TRUPANION, INC., 10-Q filed on 5/3/2019
Quarterly Report
v3.19.1
Document and Entity Information Document - shares
3 Months Ended
Mar. 31, 2019
Apr. 25, 2019
Entity [Abstract]    
Entity Registrant Name TRUPANION, INC.  
Entity Central Index Key 0001371285  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Trading Symbol TRUP  
Entity Common Stock, Shares Outstanding   34,489,695
v3.19.1
Consolidated Statement of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Revenue $ 86,978 $ 69,760
Cost of Revenue [Abstract]    
Veterinary invoice expense 61,282 50,113
Other cost of revenue 10,664 8,583
Gross profit 15,032 11,064
Operating Expenses [Abstract]    
Technology and Development 2,669 2,164
General and administrative 5,419 4,458
Sales and marketing 8,227 5,938
Total operating expenses 16,315 12,560
Operating loss (1,283) (1,496)
Interest expense 317 219
Other income, net (344) (140)
Income (Loss) before income taxes (1,256) (1,575)
Income tax expense (benefit) 40 (95)
Net loss $ (1,296) $ (1,480)
Earnings Per Share, Basic and Diluted $ (0.04) $ (0.05)
Weighted Average Number of Shares Outstanding, Basic and Diluted 34,292,367 30,246,585
v3.19.1
Consolidated Statement of Comprehensive Income Statement - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net loss $ (1,296) $ (1,480)
Foreign currency translation adjustments 189 (190)
Net unrealized gain (loss) on available-for-sale debt securities 19 (15)
Other comprehensive income (loss), net of taxes 208 (205)
Comprehensive Income (Loss) $ (1,088) $ (1,685)
v3.19.1
Consolidated Balance Sheet - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Assets [Abstract]    
Cash and cash equivalents $ 26,622 $ 26,552
Short-term Investments 61,648 54,559
Accounts and other receivables 37,568 31,565
Prepaid expenses and other assets 4,847 5,300
Total current assets 130,685 117,976
Restricted Cash 1,400 1,400
Long-Term Investments, at fair value 3,701 3,554
Property and equipment, net 69,365 69,803
Intangible assets, net 7,839 8,071
Other Long-Term Assets 8,315 6,706
Total assets 221,305 207,510
Liabilities and Equity [Abstract]    
Accounts payable 2,897 2,767
Accrued liabilities and other current liabilities 12,059 11,347
Reserve for veterinary invoices 17,175 16,062
Deferred Revenue 38,594 33,027
Total current liabilities 70,725 63,203
Long-term debt 18,078 12,862
Deferred tax liabilities 1,002 1,002
Other liabilities 1,491 1,270
Total liabilities 91,296 78,337
Common stock 0 0
Preferred Stock 0 0
Additional paid-in capital 226,262 219,838
Accumulated other comprehensive loss (545) (753)
Accumulated deficit (85,007) (83,711)
Treasury stock, at cost (10,701) (6,201)
Stockholders' Equity Attributable to Parent 130,009 129,173
Total liabilities and stockholders' equity $ 221,305 $ 207,510
v3.19.1
Consolidated Balance Sheet Condensed Consolidated Balance Sheet Parentheticals - $ / shares
Mar. 31, 2019
Dec. 31, 2018
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 35,397,330 34,781,121
Common Stock, Shares, Outstanding 34,467,465 34,025,136
Preferred Stock, Par or Stated Value Per Share $ 0.00001 $ 0.00001
Preferred Stock, Shares Authorized 10,000,000 10,000,000
Preferred Stock, Shares Issued 0 0
Preferred Stock, Shares Outstanding 0 0
Treasury Stock, Shares 929,865 755,985
v3.19.1
Consolidated Statement of Stockholders' Equity Statement - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Treasury Stock [Member]
Common Stock, Shares, Outstanding 30,121,496          
Stockholders' Equity Attributable to Parent $ 48,434 $ 0 $ 134,511 $ (82,784) $ (92) $ (3,201)
Redemption of warrants   201,315        
Settlement of warrant liabilities 0   3,000     (3,000)
Stock Issued During Period, Shares, Share-based Compensation, Net of Tax Withholdings   108,104        
Stock Issued During Period, Value, Share-based Compensation, Net of Tax Withholdings 481   481      
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition 1,017   1,017      
Other Comprehensive Income (Loss), Net of Tax (205)       (205)  
Net Income (Loss) Available to Common Stockholders, Basic (1,480)     (1,480)    
Common Stock, Shares, Outstanding   30,430,915        
Stockholders' Equity Attributable to Parent $ 48,247 $ 0 139,009 (84,264) (297) (6,201)
Common Stock, Shares, Outstanding 34,025,136          
Stockholders' Equity Attributable to Parent $ 129,173 $ 0 219,838 (83,711) (753) (6,201)
Redemption of warrants 450,000 276,120        
Settlement of warrant liabilities $ 0   4,500     (4,500)
Stock Issued During Period, Shares, Share-based Compensation, Net of Tax Withholdings   166,209        
Stock Issued During Period, Value, Share-based Compensation, Net of Tax Withholdings 507   507      
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition 1,417   1,417      
Other Comprehensive Income (Loss), Net of Tax 208       208  
Net Income (Loss) Available to Common Stockholders, Basic $ (1,296)     (1,296)    
Common Stock, Shares, Outstanding 34,467,465 34,467,465        
Stockholders' Equity Attributable to Parent $ 130,009 $ 0 $ 226,262 $ (85,007) $ (545) $ (10,701)
v3.19.1
Consolidated Statement of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Net Cash Provided by Operating Activities [Abstract]    
Net loss $ (1,296) $ (1,480)
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities [Abstract]    
Depreciation and Amortization 1,613 927
Stock-based compensation expense 1,357 968
Other, Net (3) 23
Increase (Decrease) in Operating Assets [Abstract]    
Accounts and other receivables 5,894 3,926
Prepaid expenses and other assets (325) 129
Accounts Payable, Accrued Liabilities, and Other Liabilities 1,256 910
Claims Reserve 1,078 743
Deferred revenue 5,523 4,041
Net cash provided by operating activities 3,959 2,077
Net Cash Provided by Investing Activities [Abstract]    
Payments to Acquire Investments (17,350) (7,140)
Maturities of Investment Securities 10,205 5,300
Purchases of property and equipment (878) (992)
Payments for (Proceeds from) Other Investing Activities (1,479) 0
Net cash used in investing activities (9,502) (2,832)
Net Cash Provided by Financing Activities [Abstract]    
Proceeds from exercise of stock options 661 481
Payments Related to Tax Withholding for Share-based Compensation (197) 0
Proceeds from Debt, Net of Issuance Costs 5,200 5,500
Proceeds from (Payments for) Other Financing Activities (271) (216)
Net cash provided by financing activities 5,393 5,765
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net 220 70
Net Increase in Cash, Cash Equivalents, and Restricted Cash 70 5,080
Cash, Cash Equivalents, and Restricted Cash at beginning of period 27,952 26,306
Cash, Cash Equivalents, and Restricted Cash, End of Period 28,022 31,386
Supplemental Cash Flow Information [Abstract]    
Redemption of Warrants Non-Cash; Common Stock 4,500 3,000
Purchases of property and equipment included in accounts payable and accrued liabilities $ 141 $ 680
v3.19.1
Nature of Operations and Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Significant Accounting Policies
Description of Business and Basis of Presentation
Trupanion, Inc. (collectively with its wholly-owned subsidiaries, the Company) provides medical insurance for cats and dogs throughout the United States, Canada and Puerto Rico.
The financial data as of December 31, 2018 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive income (loss), stockholders' equity and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (SEC) on February 14, 2019 (the 2018 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2018 10-K. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 1 to the audited financial statements included in the 2018 10-K for additional discussion of these estimates and assumptions.
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update (ASU) No. 2016-02 Leases (Topic 842), as amended, using the modified retrospective approach under which the transition provisions were applied as of January 1, 2019. In addition, the Company elected the “package of practical expedients” under the transition guidance within the new standard to not reassess prior conclusions about lease identification, lease classification, and initial direct costs for existing lease contracts. The Company also elected the practical expedient to not separate lease and non-lease components, if any, for all lease contracts.
Upon adoption of this standard, the Company recorded approximately $0.1 million right-of-use assets and lease liabilities for operating leases. They were classified as other long-term assets and other liabilities on the Company's consolidated balance sheets. The standard did not have a material impact on the Company's consolidated statements of operations, stockholders' equity, or cash flows.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued an ASU amending the measurement of credit losses on financial instruments. The ASU requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In August 2018, the FASB issued an ASU that eliminates certain disclosure requirements for fair value measurements, requires new disclosures regarding significant unobservable inputs used to develop Level 3 fair value measurements, and modifies certain existing disclosure requirements for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
v3.19.1
Net Loss per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share, Basic and Diluted [Abstract]  
Earnings Per Share [Text Block] Net Income (Loss) per Share
Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is calculated using the weighted average number of shares of common stock plus, when dilutive, potential shares of common stock outstanding using the treasury-stock method. Potential shares of common stock 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 share of common stock calculation because they would have had an antidilutive effect:
 
