Our principal executive offices are located at 6100 4th Avenue South, Seattle, Washington. We purchased the building in August 2018 and occupy 91,437 square feet.
Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K.
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 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, 2019.
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. 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.
Due to the uncertainty caused by the COVID-19 pandemic, we continue to:
•Leverage our data about COVID-19. There has been understandable concern about whether COVID-19 is communicable to and from pets. Using our extensive, proprietary database, we have closely monitored veterinary invoice data and shared our data with veterinarians, our members and the broader community that, to date, we have not seen any material COVID-19-related veterinary invoices.
•Provide relief and support to members. We value our members and understand the economic and health challenges COVID-19 has created for many of them. We slowed our process on subscription cancellations related to payments that fail, reverting to our historical 60-day process. We estimate approximately 1,300 cancellations were shifted from the second quarter into the third quarter due to this change. We also continue to provide a superior member experience with our claims, call center and broader team working to ensure pets receive the care they need during this pandemic.
•Carefully monitor the financial impact to our business. We have not experienced a material adverse impact on our business due to COVID-19, but we are carefully monitoring new enrollments and retention, veterinary invoice expense, and other expenses, as well as the impact of COVID-19 on our partners.
The following tables set forth our key operating metrics for the periods ended December 31, 2020, 2019 and 2018, and for each of the last eight fiscal quarters.
Our operating expenses are classified into four categories: technology and development, general and administrative, sales and marketing, 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.
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 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.
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 estimated 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, improve our technology, 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 profitability in our subscription business segment.
Other business segment. Our other business segment primarily includes revenue and expenses from other product offerings that generally have a business-to-business relationship. This segment includes products that have been in the past, and may be in the future, materially different from our subscription segment. 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.
Year ended December 31, 2020 compared to year ended December 31, 2019. Cost of revenue for our subscription business segment was $314.9 million, or 81% of revenue, for the year ended December 31, 2020, compared to $262.1 million, or 82%, of revenue for the year ended December 31, 2019. This $52.7 million increase in subscription cost of revenue was primarily the result of a 17% increase in subscription pets enrolled and an increase of 4% in veterinary invoice expense per pet due to increases in the cost and utilization of veterinary care. Cost of revenue for our other business segment increased by $48.4 million to $105.3 million for the year ended December 31, 2020, primarily due to the increase in enrolled pets in this segment.
Year ended December 31, 2020 compared to year ended December 31, 2019. Technology and development expenses increased by $2.9 million, or 42%, to $9.9 million for the year ended December 31, 2020. The change was primarily due to a $1.6 million increase in compensation and third party contractor expenses, net of capitalization, and a $1.1 million increase in software and IT system expenditures. Technology and development expenses remained consistent at 2% as a percentage of revenue year over year.
Year ended December 31, 2020 compared to year ended December 31, 2019. Sales and marketing expense increased by $12.4 million, or 35%, to $47.8 million, for the year ended December 31, 2020. The change consisted primarily of an increase of $4.5 million in compensation expense and an increase of $9.1 million in other sales and marketing expenses to generate leads and increase conversion rates, partially offset by a $1.2 million decrease in travel and conference expenses. We increased our pet acquisition spend during 2020 to drive new pet enrollments and future growth. As a result, sales and marketing expenses as a percentage of revenue increased slightly compared to 2019.
Depreciation and amortization expenses have been reclassified as a separate line item in the consolidated statement of operation 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, 2020 compared to year ended December 31, 2019. Depreciation and amortization expense increased by $1.4 million, or 26%, primarily due to the $0.7 million incremental amortization expense as a result of acquired intangible assets from the Aquarium acquisition and an additional $0.7 million as a result of overall business growth.
The following tables contain selected quarterly financial information for the years ended December 31, 2020 and 2019. The unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements and includes all adjustments that we consider necessary for a fair presentation of the information shown. These quarterly operating results for any fiscal quarter are not necessarily indicative of the operating results for any full fiscal year or future period.
Net cash provided by financing activities was $170.8 million and $14.0 million for the years ended December 31, 2020 and 2019, respectively.
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 increase in net cash provided by financing activities of $156.8 million 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.
We enter into long-term contractual obligations and commitments in the normal course of business, primarily non-cancellable vendor service agreements. Refer to Note 9, Commitments and Contingencies, included in Item 8 of Part II of this 10-K, for contractual commitments and obligations as of December 31, 2020.
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.
