TRUPANION INC., 10-Q filed on 5/2/2018
Quarterly Report
v3.8.0.1
Document and Entity Information Document - shares
3 Months Ended
Mar. 31, 2018
Apr. 25, 2018
Entity [Abstract]    
Entity Registrant Name TRUPANION INC.  
Entity Central Index Key 0001371285  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   31,186,900
v3.8.0.1
Consolidated Statement of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Revenue $ 69,760 $ 54,729
Cost of Revenue [Abstract]    
Veterinary invoice expense 50,113 39,187
Other cost of revenue 8,583 6,387
Gross profit 11,064 9,155
Operating Expenses [Abstract]    
Technology and Development 2,164 2,403
General and administrative 4,458 4,012
Sales and marketing 5,938 4,089
Total operating expenses 12,560 10,504
Operating loss (1,496) (1,349)
Interest expense 219 137
Other (income) expense, net (140) (28)
Income (Loss) before income taxes (1,575) (1,458)
Income tax (benefit) expense (95) 24
Net loss $ (1,480) $ (1,482)
Net income (loss) per share [Abstract]    
Earnings Per Share, Basic and Diluted $ (0.05) $ (0.05)
Weighted Average Number of Shares Outstanding, Basic and Diluted 30,246,585 29,254,681
v3.8.0.1
Consolidated Statement of Comprehensive Income Statement - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]    
Net income (loss) $ (1,480) $ (1,482)
Foreign currency translation adjustments (190) 12
Net unrealized (loss) on available-for-sale debt securities (15) (7)
Other comprehensive (loss) income, net of taxes (205) 5
Comprehensive Income (Loss) $ (1,685) $ (1,477)
v3.8.0.1
Consolidated Balance Sheet - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Assets [Abstract]    
Cash and cash equivalents $ 30,786 $ 25,706
Short-term Investments 39,360 37,590
Accounts and other receivables 24,317 20,367
Prepaid expenses and other assets 3,046 2,895
Total current assets 97,509 86,558
Restricted Cash 600 600
Long-Term Investments, at fair value 3,238 3,237
Property and equipment, net 8,275 7,868
Intangible assets, net 5,000 4,972
Other Long-Term Assets 2,596 2,624
Total assets 117,218 105,859
Liabilities and Equity [Abstract]    
Accounts payable 3,343 2,716
Accrued liabilities and other current liabilities 8,347 7,660
Reserve for veterinary invoices 13,450 12,756
Deferred Revenue 26,757 22,734
Total current liabilities 51,897 45,866
Long-term debt 14,851 9,324
Deferred tax liabilities 1,002 1,002
Other liabilities 1,221 1,233
Total liabilities 68,971 57,425
Common stock 0 0
Preferred Stock 0 0
Additional paid-in capital 139,009 134,511
Accumulated other comprehensive loss (297) (92)
Accumulated deficit (84,264) (82,784)
Treasury stock, at cost (6,201) (3,201)
Stockholders' Equity Attributable to Parent 48,247 48,434
Total liabilities and stockholders' equity $ 117,218 $ 105,859
v3.8.0.1
Consolidated Balance Sheet Condensed Consolidated Balance Sheet Parentheticals - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Common Stock [Member]    
Common Stock, Par or Stated Value Per Share $ 0.00001 $ 0.00001
Common Stock, Shares Authorized 100,000,000 100,000,000
Common Stock, Shares, Issued 31,181,627 30,778,796
Common Stock, Shares, Outstanding 30,430,915 30,121,496
Preferred Stock [Member]    
Preferred Stock, Par or Stated Value Per Share $ 0.00001 $ 0.00001
Preferred Stock, Shares Authorized 10,000,000 10,000,000
Preferred Stock, Shares Issued 0 0
Preferred Stock, Shares Outstanding 0 0
Treasury Stock [Member]    
Treasury Stock, Shares 755,985 657,300
v3.8.0.1
Consolidated Statement of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Net Cash Provided by Operating Activities [Abstract]    
Net loss $ (1,480) $ (1,482)
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities [Abstract]    
Depreciation and Amortization 927 1,036
Stock-based compensation expense 968 781
Other, Net 23 97
Increase (Decrease) in Operating Assets [Abstract]    
Accounts and other receivables (3,926) (3,372)
Prepaid expenses and other assets (129) (219)
Accounts Payable, Accrued Liabilities, and Other Liabilities 910 (295)
Claims Reserve 743 1,093
Deferred revenue 4,041 4,218
Net cash provided by operating activities 2,077 1,857
Payments to Acquire Investments 7,140 5,172
Net Cash Provided by Investing Activities [Abstract]    
Maturities of Investment Securities 5,300 3,871
Purchases of property and equipment (992) (462)
Other Investments 0 (2,710)
Net cash used in investing activities (2,832) (4,473)
Net Cash Provided by Financing Activities [Abstract]    
Proceeds from exercise of stock options 481 1,037
Proceeds from Debt financing, net of financing fees 5,500 0
Proceeds from (Payments for) Other Financing Activities (216) (142)
Net cash provided by financing activities 5,765 895
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net 70 21
Net Increase in Cash, Cash Equivalents, and Restricted Cash 5,080 (1,700)
Cash, Cash Equivalents, and Restricted Cash at beginning of period 26,306 24,237
Cash, Cash Equivalents, and Restricted Cash, End of Period 31,386 22,537
Supplemental Cash Flow Information [Abstract]    
Purchases of property and equipment included in accounts payable and accrued liabilities 680 93
Property and Equipment Acquired Under Capital Leases 0 45
Redemption of Warrants Non-Cash; Common Stock $ 3,000 $ 0
v3.8.0.1
Nature of Operations and Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Significant Accounting Policies
Description of Business and Basis of Presentation
Trupanion, Inc. (collectively with its wholly-owned subsidiaries, the Company) provides medical insurance for cats and dogs throughout the United States, Canada and Puerto Rico.
The financial data as of December 31, 2017 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive loss, and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S Securities and Exchange Commission (SEC) on February 13, 2018 (the 2017 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2017 10-K. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 1 to the audited financial statements included in the 2017 10-K for additional discussion of these estimates and assumptions.
Accumulated Other Comprehensive Loss
There were no reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2018 and 2017.
Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act), making broad and complex changes to the Internal Revenue Code. The Company has made significant judgments and estimates in accordance with its interpretation of the Tax Act. As additional guidance on the Tax Act becomes available, the Company may adjust its interpretation of the requirements, which may result in a material change to income tax benefit or expense in the period in which the adjustment is made.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) amending the lease presentation guidance. The ASU requires organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheets. This ASU is effective for fiscal years beginning after December 15, 2018 including interim periods within that reporting period, with early adoption permitted. The Company has determined this guidance will require recognition of a lease liability and corresponding asset on the consolidated balance sheets equal to the present value of minimum lease payments. The carrying amount of the asset is derived from the amount of the lease liability at the end of each reporting period. The Company plans to adopt this guidance as of January 1, 2019, and is in the process of evaluating the impact on its consolidated financial statements.
v3.8.0.1
Net Loss per Share
3 Months Ended
Mar. 31, 2018
Earnings Per Share, Basic and Diluted [Abstract]  
Earnings Per Share [Text Block] Net Loss per Share
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:
 
