TRUPANION INC., 10-K filed on 2/15/2017
Annual Report
Document and Entity Information Document (USD $)
12 Months Ended
Dec. 31, 2016
Feb. 8, 2017
Jun. 30, 2016
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-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
29,509,841 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 280,565,040 
Consolidated Statement of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Income Statement [Abstract]
 
 
 
Revenue
$ 188,230 
$ 146,963 
$ 115,910 
Claims expenses
133,534 
103,324 
79,913 
Other cost of revenue
21,408 
18,410 
16,123 
Gross profit
33,288 
25,229 
19,874 
Sales and marketing
15,247 
15,231 
11,608 
Technology Services Costs
9,534 
11,215 
9,899 
General and administrative
15,205 
15,558 
14,312 
Total operating expenses
39,986 
42,004 
35,819 
Operating loss
(6,698)
(16,775)
(15,945)
Interest expense
218 
325 
6,726 
Other income, net
(58)
(9)
(1,487)
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest
(6,858)
(17,091)
(21,184)
Income tax expense (benefit)
38 
114 
(7)
Net loss
$ (6,896)
$ (17,205)
$ (21,177)
Net loss per share: Basic and diluted (per share)
$ (0.24)
$ (0.62)
$ (1.64)
Weighted Average Number of Shares Outstanding, Basic and Diluted
28,527,602 
27,638,443 
12,934,477 
Consolidated Statement of Comprehensive Income Statement (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
Net loss
$ (6,896)
$ (17,205)
$ (21,177)
Foreign currency translation adjustments
79 
(517)
65 
Change in unrealized losses on available-for-sale securities
46 
110 
Other comprehensive income (loss), net of taxes
125 
(513)
175 
Comprehensive loss
$ (6,771)
$ (17,718)
$ (21,002)
Consolidated Balance Sheet (USD $)
Dec. 31, 2016
Dec. 31, 2015
Assets [Abstract]
 
 
Cash and cash equivalents
$ 23,637,000 
$ 17,956,000 
Short-term Investments
29,570,000 
25,288,000 
Accounts and other receivables
10,118,000 
8,196,000 
Prepaid expenses and other assets
2,062,000 
2,193,000 
Total current assets
65,387,000 
53,633,000 
Restricted Cash
600,000 
 
Restricted Cash and Cash Equivalents
600,000 
Investments in fixed maturities, at fair value
2,579,000 
2,388,000 
Equity Method Investments
271,000 
300,000 
Property and equipment, net
8,464,000 
9,719,000 
Intangible assets, net
4,910,000 
4,854,000 
Other Assets, Noncurrent
134,000 
23,000 
Total assets
82,345,000 
70,917,000 
Liabilities and Equity [Abstract]
 
 
Accounts payable
2,006,000 
1,289,000 
Accrued liabilities
4,322,000 
4,189,000 
Claims reserve
9,521,000 
6,274,000 
Deferred Revenue, Current
13,463,000 
11,042,000 
Other payables
1,094,000 
654,000 
Deferred tax liabilities
251,000 
169,000 
Total current liabilities
30,657,000 
23,617,000 
Long-term debt
4,767,000 
Deferred tax liabilities
1,372,000 
1,433,000 
Other liabilities
834,000 
511,000 
Total liabilities
37,630,000 
25,561,000 
Common stock: $0.00001 par value per share
Preferred Stock, Value, Outstanding
Additional paid-in capital
129,574,000 
122,844,000 
Accumulated other comprehensive loss
(377,000)
(502,000)
Accumulated deficit
(81,281,000)
(74,385,000)
Treasury stock, at cost
3,201,000 
2,601,000 
Total stockholders' deficit
44,715,000 
45,356,000 
Liabilities and Equity
$ 82,345,000 
$ 70,917,000 
Consolidated Balance Sheet Condensed Consolidated Balance Sheet Parentheticals (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Investment in fixed maturities, at amortized cost (fair value)
$ 29,570 
$ 25,288 
Investments in fixed maturities, at fair value (amortized cost)
$ 2,587 
$ 2,442 
Common Stock, Shares Authorized
100,000,000 
 
Common Stock, Shares, Outstanding
29,498,947 
 
Preferred Stock, Shares Authorized
10,000,000 
 
Common Stock
 
 
Common Stock, Par or Stated Value Per Share
$ 0.00001 
$ 0.00001 
Common Stock, Shares Authorized
100,000,000 
200,000,000 
Common Stock, Shares, Issued
30,156,247 
29,017,168 
Common Stock, Shares, Outstanding
29,498,947 
28,396,189 
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
Preferred Stock, Shares Outstanding
Treasury Stock [Member]
 
 
Treasury Stock, Shares
657,300 
620,979 
Consolidated Statement of Stockholders' Equity Statement (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Redeemable Convertible Preferred Stock
Common Stock
Special Voting Shares
Additional Paid-in Capital
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss)
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2013
$ (32,999)
$ 31,724 
$ 0 
$ 0 
$ 5,769 
$ (36,003)
$ (164)
$ (2,601)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Issuance of stock, shares
 
 
8,193,750 
 
 
 
 
 
Stock Issued During Period, Value, New Issues
72,722 
 
 
 
72,722 
 
 
 
Conversion of Stock, Special Voting Shares to Common Stock
 
 
2,247,130 
(2,247,130)
 
 
 
 
Conversion of Stock, Shares Converted
 
(14,944,945)
14,944,945 
 
 
 
 
 
Conversion of Stock, Amount Converted
32,724 
(32,724)
 
 
32,724 
 
 
 
Redemption of warrants
 
86,956 
25,170 
 
 
 
 
 