Three Months Ended March 31,
 
2019
 
2018
Stock options
2,513,946

 
3,878,716

Restricted stock awards and restricted stock units
716,319

 
546,638

Warrants
30,000

 
510,000

v3.19.1
Investment Securities (Notes)
3 Months Ended
Mar. 31, 2019
Investments [Abstract]  
Investment [Text Block]
The amortized cost, gross unrealized holding gains and losses, and estimates of fair value of long-term and short-term investments by major security type and class of security were as follows as of March 31, 2019 and December 31, 2018 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of March 31, 2019
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
Foreign deposits
$
2,701

 
$

 
$

 
$
2,701

Municipal bond
1,000

 

 

 
1,000

 
$
3,701

 
$

 
$

 
$
3,701

       Short-term investments:
 
 
 
 
 
 
 
              U.S. Treasury securities
$
6,660

 
$

 
$

 
$
6,660

              Certificates of deposit
438

 
1

 

 
439

              U.S. government funds
54,550

 

 

 
54,550

 
$
61,648


$
1

 
$


$
61,649

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2018
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
Foreign deposits
$
2,573

 
$

 
$

 
$
2,573

Municipal bond
1,000

 

 
(19
)
 
981

 
$
3,573


$

 
$
(19
)

$
3,554

Short-term investments:
 
 
 
 
 
 
 
U.S. Treasury securities
$
6,645

 
$

 
$
(3
)
 
$
6,642

Certificates of deposit
437

 

 

 
437

U.S. government funds
47,477

 

 

 
47,477

 
$
54,559


$

 
$
(3
)

$
54,556


Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 
As of March 31, 2019
 
Amortized
Cost
 
Fair
Value
Available-for-sale:
 
 
 
