TRUPANION INC., 10-K filed on 2/14/2018
Annual Report
Document and Entity Information Document (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 7, 2018
Jun. 30, 2017
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, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
30,128,277 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 521,061,388 
Consolidated Statement of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Revenue
$ 242,667 
$ 188,230 
$ 146,963 
Veterinary invoice expense
170,122 
133,534 
103,324 
Other cost of revenue
29,495 
21,408 
18,410 
Gross profit
43,050 
33,288 
25,229 
Technology Services Costs
9,768 
9,534 
11,215 
General and administrative
16,820 
15,205 
15,558 
Sales and marketing
19,104 
15,247 
15,231 
Total operating expenses
45,692 
39,986 
42,004 
Operating loss
(2,642)
(6,698)
(16,775)
Interest expense
533 
218 
325 
Other (income) expense, net
(1,244)
(58)
(9)
Loss before income taxes
(1,931)
(6,858)
(17,091)
Income tax (benefit) expense
(428)
38 
114 
Net loss
$ (1,503)
$ (6,896)
$ (17,205)
Net loss per share: Basic and diluted (per share)
$ (0.05)
$ (0.24)
$ (0.62)
Weighted Average Number of Shares Outstanding, Basic and Diluted
29,588,324 
28,527,602 
27,638,443 
Consolidated Statement of Comprehensive Income Statement (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Net loss
$ (1,503)
$ (6,896)
$ (17,205)
Foreign currency translation adjustments
277 
79 
(517)
Net unrealized gain on available-for-sale debt securities
46 
Other comprehensive income (loss), net of taxes
285 
125 
(513)
Comprehensive loss
$ (1,218)
$ (6,771)
$ (17,718)
Consolidated Balance Sheet (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Assets [Abstract]
 
 
Cash and cash equivalents
$ 25,706 
$ 23,637 
Short-term Investments
37,590 
29,570 
Accounts and other receivables
20,367 
10,118 
Prepaid expenses and other assets
2,895 
2,062 
Total current assets
86,558 
65,387 
Restricted Cash and Cash Equivalents
600 
600 
Investments in fixed maturities, at fair value
3,237 
2,579 
Equity Method Investments
271 
Property and equipment, net
7,868 
8,464 
Intangible assets, net
4,972 
4,910 
Other Assets, Noncurrent
2,624 
134 
Total assets
105,859 
82,345 
Liabilities and Equity [Abstract]
 
 
Accounts payable
2,716 
2,006 
Accrued liabilities and other current liabilities
7,660 
5,416 
Reserve for veterinary invoices
12,756 
9,521 
Deferred Revenue, Current
22,734 
13,463 
Total current liabilities
45,866 
30,406 
Long-term debt
9,324 
4,767 
Deferred tax liabilities
1,002 
1,623 
Other liabilities
1,233 
834 
Total liabilities
57,425 
37,630 
Common stock: $0.00001 par value per share
Preferred Stock, Value, Outstanding
Additional Paid-in Capital
134,511 
129,574 
Accumulated other comprehensive loss
(92)
(377)
Accumulated deficit
(82,784)
(81,281)
Treasury stock, at cost
(3,201)
(3,201)
Total stockholders' deficit
48,434 
44,715 
Liabilities and Equity
$ 105,859 
$ 82,345 
Consolidated Balance Sheet Condensed Consolidated Balance Sheet Parentheticals (USD $)
Dec. 31, 2017
Dec. 31, 2016
Common Stock, Shares Authorized
100,000,000 
 
Common Stock, Shares, Outstanding
30,121,496 
 
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 
100,000,000 
Common Stock, Shares, Issued
30,778,796 
30,156,247 
Common Stock, Shares, Outstanding
30,121,496 
29,498,947 
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 
657,300 
Consolidated Statement of Stockholders' Equity Statement (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Additional Paid-in Capital
Retained Earnings [Member]
Accumulated Other Comprehensive Loss
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2014
$ 59,275 
$ 0 
$ 119,045 
$ (57,180)
$ 11 
$ (2,601)
Stock Issued During Period, Shares, Share-based Compensation, Net of Tax Withholdings
 
565,248 
 
 
 
 
Stock Issued During Period, Value, Share-based Compensation, Net of Tax Withholdings
692 
 
692 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Common Stock, Shares, Outstanding
 
28,396,189 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,107 
 
3,107 
 
 
 
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)
(2,601)
Stock Issued During Period, Shares, Share-based Compensation, Net of Tax Withholdings
 
1,079,080 
 
 
 