As of December 31, 2020, our reserve for veterinary invoices was $28.9 million, consisting of $26.5 million for the amount we expect to pay in the future for veterinary invoices dated between January 1, 2020 and December 31, 2020, inclusive of related processing costs, and a reserve of $2.4 million for invoices dated prior to January 1, 2020. We believe the reserve amount as of December 31, 2020 is adequate, and we do not believe that there are any reasonably likely changes in the facts or circumstances underlying key assumptions that would result in the reserve balance being insufficient in an amount that would have a material impact on our reported results, financial position or liquidity. The ultimate liability, however, may be in excess of or less than the amount we have reserved.
As discussed in Item 8, Note 3-Business Combination, we acquired 100% of the equity of Aquarium Software Limited (Aquarium) for a total consideration of approximately $48.3 million in net cash on October 30, 2020. Accounting for 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 have audited the accompanying consolidated balance sheets of Trupanion, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Trupanion, Inc. (collectively with its wholly-owned subsidiaries, the "Company") provides medical insurance for cats and dogs throughout the United States, Canada, Puerto Rico, and Australia. The Company's data-driven, vertically-integrated approach enables the Company to provide pet owners with products that the Company believes are the highest value medical insurance, priced specifically for each pet’s unique characteristics.
Depreciation and amortization expenses have been reclassified as a separate line item in the consolidated statement of operations and prior period amounts have been reclassified from their original presentation to conform to the current period presentation. The Company has elected to present depreciation and amortization expenses as a separate line to better align with management's view of the Company's operating results.
The Company considers any cash account that is contractually restricted to withdrawal or use to be restricted cash. The Company is required to maintain certain restricted cash balance to comply with insurance company regulations. As of December 31, 2020, the Company was in compliance with all requirements.
The Company incurs certain costs, including premium taxes, fees and enrollment-based bonuses, and referral fees that directly relate to the successful acquisition of new or renewal customer contracts. These costs are deferred and are included in prepaid expenses and other assets on the consolidated balance sheet and amortized over the related policy term to the applicable financial statement line item, either sales and marketing expense or other cost of revenue. Deferred acquisition costs as of December 31, 2020 and 2019 were $2.9 million and $1.8 million, respectively. Amortized deferred acquisition costs classified within sales and marketing amounted to $3.2 million, $2.5 million, and $2.1 million and amortized deferred acquisition costs classified within other cost of revenue amounted to $23.2 million, $19.2 million, and $15.9 million, for the years ended December 31, 2020, 2019, and 2018, respectively.
Level 3 - Unobservable inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability
The Company's financial instruments, in addition to those presented in Note 8, Fair Value, include cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. The carrying amounts of accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short-term nature of these instruments.
Goodwill and indefinite-lived intangible assets are not amortized. The Company reviews these assets for impairment at least annually or if indicators of potential impairment exist. Acquired finite-lived intangibles are amortized on a straight-line basis over the estimated useful lives of the assets.
Veterinary invoice expense includes the Company’s costs to review veterinary invoices, administer the payments, and provide member services, and other operating expenses directly or indirectly related to this process. The Company also accrues for veterinary invoices that have been incurred but not yet received or paid. This also includes amounts paid by unaffiliated general agents, and an estimate of amounts incurred and not yet paid for the other business segment.
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 the Company pays to unaffiliated general agents and costs to administer the programs in the other business segment.
Other income, net, was $0.6 million, $1.6 million, and $1.3 million, including interest income of $0.6 million, $1.7 million, and $0.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.
•Expected volatility -The Company estimates the expected volatility based on the historical volatility of a representative group of publicly traded companies with similar characteristics to the Company, and its own historical volatility;
•Expected term for awards granted to employees -The Company has based its expected term for awards issued to employees on the simplified method, as permitted by the SEC Staff Accounting Bulletin Topic 14, Share-Based Payment;
•Risk-free interest rate-The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options; and
•Expected dividend yield-The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero.