Due after one year through five years
$
3,701

 
$
3,701

 
$
3,701

 
$
3,701


The Company evaluated its securities for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. For debt securities, the Company does not intend to sell, nor is it more likely than not that the Company will be required to sell, the securities prior to maturity or prior to the recovery of the amortized cost basis.
Investments [Text Block] The amortized cost, gross unrealized holding gains and losses, and estimates of fair value of long-term and short-term investments by major security type and class of security were as follows as of March 31, 2019 and December 31, 2018 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of March 31, 2019
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
Foreign deposits
$
2,701

 
$

 
$

 
$
2,701

Municipal bond
1,000

 

 

 
1,000

 
$
3,701

 
$

 
$

 
$
3,701

       Short-term investments:
 
 
 
 
 
 
 
              U.S. Treasury securities
$
6,660

 
$

 
$

 
$
6,660

              Certificates of deposit
438

 
1

 

 
439

              U.S. government funds
54,550

 

 

 
54,550

 
$
61,648


$
1

 
$


$
61,649

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2018
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
Foreign deposits
$
2,573

 
$

 
$

 
$
2,573

Municipal bond
1,000

 

 
(19
)
 
981

 
$
3,573


$

 
$
(19
)

$
3,554

Short-term investments:
 
 
 
 
 
 
 
U.S. Treasury securities
$
6,645

 
$

 
$
(3
)
 
$
6,642

Certificates of deposit
437

 

 

 
437

U.S. government funds
47,477

 

 

 
47,477

 
$
54,559


$

 
$
(3
)

$
54,556

v3.19.1
Other Investments (Notes)
3 Months Ended
Mar. 31, 2019
Investments, All Other Investments [Abstract]  
Investments and Other Noncurrent Assets [Text Block] Other Investments
Investment in Variable Interest Entity
In July 2018, the Company purchased $3.0 million in preferred stock of a privately held corporation with a complementary business line. The Company does not have power over the activities that most significantly impact the economic performance of the variable interest entity and is, therefore, not the primary beneficiary. The Company's investment in preferred stock is accounted for as an available-for-sale debt security. Through January 2020, the Company has agreed to purchase an additional $4.0 million in preferred stock of the variable interest entity, contingent upon the exercise of this option by the variable interest entity. The Company has the option to purchase the variable interest entity on the fifth anniversary of the initial preferred stock purchase. Additionally, the Company has extended a $2.5 million revolving line of credit to the variable interest entity. The Company's investment and amounts loaned under the line of credit are recorded in other long-term assets on its consolidated balance sheet. Outstanding loan balance under the line of credit was $2.1 million and $0.6 million as of March 31, 2019 and December 31, 2018, respectively.
Investment in Joint Venture
In September 2018, the Company acquired a non-controlling equity interest in a joint venture, whereby it has committed to licensing certain intellectual property and contributing up to $2.2 million AUD upon the achievement of specific operational milestones over a period of at least four years from the agreement execution date. As of March 31, 2019, the Company has contributed $0.3 million AUD. This equity interest is classified in other long-term assets.
v3.19.1
Fair Value
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block] Fair Value
Investments
The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands):
 
As of March 31, 2019
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Restricted cash
$
1,400

 
$
1,400

 
$

 
$

Money market funds
4,022

 
4,022

 

 

Fixed maturities:


 
 
 
 
 
 
Foreign deposits
2,701

 
2,701

 

 

Municipal bond
1,000

 

 
1,000

 

Investment in variable interest entity
3,000

 

 

 
3,000

Total
$
12,123


$
8,123


$
1,000


$
3,000

 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Restricted cash
$
1,400

 
$
1,400

 
$

 
$

Money market funds
2,010

 
2,010

 

 

Fixed maturities:
 
 
 
 
 
 
 
Foreign deposits
2,573

 
2,573

 

 

Municipal bond
981

 

 
981

 

Investment in variable interest entity
3,000

 

 

 
3,000

Total
$
9,964

 
$
5,983

 
$
981

 
$
3,000


The Company measures the fair value of restricted cash, money market funds, and foreign deposits 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. The estimated fair value of the Company's investment in the variable interest entity is a Level 3 measurement, and is based on market interest rates, the assessed creditworthiness of the entity, and the estimated fair value of the entity's common stock. As of March 31, 2019, the Company estimates that the purchase price approximates the fair value. Short-term investments are carried at amortized cost and the fair value is disclosed in Note 3, Investments. The fair value of these investments is determined in the same manner as for available-for-sale securities and is considered a Level 1 measurement.
Fair Value Disclosures
The Company's other long-term assets balance included $4.5 million of notes receivable as of March 31, 2019 and $3.0 million of notes receivable as of December 31, 2018, recorded at its estimated collectible amount. The Company estimates that the carrying value of the note receivable approximates its fair value. The estimated fair value represents a Level 3 measurement within the fair value hierarchy, and is based on market interest rates and the assessed creditworthiness of the third party.
The Company estimates the fair value of its long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement. Based upon the terms of the debt, the carrying amount of long-term debt approximated fair value at March 31, 2019 and December 31, 2018.
v3.19.1
Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block] Debt
The Company has a revolving line of credit of up to $50.0 million, maturing June 2021. The facility is secured by any and all interests in the Company's assets that are not otherwise restricted. Interest on the revolving line of credit is payable monthly at the greater of 4.5%, or 1.25% plus the prime rate (6.75% at March 31, 2019). The credit agreement includes other ancillary services and letters of credit of up to $4.5 million, and requires a deposit of restricted cash of $1.4 million. The credit agreement requires the Company to comply with various financial and non-financial covenants. As of March 31, 2019, the Company was in compliance with all financial and non-financial covenants required by the credit agreement.
Borrowings on the revolving line of credit are limited to the lesser of $50.0 million and the total amount of cash and securities held by the Company's insurance subsidiaries (American Pet Insurance Company and Wyndham Insurance Company (SAC) Limited Segregated Account AX). As of March 31, 2019, available borrowing capacity on the line of credit was $31.4 million, with an outstanding balance of $0.4 million for ancillary services and letters of credit, and borrowings under the facility of $18.2 million, recorded net of financing fees of $0.1 million.
v3.19.1
Commitment and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block] Commitments and Contingencies
Certain state insurance regulators in the United States have contacted the Company regarding whether employees who had helped prospective members enroll by telephone in prior years were required to have an insurance license to conduct such telephone conversations. To date, the Company has resolved each of these matters in non-material amounts and believes it is compliant with the applicable regulations. The Company is currently engaged with a limited number of state insurance regulators to resolve this same legacy issue and believes it has adequately reserved for these matters.
In addition, from time to time the Company is or may become subject to various legal proceedings arising in the ordinary course of business, including proceedings against members, other entities or regulatory bodies. Estimated liabilities are recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. At this time, the Company does not believe any such matters to be material individually or in the aggregate. These views are subject to change following the outcome of future events or the results of future developments.
v3.19.1
Claims Reserve
3 Months Ended
Mar. 31, 2019
Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]  
Supplementary Insurance Information, for Insurance Companies Disclosure [Text Block] Reserve for Veterinary Invoices
The reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that are dated as of, or prior to, its balance sheet date. The reserve also includes the Company's estimate of related internal processing costs. The reserve estimate involves actuarial projections, and is based on management's assessment of facts and circumstances currently known, and assumptions about anticipated patterns. The reserve is made for each of the Company's segments, subscription and other business, and is continually refined as the Company receives and pays veterinary invoices. Changes in management's assumptions and estimates may have a relatively large impact to the reserve and associated expense.
Reserve for veterinary invoices
Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):
 