 
Stock Issued During Period, Value, Share-based Compensation, Net of Tax Withholdings
3,083 
 
3,083 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Common Stock, Shares, Outstanding
 
29,498,947 
 
 
 
 
Redemption of warrants
 
59,999 
 
 
 
 
Settlement of warrant liabilities
600 
 
600 
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(600)
 
 
 
 
(600)
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,047 
 
3,047 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
125 
 
 
 
125 
 
Net loss
(6,896)
 
 
(6,896)
 
 
Treasury Stock, Shares, Acquired
 
(36,321)
 
 
 
 
Ending Balance at Dec. 31, 2016
44,715 
129,574 
(81,281)
(377)
(3,201)
Stock Issued During Period, Shares, Share-based Compensation, Net of Tax Withholdings
 
622,549 
 
 
 
 
Stock Issued During Period, Value, Share-based Compensation, Net of Tax Withholdings
1,375 
 
1,375 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Common Stock, Shares, Outstanding
30,121,496 
30,121,496 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,562 
 
3,562 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
285 
 
 
 
285 
 
Net loss
(1,503)
 
 
(1,503)
 
 
Ending Balance at Dec. 31, 2017
$ 48,434 
$ 0 
$ 134,511 
$ (82,784)
$ (92)
$ (3,201)
Consolidated Statement of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Net Cash Provided by (Used in) Operating Activities [Abstract]
 
 
 
Net loss
$ (1,503)
$ (6,896)
$ (17,205)
Depreciation, Depletion and Amortization
4,232 
3,846 
2,542 
Stock-based compensation expense
3,419 
2,946 
3,002 
Gain on sale of equity method investment
(1,036)
Other Operating Income (Expense), Net
(383)
104 
(68)
Increase (Decrease) in Operating Assets [Abstract]
 
 
 
Accounts and other receivables
(10,219)
(1,830)
(328)
Prepaid expenses and other assets
(179)
48 
(905)
Accounts payable, accrued liabilities, and other liabilities
3,019 
1,164 
(483)
Reserve for veterinary invoices
3,149 
3,226 
1,241 
Deferred revenue
9,167 
2,398 
1,779 
Net cash provided by (used in) operating activities
9,666 
5,006 
(10,425)
Net Cash Provided by (Used in) Investing Activities [Abstract]
 
 
 
Purchases of investment securities
(31,920)
(31,616)
(24,800)
Maturities of investment securities
23,372 
27,247 
20,180 
Proceeds from Sale of Equity Method Investments
1,402 
Purchases of property and equipment
(3,131)
(1,941)
(4,894)
Payments for (Proceeds from) Investments
(2,779)
(198)
(409)
Net cash used in investing activities
(13,056)
(6,508)
(9,923)
Net Cash Provided by (Used in) Financing Activities [Abstract]
 
 
 
Proceeds from exercise of stock options
2,545 
3,745 
1,335 
Payments Related to Tax Withholding for Share-based Compensation
(1,170)
(662)
(643)
Proceeds from debt financing, net of financing fees
4,400 
4,988 
(14,900)
Payments of Financing Costs
(694)
(399)
Net cash provided by (used in) financing activities
5,081 
7,672 
(14,208)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net
378 
111 
(586)
Net change in cash, cash equivalents, and restricted cash
2,069 
6,281 
(35,142)
Cash, Cash Equivalents, and Restricted Cash, Carrying Value
24,237 
17,956 
53,098 
Cash, Cash Equivalents, and Restricted Cash, Carrying Value, End of Period
26,306 
24,237 
17,956 
Supplemental Cash Flow Information [Abstract]
 
 
 
Income taxes paid
177 
19 
139 
Interest paid
333 
153 
155 
Purchases of property and equipment included in accounts payable and accrued liabilities
390 
104 
98 
Redemption of Warrants Non-Cash; Common Stock
600 
Capital Lease Obligations Incurred
$ 689 
$ 559 
$ 0 
Condensed Consolidated Balance Sheet Parentheticals (USD $)
Dec. 31, 2017
Dec. 31, 2016
Common Stock, Shares Authorized
100,000,000 
 
Common Stock, Shares, Outstanding
30,121,496 
 
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 
100,000,000 
Common Stock, Shares, Issued
30,778,796 
30,156,247 
Common Stock, Shares, Outstanding
30,121,496 
29,498,947 
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 
657,300 
Parent Company |
Common Stock
 
 
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
30,778,796 
30,156,247 
Common Stock, Shares, Outstanding
30,121,496 
29,498,947 
Parent Company |
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
Parent Company |
Treasury Stock [Member]
 