Settlement of warrant liabilities
270 
1,000 
 
 
270 
 
 
 
Warrant reclassification from liability to equity
3,180 
 
 
 
3,180 
 
 
 
Stock Issued During Period, Shares, Share-based Compensation, Net of Forfeitures
 
 
183,305 
 
 
 
 
 
Stock Issued During Period, Value, Stock Options Exercised
181 
 
 
 
181 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
4,199 
 
 
 
4,199 
 
 
 
Common Stock, Shares, Outstanding
 
27,830,941 
 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
175 
 
 
 
 
 
175 
 
Net loss
(21,177)
 
 
 
 
(21,177)
 
 
Ending Balance at Dec. 31, 2014
59,275 
119,045 
(57,180)
11 
(2,601)
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures
 
 
4,616 
 
 
 
 
 
Shares Paid for Tax Withholding for Share Based Compensation
 
 
(72,197)
 
 
 
 
 
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net
(643)
 
 
 
(643)
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Warrant reclassification from liability to equity
 
 
 
 
 
 
 
Stock Issued During Period, Shares, Share-based Compensation, Net of Forfeitures
 
 
632,829 
 
 
 
 
 
Stock Issued During Period, Value, Stock Options Exercised
1,335 
 
 
 
1,335 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,107 
 
 
 
3,107 
 
 
 
Common Stock, Shares, Outstanding
 
28,396,189 
 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
(513)
 
 
 
 
 
(513)
 
Net loss
(17,205)
 
 
 
 
(17,205)
 
 
Ending Balance at Dec. 31, 2015
45,356 
122,844 
(74,385)
(502)
 
Beginning Balance at Sep. 30, 2015
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Common Stock, Shares, Outstanding
 
 
 
 
 
 
Net loss
(3,001)
 
 
 
 
 
 
 
Ending Balance at Dec. 31, 2015
45,356 
122,844 
(74,385)
(502)
(2,601)
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures
 
 
2,511 
 
 
 
 
 
Shares Paid for Tax Withholding for Share Based Compensation
 
 
(42,798)
 
 
 
 
 
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net
(662)
 
 
 
(662)
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Redemption of warrants
 
 
59,999 
 
 
 
 
 
Settlement of warrant liabilities
600 
 
 
 
600 
 
 
 
Treasury Stock, Shares, Acquired
 
 
(36,321)
 
 
 
 
 
Treasury Stock, Value, Acquired, Par Value Method
(600)
 
 
 
 
 
 
(600)
Warrant reclassification from liability to equity
 
 
 
 
 
 
 
Stock Issued During Period, Shares, Share-based Compensation, Net of Forfeitures
 
 
1,119,367 
 
 
 
 
 
Stock Issued During Period, Value, Stock Options Exercised
3,745 
 
 
 
3,745 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,047 
 
 
 
3,047 
 
 
 
Common Stock, Shares, Outstanding
29,498,947 
29,498,947 
 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
125 
 
 
 
 
 
125 
 
Net loss
(6,896)
 
 
 
 
(6,896)
 
 
Ending Balance at Dec. 31, 2016
44,715 
129,574 
(81,281)
(377)
(3,201)
Beginning Balance at Sep. 30, 2016
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Common Stock, Shares, Outstanding
29,498,947 
 
 
 
 
 
Net loss
(1,723)
 
 
 
 
 
 
 
Ending Balance at Dec. 31, 2016
$ 44,715 
$ 0 
 
$ 0 
 
 
 
 
Consolidated Statement of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Net Cash Provided by (Used in) Operating Activities [Abstract]
 
 
 
Net loss
$ (6,896)
$ (17,205)
$ (21,177)
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities [Abstract]
 
 
 
Depreciation, Depletion and Amortization
3,846 
2,542 
1,674 
Amortization of Financing Costs and Discounts
58 
21 
5,033 
Warrant income
(1,574)
Stock-based compensation expense
2,946 
3,002 
4,084 
Other Operating Income (Expense), Net
46 
(89)
57 
Increase (Decrease) in Operating Assets [Abstract]
 
 
 
Accounts and other receivable
(1,830)
(328)
(126)
Prepaid expenses and other current assets
48 
(905)
(369)
Accounts payable
652 
(347)
449 
Accrued liabilities
175 
51 
551 
Claims reserve
3,226 
1,241 
(505)
Deferred revenue
2,398 
1,779 
877 
Other payables
337 
(187)
225 
Net cash provided by (used in) operating activities
5,006 
(10,425)
(10,801)
Net Cash Provided by (Used in) Investing Activities [Abstract]
 
 
 
Purchases of investment securities
(31,616)
(24,800)
(34,894)
Maturities of investment securities
27,247 
20,180 
28,601 
Payments to Acquire Equity Method Investments
(300)
Purchases of property and equipment
(1,941)
(4,894)
(5,633)
Payments for (Proceeds from) Investments
(198)
(109)
Net cash used in investing activities
(6,508)
(9,923)
(11,926)
Net Cash Provided by (Used in) Financing Activities [Abstract]
 
 
 
Payments Related to Tax Withholding for Share-based Compensation
(662)
(643)
Proceeds from exercise of stock options
3,745 
1,335 
211 
Proceeds from (repayment of) debt financing
4,988 
(14,900)
(15,000)
Repayments of Long-term Capital Lease Obligations
(204)
Payments of Financing Costs
(195)
(103)
Net proceeds from IPO
72,755 
Net cash provided by (used in) financing activities
7,672 
(14,208)
57,863 
Effect of foreign exchange rates on cash, net
111 
(586)
23 
Net change in cash, cash equivalents, and restricted cash
6,281 
(35,142)
35,159 
Cash, cash equivalents, and restricted cash at beginning of period
17,956 
53,098 
17,939 
Cash, Cash Equivalents, and Restricted Cash, Carrying Value, End of Period
24,237 
17,956 
53,098 
Supplemental Cash Flow Information [Abstract]
 