 
Three Months Ended March 31,
Subscription
 
2019
 
2018
Reserve at beginning of year
 
$
13,875

 
$
11,059

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
53,436

 
45,198

Prior years
 
202

 
(61
)
Total veterinary invoice expense
 
53,638

 
45,137

Amounts paid during the period related to:
 
 
 
 
Current year
 
42,650

 
36,142

Prior years
 
10,015

 
8,250

Total paid
 
52,665

 
44,392

Non-cash expenses
 
201

 
156

Reserve at end of period
 
$
14,647

 
$
11,648

The Company's reserve for the subscription business segment increased from $13.9 million at December 31, 2018 to $14.6 million at March 31, 2019. This change was comprised of $53.6 million in expense recorded during the period less $52.7 million in payments of veterinary invoices. The $53.6 million in veterinary invoice expense incurred included an adjustment of $0.2 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2018, the Company decreased prior year reserves by $0.1 million as a result of analysis of payment trends.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Three Months Ended March 31,
Other Business
 
2019
 
2018
Reserve at beginning of year
 
$
2,187

 
$
1,697

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
7,995

 
5,218

Prior years
 
(351
)
 
(242
)
Total veterinary invoice expense
 
7,644

 
4,976

Amounts paid during the period related to:
 
 
 
 
Current year
 
5,856

 
3,734

Prior years
 
1,447

 
1,137

Total paid
 
7,303

 
4,871

Non-cash expenses
 

 

Reserve at end of period
 
$
2,528

 
$
1,802

The Company’s reserve for the other business segment increased from $2.2 million at December 31, 2018 to $2.5 million at March 31, 2019. This change was comprised of $7.6 million in expense recorded during the period less $7.3 million in payments of veterinary invoices. The $7.6 million in veterinary invoice expense incurred included a reduction of $0.4 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2018, the Company decreased prior year reserves by $0.2 million as a result of analysis of payment trends.
Reserve for veterinary invoices, by year of occurrence
In the following tables, the reserve for veterinary invoices for each segment is presented as the amount (in thousands) by year the veterinary invoice relates to, referred to as the year of occurrence.
Subscription
As of March 31, 2019
Year of Occurrence
 
2017 and prior
$
1,042

2018
3,020

2019
10,585

 
$
14,647

Other Business
As of March 31, 2019
Year of Occurrence
 
2017 and prior
$
12

2018
377

2019
2,139

 
$
2,528

v3.19.1
Stock-based Compensation
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] Stock-Based Compensation
Stock-based compensation expense includes stock options, restricted stock awards, and restricted stock units granted to employees and non-employees and has been reported in the Company’s consolidated statements of operations depending on the function performed by the employee or non-employee. Stock-based compensation expense recognized in the consolidated statements of operations was as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Veterinary invoice expense
$
161

 
$
120

Other cost of revenue
86

 
77

Technology and development
63

 
49

General and administrative
618

 
449

Sales and marketing
429

 
273

Total stock-based compensation
$
1,357

 
$
968


As of March 31, 2019, the Company had 399,417 unvested stock options and 716,319 unvested restricted stock awards and restricted stock units that are expected to vest. Stock-based compensation expenses of $2.6 million related to unvested stock options and $16.8 million related to unvested restricted stock awards and restricted stock units are expected to be recognized over a weighted average period of approximately 1.7 years and 2.9 years, respectively.
Stock Options
A summary of the Company's stock option activity is as follows:
 
Number of Options
 
Weighted Average Exercise Price per Share
 
Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2018
2,621,503

 
$
9.01

 
$
43,136

Granted

 

 

Exercised
(105,963
)
 
6.48

 
2,376

Forfeited
(1,594
)
 
15.26

 

Outstanding as of March 31, 2019
2,513,946

 
9.11

 
59,401

 
 
 
 
 
 