 
Treasury Stock, Shares
657,300 
657,300 
Net Loss per Share
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:
 
As of December 31,
 
2017
 
2016
 
2015
Stock options
4,006,399

 
4,123,023

 
4,871,949

Restricted stock awards and restricted stock units
256,842

 
352,996

 
472,384

Warrants
810,000

 
810,000

 
869,999

Property Plant and Equipment (Notes)
Property and Equipment, Net
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
December 31,
 
2017
 
2016
Software
$
17,221

 
$
14,340

Computer equipment and other
3,022

 
2,470

Property and equipment, at cost
20,243

 
16,810

Less: Accumulated depreciation
(12,375
)
 
(8,346
)
Property and equipment, net
$
7,868

 
$
8,464


Depreciation expense related to property and equipment, inclusive of assets purchased on capital lease, was $4.2 million, $3.8 million and $2.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
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, 2017.
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 gains and 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, 2017 and 2016 (in thousands):
 
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

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
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


Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 
December 31, 2017
 
Amortized
Cost
 
Fair
Value
Available-for-sale:

 

Due after one year through five years
2,237

 
2,237

Due after five years through ten years
1,000

 
1,000

 
$
3,237

 
$
3,237


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 the recovery of the amortized cost basis which may be at maturity.
Fair Value
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 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

 
 
 
 
 
 
 
As of December 31, 2016
 
Fair Value
 
Level 1
 
Level 2
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


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 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 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, 2017.
Commitment and Contingencies
Commitments and Contingencies Disclosure [Text Block]
Commitments and Contingencies

The following summarizes the Company's contractual commitments as of December 31, 2017 (in thousands):
 
Year Ending December 31,
 
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Long-term debt obligations(1)
$

 
$
9,500

 
$

 
$

 
$

 
$

 
$
9,500

Operating lease obligations(2)
1,876

 
2,035

 
2,116

 
2,197

 
2,258

 
8,719

 
19,201

Capital leases(3)
519

 

 

 

 

 

 
519

Other obligations(4)
927

 
562

 
119

 
17

 

 

 
1,625

Total
$
3,322

 
$
12,097

 
$
2,235

 
$
2,214

 
$
2,258

 
$
8,719

 
$
30,845

 
 
 
 
 
(1) Consists of a revolving line of credit. Excludes interest of the greater of 4.5% or 1.25% plus the prime rate (5.75% as of December 31, 2017).
(2) Consists of contractual obligations from non-cancellable office space under operating lease.
(3) Consists of contractual obligations from property and equipment purchased under capital lease.
(4) Consists of contractual obligations from non-cancellable vendor service agreements.


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. 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 $1.8 million, $1.2 million and $1.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Legal Proceedings
From time to time, the Company is subject to litigation matters and claims arising from the ordinary course of business, including, but not limited to, claims of alleged infringement of trademarks, copyrights, and other intellectual property rights; employment claims; coverage disputes with policyholders; disputes regarding general contracts; and regulatory or governmental investigations or disputes. The Company records an estimated liability relating to such matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The outcomes of legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company's operating results for a particular period. The Company reviews its estimates at least quarterly and makes adjustments to reflect the outcome of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.
Claims Reserve (Notes)
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):
 
 
Year Ended December 31,
Subscription
 
2017
 
2016
 
2015
Reserve at beginning of year
 
$
8,538

 
$
5,384

 
$
4,278

Veterinary invoices during the period related to:
 
 
 
 
 
 
Current year
 
155,623

 
123,823

 
95,390

Prior years
 
(69
)
 
813

 
30

Total veterinary invoice expense
 
155,554

 
124,636

 
95,420

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
144,802

 
115,314

 
89,768

Prior years
 
7,777

 
5,832

 
4,239

Total paid
 
152,579

 
121,146

 
94,007

Non-cash expenses
 
454

 
336

 
307

Reserve at end of period
 
$
11,059

 
$
8,538

 
$
5,384


The Company's reserve for the subscription business segment increased $2.6 million from $8.5 million at December 31, 2016 to $11.1 million at December 31, 2017. This change was comprised of $155.6 million in expense recorded during the period less $152.6 million in payments of veterinary invoices. This $155.6 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. The Company's adjustments to increase prior year reserves were $0.8 million and less than $0.1 million as a result of analysis of payment trends in the years ended December 31, 2016 and 2015, respectively.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Year Ended December 31,
Other Business
 
2017
 
2016
 
2015
Reserve at beginning of year
 
$
983

 
$
890

 
$
829

Veterinary invoices during the period related to:
 