For the Company’s Canadian business, all plans are written by Omega and the risk is assumed by the Company through a fronting and reinsurance agreement. Premiums are recognized and earned pro rata over the terms of the related customer contracts. Revenue recognized from the agreement in 2020, 2019, and 2018 was $81.3 million, $67.5 million and $57.4 million, respectively, and deferred revenue relating to this arrangement at December 31, 2020 and 2019 was $3.6 million and $2.7 million, respectively. Reinsurance revenue was 16%, 18%, and 19% of total revenue in 2020, 2019, and 2018, respectively. Cash designated for the purpose of paying claims related to this reinsurance agreement was $6.5 million and $4.6 million at December 31, 2020 and 2019, respectively. In addition, as required by the Office of the Superintendent of Financial institutions regulations related to the Company’s reinsurance agreement with Omega, the Company is required to fund a Canadian Trust account with the greater of CAD $2.0 million or 120% of unearned Canadian premium plus 20% of outstanding Canadian claims, including all incurred but not reported claims. As of December 31, 2020, the account balance was CAD $5.8 million and the Company was in compliance with all requirements.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and investments. The Company manages its risk by investing cash equivalents and investment securities in money market instruments and securities of the U.S. government, U.S. government agencies and high-credit-quality issuers of debt securities.
The Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326), using the modified retrospective approach on January 1, 2020. The ASU replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The new standard did not have a material impact on the Company's consolidated statements of operations, balance sheets, stockholders' equity, or cash flows. The Company did not record any cumulative-effect adjustment to its retained earnings upon the adoption.
Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated using the weighted-average number of shares of common stock plus, when dilutive, potential common shares outstanding using the treasury-stock method. Potential common shares outstanding include stock options, unvested restricted stock awards and restricted stock units, and warrants.
The following potentially dilutive equity securities were not included in the diluted earnings per common share calculation because they would have had an antidilutive effect:
The acquisition is recorded using the purchase method of accounting in accordance with ASC 805, Business Combinations, which requires that the assets acquired and liabilities assumed to be recorded at their respective fair values at the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the purchase method of accounting resulted in the recognition of intangible assets, the estimated fair values of which involved a discounted cash flow model and certain assumptions and estimates, including but not limited to, revenue growth rates and margins, attrition rates, and discount rates. These estimates are inherently uncertain and unanticipated events and circumstances may occur which could affect the accuracy or validity of estimates used in purchase accounting. The purchase price allocation recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
Depreciation expense related to property and equipment was $5.2 million, $4.7 million and $4.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
In August 2018, the Company purchased a real property that houses the company headquarters located at 6100 Fourth Avenue South, Seattle, Washington. The real estate acquisition was determined to be an asset acquisition, with the purchase price allocated based on relative fair value of the assets acquired. Additionally, acquisition-related expenses were capitalized as part of the purchase price. The purchase price was $65.2 million, consisting of $55.0 million in cash, 303,030 shares of common stock with an estimated fair value of $9.6 million, and transaction costs totaling $0.6 million.
Goodwill arises from business acquisitions in which the purchase price exceeds the fair value of tangible and intangible assets acquired less assumed liabilities. As discussed in Note 3-Business Combination, the Company recognized $31.4 million in goodwill on October 30, 2020. The carrying amount of goodwill as of December 31, 2020 was $33.0 million, due to a foreign exchange translation fluctuation of $1.6 million between the acquisition date and December 31, 2020.
The following table presents the detail of intangible assets other than goodwill for the periods presented (in thousands):
The lease-related intangible assets relate to in-place lease agreements associated with the building acquisition in August 2018 and have a remaining weighted-average useful life of 2.4 years. Intangible assets acquired from the Aquarium acquisition included trade name, developed technologies, and customer relationships. These definite-lived intangible assets have a remaining weighted-average useful life of 5.1 years. Patents, trademarks, and other intangible assets have a remaining weighted-average useful life of 6.3 years.
Amortization expense associated with intangible assets was $1.9 million, $0.9 million, and $0.2 million for the years ended December 31, 2020, 2019, and 2018, respectively.
The amortized cost, gross unrealized holding gains and losses, and fair value of long-term and short-term investments by major security type and class of security were as follows as of December 31, 2020 and 2019 (in thousands):
The Company has invested $7.0 million in preferred stock of a privately held corporation with a complementary business line. The Company does not have power over the activities that most significantly impact the economic performance of the variable interest entity and is, therefore, not the primary beneficiary. The Company has the option to purchase all of the outstanding common shares issued by the variable interest entity in 2023 at an amount approximating its expected fair value. The preferred stock investment in the variable interest entity is accounted for as an available-for-sale debt security, and measured at fair value at each balance sheet date.