 
 
Income taxes paid
19 
139 
Interest paid
153 
155 
1,494 
Cash Flow, Noncash Investing and Financing Activities Disclosure [Abstract]
 
 
 
Warrants issued in conjunction with debt issuance
1,124 
Increase in payables for property and equipment
104 
98 
911 
Redemption of Warrants Non-Cash; Preferred Stock
1,270 
Redemption of Warrants Non-Cash; Common Stock
600 
Warrant reclassification from liability to equity
3,180 
Capital Lease Obligations Incurred
$ 559 
$ 0 
$ 0 
Net Loss per Share
Earnings Per Share [Text Block]
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Excluded from the weighted-average number of shares outstanding are shares that have been issued and are subject to future vesting and unvested restricted stock. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Potentially dilutive common stock equivalents are comprised of unvested restricted stock, stock options and warrants. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
The following potentially dilutive equity securities were not included in the diluted net loss per common share calculation because they would have had an antidilutive effect:
 
As of December 31,
 
2016
 
2015
 
2014
Stock options
4,123,023

 
4,871,949

 
5,112,556

Restricted stock awards and units
352,996

 
472,384

 
592,625

Warrants
810,000

 
869,999

 
869,999

Property Plant and Equipment (Notes)
Property and Equipment, Net
Property and Equipment, Net
Property and equipment, along with their useful lives, were as follows for the years ended December 31, 2016 and 2015 (in thousands):
 
Years Ended December 31,
 
2016
 
2015
Office and telephone equipment (5 years)
$
129

 
$
127

PC and networking hardware (3–4 years)
1,191

 
1,177

Software (3–5 years)
14,340

 
12,547

Furniture and fixtures (5 years)
618

 
711

Vehicles (5 years)
54

 
54

Fixed assets under capital lease (over less of expected useful life or life of lease)
478

 

Leasehold improvement (over less of expected useful life or life of lease)

 
621

Property and equipment
16,810

 
15,237

Accumulated depreciation
(8,346
)
 
(5,518
)
Property and equipment, net
$
8,464

 
$
9,719


Depreciation expense for property and equipment was $3.8 million, $2.5 million and $1.6 million for 2016, 2015 and 2014, respectively.
The Company capitalized interest of $0.2 million in 2016, 2015 and 2014 related to software developed for internal use.
Intangible Assets (Notes)
Intangible Assets Disclosure [Text Block]
Intangible Assets
The Company acquired an insurance company in 2007, which originally included licenses in 23 states. These licenses were valued at $4.8 million. The Company is currently licensed in all 50 states, the District of Columbia and Puerto Rico. Most licenses are renewed annually upon payment of various fees assessed by the issuing state. Renewal costs are expensed as incurred. This is considered an indefinite-lived intangible asset given the planned renewal of the certificates of authority and applicable licenses for the foreseeable future. No impairments have been recorded on this asset as of December 31, 2016.
Investment Securities (Notes)
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]
Investment Securities
The amortized cost, gross unrealized holding losses, and fair value of available-for-sale and short-term investments by major security type and class of security were as follows as of December 31, 2016 and 2015 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2016
 
 
 
 
 
       Available-for-sale:
 
 
 
 
 
Foreign deposits
$
1,587

 
$

 
$
1,587

Municipal bond
1,000

 
(8
)
 
$
992

 
$
2,587

 
$
(8
)
 
$
2,579

Short-term investments:
 
 
 
 
 
              U.S. Treasury securities
$
5,791

 
$

 
$
5,791

              Certificates of deposit
707

 

 
707

              U.S. government funds
23,072

 

 
23,072

 
$
29,570


$


$
29,570

 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2015
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
Foreign deposits
$
1,442

 
$

 
$
1,442

Municipal bond
1,000

 
(54
)
 
946

 
$
2,442


$
(54
)

$
2,388

Short-term investments:
 
 
 
 
 
U.S. Treasury securities
$
5,683

 
$

 
$
5,683

Certificates of deposit
1,551

 

 
$
1,551

U.S. government funds
18,054

 

 
$
18,054

 
$
25,288


$


$
25,288



Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 
December 31, 2016
 
Amortized
Cost
 
Fair
Value
Available-for-sale:

 

Due under one year
$

 
$

Due after one year through five years
1,587

 
1,587

Due after five years through ten years
1,000

 
992

Due after ten years

 

 
$
2,587

 
$
2,579


The Company had one investment with an unrealized loss of less than $0.1 million and a fair value of $1.0 million at December 31, 2016 and an unrealized loss of $0.1 million and a fair value of $0.9 million at December 31, 2015. This investment has been in an unrealized loss position for more than 12 months. The Company assessed the bond for credit impairment and determined that there is no intent to sell this bond and it is likely that it will hold the investment for a period of time sufficient to allow for recovery. Furthermore, future payments on this bond are insured by a financial guarantee insurer. Therefore, the Company believes that the unrealized loss on this bond constitutes a temporary impairment.
Fair Value
Fair Value Disclosures [Text Block]
Fair Value
The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 inputs: Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (in thousands):
 
As of December 31, 2016
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Restricted cash
$
600

 
$
600

 
$

 
$

Foreign deposits
1,587

 
1,587

 

 

Municipal bond
992

 

 
992

 

Money market funds
7,033

 
7,033

 

 

Total
$
10,212

 
$
9,220

 
$
992

 
$

 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Foreign deposits
$
1,442

 
$
1,442

 
$

 
$

Municipal bond
946

 

 
946

 

Money market funds
7,545

 
7,545

 

 

Total
$
9,933

 
$
8,987

 
$
946

 
$


Long-term investments classified as available-for-sale are measured using quoted market prices when quoted market prices are available. If quoted market prices in active markets for identical assets are not available to determine fair value, then the Company uses quoted prices of similar instruments and other significant inputs derived from observable market data obtained from third-party data providers. Short-term investments are carried at amortized cost and the fair value is disclosed in Note 3. Fair value is determined in the same manner as available-for-sale securities and is considered a Level 1 measurement.