 
 
 
 
 
Current year
 
14,739

 
9,027

 
7,983

Prior years
 
(171
)
 
(129
)
 
(79
)
Total veterinary invoice expense
 
14,568

 
8,898

 
7,904

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
13,053

 
8,048

 
7,095

Prior years
 
801

 
757

 
748

Total paid
 
13,854

 
8,805

 
7,843

Non-cash expenses
 

 

 

Reserve at end of period
 
$
1,697

 
$
983

 
$
890



The Company’s reserve for the other business segment increased $0.7 million from $1.0 million at December 31, 2016 to $1.7 million at December 31, 2017. This change was comprised of $14.6 million in expense recorded during the period less $13.9 million in payments of veterinary invoices. This $14.6 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. The Company's adjustments to decrease prior year reserves were $0.1 million as a result of analysis of payment trends in each of the years ended December 31, 2016 and 2015.
Veterinary invoice expenses

In the following tables, cumulative number of veterinary invoices represents the total number received as of December 31, 2017, by year the veterinary invoice relates to, referred to as the year of occurrence. If a pet is injured or becomes ill, multiple trips to the veterinarian may result in several invoices. Each of these veterinary invoices is included in the cumulative number, regardless of whether the veterinary invoice was paid. Information for years 2014 through 2016 is provided as required supplementary information. Amounts in these tables are presented on a constant currency basis to remove the impact of changes in the foreign currency exchange rate on development. The cumulative expenses as of the end of each year are revalued using the currency exchange rate as of December 31, 2017.

The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's subscription business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data):
 
 
Cumulative veterinary invoice expenses
 
Reserve
 
Cumulative number of veterinary invoices
 
 
 
 
 
 
As of December 31,
 
As of December 31,
Subscription
 
2014
 
2015
 
2016
 
2017
 
2017
 
2017
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
2014
 
$
72,100

 
$
72,039

 
$
72,204

 
$
72,222

 
$
27

 
379,078

2015
 
 
 
$
95,661

 
$
96,217

 
$
96,276

 
$
130

 
475,626

2016
 
 
 
 
 
$
125,127

 
$
124,910

 
$
535

 
587,007

2017
 
 
 
 
 
 
 
$
156,580

 
$
10,367

 
656,490

 
 
 
 
 
 
 
 
$
449,988

 
$
11,059

 
 

The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's other business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data):
 
 
Cumulative veterinary invoice expenses
 
Reserve
 
Cumulative number of veterinary invoices
 
 
 
 
 
 
As of December 31,
 
As of December 31,
Other Business
 
2014
 
2015
 
2016
 
2017
 
2017
 
2017
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
2014
 
$
5,966

 
$
5,889

 
$
5,888

 
$
5,895

 
$

 
34,587

2015
 
 
 
$
7,974

 
$
7,846

 
$
7,850

 
$

 
46,900

2016
 
 
 
 
 
$
9,028

 
$
8,844

 
$
11

 
59,243

2017
 
 
 
 
 
 
 
$
14,741

 
$
1,686

 
95,182

 
 
 
 
 
 
 
 
$
37,330

 
$
1,697

 
 


Cumulative paid veterinary invoice expense

In the following tables, amounts are by year the veterinary invoice relates to, referred to as the year of occurrence. Amounts in these tables are presented on a constant currency basis to remove the impact of changes in the foreign currency exchange rate. The cumulative amounts paid as of the end of each year are revalued using the currency exchange rate as of December 31, 2017. Information for years 2014 through 2016 is provided as required supplementary information.

The following table summarizes the amounts paid for veterinary invoices, inclusive of related internal processing costs and reported on a constant currency basis, for the subscription segment (in thousands):
 
 
Year Ended December 31,
Subscription
 
2014
 
2015
 
2016
 
2017
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
2014
 
$
67,886

 
$
71,969

 
$
72,132

 
$
72,196

2015
 
 
 
$
90,261

 
$
95,928

 
$
96,145

2016
 
 
 
 
 
$
116,879

 
$
124,375

2017
 
 
 
 
 
 
 
$
146,213


 
 
 
 
 
 
 
$
438,929

Total amounts unpaid and recorded as a liability
 
 
$
11,059



The following table summarizes the amounts paid for veterinary invoices, inclusive of related internal processing costs and reported on a constant currency basis, for the other business segment (in thousands):
 
 
Year Ended December 31,
Other Business
 
2014
 
2015
 
2016
 
2017
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
2014
 
$
5,137

 
$
5,887

 
$
5,887

 
$
5,895

2015
 
 
 