Exercisable as of March 31, 2019
2,114,529

 
$
7.74

 
$
52,873

As of March 31, 2019, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 5.4 years and 5.0 years, respectively.
Restricted Stock Awards and Restricted Stock Units
A summary of the Company’s restricted stock award and restricted stock unit activity is as follows:
 
Number of 
Shares
 
Weighted Average
Grant Date Fair Value per Share
Unvested shares as of December 31, 2018
451,160

 
$
22.16

Granted
337,279

 
29.89

Vested
(66,903
)
 
27.92

Forfeited
(5,217
)
 
27.99

Unvested shares as of March 31, 2019
716,319

 
$
25.22

v3.19.1
Leases (Notes)
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases of Lessor Disclosure [Text Block] Leases
The Company leases certain office space and equipment from third parties and recognizes lease expense on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on its consolidated balance sheets. The Company had $0.1 million right-of-use assets and lease liabilities for long-term operating leases as of March 31, 2019.
The Company also leases a portion of its building to third parties and records related rental income within general and administrative expense in the consolidated statements of operations. These leases have remaining initial lease terms of 2 years to 8 years, some of which give the tenants options to renew the leases for up to an additional 10 years, and options to terminate the leases after 3 years of the initial lease terms, with early termination fees required. The Company recorded rental income of $0.6 million for the three months ended March 31, 2019.
The following table summarizes the Company's future rental payments to be received from non-cancellable leases in place as of March 31, 2019 (in thousands):
Year ending December 31:
 
 
 
 
 
 
2019
 
 
 
 
 
$
1,603

2020
 
 
 
 
 
1,460

2021
 
 
 
 
 
1,210

2022
 
 
 
 
 
1,173

2023
 
 
 
 
 
1,210

Thereafter
 
 
 
 
 
3,238

Total rental payments
 
 
 
 
 
$
9,894

v3.19.1
Stockholders' Equity (Notes)
3 Months Ended
Mar. 31, 2019
Stockholders' Equity Attributable to Parent [Abstract]  
Stockholders' Equity Note Disclosure [Text Block] Stockholders' Equity
As of March 31, 2019, the Company had 100,000,000 shares of common stock authorized and 34,467,465 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 March 31, 2019, 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 March 31, 2019 due to restrictions in its credit agreements.
In June 2018, the Company completed a follow-on public offering (the June 2018 follow-on public offering) whereby the Company sold 2,090,909 shares of common stock (inclusive of 272,727 shares of common stock sold by the Company pursuant to the full exercise of the underwriters' option to purchase additional shares) at a price to the public of $33.00 per share. The Company received aggregate net proceeds from the June 2018 follow-on public offering of $65.7 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. The proceeds were primarily used to purchase real estate consisting of properties in use as the Company's home office. In addition, in August 2018, the Company issued 303,030 shares of common stock via a private placement to an accredited investor as a portion of the purchase price of the real estate.
During the three months ended March 31, 2019, 450,000 of the Company's outstanding warrants were exercised. As of March 31, 2019, warrants to purchase 30,000 shares of the Company's common stock at $10.00 per share remained outstanding, which will expire on July 2, 2019.
v3.19.1
Segments
3 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block] Segments
The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscription fees related to the Company’s medical insurance which is marketed directly to consumers, while the other business segment includes all other business that is not directly marketed to consumers.
The chief operating decision maker primarily uses two measures to evaluate segment GAAP financial performance: revenue and gross profit. Additionally, other operating expenses, such as sales and marketing expenses, are allocated to each segment and evaluated when material. Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss. The Company does not analyze discrete segment balance sheet information related to long-term assets.
Revenue and gross profit of the Company’s segments were as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Revenue:
 
 
 
Subscription business
$
74,222

 
$
61,517

Other business
12,756

 
8,243

 
86,978

 
69,760

Veterinary invoice expense:
 
 
 
Subscription business
53,638

 
45,137

Other business
7,644

 
4,976

 
61,282

 
50,113

Other cost of revenue:
 
 
 
Subscription business
6,749

 
5,877

Other business
3,915

 
2,706

 
10,664

 
8,583

Gross profit:
 
 
 
Subscription business
13,835

 
10,503

Other business
1,197


561

 
15,032


11,064

 
 
 
 
Technology and development
2,669

 
2,164

General and administrative
5,419

 
4,458

Sales and marketing:
 
 
 
Subscription business
8,097

 
5,851

Other business
130

 
87

 
8,227

 
5,938

Operating loss
$
(1,283
)

$
(1,496
)

The following table presents the Company’s revenue by geographic region of the member (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
United States
$
71,157