Three Months Ended March 31,
 
2018
 
2017
Stock options
3,878,716

 
3,983,098

Restricted stock awards and restricted stock units
546,638

 
351,702

Warrants
510,000

 
810,000

v3.8.0.1
Investment Securities (Notes)
3 Months Ended
Mar. 31, 2018
Investments [Abstract]  
Investment [Text Block] Investment Securities
The amortized cost, gross unrealized holding gains and losses, fair value of long-term investments, which are classified as available-for-sale, and fair value of short-term investments by major security type and class of security were as follows as of March 31, 2018 and December 31, 2017 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of March 31, 2018
 
 
 
 
 
 
 
       Available-for-sale:
 
 
 
 
 
 
 
Foreign deposits
$
2,253

 
$

 
$

 
$
2,253

Municipal bond
1,000

 

 
(15
)
 
985

 
$
3,253

 
$

 
$
(15
)
 
$
3,238

       Short-term investments:
 
 
 
 
 
 
 
              U.S. Treasury securities
$
5,784

 
$

 
$
(2
)
 
$
5,782

              Certificates of deposit
690

 

 

 
690

              U.S. government funds
32,886

 

 

 
32,886

 
$
39,360


$

 
$
(2
)

$
39,358

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2017
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Foreign deposits
$
2,237

 
$

 
$

 
$
2,237

Municipal bond
1,000

 

 

 
1,000

 
$
3,237


$

 
$


$
3,237

Short-term investments:
 
 
 
 
 
 
 
U.S. Treasury securities
$
5,783

 
$

 
$
(4
)
 
$
5,779

Certificates of deposit
690

 
1

 

 
691

U.S. government funds
31,117

 

 

 
31,117

 
$
37,590


$
1

 
$
(4
)

$
37,587


Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 
March 31, 2018
 
Amortized
Cost
 
Fair
Value
Available-for-sale:
 