$
7,086

 
$
7,842

 
$
7,850

2016
 
 
 
 
 
$
8,049

 
$
8,833

2017
 
 
 
 
 
 
 
$
13,055

 
 
 
 
 
 
 
 
$
35,633

Total amounts unpaid and recorded as a liability
 
 
$
1,697

Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):
 
 
Year Ended December 31,
Subscription
 
2017
 
2016
 
2015
Reserve at beginning of year
 
$
8,538

 
$
5,384

 
$
4,278

Veterinary invoices during the period related to:
 
 
 
 
 
 
Current year
 
155,623

 
123,823

 
95,390

Prior years
 
(69
)
 
813

 
30

Total veterinary invoice expense
 
155,554

 
124,636

 
95,420

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
144,802

 
115,314

 
89,768

Prior years
 
7,777

 
5,832

 
4,239

Total paid
 
152,579

 
121,146

 
94,007

Non-cash expenses
 
454

 
336

 
307

Reserve at end of period
 
$
11,059

 
$
8,538

 
$
5,384


The Company's reserve for the subscription business segment increased $2.6 million from $8.5 million at December 31, 2016 to $11.1 million at December 31, 2017. This change was comprised of $155.6 million in expense recorded during the period less $152.6 million in payments of veterinary invoices. This $155.6 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. The Company's adjustments to increase prior year reserves were $0.8 million and less than $0.1 million as a result of analysis of payment trends in the years ended December 31, 2016 and 2015, respectively.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Year Ended December 31,
Other Business
 
2017
 
2016
 
2015
Reserve at beginning of year
 
$
983

 
$
890

 
$
829

Veterinary invoices during the period related to:
 
 
 
 
 
 
Current year
 
14,739

 
9,027

 
7,983

Prior years
 
(171
)
 
(129
)
 
(79
)
Total veterinary invoice expense
 
14,568

 
8,898

 
7,904

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
13,053

 
8,048

 
7,095

Prior years
 
801

 
757

 
748

Total paid
 
13,854

 
8,805

 
7,843

Non-cash expenses
 

 

 

Reserve at end of period
 
$
1,697

 
$
983

 
$
890



The Company’s reserve for the other business segment increased $0.7 million from $1.0 million at December 31, 2016 to $1.7 million at December 31, 2017. This change was comprised of $14.6 million in expense recorded during the period less $13.9 million in payments of veterinary invoices. This $14.6 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. The Company's adjustments to decrease prior year reserves were $0.1 million as a result of analysis of payment trends in each of the years ended December 31, 2016 and 2015.
Debt
Debt Disclosure [Text Block]
Debt
The Company has a revolving line of credit of up to $30.0 million, 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 (5.75% at December 31, 2017). The borrowing agreement includes other ancillary services and letters of credit of up to $4.5 million as of December 31, 2017. The facility also requires a deposit of restricted cash of $0.6 million. The agreement was amended during the current year to extend the maturity date to December 2019. The credit agreement requires the Company to comply with various financial and non-financial covenants. As of December 31, 2017, the Company was in compliance with all covenants.
Borrowings on the revolving line of credit were 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 December 31, 2017 and 2016. As of December 31, 2017, available borrowing capacity on the line of credit was $18.7 million, with an outstanding balance of $1.8 million for ancillary services and letters of credit, and borrowings under the facility of $9.5 million, recorded net of financing fees of $0.2 million.
Stock-based Compensation
Stock-based Compensation
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 each category of the consolidated statement of operations for the years ended December 31, 2017, 2016 and 2015 was as follows (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Veterinary invoice expense
$
355

 
$
234

 
$
219

Other cost of revenue
239

 
41

 
44

Technology and development
216

 
246

 
404

General and administrative
1,887

 
1,893

 
1,889

Sales and marketing
722

 
532

 
446

Total stock-based compensation
$
3,419

 
$
2,946

 
$
3,002

As of December 31, 2017, for all employees, the Company had 991,754 unvested stock options and 256,842 restricted stock awards and restricted stock units that are expected to vest. Total stock-based compensation expense of $5.7 million related to unvested stock options and $0.9 million related to unvested restricted stock awards and restricted stock units is expected to be recognized over a weighted-average period of approximately 2.7 years and 1.3 years, respectively.
Stock Options
The grant date fair value of stock option awards are estimated on the date of grant using the Black-Scholes option-pricing model. Valuation assumptions for the years ended December 31, 2017, 2016 and 2015 are presented in the following table:
 