 
$
56,009

Canada
15,821

 
13,751

Total revenue
$
86,978

 
$
69,760


Substantially all of the Company’s long-lived assets were located in the United States as of March 31, 2019 and December 31, 2018.
v3.19.1
Subsequent Events (Notes)
3 Months Ended
Mar. 31, 2019
Subsequent Events [Abstract]  
Subsequent Events [Text Block] Subsequent EventsOn April 29, 2019, the Company amended its credit agreement, extending the maturity date of the revolving line of credit to June 2022, and reducing the interest rate to the greater of 4.5%, or 0.75% plus the prime rate.
v3.19.1
Nature of Operations and Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business Description and Basis of Presentation [Text Block] Description of Business and Basis of Presentation
Trupanion, Inc. (collectively with its wholly-owned subsidiaries, the Company) provides medical insurance for cats and dogs throughout the United States, Canada and Puerto Rico.
The financial data as of December 31, 2018 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive income (loss), stockholders' equity and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (SEC) on February 14, 2019 (the 2018 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2018 10-K. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 1 to the audited financial statements included in the 2018 10-K for additional discussion of these estimates and assumptions.
Basis of Accounting, Policy [Policy Text Block] The financial data as of December 31, 2018 was derived from the Company's audited consolidated financial statements. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company's financial position, results of operations, comprehensive income (loss), stockholders' equity and cash flows for the interim periods. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (SEC) on February 14, 2019 (the 2018 10-K). The Company's accounting policies are described in Note 1 to the audited financial statements included in the 2018 10-K. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year or any other interim period.
Use of Estimates [Policy Text Block] Use of EstimatesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 1 to the audited financial statements included in the 2018 10-K for additional discussion of these estimates and assumptions.
Investment, Policy [Policy Text Block] .
Comprehensive Income, Policy [Policy Text Block] .
Income Tax, Policy [Policy Text Block] .
New Accounting Pronouncements, Policy [Policy Text Block] Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update (ASU) No. 2016-02 Leases (Topic 842), as amended, using the modified retrospective approach under which the transition provisions were applied as of January 1, 2019. In addition, the Company elected the “package of practical expedients” under the transition guidance within the new standard to not reassess prior conclusions about lease identification, lease classification, and initial direct costs for existing lease contracts. The Company also elected the practical expedient to not separate lease and non-lease components, if any, for all lease contracts.
Upon adoption of this standard, the Company recorded approximately $0.1 million right-of-use assets and lease liabilities for operating leases. They were classified as other long-term assets and other liabilities on the Company's consolidated balance sheets. The standard did not have a material impact on the Company's consolidated statements of operations, stockholders' equity, or cash flows.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued an ASU amending the measurement of credit losses on financial instruments. The ASU requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In August 2018, the FASB issued an ASU that eliminates certain disclosure requirements for fair value measurements, requires new disclosures regarding significant unobservable inputs used to develop Level 3 fair value measurements, and modifies certain existing disclosure requirements for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
v3.19.1
Other Investments Investment in Variable Interest Entity (Policies)
3 Months Ended
Mar. 31, 2019
Investments, All Other Investments [Abstract]  
Variable Interest Entity Disclosure [Text Block] Investment in Variable Interest EntityIn July 2018, the Company purchased $3.0 million in preferred stock of a privately held corporation with a complementary business line. The Company does not have power over the activities that most significantly impact the economic performance of the variable interest entity and is, therefore, not the primary beneficiary. The Company's investment in preferred stock is accounted for as an available-for-sale debt security. Through January 2020, the Company has agreed to purchase an additional $4.0 million in preferred stock of the variable interest entity, contingent upon the exercise of this option by the variable interest entity. The Company has the option to purchase the variable interest entity on the fifth anniversary of the initial preferred stock purchase. Additionally, the Company has extended a $2.5 million revolving line of credit to the variable interest entity. The Company's investment and amounts loaned under the line of credit are recorded in other long-term assets on its consolidated balance sheet. Outstanding loan balance under the line of credit was $2.1 million and $0.6 million as of March 31, 2019 and December 31, 2018, respectively.
v3.19.1
Other Investments Investment in Joint Venture (Policies)
3 Months Ended
Mar. 31, 2019
Investments, All Other Investments [Abstract]  
Equity Method Investments and Joint Ventures Disclosure [Text Block] Investment in Joint VentureIn September 2018, the Company acquired a non-controlling equity interest in a joint venture, whereby it has committed to licensing certain intellectual property and contributing up to $2.2 million AUD upon the achievement of specific operational milestones over a period of at least four years from the agreement execution date. As of March 31, 2019, the Company has contributed $0.3 million AUD. This equity interest is classified in other long-term assets.
v3.19.1
Fair Value Notes Receivable (Policies)
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] The Company's other long-term assets balance included $4.5 million of notes receivable as of March 31, 2019 and $3.0 million of notes receivable as of December 31, 2018, recorded at its estimated collectible amount. The Company estimates that the carrying value of the note receivable approximates its fair value. The estimated fair value represents a Level 3 measurement within the fair value hierarchy, and is based on market interest rates and the assessed creditworthiness of the third party. The Company estimates the fair value of its long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement. Based upon the terms of the debt, the carrying amount of long-term debt approximated fair value at March 31, 2019 and December 31, 2018.
v3.19.1
Fair Value Fair Value (Policies)
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments, Policy [Policy Text Block] The Company measures the fair value of restricted cash, money market funds, and foreign deposits 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. The estimated fair value of the Company's investment in the variable interest entity is a Level 3 measurement, and is based on market interest rates, the assessed creditworthiness of the entity, and the estimated fair value of the entity's common stock. As of March 31, 2019, the Company estimates that the purchase price approximates the fair value. Short-term investments are carried at amortized cost and the fair value is disclosed in Note 3, Investments. The fair value of these investments is determined in the same manner as for available-for-sale securities and is considered a Level 1 measurement.
v3.19.1
Claims Reserve Claims Reserve (Policies)
3 Months Ended
Mar. 31, 2019
Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]  
Liability Reserve Estimate, Policy [Policy Text Block] Reserve for Veterinary InvoicesThe reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that are dated as of, or prior to, its balance sheet date. The reserve also includes the Company's estimate of related internal processing costs. The reserve estimate involves actuarial projections, and is based on management's assessment of facts and circumstances currently known, and assumptions about anticipated patterns. The reserve is made for each of the Company's segments, subscription and other business, and is continually refined as the Company receives and pays veterinary invoices. Changes in management's assumptions and estimates may have a relatively large impact to the reserve and associated expense.
v3.19.1
Segments Segments (Policies)
3 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
Segment Reporting, Policy [Policy Text Block] The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscription fees related to the Company’s medical insurance which is marketed directly to consumers, while the other business segment includes all other business that is not directly marketed to consumers. The chief operating decision maker primarily uses two measures to evaluate segment GAAP financial performance: revenue and gross profit. Additionally, other operating expenses, such as sales and marketing expenses, are allocated to each segment and evaluated when material. Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss. The Company does not analyze discrete segment balance sheet information related to long-term assets.
v3.19.1
Net Loss per Share (Tables)
3 Months Ended
Mar. 31, 2019
Earnings Per Share, Basic and Diluted [Abstract]  
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block] The following potentially dilutive equity securities were not included in the diluted earnings per share of common stock calculation because they would have had an antidilutive effect:
 