 
 
Due after one year through five years
$
2,253

 
$
2,253

Due after five years through ten years
1,000

 
985

 
$
3,253

 
$
3,238


The Company evaluated its securities for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. For debt securities, the Company does not intend to sell, nor is it more likely than not that the Company will be required to sell, the securities prior to maturity or prior to the recovery of the amortized cost basis.
Investments [Text Block] The amortized cost, gross unrealized holding gains and losses, fair value of long-term investments, which are classified as available-for-sale, and fair value of short-term investments by major security type and class of security were as follows as of March 31, 2018 and December 31, 2017 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of March 31, 2018
 
 
 
 
 
 
 
       Available-for-sale:
 
 
 
 
 
 
 
Foreign deposits
$
2,253

 
$

 
$

 
$
2,253

Municipal bond
1,000

 

 
(15
)
 
985

 
$
3,253

 
$

 
$
(15
)
 
$
3,238

       Short-term investments:
 
 
 
 
 
 
 
              U.S. Treasury securities
$
5,784

 
$

 
$
(2
)
 
$
5,782

              Certificates of deposit
690

 

 

 
690

              U.S. government funds
32,886

 

 

 
32,886

 
$
39,360


$

 
$
(2
)

$
39,358

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2017
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Foreign deposits
$
2,237

 
$

 
$

 
$
2,237

Municipal bond
1,000

 

 

 
1,000

 
$
3,237


$

 
$


$
3,237

Short-term investments:
 
 
 
 
 
 
 
U.S. Treasury securities
$
5,783

 
$

 
$
(4
)
 
$
5,779

Certificates of deposit
690

 
1

 

 
691

U.S. government funds
31,117

 

 

 
31,117

 
$
37,590


$
1

 
$
(4
)

$
37,587

v3.8.0.1
Fair Value
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block] Fair Value
Investments
The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands):
 
As of March 31, 2018
 
Fair Value
 
Level 1
 
Level 2
Assets
 
 
 
 
 
Restricted cash
$
600

 
$
600

 
$

Foreign deposits
2,253

 
2,253

 

Municipal bond
985

 

 
985

Money market funds
7,717

 
7,717

 

Total
$
11,555

 
$
10,570

 
$
985

 
 
 
 
 
 
 
As of December 31, 2017
 
Fair Value
 
Level 1
 
Level 2
Assets
 
 
 
 
 
Restricted cash
$
600

 
$
600

 
$

Foreign deposits
2,237

 
2,237

 

Municipal bond
1,000

 

 
1,000

Money market funds
5,167

 
5,167

 

Total
$
9,004

 
$
8,004

 
$
1,000


The Company measures the fair value of restricted cash, foreign deposits, and money market funds based on quoted prices in active markets for identical assets. The fair value of the municipal bond is based on either recent trades in inactive markets or quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
Fair Value Disclosures
As of March 31, 2018 and December 31, 2017, the Company's other long-term assets balance included a $2.5 million note receivable, recorded at its estimated collectible amount. The Company estimates that the carrying value of the note 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.
The Company estimates the fair value of its long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement. Based upon the terms of the debt, the carrying amount of long-term debt approximated fair value at March 31, 2018 and December 31, 2017.
v3.8.0.1
Debt
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block] Debt
The Company has a revolving line of credit of up to $30.0 million, maturing December 2019. The facility is secured by any and all interests in the Company's assets that are not otherwise restricted. Interest on the revolving line of credit is payable monthly at the greater of 4.5%, or 1.25% plus the prime rate (6.00% at March 31, 2018). The credit agreement includes other ancillary services and letters of credit of up to $4.5 million, and requires a deposit of restricted cash of $0.6 million. As of March 31, 2018, the Company was in compliance with all financial and non-financial covenants required by the credit agreement.
Borrowings on the revolving line of credit are limited to the lesser of $30.0 million and the total amount of cash and securities held by the Company's insurance subsidiaries (American Pet Insurance Company and Wyndham Insurance Company (SAC) Limited Segregated Account AX). As of March 31, 2018, available borrowing capacity on the line of credit was $13.0 million, with an outstanding balance of $2.0 million for ancillary services and letters of credit, and borrowings under the facility were $15.0 million, recorded net of financing fees of $0.1 million.
v3.8.0.1
Commitment and Contingencies
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block] Commitments and ContingenciesFrom time to time, the Company is subject to litigation matters and claims arising from the ordinary course of business. The Company records a provision for a liability relating to legal matters when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated. At this time, the Company does not believe any such matters to be material individually or in the aggregate. These views are subject to change following the outcome of future events or the results of future developments.
v3.8.0.1
Claims Reserve
3 Months Ended
Mar. 31, 2018
Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]  
Supplementary Insurance Information, for Insurance Companies Disclosure [Text Block] Reserve for Veterinary Invoices
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, including expected future trends in the number of veterinary invoices the Company will receive and the average cost of those veterinary invoices. 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.
Reserve for veterinary invoices
Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):
 