Additionally, the Company has extended a $2.5 million revolving line of credit to the variable interest entity to fund its inventory purchases. The Company's investment and amounts loaned under the line of credit are recorded in other long-term assets on its consolidated balance sheet. The outstanding loan balance under the line of credit was $2.5 million as of December 31, 2020 and 2019. The Company has also entered into a series of agreements to provide ancillary services to the variable interest entity at cost. The Company provided $1.2 million and $1.4 million of these services for the years ended December 31, 2020 and 2019, respectively, which were recorded against its operating expenses.
In September 2018, the Company acquired a non-controlling equity interest in a joint venture in Australia, whereby it has committed to licensing certain intellectual property and contributing up to $2.2 million AUD upon the achievement of specific operational milestones over a period of at least four years from the agreement execution date. As of December 31, 2020, the Company has contributed $0.5 million AUD. This equity investment is accounted for using the equity method and is classified in other long-term assets on the Company's consolidated balance sheet. The Company's share of income and losses from this equity method investment is included in gain (loss) from investment in joint venture on its consolidated statement of operations. Also included in this line item are income and expenses associated with administrative services provided to the joint venture.
The preferred stock investment in the variable interest entity (see Note 7) is accounted for as an available-for-sale debt security, and measured at fair value at each balance sheet date. The estimated fair value of the preferred stock investment is a Level 3 measurement, and is based on certain unobservable inputs such as the value of the underlying enterprise, volatility, time to liquidity, and market interest rates. An increase or decrease in any of these unobservable inputs would result in a change in the fair value measurement. Estimated fair value was $7.9 million and $7.6 million as of December 31, 2020 and December 31, 2019, respectively, recorded in other long-term assets on the Company's consolidated balance sheet. Unrealized gains of $0.3 million and $0.6 million were recorded in other comprehensive income in the year ended December 31, 2020, and 2019, respectively.
The Company's other long-term assets balance included notes receivable of $6.1 million as of December 31, 2020 and 2019, recorded at their estimated collectible amount. The Company estimates that the carrying value of the notes receivable approximates the fair value. The estimated fair value represents a Level 3 measurement within the fair value hierarchy, and is based on market interest rates and the assessed creditworthiness of the third party. There was no significant activity in Level 3 of the hierarchy during the year ended December 31, 2020.
Certain state insurance regulators in the United States have contacted the Company regarding whether employees who had helped prospective members enroll by telephone in prior years were required to have an insurance license to conduct such telephone conversations. To date, the Company has resolved each of these matters in non-material amounts and believes it is compliant with the applicable regulations. The Company is currently engaged with a limited number of state insurance regulators to resolve this same legacy issue and believes it has adequately reserved for these matters.
The reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that are dated as of, or prior to, its balance sheet date. The reserve also includes the Company's estimate of related internal processing costs. The reserve estimate involves actuarial projections, and is based on management's assessment of facts and circumstances currently known, and assumptions about anticipated patterns. The reserve is made for each of the Company's segments, subscription and other business, and are continually refined as the Company receives and pays veterinary invoices. Changes in management's assumptions and estimates may have a relatively large impact to the reserve and associated expense.
The Company's reserve for the subscription business segment increased $4.4 million from $15.5 million at December 31, 2019 to $19.9 million at December 31, 2020. This change was comprised of $279.0 million in expense recorded during the period less $273.4 million in payments of veterinary invoices. This $279.0 million in veterinary invoice expense incurred included an increase of $0.2 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. The Company's adjustments to prior year reserves were an increase of $0.6 million and $0.4 million as a result of analysis of payment trends in the years ended December 31, 2019 and 2018, respectively.
The Company had a revolving line of credit of up to $50.0 million with a maturity date in June 2022. The debt balance, net of unamortized financing fees, was $26.1 million as of December 31, 2019. In December 2020, the Company elected to terminate the line of credit and repaid all of the outstanding obligations.
Stock-based compensation expense includes stock options, restricted stock awards, and restricted stock units granted to employees and non-employees and has been reported in the Company’s consolidated statements of operations depending on the function performed by the employee or non-employee. Stock-based compensation expense recognized in each category of the consolidated statement of operations for the years ended December 31, 2020, 2019 and 2018 was as follows (in thousands):
As of December 31, 2020, the Company had 41,521 unvested stock options and 782,755 unvested restricted stock awards and restricted stock units. Total stock-based compensation expense of $0.3 million related to unvested stock options and $24.5 million related to unvested restricted stock awards and restricted stock units is expected to be recognized over a weighted-average period of approximately 0.4 years and 2.8 years, respectively.
The grant date fair value of stock option awards are estimated on the date of grant using the Black-Scholes option-pricing model. The Company did not grant any stock options during the years ended December 31, 2020, 2019, and 2018.