Three Months Ended March 31,
 
2019
 
2018
Stock options
2,513,946

 
3,878,716

Restricted stock awards and restricted stock units
716,319

 
546,638

Warrants
30,000

 
510,000

v3.19.1
Investment Securities Available-for-Sale (Tables)
3 Months Ended
Mar. 31, 2019
Investments [Abstract]  
Investment [Table Text Block] The amortized cost, gross unrealized holding gains and losses, and estimates of fair value of long-term and short-term investments by major security type and class of security were as follows as of March 31, 2019 and December 31, 2018 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of March 31, 2019
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
Foreign deposits
$
2,701

 
$

 
$

 
$
2,701

Municipal bond
1,000

 

 

 
1,000

 
$
3,701

 
$

 
$

 
$
3,701

       Short-term investments:
 
 
 
 
 
 
 
              U.S. Treasury securities
$
6,660

 
$

 
$

 
$
6,660

              Certificates of deposit
438

 
1

 

 
439

              U.S. government funds
54,550

 

 

 
54,550

 
$
61,648


$
1

 
$


$
61,649

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2018
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
Foreign deposits
$
2,573

 
$

 
$

 
$
2,573

Municipal bond
1,000

 

 
(19
)
 
981

 
$
3,573


$

 
$
(19
)

$
3,554

Short-term investments:
 
 
 
 
 
 
 
U.S. Treasury securities
$
6,645

 
$

 
$
(3
)
 
$
6,642

Certificates of deposit
437

 

 

 
437

U.S. government funds
47,477

 

 

 
47,477

 
$
54,559


$

 
$
(3
)

$
54,556

Available-for-sale Securities [Table Text Block] Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 
As of March 31, 2019
 
Amortized
Cost
 
Fair
Value
Available-for-sale:
 
 
 
Due after one year through five years
$
3,701

 
$
3,701

 
$
3,701

 
$
3,701

v3.19.1
Fair Value (Tables)
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair value, asset & liabilities measured on recurring basis [Table Text Block] The following table summarizes, by major security type, the Company's assets that are measured at fair value on a recurring basis, and placement within the fair value hierarchy (in thousands):
 
As of March 31, 2019
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Restricted cash
$
1,400

 
$
1,400

 
$

 
$

Money market funds
4,022

 
4,022

 

 

Fixed maturities:


 
 
 
 
 
 
Foreign deposits
2,701

 
2,701

 

 

Municipal bond
1,000

 

 
1,000

 

Investment in variable interest entity
3,000

 

 

 
3,000

Total
$
12,123


$
8,123


$
1,000


$
3,000

 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Restricted cash
$
1,400

 
$
1,400

 
$

 
$

Money market funds
2,010

 
2,010

 

 

Fixed maturities:
 
 
 
 
 
 
 
Foreign deposits
2,573

 
2,573

 

 

Municipal bond
981

 

 
981

 

Investment in variable interest entity
3,000

 

 

 
3,000

Total
$
9,964

 
$
5,983

 
$
981

 
$
3,000


The Company measures the fair value of restricted cash, money market funds, and foreign deposits 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. The estimated fair value of the Company's investment in the variable interest entity is a Level 3 measurement, and is based on market interest rates, the assessed creditworthiness of the entity, and the estimated fair value of the entity's common stock. As of March 31, 2019, the Company estimates that the purchase price approximates the fair value. Short-term investments are carried at amortized cost and the fair value is disclosed in Note 3, Investments. The fair value of these investments is determined in the same manner as for available-for-sale securities and is considered a Level 1 measurement.
v3.19.1
Claims Reserve (Tables)
3 Months Ended
Mar. 31, 2019
Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]  
Schedule of Liability for Unpaid Claims and Claims Adjustment Expense [Table Text Block] Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):
 
 
Three Months Ended March 31,
Subscription
 
2019
 
2018
Reserve at beginning of year
 
$
13,875

 
$
11,059

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
53,436

 
45,198

Prior years
 
202

 
(61
)
Total veterinary invoice expense
 
53,638

 
45,137

Amounts paid during the period related to:
 
 
 
 
Current year
 
42,650

 
36,142

Prior years
 
10,015

 
8,250

Total paid
 
52,665

 
44,392

Non-cash expenses
 
201

 
156

Reserve at end of period
 
$
14,647

 
$
11,648

The Company's reserve for the subscription business segment increased from $13.9 million at December 31, 2018 to $14.6 million at March 31, 2019. This change was comprised of $53.6 million in expense recorded during the period less $52.7 million in payments of veterinary invoices. The $53.6 million in veterinary invoice expense incurred included an adjustment of $0.2 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2018, the Company decreased prior year reserves by $0.1 million as a result of analysis of payment trends.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Three Months Ended March 31,
Other Business
 
2019
 
2018
Reserve at beginning of year
 
$
2,187

 
$
1,697

Veterinary invoices during the period related to:
 