 
Three Months Ended March 31,
Subscription
 
2018
 
2017
Reserve at beginning of year
 
$
11,059

 
$
8,538

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
45,198

 
36,518

Prior years
 
(61
)
 
(195
)
Total veterinary invoice expense
 
45,137

 
36,323

Amounts paid during the period related to:
 
 
 
 
Current year
 
36,142

 
28,868

Prior years
 
8,250

 
6,400

Total paid
 
44,392

 
35,268

Non-cash expenses
 
156

 
93

Reserve at end of period
 
$
11,648

 
$
9,500

The Company's reserve for the subscription business segment increased from $11.1 million at December 31, 2017 to $11.6 million at March 31, 2018. This change was comprised of $45.1 million in expense recorded during the period less $44.4 million in payments of veterinary invoices. The $45.1 million in veterinary invoice expense incurred includes a reduction of $0.1 million to the reserves relating to prior years, which is the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2017, the Company decreased prior year reserves by $0.2 million as a result of analysis of payment trends.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Three Months Ended March 31,
Other Business
 
2018
 
2017
Reserve at beginning of year
 
$
1,697

 
$
983

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
5,218

 
3,048

Prior years
 
(242
)
 
(184
)
Total veterinary invoice expense
 
4,976

 
2,864

Amounts paid during the period related to:
 
 
 
 
Current year
 
3,734

 
2,092

Prior years
 
1,137

 
634

Total paid
 
4,871

 
2,726

Non-cash expenses
 

 

Reserve at end of period
 
$
1,802

 
$
1,121


The Company’s reserve for the other business segment increased from $1.7 million at December 31, 2017 to $1.8 million at March 31, 2018. This change was comprised of $5.0 million in expense recorded during the period less $4.9 million in payments of veterinary invoices. The $5.0 million in veterinary invoice expense incurred includes a reduction of $0.2 million to the reserves relating to prior years, which is the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2017, the Company decreased prior year reserves by $0.2 million as a result of analysis of payment trends.
Reserve for veterinary invoices, by year of occurrence
In the following tables, the reserve for veterinary invoices for each segment is presented as the amount (in thousands) by year the veterinary invoice relates to, referred to as the year of occurrence.
Subscription
As of March 31, 2018
Year of Occurrence
 
2016
$
453

2017
2,295

2018
8,900

 
$
11,648

Other Business
As of March 31, 2018
Year of Occurrence
 
2017
317

2018
1,485

 
$
1,802

v3.8.0.1
Stock-based Compensation
3 Months Ended
Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] Stock-Based Compensation and Stockholders' Equity
Stock-based Compensation
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 the consolidated statements of operations was as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Veterinary invoice expense
$
120

 
$
70

Other cost of revenue
77

 
43

Technology and development
49

 
50

General and administrative
449

 
431

Sales and marketing
273

 
187

Total stock-based compensation
$
968

 
$
781


As of March 31, 2018, for all employees, the Company had 896,125 unvested stock options and 546,683 unvested restricted stock awards and restricted stock units that are expected to vest. Stock-based compensation expense of $5.0 million related to unvested stock options and $8.8 million related to unvested restricted stock awards and restricted stock units, each expected to be recognized over a weighted-average period of approximately 2.5 years.
Stock Options
A summary of the Company's stock option activity is as follows:
 
Number Of Options
 
Weighted-Average Exercise Price per Share
 
Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2017
4,006,399

 
$
7.16

 
$
88,578

Granted

 

 
 
Exercised
(101,514
)
 
4.74

 
2,605

Forfeited
(26,169
)
 
15.75

 
 
Outstanding as of March 31, 2018
3,878,716

 
7.17

 
88,138

 
 
 
 
 
 
Exercisable as of March 31, 2018
2,977,257

 
$
4.67

 
$
75,089

As of March 31, 2018, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 5.1 years and 4.1 years, respectively.
Restricted Stock Awards and Restricted Stock Units
A summary of the Company’s restricted stock award and restricted stock unit activity is as follows:
 
Number of 
Shares
 
Weighted Average
Grant Date Fair Value per Share
Unvested shares as of December 31, 2017
256,842

 
4.77

Granted
296,749

 
27.99

Vested
(6,590
)
 