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Valuation assumptions:
 
 
 
 
 
 
Expected term (in years)
 
6.25
 
5.04-6.25
 
3.0-6.25
Expected volatility
 
37.1%-39.8%
 
37.6%-42.1%
 
37.2%–49.4%
Risk-free interest rate
 
1.8%-2.2%
 
1.1%-2.0%
 
1.1%–2.0%
Expected dividend yield
 
—%
 
—%
 
—%

The following table presents information regarding stock options granted, exercised and forfeited for the periods presented:
 
Number
of
Options
 
Weighted Average
Exercise
Price per Share
 
Aggregate
Intrinsic
Value
(in thousands)
Outstanding as of 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

 

Outstanding as of 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

 

Outstanding as of December 31, 2016
4,123,023

 
5.06

 
43,185

Granted
657,339

 
17.74

 

Exercised
(670,823
)
 
3.80

 
10,392

Forfeited
(103,140
)
 
12.25

 

Outstanding as of December 31, 2017
4,006,399

 
7.16

 
88,578

 
 
 
 
 
 
Exercisable at December 31, 2017
2,998,099

 
$
4.50

 
$
74,278

As of December 31, 2017, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 5.4 years and 4.3 years, respectively.

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, 2017, 2016, and 2015:
 
 
Weighted Average Grant Date Fair Value per Share
 
Fair Value
of Options
Vested (in thousands)
Year:
 
 
 
 
2015
 
$
3.46

 
$
3,276

2016
 
$
5.64

 
$
4,645

2017
 
$
7.25

 
$
6,313



Restricted Stock Awards and Restricted Stock Units
The below table summarizes the Company’s restricted stock award and restricted stock unit activity for the years ending December 31, 2017, 2016 and 2015:
 
 
Number of 
Shares
 
Weighted Average
Grant Date Fair Value per
Share
Unvested shares as of December 31, 2014
 
584,385

 
$
4.77

Granted
 
2,385

 
7.26

Vested
 
(119,262
)
 
4.80

Forfeited
 

 

Unvested shares as of December 31, 2015
 
467,508

 
4.77

Granted
 

 

Vested
 
(116,877
)
 
4.77

Forfeited
 

 

Unvested shares as of December 31, 2016
 
350,631

 
4.77

Granted
 
23,659

 
30.19

Vested
 
(116,877
)
 
4.77

Forfeited
 
(571
)
 
30.19

Unvested shares as of December 31, 2017
 
256,842

 
$
4.77

Stockholder's Equity (Notes)
Stockholders' Equity Note Disclosure [Text Block]
Stockholders Equity
As of December 31, 2017, the Company had 100,000,000 shares of common stock authorized and 30,121,496 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, 2017, 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, 2017 due to restrictions in its credit agreements.
Warrants
At December 31, 2017 and 2016, warrants to purchase 810,000 shares of the Company's common stock at $10.00 per share remained outstanding. The warrants expire in 2018 and 2019.
Segments
Segment Reporting Disclosure [Text Block]
Segments
The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscriptions 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):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Revenue:
 
 
 
 
 
Subscription business
$
218,354

 
$
173,356

 
$
133,406

Other business
24,313

 
14,874

 
13,557

 
242,667

 
188,230

 
146,963

Veterinary invoice expense:
 
 
 
 
 
Subscription business
155,554

 
124,636

 
95,420

Other business
14,568

 
8,898

 
7,904

 
170,122

 
133,534

 
103,324

Other cost of revenue:
 
 
 
 
 
Subscription business
21,329

 
16,685

 
14,008

Other business
8,166

 
4,723

 
4,402

 
29,495

 
21,408

 
18,410

Gross profit:
 
 
 
 
 
Subscription business
41,471

 
32,035

 
23,978

Other business
1,579

 
1,253

 
1,251

 
43,050

 
33,288

 
25,229

 
 
 
 
 
 
Technology and development
9,768

 
9,534

 
11,215

General and administrative
16,820

 
15,205

 
15,558

Sales and marketing:
 
 
 
 
 
Subscription business
18,886

 
15,029

 
15,151

Other business
218

 
218

 
80

 
19,104

 
15,247

 
15,231

Operating loss
$
(2,642
)
 
$
(6,698
)
 
$
(16,775
)


The following table presents the Company’s revenue by geographic region of the member (in thousands):
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
United States
$
195,297