 
 
 
Current year
 
7,995

 
5,218

Prior years
 
(351
)
 
(242
)
Total veterinary invoice expense
 
7,644

 
4,976

Amounts paid during the period related to:
 
 
 
 
Current year
 
5,856

 
3,734

Prior years
 
1,447

 
1,137

Total paid
 
7,303

 
4,871

Non-cash expenses
 

 

Reserve at end of period
 
$
2,528

 
$
1,802

The Company’s reserve for the other business segment increased from $2.2 million at December 31, 2018 to $2.5 million at March 31, 2019. This change was comprised of $7.6 million in expense recorded during the period less $7.3 million in payments of veterinary invoices. The $7.6 million in veterinary invoice expense incurred included a reduction of $0.4 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. For the three months ended March 31, 2018, the Company decreased prior year reserves by $0.2 million as a result of analysis of payment trends.
IBRN plus expected development on reported claims[Table Text Block] In the following tables, the reserve for veterinary invoices for each segment is presented as the amount (in thousands) by year the veterinary invoice relates to, referred to as the year of occurrence.
Subscription
As of March 31, 2019
Year of Occurrence
 
2017 and prior
$
1,042

2018
3,020

2019
10,585

 
$
14,647

Other Business
As of March 31, 2019
Year of Occurrence
 
2017 and prior
$
12

2018
377

2019
2,139

 
$
2,528

v3.19.1
Stock-based Compensation (Tables)
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block] Stock-based compensation expense includes stock options, restricted stock awards, and restricted stock units granted to employees and non-employees and has been reported in the Company’s consolidated statements of operations depending on the function performed by the employee or non-employee. Stock-based compensation expense recognized in the consolidated statements of operations was as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Veterinary invoice expense
$
161

 
$
120

Other cost of revenue
86

 
77

Technology and development
63

 
49

General and administrative
618

 
449

Sales and marketing
429

 
273

Total stock-based compensation
$
1,357

 
$
968


As of March 31, 2019, the Company had 399,417 unvested stock options and 716,319 unvested restricted stock awards and restricted stock units that are expected to vest. Stock-based compensation expenses of $2.6 million related to unvested stock options and $16.8 million related to unvested restricted stock awards and restricted stock units are expected to be recognized over a weighted average period of approximately 1.7 years and 2.9 years, respectively.
Share-based Compensation, Stock Options, Activity [Table Text Block] A summary of the Company's stock option activity is as follows:
 
Number of Options
 
Weighted Average Exercise Price per Share
 
Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2018
2,621,503

 
$
9.01

 
$
43,136

Granted

 

 

Exercised
(105,963
)
 
6.48

 
2,376

Forfeited
(1,594
)
 
15.26

 

Outstanding as of March 31, 2019
2,513,946

 
9.11

 
59,401

 
 
 
 
 
 
Exercisable as of March 31, 2019
2,114,529

 
$
7.74

 
$
52,873

As of March 31, 2019, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 5.4 years and 5.0 years, respectively.
Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block] A summary of the Company’s restricted stock award and restricted stock unit activity is as follows:
 
Number of 
Shares
 
Weighted Average
Grant Date Fair Value per Share
Unvested shares as of December 31, 2018
451,160

 
$
22.16

Granted
337,279

 
29.89

Vested
(66,903
)
 
27.92

Forfeited
(5,217
)
 
27.99

Unvested shares as of March 31, 2019
716,319

 
$
25.22

v3.19.1
Stock-based Compensation Stockholder's Equity (Tables)
3 Months Ended
Mar. 31, 2019
Class of Warrant or Right [Line Items]  
Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] During the three months ended March 31, 2019, 450,000 of the Company's outstanding warrants were exercised. As of March 31, 2019, warrants to purchase 30,000 shares of the Company's common stock at $10.00 per share remained outstanding, which will expire on July 2, 2019.
v3.19.1
Stock-based Compensation Follow-on Public Offering (Tables)
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Follow-on Public Offering, June 2018 [Table Text Block] In June 2018, the Company completed a follow-on public offering (the June 2018 follow-on public offering) whereby the Company sold 2,090,909 shares of common stock (inclusive of 272,727 shares of common stock sold by the Company pursuant to the full exercise of the underwriters' option to purchase additional shares) at a price to the public of $33.00 per share. The Company received aggregate net proceeds from the June 2018 follow-on public offering of $65.7 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. The proceeds were primarily used to purchase real estate consisting of properties in use as the Company's home office. In addition, in August 2018, the Company issued 303,030 shares of common stock via a private placement to an accredited investor as a portion of the purchase price of the real estate.
v3.19.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2019
Stockholders' Equity Attributable to Parent [Abstract]  
Follow-on Public Offering, June 2018 [Table Text Block] In June 2018, the Company completed a follow-on public offering (the June 2018 follow-on public offering) whereby the Company sold 2,090,909 shares of common stock (inclusive of 272,727 shares of common stock sold by the Company pursuant to the full exercise of the underwriters' option to purchase additional shares) at a price to the public of $33.00 per share. The Company received aggregate net proceeds from the June 2018 follow-on public offering of $65.7 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. The proceeds were primarily used to purchase real estate consisting of properties in use as the Company's home office. In addition, in August 2018, the Company issued 303,030 shares of common stock via a private placement to an accredited investor as a portion of the purchase price of the real estate.
Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] During the three months ended March 31, 2019, 450,000 of the Company's outstanding warrants were exercised. As of March 31, 2019, warrants to purchase 30,000 shares of the Company's common stock at $10.00 per share remained outstanding, which will expire on July 2, 2019.