ 482 $ 471 $ 449 $ 435 $ 431
Average pet
acquisition cost
(PAC) $ 247 $ 222 $ 208 $ 213 $ 205 $ 186 $ 155 $ 150
Average monthly
retention 98.59 % 98.58 % 98.59 % 98.57 % 98.58 % 98.60 % 98.61 % 98.64 %
Total pets enrolled. Total pets enrolled reflects the number of subscription
pets or pets enrolled in one of the insurance products offered in our other
business segment at the end of each period presented. We monitor total pets
enrolled because it provides an indication of the growth of our consolidated
business.
Total subscription pets enrolled. Total subscription pets enrolled reflects the
number of pets in active memberships at the end of each period presented. We
monitor total subscription pets enrolled because it provides an indication of
the growth of our subscription business.
Monthly average revenue per pet. Monthly average revenue per pet is calculated
as amounts billed in a given period for subscriptions divided by the total
number of subscription pet months in the period. Total subscription pet months
in a period represents the sum of all subscription pets enrolled for each month
during the period. We monitor monthly average revenue per pet because it is an
indicator of the per pet unit economics of our subscription business.
Lifetime value of a pet, including fixed expenses. Lifetime value of a pet,
including fixed expenses, is calculated based on gross profit from our
subscription business segment for the 12 months prior to the period end date
excluding stock-based compensation expense related to cost of revenue from our
subscription business segment, sign-up fee revenue and the change in deferred
revenue between periods. This amount is also reduced by the fixed expenses
related to our subscription business, which are the pro-rata portion of general
and administrative and technology expenses, less stock-based compensation and
depreciation, based on revenues. This amount, on a per pet basis, is multiplied
by the implied average subscriber life in months. Implied average subscriber
life in months is calculated as the quotient obtained by dividing one by one
minus the average monthly retention rate. We monitor lifetime value of a pet,
including fixed expenses, to estimate the value we might expect from new pets
over their implied average subscriber life in months, if they behave like the
average pet in that respective period. When evaluating the amount of sales and
marketing expenses we may want to incur to attract new pet enrollments, we refer
to the lifetime value of a pet, including fixed expenses, as well as our
estimated internal rate of return calculation for an average pet, which also
includes an estimated surplus capital charge, to inform the amount of
acquisition spend in relation to the estimated payback period.
Average pet acquisition cost. 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 sales and marketing expense, excluding
stock-based compensation expense and other business segment sales and marketing
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. 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
sales and marketing expenses. We exclude other business segment sales and
marketing expense because that does not relate to subscription enrollments. We
monitor average pet acquisition cost to evaluate the efficiency of our sales and
marketing programs in acquiring new members and measure effectiveness based on
our desired return on investment.
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Average monthly retention. Average monthly retention is measured as the monthly
retention rate of enrolled subscription pets for each applicable period averaged
over the 12 months prior to the period end date. As such, our average monthly
retention rate as of March 31, 2020 is an average of each month's retention from
April 1, 2019 through March 31, 2020 . We calculate monthly retention as the
number of pets that remain after subtracting all pets that cancel during a
month, including pets that enroll and cancel within that month, divided by the
total pets enrolled at the beginning of that month. 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.
Non-GAAP Financial Measures
We believe that using net acquisition cost to calculate and present certain of
our other key metrics is helpful to our investors and an important tool for
financial and operational decision-making and evaluating our operating results
over different periods of time. Measuring net acquisition cost by removing
stock-based compensation expense and other business segment sales and marketing
expense offset by sign-up fee revenue provides for a more comparable metric
across periods.
This measure, which is a non-GAAP financial measure, may not provide information
that is directly comparable to that provided by other companies in our industry.
In addition, this measure excludes stock-based compensation expense, which has
been, and is expected to continue to be for the foreseeable future, a
significant recurring component of our sales and marketing expense. The
presentation and utilization of non-GAAP financial measures is not meant to be
considered in isolation or as a substitute for the directly comparable financial
measures prepared in accordance with GAAP.