The Company estimates fair value for 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 December 31, 2016.
The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers between levels for the twelve months ended December 31, 2016 and 2015.
Equity Method Investment (Notes)
Equity Method Investments and Joint Ventures Disclosure [Text Block]
Equity Method Investments
During 2015, the Company invested $0.3 million in a software development company in exchange for 300,000 units of Series A preferred stock resulting in a 13% equity interest. This agreement was amended and restated on September 12, 2016 to increase Series A preferred stock from 300,000 units to 750,000 units resulting in a 20% equity interest. The Company’s equity interest is accounted for under the equity method as the Company has the ability to exert significant influence. The equity method investment balance is adjusted each period on a one quarter lag to recognize the proportionate share of net income or loss, including adjustments to recognize certain differences between the carrying value and the equity in net assets.
Commitment and Contingencies
Commitments and Contingencies Disclosure [Text Block]
Commitments and Contingencies
During the third quarter of 2015, the Company entered into a lease agreement for a building located in Seattle, Washington. The initial 10-year term of the lease commenced in the third quarter of 2016.
The Company has operating leases, related to equipment and office facilities, which expire over the next three years with various renewal options. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease. Rental expense for operating leases was $1.2 million, $1.0 million and $0.8 million during 2016, 2015 and 2014, respectively.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2016, are as follows (in thousands):
 
Year ending December 31:
 
2017
$
1,510

2018
1,860

2019
2,020

2020
2,101

2021
2,182

Thereafter
11,029

Total minimum lease payments
$
20,702


The Company has entered into agreements for strategic marketing initiatives, as well as with independent contractors to provide services for a period of time. Future commitments related to these contracts are as follows (in thousands):
 
Year ending December 31:
 
2017
$
3,624

2018
1,681

2019
764

2020
119

2021
17

Thereafter

Total minimum commitment
$
6,205



During 2016, the Company entered into a capital lease agreement. As of December 31, 2016, this agreement resulted in an increase in future commitments of $0.4 million for 2017 and $0.2 million in 2018.
From time to time, the Company may be subject to various legal proceedings and claims in the ordinary course of business activities, including claims of alleged infringement of trademarks, copyrights and other intellectual property rights; employment claims; coverage disputes with policyholders; and general contract or other claims. The Company may, from time to time, also be subject to various other legal or government claims, disputes or investigations.
The outcomes of the Company’s legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company’s operating results and cash flows for a particular period. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability beyond previously accrued amounts has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.
Claims Reserve (Notes)
Activity in the subscription business claims reserve is summarized as follows (in thousands):
 
 
Years Ended December 31,
 
 
2016
 
2015
 
2014
Claims reserve at beginning of year - subscription business
 
$
5,384

 
$
4,278

 
$
4,573

Claims incurred during the year related to:
 
 
 
 
 
 
Current year - subscription business
 
123,823

 
95,390

 
74,471

Prior years - subscription business
 
813

 
30

 
(132
)
Total claims incurred
 
124,636

 
95,420

 
74,339

Claims paid during year related to:
 
 
 
 
 
 
Current year - subscription business
 
115,314

 
89,768

 
69,956

Prior years - subscription business
 
5,832

 
4,239

 
4,442

Total claims paid
 
121,146

 
94,007

 
74,398

Non-cash claims expense - subscription business
 
336

 
307

 
236

Claims reserve at end of year - subscription business
 
$
8,538

 
$
5,384

 
$
4,278


The increase in subscription business claims for prior years in the years ended December 31, 2016 and December 31, 2015 is primarily due to more claims incurred than expected relating to prior year claims. The decrease in subscription business claims for prior years in the year ended December 31, 2014 is primarily due to less incurred claims than expected relating to prior year claims.
Activity in the other business claims reserve is summarized as follows (in thousands):
 
 
Years Ended December 31,
 
 
2016
 
2015
 
2014
Claims reserve at beginning of year - other business
 
$
890

 
$
829

 
$
1,039

Claims incurred during the year related to:
 
 
 
 
 
 
Current year - other business
 
9,027

 
7,983

 
5,967

Prior years - other business
 
(129
)
 
(79
)
 
(393
)
Total claims incurred
 
8,898

 
7,904

 
5,574

Claims paid during year related to:
 
 
 
 
 
 
Current year - other business
 
8,048

 
7,095

 
5,138

Prior years - other business
 
757

 
748

 
646

Total claims paid
 
8,805

 
7,843

 
5,784

Non-cash claims expense - other business
 

 

 

Claims reserve at end of year - other business
 
$
983

 
$
890

 
$
829

Claims Reserve
The Company provides a reserve for claims incurred but not reported (IBNR). This liability is primarily based on, but not limited to, patterns of claims being paid, patterns of claims being received, seasonality patterns and historical experience. As the Company grows, the IBNR claim liability is expected to increase. Additionally, if expected claims paying completion patterns extend, the IBNR claim liability further increases. The Company reviews estimates for reported but unpaid claims and IBNR claims quarterly. Any necessary adjustments are reflected in earnings.
The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscriptions related to the Company’s medical plan which are marketed directly to consumers, while the other business segment includes all other business that is not directly marketed to consumers.
Claims Reserve
Activity in the subscription business claims reserve is summarized as follows (in thousands):
 
