TRUPANION, INC., 10-K filed on 2/14/2019
Annual Report
v3.10.0.1
Document and Entity Information Document - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 07, 2019
Jun. 30, 2018
Document Information [Line Items]      
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-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   34,332,607  
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 1,190,862,535
v3.10.0.1
Consolidated Statement of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Revenue $ 303,956 $ 242,667 $ 188,230
Veterinary invoice expense 214,539 170,122 133,534
Other cost of revenue 38,051 29,495 21,408
Gross profit 51,366 43,050 33,288
Technology Services Costs 9,248 9,768 9,534
General and administrative 18,164 16,820 15,205
Sales and marketing 24,999 19,104 15,247
Total operating expenses 52,411 45,692 39,986
Operating loss (1,045) (2,642) (6,698)
Interest expense 1,198 533 218
Other income, net (1,309) (1,244) (58)
Loss before income taxes (934) (1,931) (6,858)
Income tax (benefit) expense (7) (428) 38
Net loss $ (927) $ (1,503) $ (6,896)
Earnings Per Share, Basic and Diluted $ (0.03) $ (0.05) $ (0.24)
Weighted Average Number of Shares Outstanding, Basic and Diluted 31,961,192 29,588,324 28,527,602
v3.10.0.1
Consolidated Statement of Comprehensive Income Statement - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Net loss $ (927) $ (1,503) $ (6,896)
Foreign currency translation adjustments (642) 277 79
Net unrealized gain (loss) on available-for-sale debt securities (19) 8 46
Other comprehensive income (loss), net of taxes (661) 285 125
Comprehensive loss $ (1,588) $ (1,218) $ (6,771)
v3.10.0.1
Consolidated Balance Sheet - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Assets [Abstract]    
Cash and cash equivalents $ 26,552 $ 25,706
Short-term Investments 54,559 37,590
Accounts and other receivables 31,565 20,367
Prepaid expenses and other assets 5,300 2,895
Total current assets 117,976 86,558
Restricted Cash and Cash Equivalents 1,400 600
Investments in fixed maturities, at fair value 3,554 3,237
Property and equipment, net 69,803 7,868
Intangible assets, net 8,071 4,972
Other Assets, Noncurrent 6,706 2,624
Total assets 207,510 105,859
Liabilities and Equity [Abstract]    
Accounts payable 2,767 2,716
Accrued liabilities and other current liabilities 11,347 7,660
Reserve for veterinary invoices 16,062 12,756
Deferred Revenue, Current 33,027 22,734
Total current liabilities 63,203 45,866
Long-term debt 12,862 9,324
Deferred tax liabilities 1,002 1,002
Other liabilities 1,270 1,233
Total liabilities 78,337 57,425
Common stock: $0.00001 par value per share 0 0
Preferred Stock, Value, Outstanding 0 0
Additional Paid-in Capital 219,838 134,511
Accumulated other comprehensive loss (753) (92)
Accumulated deficit (83,711) (82,784)
Treasury stock, at cost (6,201) (3,201)
Total stockholders' deficit 129,173 48,434
Liabilities and Equity $ 207,510 $ 105,859
v3.10.0.1
Consolidated Balance Sheet Condensed Consolidated Balance Sheet Parentheticals - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Common Stock, Shares Authorized 100,000,000  
Common Stock, Shares, Outstanding 34,025,136  
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 34,781,121 30,778,796
Common Stock, Shares, Outstanding 34,025,136 30,121,496
Preferred Stock [Member]    
Preferred Stock, Par or Stated Value Per Share $ 0.00001 $ 0.00001
Preferred Stock, Shares Authorized 10,000,000 10,000,000
Preferred Stock, Shares Issued 0 0
Preferred Stock, Shares Outstanding 0 0
Treasury Stock [Member]    
Treasury Stock, Shares 755,985 657,300
v3.10.0.1
Consolidated Statement of Stockholders' Equity Statement - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss)
Treasury Stock [Member]
Treasury Stock, Common [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Common Stock, Shares, Outstanding   28,396,189          
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        
Beginning Balance at Dec. 31, 2015 45,356 $ 0 122,844 $ (74,385) $ (502) $ (2,601)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
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 taxes 125       125    
Net loss (6,896)     (6,896)      
Ending Balance at Dec. 31, 2016 44,715 $ 0 129,574 (81,281) (377) (3,201)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Treasury Stock, Shares, Acquired   (36,321)          
Common Stock, Shares, Outstanding   29,498,947          
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        
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition 3,562   3,562        
Other comprehensive income (loss), net of taxes 285       285    
Net loss (1,503)     (1,503)      
Ending Balance at Dec. 31, 2017 $ 48,434 $ 0 134,511 (82,784) (92) (3,201)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Common Stock, Shares, Outstanding   30,121,496          
Stock Issued During Period, Shares, New Issues 2,090,909 2,090,909          
Proceeds from issuance of common stock, follow-on public offering $ 65,638   65,638        