The following table reflects the reconciliation of net acquisition cost to sales
and marketing expense (in thousands):
Three Months Ended
Mar. 31, 2020 Dec. 31, 2019 Sept. 30, 2019 Jun. 30, 2019 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 Jun. 30, 2018
Sales and
marketing
expense $ 10,442 $ 9,212 $ 9,255 $ 8,757 $ 8,227 $ 6,994 $ 6,365 $ 5,702
Net of sign-up
fee revenue (765 ) (730 ) (790 ) (734 ) (703 ) (655 ) (693 ) (624 )
Excluding:
Stock-based
compensation
expense (556 ) (547 ) (577 ) (567 ) (429 ) (355 ) (358 ) (349 )
Other business
segment sales
and marketing
expense (163 ) (152 ) (94 ) (38 ) (130 ) (102 ) (99 ) (88 )
Net acquisition
cost $ 8,958 $ 7,783 $ 7,794 $ 7,418 $ 6,965 $ 5,882 $ 5,215 $ 4,641
Components of Operating Results
General
We operate in two segments: subscription business and other business. Our
subscription business segment includes revenue and expenses related to monthly
subscriptions for our pet medical insurance, which we market directly to
consumers. When we do not directly market to consumers, we classify the related
revenue and expenses in our other business segment.
Revenue
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. 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. Membership may
be canceled at any time without penalty, and we issue a refund for the unused
portion of the canceled membership.
We generate revenue in our other business segment primarily from writing
policies on behalf of third parties where we do not undertake the direct
consumer marketing. This segment includes the writing of policies that may be
materially different from our subscription.
Cost of Revenue
Cost of revenue in each of our segments is comprised of the following:
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Veterinary invoice expense
Veterinary invoice expense includes our costs to review veterinary invoices,
administer the payments, and provide member services, and other operating
expenses directly or indirectly related to this process. We also accrue for
veterinary invoices that have been incurred but not yet received. This also
includes amounts paid by unaffiliated general agents, and an estimate of amounts
incurred and not yet paid for our other business segment.
Other cost of revenue
Other cost of revenue for the subscription business segment includes direct and
indirect member service expenses, Territory Partner renewal fees, credit card
transaction fees and premium tax expenses. Other cost of revenue for the other
business segment includes the commissions we pay to unaffiliated general agents,
costs to administer the programs in the other business segment and premium taxes
on the sales in this segment.
Operating Expenses
Our operating expenses are classified into three categories: technology and
development, general and administrative, and sales and marketing. For each
category, the largest component is personnel costs, which include salaries,
employee benefit costs, bonuses and stock-based compensation expense.
Technology and Development
Technology and development expenses primarily consist of personnel costs and
related expenses for our technology staff, which includes information technology
development and infrastructure support, third-party services, as well as
depreciation of hardware and capitalized software.
General and Administrative
General and administrative expenses consist primarily of personnel costs and
related expenses for our finance, actuarial, human resources, regulatory, legal
and general management functions, as well as facilities and professional
services.
Sales and Marketing
Sales and marketing expenses primarily consist of the cost to educate
veterinarians and consumers about the benefits of Trupanion , to generate leads
and to convert leads into enrolled pets, as well as print, online and
promotional advertising costs, and employee compensation and related costs.
Sales and marketing expenses are driven primarily by investments to acquire new
members.
Gain (loss) from investment in joint venture
Gain (loss) from investment in joint venture consists of the share of income and
losses from our equity method investment in a joint venture, as well as income
and expenses associated with administrative services provided to the joint
venture.
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Factors Affecting Our Performance
Average monthly retention. Our performance depends on our ability to continue to
retain our existing and newly enrolled pets and is impacted by our ability to
provide a best-in-class value and member experience. Our ability to retain
enrolled pets depends on a number of factors, including the actual and perceived
value of our services and the quality of our member experience, the ease and
transparency of the process for reviewing and paying veterinary invoices for our
members, and the competitive environment. In addition, other initiatives across
our business may temporarily impact retention and make it difficult for us to
improve or maintain this metric. For example, if the number of new pets enrolled
increases at a faster rate than our historical experience, our average monthly
retention rate could be adversely impacted, as our retention rate is generally
lower during the first year of member enrollment.