 
$
151,361

 
$
116,585

Canada
47,370

 
36,869

 
30,378

Total revenue
$
242,667

 
$
188,230

 
$
146,963


Substantially all of the Company’s long-lived assets were located in the United States as of December 31, 2017 and 2016.
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, American Pet Insurance Company, and one of 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.
New York law restricts the ability of the Company's insurance subsidiary in New York to pay dividends to its holding company parent. These restrictions are based in part on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval, and dividends in larger amounts, or extraordinary dividends, are subject to approval by the New York State Department of Financial Services, the subsidiary's primary regulator. An extraordinary dividend or distribution is defined as a dividend or distribution that, in the aggregate in any 12-month period, exceeds the lesser of (i) 10% of surplus as of the preceding December 31 or (ii) the insurer’s adjusted net investment income for such 12-month period, not including realized capital gains. Under regulatory requirements at December 31, 2017, 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 $0.2 million. This insurance subsidiary did not pay dividends to the Company during the years ended December 31, 2017, 2016, and 2015.
The Company's insurance subsidiary in Bermuda is regulated by the Bermuda Monetary Authority. Under the Bermuda Companies Act of 1981, as amended, a Bermuda company may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that: (a) the company is, or would be after the payment, unable to pay its liabilities as they become due; or (b) the realizable value of the company’s assets would thereby be less than its liabilities. The Segregated Accounts Company Act of 2000 further requires that dividends out of a segregated account can only be paid to the extent that the cell remains solvent. The value of its assets must remain greater than the aggregate of its liabilities, issued share capital, and share premium accounts. Per our contractual agreements with Wyndham Insurance Company (SAC) Limited, the allowable dividend is equivalent to the positive undistributed profit attributable to the shares. This insurance subsidiary paid the Company a dividend of $2.7 million during the year ended December 31, 2017. No dividends were paid during the years ended December 31, 2016 and 2015.
The statutory net income for 2017, 2016 and 2015 and statutory capital and surplus at December 31, 2017, 2016 and 2015, for the Company’s insurance subsidiary in New York were as follows (in thousands):
 
 
As of December 31,
 
 
2017
 
2016
 
2015
Statutory net income
 
$
7,507

 
$
4,081

 
$
1,386

Statutory capital and surplus
 
37,190

 
30,451

 
26,068


As of December 31, 2017, the Company’s insurance subsidiary in New York maintained $37.2 million of statutory capital and surplus which was above the required amount of $22.2 million of statutory capital and surplus to avoid additional regulatory oversight. As of December 31, 2017 and 2016, the Company had $6.6 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 sometimes party to arrangements with the father and brother of the Company’s Chief Executive Officer, who both serve as independent contractors to develop veterinary relationships. The terms of the independent contractor agreements are consistent with the terms of other similar independent contractors that do business with the Company. Total amounts paid to the related parties were less than $0.5 million for each year ended December 31, 2017, 2016, and 2015.
Income Taxes (Notes)
Income Taxes
Income Taxes
Loss before income taxes was as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
United States
 
$
(1,965
)
 
$
(6,906
)
 
$
(17,222
)
Foreign
 
34

 
48

 
131

 
 
$
(1,931
)
 
$
(6,858
)
 
$
(17,091
)

The components of income tax (benefit) expense were as follows (in thousands):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
 
U.S. federal & state
 
$
183

 
$
25

 
$
31

Foreign
 
15

 
13

 
84

 
 
198

 
38

 
115

Deferred:
 
 
 
 
 
 
U.S. federal & state
 
(620
)
 

 

Foreign
 
(6
)
 

 
(1
)
 
 
(626
)
 

 
(1
)
Income tax (benefit) expense
 
$
(428
)
 
$
38

 
$
114



On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code, including, but not limited to, a corporate tax rate decrease to 21% effective January 1, 2018. The Company has calculated its best estimate of the impact of the Tax Act for the year ended December 31, 2017, based on its understanding of the Tax Act and guidance available as of the date of filing, and recorded an income tax benefit of $0.6 million.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company has determined that the $0.6 million income tax benefit recorded in connection with the remeasurement of its deferred tax liabilities was a provisional amount and a reasonable estimate as of December 31, 2017. Any necessary subsequent adjustments will be recorded in 2018.