27.04

Forfeited
(318
)
 
28.01

Unvested shares as of March 31, 2018
546,683

 
18.16



Stockholders’ Equity
In February 2018, 300,000 of the Company's outstanding warrants were exercised. As of March 31, 2018, warrants to purchase 510,000 shares of the Company's common stock at $10.00 per share remained outstanding. The warrants automatically convert to common stock in 2019.
v3.8.0.1
Segments
3 Months Ended
Mar. 31, 2018
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block] Segments
The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscription fees related to the Company’s medical insurance which is marketed directly to consumers, while the other business segment includes all other business that is not directly marketed to consumers.
The chief operating decision maker uses two measures to evaluate segment performance: revenue and gross profit. Additionally, other operating expenses, such as sales and marketing expenses, are allocated to each segment and evaluated when material. Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss. The Company does not analyze discrete segment balance sheet information related to long-term assets.
Revenue and gross profit of the Company’s segments were as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Revenue:
 
 
 
Subscription business
$
61,517

 
$
50,229

Other business
8,243

 
4,500

 
69,760

 
54,729

Veterinary invoice expense:
 
 
 
Subscription business
45,137

 
36,323

Other business
4,976

 
2,864

 
50,113

 
39,187

Other cost of revenue:
 
 
 
Subscription business
5,877

 
4,923

Other business
2,706

 
1,464

 
8,583

 
6,387

Gross profit:
 
 
 
Subscription business
10,503

 
8,983

Other business
561


172

 
11,064


9,155

 
 
 
 
Technology and development
2,164

 
2,403

General and administrative
4,458

 
4,012

Sales and marketing:
 
 
 
Subscription business
5,851

 
4,041

Other business
87

 
48

 
5,938

 
4,089

Operating loss
$
(1,496
)

$
(1,349
)

The following table presents the Company’s revenue by geographic region of the member (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
United States
$
56,009

 
$
44,134

Canada
13,751

 
10,595

Total revenue
$
69,760

 
$
54,729


Substantially all of the Company’s long-lived assets were located in the United States as of March 31, 2018 and December 31, 2017.
v3.8.0.1
Nature of Operations and Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business Description and Basis of Presentation [Text Block] Description of Business and Basis of Presentation
Trupanion, Inc. (collectively with its wholly-owned subsidiaries, the Company) provides medical insurance for cats and dogs throughout the United States, Canada and Puerto Rico.
The financial data as of December 31, 2017 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive loss, and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S Securities and Exchange Commission (SEC) on February 13, 2018 (the 2017 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2017 10-K. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.
Basis of Accounting, Policy [Policy Text Block] The financial data as of December 31, 2017 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive loss, and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S Securities and Exchange Commission (SEC) on February 13, 2018 (the 2017 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2017 10-K. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.
Use of Estimates [Policy Text Block] Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 1 to the audited financial statements included in the 2017 10-K for additional discussion of these estimates and assumptions.
Comprehensive Income, Policy [Policy Text Block] Accumulated Other Comprehensive LossThere were no reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2018 and 2017.
Income Tax, Policy [Policy Text Block] Income TaxesOn December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act), making broad and complex changes to the Internal Revenue Code. The Company has made significant judgments and estimates in accordance with its interpretation of the Tax Act. As additional guidance on the Tax Act becomes available, the Company may adjust its interpretation of the requirements, which may result in a material change to income tax benefit or expense in the period in which the adjustment is made.
New Accounting Pronouncements, Policy [Policy Text Block] Recent Accounting PronouncementsIn February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) amending the lease presentation guidance. The ASU requires organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheets. This ASU is effective for fiscal years beginning after December 15, 2018 including interim periods within that reporting period, with early adoption permitted. The Company has determined this guidance will require recognition of a lease liability and corresponding asset on the consolidated balance sheets equal to the present value of minimum lease payments. The carrying amount of the asset is derived from the amount of the lease liability at the end of each reporting period. The Company plans to adopt this guidance as of January 1, 2019, and is in the process of evaluating the impact on its consolidated financial statements.
v3.8.0.1
Fair Value Notes Receivable (Policies)
3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] As of March 31, 2018 and December 31, 2017, the Company's other long-term assets balance included a $2.5 million note receivable, recorded at its estimated collectible amount. The Company estimates that the carrying value of the note 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. The Company estimates the fair value of its long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement. Based upon the terms of the debt, the carrying amount of long-term debt approximated fair value at March 31, 2018 and December 31, 2017.
v3.8.0.1
Fair Value Fair Value (Policies)
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments, Policy [Policy Text Block] The Company estimates that the carrying value of the note 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. The Company estimates the fair value of its long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement.The Company measures the fair value of restricted cash, foreign deposits, and money market funds based on quoted prices in active markets for identical assets. The fair value of the municipal bond is based on either recent trades in inactive markets or quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
v3.8.0.1
Claims Reserve Claims Reserve (Policies)
3 Months Ended
Mar. 31, 2018
Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]  
Liability Reserve Estimate, Policy [Policy Text Block] Reserve for Veterinary InvoicesThe 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, including expected future trends in the number of veterinary invoices the Company will receive and the average cost of those veterinary invoices. 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.
v3.8.0.1
Segments Segments (Policies)
3 Months Ended
Mar. 31, 2018
Segment Reporting [Abstract]  
Segment Reporting, Policy [Policy Text Block] The chief operating decision maker uses two measures to evaluate segment performance: revenue and gross profit. Additionally, other operating expenses, such as sales and marketing expenses, are allocated to each segment and evaluated when material. Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss. The Company does not analyze discrete segment balance sheet information related to long-term assets.
v3.8.0.1
Net Loss per Share (Tables)
3 Months Ended
Mar. 31, 2018
Earnings Per Share, Basic and Diluted [Abstract]  
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block] 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:
 