Investment in pet acquisition. We have made and plan to continue to make
significant investments to grow our member base. Our net acquisition cost and
the number of new members we enroll depends on a number of factors, including
the amount we elect to invest in sales and marketing activities in any
particular period in the aggregate and by channel, the frequency of existing
members adding a pet or referring their friends or family, effectiveness of our
sales execution and marketing initiatives, changes in costs of media, the mix of
our sales and marketing expenditures and the competitive environment. Our
average pet acquisition cost has in the past significantly varied, and in the
future may significantly vary, from period to period based upon specific
marketing initiatives and estimated rates of return on pet acquisition spend. We
also regularly test new member acquisition channels and marketing initiatives,
which may be more expensive than our traditional marketing channels and may
increase our average acquisition costs. We continually assess our sales and
marketing activities by monitoring the return on PAC spend both on a detailed
level by acquisition channel and in the aggregate.
Timing of initiatives. Over time we plan to implement new initiatives to improve
our member experience, make modifications to our subscription plan and find
other ways to maintain a strong value proposition for our members. These
initiatives will sometimes be accompanied by price adjustments, in order to
compensate for an increase in benefits received by our members. The
implementation of such initiatives may not always coincide with the timing of
price adjustments, resulting in fluctuations in revenue and gross profit in our
subscription business segment.
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.
Other business segment. Our other business segment primarily includes revenue
and expenses related to policies written on behalf of third parties. This
segment includes the products that have been in the past, and may be in the
future, materially different from our subscription. Our relationships in our
other business segment are generally subject to termination provisions and are
non-exclusive. Accordingly, we cannot control the volume of business, even if a
contract is not terminated. Loss of an entire program via contract termination
could result in the associated policies and revenues being lost over a period of
12 to 18 months, which could have a material impact on our results of
operations. We may enter into additional relationships in the future to the
extent we believe they will be profitable to us, which could also impact our
operating results.
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Results of Operations The following tables set forth our results of operations for the periods presented both in absolute dollars and as a percentage of total revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
Three Months Ended March 31,
2020 2019
(in thousands)
Revenue:
Subscription business $ 89,484 $ 74,222
Other business 21,817 12,756
Total revenue 111,301 86,978
Cost of revenue:
Subscription business(1) 73,422 60,387
Other business 20,027 11,559
Total cost of revenue 93,449 71,946
Gross profit:
Subscription business 16,062 13,835
Other business 1,790 1,197
Total gross profit 17,852 15,032
Operating expenses:
Technology and development(1) 2,845 2,669
General and administrative(1) 5,516 5,419 Sales and marketing(1) 10,442 8,227 Total operating expenses 18,803 16,315 Gain (loss) from investment in joint venture (59 ) - Operating loss (1,010 ) (1,283 ) Interest expense 379 317 Other income, net (282 ) (344 ) Loss before income taxes (1,107 ) (1,256 ) Income tax expense 26 40 Net loss$ (1,133 ) $ (1,296 )
(1) Includes stock-based compensation expense as follows:
Three Months Ended March 31,
2020 2019
(in thousands)
Cost of revenue $ 268 $ 247
Technology and development 100 63
General and administrative 729 618
Sales and marketing 556 429
Total stock-based compensation expense $ 1,653 $ 1,357
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Three Months Ended March 31,
2020 2019
(as a percentage of revenue)
Revenue 100 % 100 %
Cost of revenue 84 83
Gross profit 16 17
Operating expenses:
Technology and development 3 3
General and administrative 5 6
Sales and marketing 9 9
Total operating expenses 17 19
Gain (loss) from investment in joint venture - -
Operating loss (1 ) (1 )
Interest expense - -
Other income, net - -
Loss before income taxes (1 ) (1 )
Income tax expense - -
Net loss (1 )% (1 )%
Three Months Ended March 31,
2020 2019
(as a percentage of subscription revenue)
Subscription business revenue 100 % 100 %
Subscription business cost of revenue 82 81