 
Years Ended December 31,
 
 
2016
 
2015
 
2014
Claims reserve at beginning of year - subscription business
 
$
5,384

 
$
4,278

 
$
4,573

Claims incurred during the year related to:
 
 
 
 
 
 
Current year - subscription business
 
123,823

 
95,390

 
74,471

Prior years - subscription business
 
813

 
30

 
(132
)
Total claims incurred
 
124,636

 
95,420

 
74,339

Claims paid during year related to:
 
 
 
 
 
 
Current year - subscription business
 
115,314

 
89,768

 
69,956

Prior years - subscription business
 
5,832

 
4,239

 
4,442

Total claims paid
 
121,146

 
94,007

 
74,398

Non-cash claims expense - subscription business
 
336

 
307

 
236

Claims reserve at end of year - subscription business
 
$
8,538

 
$
5,384

 
$
4,278


The increase in subscription business claims for prior years in the years ended December 31, 2016 and December 31, 2015 is primarily due to more claims incurred than expected relating to prior year claims. The decrease in subscription business claims for prior years in the year ended December 31, 2014 is primarily due to less incurred claims than expected relating to prior year claims.
Activity in the other business claims reserve is summarized as follows (in thousands):
 
 
Years Ended December 31,
 
 
2016
 
2015
 
2014
Claims reserve at beginning of year - other business
 
$
890

 
$
829

 
$
1,039

Claims incurred during the year related to:
 
 
 
 
 
 
Current year - other business
 
9,027

 
7,983

 
5,967

Prior years - other business
 
(129
)
 
(79
)
 
(393
)
Total claims incurred
 
8,898

 
7,904

 
5,574

Claims paid during year related to:
 
 
 
 
 
 
Current year - other business
 
8,048

 
7,095

 
5,138

Prior years - other business
 
757

 
748

 
646

Total claims paid
 
8,805

 
7,843

 
5,784

Non-cash claims expense - other business
 

 

 

Claims reserve at end of year - other business
 
$
983

 
$
890

 
$
829


The decrease in other business claims for prior years in the years ended December 31, 2016, December 31, 2015 and December 31, 2014 is primarily due to less claims incurred than expected relating to prior year claims.
Incurred claims and claim adjustment expenses
The Company measures claims frequency using individual claims submissions at the claim event level. A certain claim event may result in multiple reported claims if it involves multiple visits to the veterinarian resulting in multiple invoices. At the end of each reporting period, the cumulative number of claims reported includes all claims submitted (excluding those included in the reserve for incurred but not reported claims), regardless of whether it resulted in an incurred loss. The following table summarizes the activity for incurred claims and claim adjustment expenses for the Company's subscription business segment (in thousands, except for cumulative number of claims data; includes non-cash expenses incurred during the period).
 
 
Years Ended December 31,
 
As of December 31, 2016
 
 
Incurred claims and claim adjustment expenses
 
Total of IBNR plus expected development on reported claims
 
Cumulative number of reported claims
Year Incurred
 
2013
 
2014
 
2015
 
2016
 
 
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
2013
 
$
49,595

 
$
49,475

 
$
49,593

 
$
49,629

 
$
8

 
269,849

2014
 
 
 
$
71,008

 
$
70,954

 
$
71,118

 
$
71

 
377,083

2015
 
 
 
 
 
$
94,354

 
$
94,908

 
$
286

 
469,815

2016
 
 
 
 
 
 
 
$
123,478

 
$
8,173

 
538,427

 
 
$
339,133

 
 
 
 
The following table summarizes the activity for incurred claims and claim adjustment expenses for the Company's other business segment (in thousands, except for cumulative number of claims data; includes non-cash expenses incurred during the period):
 
 
Years Ended December 31,
 
As of December 31, 2016
 
 
Incurred claims and claim adjustment expenses
 
Total of IBNR plus expected development on reported claims
 
Cumulative number of reported claims
Year Incurred
 
2013
 
2014
 
2015
 
2016
 
 
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
2013
 
$
3,294

 
$
2,841

 
$
2,849

 
$
2,849

 
$

 
18,169

2014
 
 
 
$
5,966

 
$
5,888

 
$
5,887

 
$
1

 
34,535

2015
 
 
 
 
 
$
7,973

 
$
7,845

 
$
3

 
46,713

2016
 
 
 
 
 
 
 
$
9,027

 
$
979

 
53,723

 
 
$
25,608

 
 
 
 

Cumulative paid claims and claim adjustment expenses
The following table summarizes the activity for cumulative claims paid and claim adjustment expenses (CAE) for the Company's subscription business segment (in thousands; includes non-cash expenses incurred during the period):
 
 
Years Ended December 31,
Year Incurred
 
2013
 
2014
 
2015
 
2016
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
2013
 
$
45,276

 
$
49,475

 
$
49,593

 
$
49,621

2014
 
 
 
$
66,845

 
$
70,885

 
$
71,047

2015
 
 
 
 
 
$
89,012

 
$
94,622

2016
 
 
 
 
 
 
 
$
115,305

Total
 
 
$
330,595

Total outstanding liabilities for unpaid claims and CAE
 
 
$
8,538

The following table summarizes the activity for cumulative claims paid and claim adjustment expenses for the Company's other business segment (in thousands; includes non-cash expenses incurred during the period):
 