Three Months Ended March 31,
 
2018
 
2017
Stock options
3,878,716

 
3,983,098

Restricted stock awards and restricted stock units
546,638

 
351,702

Warrants
510,000

 
810,000

v3.8.0.1
Investment Securities Available-for-Sale (Tables)
3 Months Ended
Mar. 31, 2018
Investments [Abstract]  
Investment [Table Text Block] The amortized cost, gross unrealized holding gains and losses, fair value of long-term investments, which are classified as available-for-sale, and fair value of short-term investments by major security type and class of security were as follows as of March 31, 2018 and December 31, 2017 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of March 31, 2018
 
 
 
 
 
 
 
       Available-for-sale:
 
 
 
 
 
 
 
Foreign deposits
$
2,253

 
$

 
$

 
$
2,253

Municipal bond
1,000

 

 
(15
)
 
985

 
$
3,253

 
$

 
$
(15
)
 
$
3,238

       Short-term investments:
 
 
 
 
 
 
 
              U.S. Treasury securities
$
5,784

 
$

 
$
(2
)
 
$
5,782

              Certificates of deposit
690

 

 

 
690

              U.S. government funds
32,886

 

 

 
32,886

 
$
39,360


$

 
$
(2
)

$
39,358

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2017
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Foreign deposits
$
2,237

 
$

 
$

 
$
2,237

Municipal bond
1,000

 

 

 
1,000

 
$
3,237


$

 
$


$
3,237

Short-term investments:
 
 
 
 
 
 
 
U.S. Treasury securities
$
5,783

 
$

 
$
(4
)
 
$
5,779

Certificates of deposit
690

 
1

 

 
691

U.S. government funds
31,117

 

 

 
31,117

 
$
37,590


$
1

 
$
(4
)

$
37,587

Available-for-sale Securities [Table Text Block] Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 
March 31, 2018
 
Amortized
Cost
 
Fair
Value
Available-for-sale:
 
 
 
Due after one year through five years
$
2,253

 
$
2,253

Due after five years through ten years
1,000

 
985

 
$
3,253

 
$
3,238

v3.8.0.1
Fair Value (Tables)
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair value, asset & liabilities measured on recurring basis [Table Text Block] The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands):
 
As of March 31, 2018
 
Fair Value
 
Level 1
 
Level 2
Assets
 
 
 
 
 
Restricted cash
$
600

 
$
600

 
$

Foreign deposits
2,253

 
2,253

 

Municipal bond
985

 

 
985

Money market funds
7,717

 
7,717

 

Total
$
11,555

 
$
10,570

 
$
985

 
 
 
 
 
 
 
As of December 31, 2017
 
Fair Value
 
Level 1
 
Level 2
Assets
 
 
 
 
 
Restricted cash
$
600

 
$
600

 
$

Foreign deposits
2,237

 
2,237

 

Municipal bond
1,000

 

 
1,000

Money market funds
5,167

 
5,167

 

Total
$
9,004

 
$
8,004

 
$
1,000

v3.8.0.1
Claims Reserve (Tables)
3 Months Ended
Mar. 31, 2018
Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]  
Schedule of Liability for Unpaid Claims and Claims Adjustment Expense [Table Text Block] Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):
 
 
Three Months Ended March 31,
Subscription
 
2018
 
2017
Reserve at beginning of year
 
$
11,059

 
$
8,538

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
45,198

 
36,518

Prior years
 
(61
)
 