Subscription business gross profit 18 % 19 %
21-------------------------------------------------------------------------------- Comparison of the Three Months EndedMarch 31, 2020 and 2019 Revenue Three Months Ended March 31, 2020 2019 % Change (in thousands, except percentages, pet and per pet data) Revenue: Subscription business$ 89,484 $ 74,222 21 % Other business 21,817 12,756 71 Total revenue$ 111,301 $ 86,978 28 Percentage of Revenue by Segment: Subscription business 80 % 85 % Other business 20 15 Total revenue 100 % 100 % Total pets enrolled (at period end) 687,435 548,002 25 Total subscription pets enrolled (at period end) 508,480 445,148 14 Monthly average revenue per pet$ 58.96 $ 56.13 5 Average monthly retention 98.59 % 98.58 % Three months endedMarch 31, 2020 compared to three months endedMarch 31, 2019 . Total revenue increased by$24.3 million , or 28%, to$111.3 million for the three months endedMarch 31, 2020 . Revenue from our subscription business segment increased by$15.3 million , or 21%, to$89.5 million for the three months endedMarch 31, 2020 . This increase in subscription business revenue was primarily due to a 14% increase in total subscription pets enrolled as ofMarch 31, 2020 compared toMarch 31, 2019 , and an increase in average revenue per pet of 5% for the same period. Increases in pricing were primarily due to the increased cost and utilization of veterinary care. Revenue from our other business segment increased by$9.1 million , or 71%, to$21.8 million for the three months endedMarch 31, 2020 , primarily due to an increase in enrolled pets in this segment. 22
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Cost of Revenue
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except percentages, pet and
per pet data)
Cost of Revenue:
Subscription business:
Veterinary invoice expense $ 65,188 $ 53,638 22 %
Other cost of revenue 8,234 6,749 22
Total cost of revenue 73,422 60,387 22
Gross profit 16,062 13,835 16
Other business:
Veterinary invoice expense 14,452 7,644 89
Other cost of revenue 5,575 3,915 42
Total cost of revenue 20,027 11,559 73
Gross profit $ 1,790 $ 1,197 50
Percentage of Revenue by Segment:
Subscription business:
Veterinary invoice expense 73 % 72 %
Other cost of revenue 9 9
Total cost of revenue 82 81
Gross profit 18 19
Other business:
Veterinary invoice expense 66 60
Other cost of revenue 26 31
Total cost of revenue 92 91
Gross profit 8 9
Total pets enrolled (at period end) 687,435 548,002 25
Total subscription pets enrolled (at period end) 508,480 445,148 14
Monthly average revenue per pet $ 58.96 $ 56.13 5
Three months ended March 31, 2020 compared to three months ended March 31, 2019 .
Cost of revenue for our subscription business segment increased by $13.0
million , or 22%, to $73.4 million for the three months ended March 31, 2020 .
This increase in subscription cost of revenue was primarily the result of a 14%
increase in subscription pets enrolled and an increase of 6% in veterinary
invoice expense per pet due to increases in the cost and utilization of
veterinary care. Total cost of revenue for our other business segment increased
by $8.5 million , or 73%, to $20.0 million for the three months ended March 31,
2020 , primarily due to the increase in enrolled pets in this segment.
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Three Months Ended March 31,
2020 2019 % Change
(in thousands, except percentages)
Technology and development $ 2,845 $ 2,669 7 %
Percentage of total revenue 3 % 3 %
Three months ended March 31, 2020 compared to three months ended March 31, 2019 .
Technology and development expenses increased by $0.1 million , or 7%, for the
three months ended March 31, 2020 . The change was primarily due to a $0.3
million increase in general technology expenditures, partially offset by a $0.2
million decrease in depreciation and amortization expenses. Technology and
development expenses remained consistent at 3% as a percentage of revenue year
over year.
General and Administrative Expenses
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except percentages)
General and administrative $ 5,516 $ 5,419 2 %
Percentage of total revenue 5 % 6 %
Three months ended March 31, 2020 compared to three months ended March 31, 2019 .
General and administrative expenses increased by $0.1 million , or 2%, to $5.5
million for the three months ended March 31, 2020 . The change was primarily due
to a $0.5 million increase in compensation expenses, partially offset by a
decrease of $0.4 million in legal, regulatory, and professional services fees.
General and administrative expenses decreased from 6% to 5% as a percentage of
revenue for the three months ended March 31, 2020 , as we experienced scale in
our support functions.