Payments to Acquire Buildings, Shares   303,030          
Payment to Acquire Corporate Building, Fair Value of Shares 9,633   9,633        
Stock Issued During Period, Shares, Share-based Compensation, Net of Tax Withholdings   1,278,386          
Stock Issued During Period, Value, Share-based Compensation, Net of Tax Withholdings 1,806   1,806        
Redemption of warrants   231,315          
Settlement of warrant liabilities 300   3,300       $ (3,000)
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition 4,950   4,950        
Other comprehensive income (loss), net of taxes (661)            
Net loss (927)            
Ending Balance at Dec. 31, 2018 $ 129,173 $ 0 $ 219,838 $ (83,711) $ (753) $ (6,201)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Common Stock, Shares, Outstanding 34,025,136 34,025,136          
v3.10.0.1
Consolidated Statement of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Net Cash Provided by (Used in) Operating Activities [Abstract]      
Net loss $ (927) $ (1,503) $ (6,896)
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities [Abstract]      
Depreciation, Depletion and Amortization 4,512 4,232 3,846
Stock-based compensation expense 4,775 3,419 2,946
Gain on sale of equity method investment 0 (1,036) 0
Other Operating Income (Expense), Net (240) (383) 104
Increase (Decrease) in Operating Assets [Abstract]      
Accounts and other receivables (11,248) (10,219) (1,830)
Prepaid expenses and other assets (2,628) (179) 48
Accounts payable, accrued liabilities, and other liabilities 4,531 3,019 1,164
Reserve for veterinary invoices 3,440 3,149 3,226
Deferred revenue 10,465 9,167 2,398
Net cash provided by operating activities 12,680 9,666 5,006
Net Cash Provided by (Used in) Investing Activities [Abstract]      
Purchases of investment securities (52,862) (31,920) (31,616)
Maturities of investment securities 35,413 23,372 27,247
Payments for (Proceeds from) Investments (3,000) 0 0
Payments to Acquire Intangible Assets (2,959)    
Proceeds from Sale of Equity Method Investments 0 1,402  
Purchases of property and equipment (56,936) (3,131) (1,941)
Payments for (Proceeds from) Other Investing Activities (1,107) (2,779) (198)
Net cash used in investing activities (81,451) (13,056) (6,508)
Net Cash Provided by (Used in) Financing Activities [Abstract]      
Proceeds from Issuance or Sale of Equity 65,671    
Proceeds from exercise of stock options 3,601 2,545 3,745
Payments Related to Tax Withholding for Share-based Compensation (1,839) (1,170) (662)
Proceeds from debt financing, net of financing fees 13,431 4,400 4,988
Repayments of Long-term Debt (10,000) 0 0
Proceeds from (Payments for) Other Financing Activities 365 (694) (399)
Net cash provided by financing activities 71,229 5,081 7,672
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash, net (812) 378 111
Net change in cash, cash equivalents, and restricted cash 1,646 2,069 6,281
Cash, Cash Equivalents, and Restricted Cash, Carrying Value 26,306 24,237 17,956
Cash, Cash Equivalents, and Restricted Cash, Carrying Value, End of Period 27,952 26,306 24,237
Supplemental Cash Flow Information [Abstract]      
Income taxes paid 216 177 19
Interest paid 1,019 333 153
Redemption of Warrants Non-Cash; Common Stock 3,000   600
Acquisition of Corporate Real Estate Non-Cash, Common Stock 9,640    
Purchases of property and equipment included in accounts payable and accrued liabilities 106 390 104
Capital Lease Obligations Incurred $ 0 $ 689 $ 559
v3.10.0.1
Condensed Consolidated Balance Sheet Parentheticals - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Common Stock, Shares Authorized 100,000,000  
Common Stock, Shares, Outstanding 34,025,136  
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 34,781,121 30,778,796
Common Stock, Shares, Outstanding 34,025,136 30,121,496
Preferred Stock [Member]    
Preferred Stock, Par or Stated Value Per Share $ 0.00001 $ 0.00001
Preferred Stock, Shares Authorized 10,000,000 10,000,000
Preferred Stock, Shares Issued 0 0
Preferred Stock, Shares Outstanding 0 0
Treasury Stock [Member]    
Treasury Stock, Shares 755,985 657,300
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 34,781,121 30,778,796
Common Stock, Shares, Outstanding 34,025,136 30,121,496
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 0 0
Preferred Stock, Shares Outstanding 0 0
Parent Company | Treasury Stock [Member]    
Treasury Stock, Shares 755,985 657,300
v3.10.0.1
Net Loss per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block] Net Loss per Share
Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated using the weighted-average number of shares of common stock plus, when dilutive, potential common shares outstanding using the treasury-stock method. Potential common shares outstanding include stock options, unvested restricted stock awards and restricted stock units, and warrants.
The following potentially dilutive equity securities were not included in the diluted earnings per common share calculation because they would have had an antidilutive effect:
 