(195
)
Total veterinary invoice expense
 
45,137

 
36,323

Amounts paid during the period related to:
 
 
 
 
Current year
 
36,142

 
28,868

Prior years
 
8,250

 
6,400

Total paid
 
44,392

 
35,268

Non-cash expenses
 
156

 
93

Reserve at end of period
 
$
11,648

 
$
9,500

The Company's reserve for the subscription business segment increased from $11.1 million at December 31, 2017 to $11.6 million at March 31, 2018. This change was comprised of $45.1 million in expense recorded during the period less $44.4 million in payments of veterinary invoices. The $45.1 million in veterinary invoice expense incurred includes a reduction of $0.1 million to the reserves relating to prior years, which is the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2017, the Company decreased prior year reserves by $0.2 million as a result of analysis of payment trends.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Three Months Ended March 31,
Other Business
 
2018
 
2017
Reserve at beginning of year
 
$
1,697

 
$
983

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
5,218

 
3,048

Prior years
 
(242
)
 
(184
)
Total veterinary invoice expense
 
4,976

 
2,864

Amounts paid during the period related to:
 
 
 
 
Current year
 
3,734

 
2,092

Prior years
 
1,137

 
634

Total paid
 
4,871

 
2,726

Non-cash expenses
 

 

Reserve at end of period
 
$
1,802

 
$
1,121


The Company’s reserve for the other business segment increased from $1.7 million at December 31, 2017 to $1.8 million at March 31, 2018. This change was comprised of $5.0 million in expense recorded during the period less $4.9 million in payments of veterinary invoices. The $5.0 million in veterinary invoice expense incurred includes a reduction of $0.2 million to the reserves relating to prior years, which is the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2017, the Company decreased prior year reserves by $0.2 million as a result of analysis of payment trends
IBRN plus expected development on reported claims[Table Text Block] In the following tables, the reserve for veterinary invoices for each segment is presented as the amount (in thousands) by year the veterinary invoice relates to, referred to as the year of occurrence.
Subscription
As of March 31, 2018
Year of Occurrence
 
2016
$
453

2017
2,295

2018
8,900

 
$
11,648

Other Business
As of March 31, 2018
Year of Occurrence
 
2017
317

2018
1,485

 
$
1,802

v3.8.0.1
Stock-based Compensation (Tables)
3 Months Ended
Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block] 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 the consolidated statements of operations was as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Veterinary invoice expense
$
120

 
$
70

Other cost of revenue
77

 
43

Technology and development
49

 
50

General and administrative
449

 
431

Sales and marketing
273

 
187

Total stock-based compensation
$
968

 
$
781


As of March 31, 2018, for all employees, the Company had 896,125 unvested stock options and 546,683 unvested restricted stock awards and restricted stock units that are expected to vest. Stock-based compensation expense of $5.0 million related to unvested stock options and $8.8 million related to unvested restricted stock awards and restricted stock units, each expected to be recognized over a weighted-average period of approximately 2.5 years
Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block] A summary of the Company's stock option activity is as follows:
 
Number Of Options
 
Weighted-Average Exercise Price per Share
 
Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2017
4,006,399

 
$
7.16

 
$
88,578

Granted

 

 
 
Exercised
(101,514
)
 
4.74

 
2,605

Forfeited
(26,169
)
 
15.75

 
 
Outstanding as of March 31, 2018
3,878,716

 
7.17

 
88,138

 
 
 
 
 
 
Exercisable as of March 31, 2018
2,977,257

 
$
4.67

 
$
75,089

As of March 31, 2018, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 5.1 years and 4.1 years, respectively.
Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block] A summary of the Company’s restricted stock award and restricted stock unit activity is as follows:
 
Number of 
Shares
 
Weighted Average
Grant Date Fair Value per Share
Unvested shares as of December 31, 2017
256,842

 
4.77

Granted
296,749

 
27.99

Vested
(6,590
)
 
27.04

Forfeited
(318
)
 
28.01

Unvested shares as of March 31, 2018
546,683

 
18.16

v3.8.0.1
Stock-based Compensation Stockholder's Equity (Tables)
3 Months Ended
Mar. 31, 2018
Class of Warrant or Right [Line Items]  
Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] In February 2018, 300,000 of the Company's outstanding warrants were exercised. As of March 31, 2018, warrants to purchase 510,000 shares of the Company's common stock at $10.00 per share remained outstanding. The warrants automatically convert to common stock in 2019.
v3.8.0.1
Segments (Tables)
3 Months Ended
Mar. 31, 2018
Segment Reporting [Abstract]  
Revenue and Gross Profit from Segments [Table Text Block] Revenue and gross profit of the Company’s segments were as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Revenue:
 