Sales and Marketing Expenses
Three Months Ended March 31,
2020 2019 % Change
(in thousands,except percentages, pet and per pet
data)
Sales and marketing $ 10,442 $ 8,227 27 %
Percentage of total revenue 9 % 9 %
Subscription Business:
Total subscription pets enrolled (at period end) 508,480 445,148 14
Average pet acquisition cost (PAC) $ 247 $ 205 20
Three months ended March 31, 2020 compared to three months ended March 31, 2019 .
Sales and marketing expenses increased by $2.2 million , or 27%, to $10.4 million
for the three months ended March 31, 2020 . The change was primarily due to a 23%
increase in headcount, as well as an approximate $1.0 million increase in other
sales and marketing initiatives primarily related to conversion. Sales and
marketing expenses remained consistent at 9% as a percentage of revenue year
over year.
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Liquidity and Capital Resources
The following table summarizes our cash flows for the periods indicated (in
thousands):
Three months ended March 31,
2020 2019
Net cash provided by operating activities $ 2,924 $ 3,959
Net cash used in investing activities (7,966 ) (9,502 )
Net cash provided by financing activities 3,904 5,393
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net
(809 ) 220
Net change in cash, cash equivalents and restricted cash
$ 70
Our primary sources of liquidity are cash provided by operations and available borrowings on our line of credit. We currently have a revolving line of credit of up to$50.0 million . 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. As ofMarch 31, 2020 , we had$103.3 million in cash, cash equivalents and short-term investments and$19.2 million available under our line of credit, which excluded$0.9 million reserved for ancillary services. Most of the assets in our insurance subsidiary,American Pet Insurance Company (APIC), and our segregated cell business,Wyndham Insurance Company (SAC) Limited (WICL) Segregated Account AX, are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate. As ofMarch 31, 2020 , total assets and liabilities held outside of our insurance entities were$97.4 million and$46.7 million , respectively, including$5.2 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". We believe our cash and cash equivalents, short-term investments and line of credit are sufficient to fund our operations and capital requirements for the next 12 months. As we continue to grow, however, we may explore additional financing to fund our operations or to meet capital requirements. Financing could include equity, equity-linked, or debt financing. Additional financing may not be available to us on acceptable terms, or at all. InNovember 2019 , our board of directors approved a share repurchase program, pursuant to which we may repurchase up to$15.0 million of our outstanding shares over the 12 months following the approval. Each quarter throughout this period, we intend to establish repurchase parameters reflecting our business's capital allocation priorities, our stock price relative to our estimated intrinsic value, and general market conditions. 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. We have repurchased 3,300 shares under this program as ofMarch 31, 2020 . Operating Cash Flows We derive operating cash flows from the sale of our subscription plans, which is used to pay veterinary invoices and other cost of revenue. 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. Cash provided by operating activities was$2.9 million for the three months endedMarch 31, 2020 compared to$4.0 million for the three months endedMarch 31, 2019 . The change was primarily driven by timing differences between collections from members and payments of veterinary invoices and payments to vendors. Changes in accounts receivable were primarily related to annual policies with monthly payment terms within our other business segment. Investing Cash Flows Cash used in investing activities is primarily related to the net purchase of investments to increase our statutory capital. Net cash used in investing activities decreased by$1.5 million for the three months endedMarch 31, 2020 compared to the same period in prior year, primarily due to a$1.5 million additional loan extended to a variable interest entity in the first quarter of 2019. Financing Cash Flows Cash provided by financing activities was$3.9 million and$5.4 million for the three months endedMarch 31, 2020 and 2019, respectively. The decrease of$1.5 million was primarily due to a smaller draw from our line of credit as compared to the prior year. 25 -------------------------------------------------------------------------------- Long-Term Debt Pacific WesternBank Loan and Security Agreement We have a syndicated loan agreement withPacific Western Bank (PWB) andWestern Alliance Bank (WAB), providing us a revolving line of credit of up to$50.0 million , with a maturity date inJune 2022 . We refer to this line of credit as our PWB credit facility. The maximum amount available to us under the PWB credit facility, inclusive of any amounts outstanding under the revolving line of credit, is the lesser of$50.0 million or the total amount of cash and securities held by our insurance entities, less amounts outstanding relating to other ancillary services and letters of credit, totaling$0.9 million as ofMarch 31, 2020 . Interest on the PWB credit facility accrues at a variable annual rate equal to the greater of 