As of December 31,
 
2018
 
2017
 
2016
Stock options
2,621,503

 
4,006,399

 
4,123,023

Restricted stock awards and restricted stock units
451,160

 
256,842

 
352,996

Warrants
480,000

 
810,000

 
810,000

v3.10.0.1
Property Plant and Equipment (Notes)
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
December 31,
 
2018
 
2017
Land and improvements
$
15,833

 
$

Building and improvements
46,561

 

Software
20,338

 
17,221

Office equipment and other
2,772

 
3,022

Property and equipment, at cost
85,504

 
20,243

Less: Accumulated depreciation
(15,701
)
 
(12,375
)
Property and equipment, net
$
69,803

 
$
7,868


Depreciation expense related to property and equipment, inclusive of assets purchased on capital lease, was $4.3 million, $4.2 million and $3.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.
v3.10.0.1
Intangible Assets (Notes)
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets Disclosure [Text Block] Intangible Assets
The following table presents the detail of intangible assets for the periods presented (in thousands):
 
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
December 31, 2018:
 
 
 
 
 
 
Licenses
 
$
4,773

 
$

 
$
4,773

Patents and trademarks
 
743

 
(191
)
 
552

Leases
 
2,959

 
(213
)
 
2,746

Total Intangibles
 
$
8,475

 
$
(404
)
 
$
8,071

December 31, 2017:
 
 
 
 
 
 
Licenses
 
$
4,773

 
$

 
$
4,773

Patents and trademarks
 
373

 
(174
)
 
199

Leases
 

 

 

Total Intangibles
 
$
5,146

 
$
(174
)
 
$
4,972

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.
The lease-related intangible assets relate to in-place lease agreements associated with the building acquisition in August 2018 and will be amortized over a weighted-average useful life of 5.1 years.
Amortization expense associated with intangible assets for the year ended December 31, 2018 was $0.2 million, and is expected to be approximately $0.5 million in each of the five succeeding years.
v3.10.0.1
Investment Securities (Notes)
12 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]
The amortized cost, gross unrealized holding gains and losses, and fair value of long-term and short-term investments by major security type and class of security were as follows as of December 31, 2018 and 2017 (in thousands):
 
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

 
 
 
 
 
 
 
 
 
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Fair
Value
As of December 31, 2017
 
 
 
 
 
 
 
Long-term investments:
 
 
 
 
 
 
 
Foreign deposits
$
2,237

 
$

 
$

 
$
2,237

Municipal bond
1,000

 

 

 
1,000

 
$
3,237

 
$


$


$
3,237

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

 
$

 
$
(4
)
 
$
5,779

Certificates of deposit
690

 
1

 

 
691

U.S. government funds
31,117

 

 

 
31,117

 
$
37,590

 
$
1


$
(4
)

$
37,587


Maturities of debt securities classified as available-for-sale were as follows (in thousands):
 
December 31, 2018
 
Amortized
Cost
 
Fair
Value
Available-for-sale:

 

Due after one year through five years
3,573

 
3,554

 
$
3,573

 
$
3,554


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.
v3.10.0.1
Other Investments (Notes)
12 Months Ended
Dec. 31, 2018
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 the consolidated balance sheet. As of December 31, 2018, outstanding loan balance under the line of credit was $0.6 million. The Company has also entered into a series of agreements to provide ancillary services to the variable interest entity at cost. The Company provided $0.6 million of these services for the year ended December 31, 2018, which were recorded against its operating expenses.
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 December 31, 2018, the Company has contributed $0.3 million AUD.
v3.10.0.1
Fair Value
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block] Fair Value
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, 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

 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Restricted cash
$
600

 
$
600

 
$

 
$

Money market funds
5,167

 
5,167

 

 

Fixed maturities:
 
 
 
 
 
 
 
Foreign deposits
2,237

 
2,237

 

 

Municipal bond
1,000

 

 
1,000

 

Total
$
9,004

 
$
8,004

 
$
1,000

 
$


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 December 31, 2018, 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 5, 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 notes receivable of $3.0 million and $2.5 million as of December 31, 2018 and 2017, respectively, recorded at their estimated collectible amount. The Company estimates that the carrying value of the notes receivable approximates the fair value. The estimated fair value represents a Level 3 measurement within the fair value hierarchy, and is based on market interest rates and the assessed creditworthiness of the third party.
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, 2018 and December 31, 2017.
v3.10.0.1
Commitment and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block] Commitments and Contingencies