 
 
Subscription business
$
61,517

 
$
50,229

Other business
8,243

 
4,500

 
69,760

 
54,729

Veterinary invoice expense:
 
 
 
Subscription business
45,137

 
36,323

Other business
4,976

 
2,864

 
50,113

 
39,187

Other cost of revenue:
 
 
 
Subscription business
5,877

 
4,923

Other business
2,706

 
1,464

 
8,583

 
6,387

Gross profit:
 
 
 
Subscription business
10,503

 
8,983

Other business
561


172

 
11,064


9,155

 
 
 
 
Technology and development
2,164

 
2,403

General and administrative
4,458

 
4,012

Sales and marketing:
 
 
 
Subscription business
5,851

 
4,041

Other business
87

 
48

 
5,938

 
4,089

Operating loss
$
(1,496
)

$
(1,349
)
Revenue from External Customers by Geographic Areas [Table Text Block] The following table presents the Company’s revenue by geographic region of the member (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
United States
$
56,009

 
$
44,134

Canada
13,751

 
10,595

Total revenue
$
69,760

 
$
54,729

v3.8.0.1
Nature of Operations and Summary of Significant Accounting Policies (Details) Narrative - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Reclassification from Accumulated Other Comprehensive Income, Current Period, Net of Tax $ 0.0 $ 0.0
v3.8.0.1
Net Loss per Share (Details) Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share - shares
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Employee Stock Option [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 3,878,716 3,983,098
Restricted Stock Units (RSUs) [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 546,638 351,702
Warrant [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 510,000 810,000
v3.8.0.1
Investment Securities (Details) Investment Schedule - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Investment [Line Items]    
Available-for-sale Securities, Gross Unrealized Gain $ 0 $ 0
Available-for-sale Securities, Gross Unrealized Loss (15) 0
Available-for-sale Securities, Debt Maturities, without Single Maturity Date, Amortized Cost Basis 3,253 3,237
Available-for-sale Securities, Debt Maturities, without Single Maturity Date, Fair Value 3,238 3,237
Short-term investments, amortized cost 39,360 37,590
Short-term Investments, Gross Unrealized Holding Gains 0 1
Short-term investments, gross unrealized holding losses (2) (4)
Short-term Investments, fair value 39,358 37,587
Deposits [Member]    
Investment [Line Items]    
Available-for-sale securities, amortized cost 2,253 2,237
Available-for-sale Securities, Gross Unrealized Gain 0 0
Available-for-sale Securities, Gross Unrealized Loss 0 0
Available-for-sale Securities, Debt Maturities, without Single Maturity Date, Fair Value 2,253 2,237
Municipal Bonds [Member]    
Investment [Line Items]    
Available-for-sale securities, amortized cost 1,000 1,000
Available-for-sale Securities, Gross Unrealized Gain 0 0
Available-for-sale Securities, Gross Unrealized Loss (15) 0
Available-for-sale Securities, Debt Maturities, Single Maturity Date 985 1,000
U.S. Treasury securities    
Investment [Line Items]    
Short-term investments, amortized cost 5,784 5,783
Short-term Investments, Gross Unrealized Holding Gains 0 0
Short-term investments, gross unrealized holding losses (2) (4)
Short-term Investments, fair value 5,782 5,779
Certificates of deposit    
Investment [Line Items]    
Short-term investments, amortized cost 690 690
Short-term Investments, Gross Unrealized Holding Gains 0 1
Short-term investments, gross unrealized holding losses 0 0
Short-term Investments, fair value 690 691
US government debt securities    
Investment [Line Items]    
Short-term investments, amortized cost 32,886 31,117
Short-term Investments, Gross Unrealized Holding Gains 0 0
Short-term investments, gross unrealized holding losses 0 0
Short-term Investments, fair value $ 32,886 $ 31,117
v3.8.0.1
Investment Securities (Details) Available-for-Sale - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Available-for-sale Securities [Abstract]    
Available-for-sale securities, debt maturities, year two through five, amortized cost basis $ 2,253  
Available-for-sale securities, debt maturities, year two through five, fair value 2,253  
Available-for-sale securities, debt maturities, year six through ten, amortized cost basis 1,000  
Available-for-sale securities, debt maturities, year six through ten, fair value 985  
Available-for-sale securities, amortized cost 3,253 $ 3,237
Available-for-sale Securities, Debt Maturities, without Single Maturity Date, Fair Value $ 3,238 $ 3,237