4.5%, or 0.75% plus the prime rate (4.50% atMarch 31, 2020 ). The PWB credit facility requires us to maintain certain financial and non-financial covenants, including maintaining a minimum cash balance of$1.4 million in our account at WAB and/or WAB affiliates and other cash or investments of$2.1 million in our accounts at PWB. As ofMarch 31, 2020 , we were in compliance with each of the financial and non-financial covenants. Our obligations under the PWB credit facility are secured by substantially all of our assets and a pledge of certain of our subsidiaries' stock. As ofMarch 31, 2020 , we had$30.0 million in aggregate borrowings outstanding under the PWB credit facility. Regulation As ofMarch 31, 2020 , our insurance entities, APIC and WICL Segregated Account AX, held$76.1 million in short-term investments and$81.1 million in other current assets, including$14.7 million held in cash and cash equivalents to be used for operating expenses of our insurance subsidiaries. Most of the assets in APIC and WICL Segregated Account AX are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate. APIC The majority of our investments are held by our insurance entities to satisfy risk-based capital requirements of theNational Association of Insurance Commissioners (NAIC). The NAIC requirements provide a method for analyzing the minimum amount of risk-based capital (statutory capital and surplus plus other adjustments) appropriate for an insurance company to support its overall business operations, taking into account the risk characteristics of the company's assets, liabilities and certain other items. An insurance company found to have insufficient statutory capital based on its risk-based capital ratio may be subject to varying levels of additional regulatory oversight depending on the level of capital inadequacy. APIC must hold certain capital amounts in order to comply with the statutory regulations and, therefore, we cannot use these amounts for general operating purposes without regulatory approval. As our business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements may increase significantly. As ofDecember 31, 2019 , APIC was required to maintain at least$55.3 million of risk-based capital to avoid this additional regulatory oversight. As of that date, APIC maintained$73.8 million of risk-based capital. WICL Segregated Account AX WICL Segregated Account AX was established by WICL, withTrupanion, Inc. as the shareholder, to enter into a reinsurance agreement withOmega General Insurance Company . All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL, and all shares of the segregated account are owned byTrupanion, Inc. DuringFebruary 2020 , our parent entity received a dividend of$4.7 million from WICL Segregated Account AX as allowed under our agreements with WICL. As required by the Office of the Superintendentof Financial Institutions regulations related to our reinsurance agreement withOmega General Insurance Company , we are required to maintain aCanadian Trust account with the greater of CAD$2.0 million or 115% of unearned Canadian premium plus 15% of outstanding Canadian claims, including all incurred but not reported claims. As ofDecember 31, 2019 , the account held CAD$4.3 million . Though we are not directly regulated by theBermuda Monetary Authority (BMA), WICL's regulation and compliance impacts us as it could have an adverse impact on the ability of WICL Segregated Account AX to pay dividends. WICL is regulated by the BMA under the Insurance Act of 1978 (Insurance Act) and the Segregated Accounts Company Act of 2000. The Insurance Act imposes onBermuda insurance companies, solvency and liquidity standards, certain restrictions on the declaration and payment of dividends and distributions, certain restrictions on the reduction of statutory capital, and auditing and reporting requirements, and grants the BMA powers to supervise and, in certain circumstances, to investigate and intervene in the affairs of insurance companies. Under the Insurance Act, WICL, as a class 3 insurer, is required to maintain available statutory capital and surplus at a level equal to or in excess of a prescribed minimum established by reference to net written premiums and loss reserves. 26 -------------------------------------------------------------------------------- Under the Bermuda Companies Act 1981, as amended, aBermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that: (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the company's assets would thereby be less than its liabilities. The Segregated Accounts Company Act of 2000 further requires that dividends out of a segregated account can only be paid to the extent that the cell remains solvent and the value of its assets remain greater than the aggregate of its liabilities and its issued share capital and share premium accounts. Contractual Obligations We enter into long-term contractual obligations and commitments in the normal course of business, primarily debt obligations and non-cancellable vendor service agreements. Management believes there have been no material changes to our contractual obligation disclosure as ofMarch 31, 2020 , compared to those discussed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Generally, we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates as compared to those described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . 27
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