 
Years Ended December 31,
Year Incurred
 
2013
 
2014
 
2015
 
2016
 
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
2013
 
$
2,196

 
$
2,841

 
$
2,849

 
$
2,850

2014
 
 
 
$
5,137

 
$
5,886

 
$
5,886

2015
 
 
 
 
 
$
7,085

 
$
7,841

2016
 
 
 
 
 
 
 
$
8,048

Total
 
 
$
24,625

Total outstanding liabilities for unpaid claims and CAE
 
 
$
983

Debt
Debt Disclosure [Text Block]
. Debt
The Company has a revolving line of credit with a bank, which is secured by any and all interest the Company has in assets that are not otherwise restricted. On December 16, 2016, the Company replaced its previous line of credit agreement and entered into a syndicated loan agreement with Pacific Western Bank and Western Alliance Bank increasing its facility from $20.0 million to $30.0 million. The revolving line of credit bore a variable interest rate as of December 31, 2016 equal to the greater of 4.5% or 1.25% plus the prime rate, and as of December 31, 2015 equal to the greater of 5.0% or 1.5% plus the prime rate. Interest expense is due monthly on the outstanding principal amount with all amounts outstanding under the revolving line of credit due upon maturity in December 2018, or December 2019 if the revolving line of credit is renewed. The revolving line of credit automatically renews January 2018 unless canceled by the bank. The credit agreement requires the Company to comply with various financial and non-financial covenants. As of December 31, 2016 and December 31, 2015, the Company was in compliance with all covenants. This facility had a requirement that $0.6 million be held as restricted cash with the bank as of December 31, 2016. This facility also had a compensating balance requirement of $0.5 million as of December 31, 2016 and December 31, 2015.
Borrowings on the revolving line of credit were limited to the lesser of $30.0 million in 2016 and $20.0 million in 2015, and the total amount of cash and securities held by the Company's insurance subsidiaries (APIC and WICL), less up to $3.0 million, for obligations the Company may have outstanding for other ancillary services in the future. As of December 31, 2016, the Company's outstanding borrowings under this facility were $5.0 million. During 2015, the Company repaid its borrowings under this facility, and as of December 31, 2015, the Company had no outstanding borrowings under this facility.
The Company entered into a lease agreement during 2015 which required the Company to issue a security deposit in the form of an irrevocable standby letter of credit totaling $1.1 million which expires in August 2017 and renews annually thereafter. This amount reduces the Company’s available revolving line of credit. As of December 31, 2016 and 2015, the Company had $21.6 million and $18.4 million, respectively, available under its revolving line of credit.
Interest expense during 2016, 2015 and 2014 related to all loans was $0.2 million, $0.3 million and $6.7 million, respectively.
Stock-based Compensation
Stock-based Compensation
Stock-Based Compensation

In June 2014, the Company’s Board of Directors adopted the 2014 Equity Incentive Plan (2014 Plan), which succeeded the 2007 Equity Compensation Plan upon the Company’s IPO. The 2014 Plan authorizes the award of stock options or restricted stock to directors, officers, employees, and non-employees. All awards have 10-year contractual terms. At December 31, 2016, there were 3,901,594 additional shares available for the Company to grant under the 2014 Plan.
Stock Options
The grant date fair value of stock option awards are estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Valuation assumptions for the years ended December 31, 2016, 2015 and 2014 are presented in the following table:
 
 
 
Years Ended
December 31,
 
 
2016
 
2015
 
2014
Valuation assumptions:
 
 
 
 
 
 
Expected term (in years)
 
5.04-6.25
 
3.0-6.25
 
6.25
Expected volatility
 
37.6%-42.1%
 
37.2%–49.4%
 
54.3%–59.3%
Risk-free interest rate
 
1.1%-2.0%
 
1.1%–2.0%
 
1.8%–2.0%
Expected dividend yield
 
—%
 
—%
 
—%

Expected term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of stock-based awards granted, the expected term for awards issued to employees is based on the simplified method, which represents the average period from vesting to the expiration of the stock option.
Expected volatility: As the Company does not have significant trading history for common stock, the expected stock price volatility for common stock is estimated by taking the average historical price volatility for identified peers based on daily price observations over a period equivalent to the expected term of the stock option grants. The Company does not rely on implied volatilities of traded options in identified peers’ common stock because the volume of activity is relatively low. The Company intends to continue to consistently apply this process using these or similar public companies until a sufficient amount of historical information regarding the volatility of the Company’s common stock price becomes available.
Risk-free interest rate: The risk-free interest rate for the expected term of the stock option is based on the U.S. Treasury yield curve at the date of grant.
Expected dividend yield: The Company does not expect to pay any dividends in the foreseeable future.
Stock option activity for the years ended December 31, 2016, 2015 and 2014 was as follows:
 
Number
of
Options
 
Weighted-
Average
Exercise
Price
 
Aggregate
Intrinsic
Value
(in thousands)
December 31, 2013
4,663,445

 
2.12

 
30,406

Granted
754,200

 
9.64

 

Exercised
(176,595
)
 
1.20

 
1,428

Forfeited
(128,494
)
 
5.40

 

December 31, 2014
5,112,556

 
3.19

 
21,116

Granted
698,764

 
7.84

 

Exercised
(632,829
)
 
2.12

 
3,703

Forfeited
(306,542
)
 
7.65

 

December 31, 2015
4,871,949

 
3.71

 
29,644

Granted
666,664

 
13.37

 

Exercised
(1,119,367
)
 
3.35

 
11,980

Forfeited
(296,223
)
 
8.14

 

December 31, 2016
4,123,023

 
5.06

 
43,185

 
 
 
 
 
 
Vested and exercisable at December 31, 2016
3,119,438

 
$
3.06

 
$
38,856

As of December 31, 2016, stock options outstanding had a weighted average remaining contractual life of 5.7 years and vested and exercisable options had a weighted average remaining contractual life of 4.6 years.