The Company leases certain office space and equipment from third parties and recognizes lease expense on a straight-line basis over the lease term. For operating leases with an initial term of over 12 months, the Company recorded $0.9 million and $0.1 million right-of-use assets and lease liabilities on its consolidated balance sheets as of December 31, 2020 and 2019, respectively. Leases with an initial term of 12 months or less are not recorded on its consolidated balance sheets. Rental expense for operating leases was $0.2 million, $0.4 million and $1.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company also leases a portion of its home office building to third parties and records related rental income within general and administrative expense in the consolidated statements of operations. These leases have remaining lease terms of up to 6 years, some of which give tenants options to terminate the leases early, with termination fees required. The Company recorded rental income of $1.9 million and $2.2 million for the years ended December 31, 2020 and December 31, 2019, respectively.
As of December 31, 2020, the Company had 100,000,000 shares of common stock authorized and 39,450,807 shares of common stock outstanding. Holders of common stock are entitled to one vote on each matter properly submitted to the stockholders of the Company except those related to matters concerning possible outstanding preferred stock. At December 31, 2020, the Company had 10,000,000 shares of undesignated shares of preferred stock authorized for future issuance and did not have any outstanding shares of preferred stock. The holders of common stock are also entitled to receive dividends as and when declared by the board of directors of the Company, whenever funds are legally available. These rights are subordinate to the dividend rights of holders of any senior classes of stock outstanding at the time. The Company does not intend to declare or pay any cash dividends in the foreseeable future.
The Company issued 3,636,364 shares of common stock through a private placement in the fourth quarter of 2020 for net proceeds of $192.3 million. The newly issued shares are subject to a minimum holding period of three years.
In November 2019, the Company's board of directors approved a share repurchase program, pursuant to which the Company may repurchase up to $15.0 million of its outstanding shares over the twelve-month period following the approval. The Company repurchased 3,300 shares during year ended December 31, 2020. The share repurchase program expired in November 2020.
Substantially all of the Company’s long-lived assets were located in the United States as of December 31, 2020 and 2019.
New York law restricts the ability of the Company's insurance subsidiary in New York to pay dividends to its holding company parent. These restrictions are based in part on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval, and dividends in larger amounts, or extraordinary dividends, are subject to approval by the New York State Department of Financial Services, the subsidiary's primary regulator. An extraordinary dividend or distribution is defined as a dividend or distribution that, in the aggregate in any 12-month period, exceeds the lesser of (i) 10% of surplus as of the preceding December 31 or (ii) the insurer’s adjusted net investment income for such 12-month period, not including realized capital gains. Under regulatory requirements at December 31, 2020, the amount of dividends that may be paid by the Company’s insurance subsidiary in New York to the Company without prior approval by regulatory authorities was $0.5 million. This insurance subsidiary did not pay dividends to the Company during the years ended December 31, 2020, 2019, and 2018.
As of December 31, 2020, the Company’s insurance subsidiary in New York maintained $93.2 million of statutory capital and surplus which was above the required amount of $79.1 million of statutory capital and surplus to avoid additional regulatory oversight.
At December 31, 2020, the Company had U.S. federal and state net operating loss carryforwards of $37.0 million (tax-effected) and U.S. federal income tax credits of $0.7 million. Use of carryforwards is limited based on the future income of the Company. The federal net operating loss carryforwards will begin to expire in 2027. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the Company’s net operating loss carryforwards and credit carryforwards may be limited if the Company experiences an ownership change. As of December 31, 2020, the utilization of approximately $0.5 million of net operating losses are subject to limitation as a result of prior ownership changes; however, subsequent ownership changes may further affect the limitation in future years. Additionally, the Company has foreign net operating loss carryforwards of $0.1 million which may be carried forward indefinitely.
For the year ended December 31, 2020, the Company considers its foreign earnings to be indefinitely reinvested. These earnings relate to ongoing operations and have been reinvested in active business operations. A deferred tax liability related to taxes due upon repatriation to the U.S. has not been recorded.
In August 2018, the Company invested $0.3 million in a limited liability entity in exchange for a 17.5% ownership interest. The investee is considered to be a related party, as the Company has the ability to exercise significant influence over the investee. In February 2020, the Company entered into a service agreement with the investee, under which the Company incurred $2.7 million of expenses for consulting services provided by the investee during the year ended December 31, 2020.