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:
 
 
Year Ended December 31,    
 
 
2017
 
2016
 
2015
Federal income taxes at statutory rate
 
34.0
 %
 
34.0
 %
 
34.0
 %
U.S. state income taxes
 
(9.5
)
 
(0.6
)
 
(0.7
)
Equity compensation
 
189.1

 
7.7

 
(1.2
)
Change in valuation allowance
 
(229.6
)
 
(40.5
)
 
(34.2
)
Meals and entertainment
 
(3.0
)
 
(0.9
)
 
(0.4
)
Other, net
 
2.0

 
(0.3
)
 
1.8

Change in federal tax rate
 
32.1

 

 

Credits
 
7.1

 

 

Effective income tax rate
 
22.2
 %
 
(0.6
)%
 
(0.7
)%

The principal components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
 
 
Year Ended December 31,         
 
 
2017
 
2016
Deferred tax assets:
 
 
 
 
Unearned premium reserves
 
$
966

 
$
918

Accruals and reserves
 
606

 
782

Net operating loss carryforwards
 
18,211

 
22,632

Depreciation and amortization
 
317

 
535

Equity compensation
 
1,024

 
1,137

Credits
 
208



Other
 
270

 
101

Total deferred tax assets
 
21,602

 
26,105

Deferred tax liabilities:
 
 
 
 
Deferred costs
 
(183
)
 
(226
)
Intangible assets
 
(1,002
)
 
(1,623
)
Total deferred tax liabilities
 
(1,185
)
 
(1,849
)
Total deferred taxes
 
20,417

 
24,256

Less deferred tax asset valuation allowance
 
(21,419
)
 
(25,879
)
Net deferred tax liability
 
$
(1,002
)
 
$
(1,623
)

At December 31, 2017, the Company had federal net operating loss carryforwards of $86.7 million and federal credits of $0.2 million. Use of the carryforwards is limited based on the future income of the Company. The federal net operating loss carryforwards currently would begin to expire in 2026. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the Company’s net operating loss carryforwards and credit carryforwards may be limited if the Company experiences an ownership change. As of December 31, 2017, the utilization of approximately $0.5 million of net operating losses are subject to limitation as a result of prior ownership changes; however, subsequent ownership changes may further affect the limitation in future years.
A valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2017 and 2016 because the Company’s management has determined that it is more likely than not that these assets will not be fully realized.
The Company intends to reinvest all foreign earnings indefinitely outside of the U.S.
The Company is open to examination by the U.S. federal tax jurisdiction for the years ended December 31, 2014 through 2017. The Company is also open to examination for 2007 and forward with respect to net operating loss carryforwards generated and carried forward from those years in the United States. The Company is open to examination by the Canada Revenue Agency for the years ended December 31, 2013 through 2017 for all corporate tax matters, and open for the years ended December 31, 2009 through 2017 for transactions with non-arm’s length non-Canadian residents.
The Company accounts for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first step assesses whether the tax position is more likely than not to be sustained upon examination by the taxing authority, including resolution of any appeals or litigation, on the basis of the technical merits of the position. If the tax position meets the more-likely-than-not criteria, the portion of the tax benefit greater than 50% likely to be realized upon settlement with the relevant tax authority is recognized in the financial statements. No significant changes in uncertain tax positions are expected in the next twelve months.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
  
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Balance, beginning of year
 
$
120

 
$
80

 
$
65

Increases to tax positions related to prior periods
 
91

 

 

Increases to tax positions related to the current year
 
116

 
40

 
15

Balance, end of year
 
$
327

 
$
120

 
$
80

Retirement Plan (Notes)
Compensation and Employee Benefit Plans [Text Block]
The Company has a 401(k) plan for its U.S. employees. The plan allows employees to contribute a percentage of their pretax earnings annually, subject to limitations imposed by the Internal Revenue Service. The plan also allows the Company to make a matching contribution, subject to certain limitations. To date, the Company has made no contributions to the 401(k) plan.
Quarterly Financial Information (Notes)
Quarterly Financial Information [Text Block]

The following table contains quarterly financial data for the years ended December 31, 2017 and 2016 (in thousands, except per share data). The unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements and includes all adjustments that the Company considers necessary for a fair presentation of the information shown. The operating results for any fiscal quarter are not necessarily indicative of the operating results for a full fiscal year or any future period and there can be no assurances that any trend reflected in such results will continue in the future.
 
Three Months Ended
 
Dec. 31, 2017(1)
 
Sept. 30, 2017
 
Jun. 30, 2017(2)
 
Mar. 31, 2017
 
Dec. 31, 2016
 
Sept. 30, 2016
 
Jun. 30, 2016
 
Mar. 31, 2016
Total revenues
$
66,545

 
$
63,118

 
$
58,275

 
$
54,729

 
$
51,340

 
$
48,359

 
$
45,832

 
$
42,699

Gross profit
11,737

 
11,807

 
10,351

 
9,155

 
9,218

 
8,500

 
8,266

 
7,304

Net (loss) income