The weighted-average grant date fair value of stock options granted and the fair value of options vested were as follows for the years ending December 31, 2016, 2015, and 2014:
 
 
Weighted- Average Grant Date Fair Value
 
Fair Value
of Options
Vested
 
 
(per share)
 
(in thousands)
Year:
 
 
 
 
2014
 
$
5.33

 
$
2,203

2015
 
$
3.46

 
$
3,796

2016
 
$
5.64

 
$
6,688



Restricted Stock Awards and Restricted Stock Units
The below table summarizes the Company’s restricted stock award activity for the years ending December 31, 2016, 2015 and 2014:
 
 
Number of 
Shares
 
Weighted- Average
Grant Date Fair Value Per
Restricted Stock
Nonvested stock award balance at December 31, 2013
 
722,226

 
$
4.77

Restricted stock awards granted
 
6,126

 
5.79

Awards upon which restrictions lapsed
 
(143,967
)
 
4.81

Restricted stock awards forfeited
 

 

Nonvested stock award balance at December 31, 2014
 
584,385

 
4.77

Restricted stock awards granted
 
2,385

 
7.26

Awards upon which restrictions lapsed
 
(119,262
)
 
4.80

Restricted stock awards forfeited
 

 

Nonvested stock award balance at December 31, 2015
 
467,508

 
4.77

Restricted stock awards granted
 

 

Awards upon which restrictions lapsed
 
(116,877
)
 
4.77

Restricted stock awards forfeited
 

 

Nonvested stock award balance at December 31, 2016
 
350,631

 
4.77


During the third quarters of 2016, 2015 and 2014, 116,877 shares of restricted stock, which were subject to a performance condition relating to the Company’s IPO, vested and resulted in $0.5 million, $0.9 million and $1.6 million of expense, respectively, included in general and administrative expense in the consolidated statement of operations. The fair value of these vested shares was approximately $1.8 million, $0.9 million and $1.2 million, respectively. The remaining 350,631 shares of unvested restricted stock related to this agreement are expected to vest over the remaining service term of approximately 3.0 years.
Stock-based compensation expense includes stock options, restricted stock units and restricted stock awards granted to employees and non-employees, and is reported in the Company’s consolidated statement of operations in claims expenses, other cost of revenue, sales and marketing, technology and development, and general and administrative expenses 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, 2016, 2015 and 2014 was as follows (in thousands):
 
Years Ended December 31,
 
2016
 
2015
 
2014
Claims expenses
$
234

 
$
219

 
$
236

Other cost of revenue
41

 
44

 
79

Sales and marketing
532

 
446

 
553

Technology and development
246

 
404

 
461

General and administrative
1,893

 
1,889

 
2,755

Total stock-based compensation
$
2,946

 
$
3,002

 
$
4,084


As of December 31, 2016, the Company had unrecognized stock-based compensation expense of $5.2 million, which is expected to vest over a weighted-average period of approximately 2.7 years. As of December 31, 2016, the Company had 953,406 unvested stock options and 352,996 restricted stock awards and units that are expected to vest. No net tax benefits related to the stock-based compensation costs have been recognized since the Company’s inception.
Stockholder's Equity (Notes)
Stockholders' Equity Note Disclosure [Text Block]
Stockholders Equity
On July 23, 2014 the Company completed an IPO pursuant to which 8,193,750 shares of common stock were sold to the public at a price of $10.00 per share. The Company received net proceeds of approximately $72.8 million from the IPO. Upon the closing of the IPO, all shares of outstanding convertible preferred stock and exchangeable shares automatically converted into 14,944,945 and 2,247,130 shares of common stock, respectively. If this transaction had taken place on January 1, 2014, the Company’s weighted-average shares outstanding for the twelve months ended December 31, 2014 would have been 27,067,167.
As of December 31, 2016, the Company had 100,000,000 shares of common stock authorized and 29,498,947 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, 2016, 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 all classes of stock outstanding at the time. The Company is unable to pay dividends to stockholders as of December 31, 2016 due to restrictions in its credit agreements.
Warrants
At December 31, 2016 and 2015, the Company had warrants to purchase 810,000 shares and 869,999 shares of common stock, respectively, at $10.00 per share, which begin to expire in 2018. At the end of each reporting period prior to the July 23, 2014, warrants were subject to contractual modification provisions and the Company adjusted the fair value of the warrants. For periods subsequent to July 23, 2014, these warrants were no longer subject to contractual modification provisions and were reclassified from a liability classification to an equity classification on the consolidated balance sheet.
Segments
Segment Reporting Disclosure [Text Block]
Segments
The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscriptions related to the Company’s medical plan which are 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):
 
Years Ended December 31,
 
2016
 
2015
 
2014
Revenue:
 
 
 
 
 
Subscription business
$
173,356

 
$
133,406

 
$
103,502

Other business
14,874

 
13,557

 
12,408

 
188,230

 
146,963

 
115,910

Claims expenses:
 
 
 
 
 
Subscription business
124,636

 
95,420

 
74,206

Other business
8,898

 
7,904

 
5,707

 
133,534

 
103,324

 
79,913

Other cost of revenue:
 
 
 
 
 
Subscription business
16,685

 
14,008

 
10,963

Other business
4,723

 
4,402

 
5,160

 
21,408

 
18,410

 
16,123

Gross profit:
 
 
 
 
 
Subscription business
32,035

 
23,978

 
18,333

Other business
1,253

 
1,251

 
1,541

 
33,288

 
25,229

 
19,874

Sales and marketing:
 
 
 
 
 
Subscription business
15,029

 
15,151

 
11,484

Other business
218

 
80

 
124

 
15,247

 
15,231

 
11,608

Technology and development
9,534

 
11,215

 
9,899

General and administrative
15,205

 
15,558

 
14,312

Operating loss
$
(6,698
)
 
$
(16,775
)
 
$
(15,945
)


The following table presents the Company’s revenue by geographic region of the member (in thousands):
 
 
Years Ended December 31,
 
2016
 
2015
 
2014
United States
$
151,361

 
$
116,585

 
$
86,494

Canada
36,869

 
30,378

 
29,416

Total revenue
$
188,230

 
$
146,963

 
$
115,910


Substantially all of the Company’s long-lived assets were located in the United States as of December 31, 2016 and 2015.
Dividend Restrictions Statutory Surplus (Notes)
Dividend Restrictions And Statutory Suprlus [Text Block]
Dividend Restrictions and Statutory Surplus
The Company’s business operations are conducted through subsidiaries, one of which is an insurance company domiciled in New York, and one which is a segregated cell business, Wyndham Segregated Account AX, located in Bermuda. In addition to general state law restrictions on payments of dividends and other distributions to stockholders applicable to all corporations, insurance companies are subject to further regulations that, among other things, may require such companies to maintain certain levels of equity and restrict the amount of dividends and other distributions that may be paid to their parent corporations.
Under regulatory requirements at December 31, 2016, 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 $0.1 million. During 2016, 2015 and 2014, the Company’s insurance subsidiaries did not pay any dividends to the Company. Subsequent to December 31, 2016, the Company received a dividend of $2.7 million from Wyndham Insurance Company (SAC) Limited (WICL) Segregated Account AX as allowed under the Company's agreements with WICL.
The statutory net income for 2016, 2015 and 2014 and statutory capital and surplus at December 31, 2016, 2015 and 2014, for the Company’s insurance subsidiary were as follows (in thousands):
 
 
 
As of December 31,
 
 
2016
 
2015
 
2014
Statutory net income
 
$
4,081

 
$
1,386

 
$
990

Statutory capital and surplus
 
30,451

 
26,068

 
23,661


As of December 31, 2016, the Company’s insurance subsidiary (American Pet Insurance Company) maintained $30.5 million of statutory capital and surplus which was above the required amount of $25.8 million of statutory capital and surplus to avoid additional regulatory oversight. As of December 31, 2016 and 2015, the Company had $6.5 million on deposit with various states in which it writes policies.
Related Parties (Notes)
Related Party Transactions Disclosure [Text Block]
Related Parties
The Company is party to arrangements with the father of the Company’s Chief Executive Officer, who serves as an independent contractor to develop veterinary relationships and build referrals. The terms of the independent contractor agreement are consistent with the terms of other similar independent contractors that do business with the Company. Total amounts paid to the related party were less than $0.1 million, $0.3 million and $0.3 million in 2016, 2015 and 2014, respectively.
Income Taxes (Notes)
Income Taxes
Income Taxes
Loss before income taxes was as follows for the years ended December 31, 2016, 2015 and 2014 (in thousands):
 
 
 
Years Ended December 31,
 
 
2016
 
2015
 
2014
United States
 
$
(6,906
)
 
$
(17,222
)
 
$
(21,371
)
Foreign
 
48

 
131

 
187

 
 
$
(6,858
)
 
$
(17,091
)
 
$
(21,184
)

The components of income tax expense (benefit) were as follows (in thousands):
 
 
 
Years Ended December 31,
 
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
 
U.S. federal & state
 
$
25

 
$
31

 
$
26

Foreign
 
13

 
84

 
(30
)
 
 
38

 
115

 
(4
)
Deferred:
 
 
 
 
 
 
U.S. federal & state
 

 

 

Foreign
 

 
(1
)
 
(3
)
 
 

 
(1
)
 
(3
)
Income tax expense (benefit)
 
$
38

 
$
114

 
$
(7
)


A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is presented below:
 
 
 
Years Ended December 31,    
 
 
2016
 
2015
 
2014
Federal income taxes at statutory rate
 
34.0
 %
 
34.0
 %
 
34.0
 %
Equity compensation
 
7.7

 
(1.2
)
 
(0.9
)
Change in valuation allowance
 
(41.1
)
 
(34.9
)
 
(32.5
)
Other, net
 
(1.2
)
 
1.4

 
(0.5
)
Effective income tax rate
 
(0.6
)%
 
(0.7
)%
 
0.1
 %

The principal components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
 
 
 
Years Ended December 31,         
 
 
2016
 
2015
Deferred tax assets:
 
 
 
 
Current:
 
 
 
 
Unearned premium reserves
 
$
918

 
$
745

Loss reserves
 
27

 
167

Other
 
782

 
690

Noncurrent:
 
 
 
 
Net operating loss carryforwards
 
22,632

 
20,514

Depreciation and amortization
 
535

 
451

Equity compensation
 
1,137

 
713

Other
 
156

 
96

Total deferred tax assets
 
26,187

 
23,376

Deferred tax liabilities:
 
 
 
 
Current:
 
 
 
 
Deferred costs
 
(226
)
 
(189
)
Noncurrent:
 
 
 
 
Intangible assets
 
(1,623
)
 
(1,623
)
Other
 
(77
)
 
(72
)
Total deferred tax liabilities
 
(1,926
)
 
(1,884
)
Total deferred taxes
 
24,261

 
21,492

Less deferred tax asset valuation allowance
 
(25,879
)
 
(23,110
)
Net deferred taxes
 
$
(1,618