The following summarizes the Company's contractual commitments as of December 31, 2018 (in thousands):
 
Year Ending December 31,
 
 
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
Long-term debt obligations(1)
$

 
$

 
$
13,000

 
$

 
$

 
$

 
$
13,000

Capital and operating leases
148

 
24

 
24

 
6

 

 

 
202

Other obligations(2)
2,886

 
325

 
185

 
168

 
168

 
2,464

 
6,196

Total
$
3,034

 
$
349

 
$
13,209

 
$
174

 
$
168

 
$
2,464

 
$
19,398

 
 
 
 
 
(1) Consists of a revolving line of credit. Excludes interest of the greater of 4.5% or 1.25% plus the prime rate (6.75% as of December 31, 2018).
(2) Consists of contractual obligations from non-cancellable vendor service agreements.
The Company had a lease agreement for its headquarters building located in Seattle, Washington until the Company purchased the building in August 2018. 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 $1.4 million, $1.8 million and $1.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Legal Proceedings
Certain 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. In many instances, the Company is unable to determine whether a loss is probable or to reasonably estimate the amount of such a loss and, therefore, the potential future losses arising from a matter may exceed the amount of estimated liabilities the Company has recorded in the financial statements covering these matters. The Company reviews its estimates at least quarterly and makes adjustments to reflect negotiations, estimated settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.
v3.10.0.1
Claims Reserve (Notes)
12 Months Ended
Dec. 31, 2018
Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]  
Supplementary Insurance Information, for Insurance Companies Disclosure [Text Block] Reserve for Veterinary Invoices

The reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that are dated as of, or prior to, its balance sheet date. The reserve also includes the Company's estimate of related internal processing costs. The reserve estimate involves actuarial projections, and is based on management's assessment of facts and circumstances currently known, and assumptions about anticipated patterns. 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
 
2018
 
2017
 
2016
Reserve at beginning of year
 
$
11,059

 
$
8,538

 
$
5,384

Veterinary invoice expense during the period related to:
 
 
 
 
 
 
Current year
 
190,642

 
155,623

 
123,823

Prior years
 
409

 
(69
)
 
813

Total veterinary invoice expense
 
191,051

 
155,554

 
124,636

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
177,418

 
144,802

 
115,314

Prior years
 
10,130

 
7,777

 
5,832

Total paid
 
187,548

 
152,579

 
121,146

Non-cash expenses
 
687

 
454

 
336

Reserve at end of period
 
$
13,875

 
$
11,059

 
$
8,538


The Company's reserve for the subscription business segment increased $2.8 million from $11.1 million at December 31, 2017 to $13.9 million at December 31, 2018. This change was comprised of $191.1 million in expense recorded during the period less $187.5 million in payments of veterinary invoices. This $191.1 million in veterinary invoice expense incurred included an increase of $0.4 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. The Company's adjustments to prior year reserves were a reduction of $0.1 million and an increase of $0.8 million as a result of analysis of payment trends in the years ended December 31, 2017 and 2016, respectively.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Year Ended December 31,
Other Business
 
2018
 
2017
 
2016
Reserve at beginning of year
 
$
1,697

 
$
983

 
$
890

Veterinary invoice expense during the period related to:
 
 
 
 
 
 
Current year
 
23,784

 
14,739

 
9,027

Prior years
 
(296
)
 
(171
)
 
(129
)
Total veterinary invoice expense
 
23,488

 
14,568

 
8,898

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
21,615

 
13,053

 
8,048

Prior years
 
1,383

 
801

 
757

Total paid
 
22,998

 
13,854

 
8,805

Non-cash expenses
 

 

 

Reserve at end of period
 
$
2,187

 
$
1,697

 
$
983



The Company’s reserve for the other business segment increased $0.5 million from $1.7 million at December 31, 2017 to $2.2 million at December 31, 2018. This change was comprised of $23.5 million in expense recorded during the period less $23.0 million in payments of veterinary invoices. This $23.5 million in veterinary invoice expense incurred included a reduction of $0.3 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. The Company's adjustments to decrease prior year reserves were $0.2 million and $0.1 million as a result of analysis of payment trends in each of the years ended December 31, 2017 and 2016, respectively.
Veterinary invoice expenses

In the following tables, the cumulative number of veterinary invoices represents the total number received as of December 31, 2018, 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 2015 through 2017 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, 2018.

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
 
2015
 
2016
 
2017
 
2018
 
2018
 
2018
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
2015
 
$
94,138

 
$
94,691

 
$
94,749

 
$
94,797

 
$
72

 
479,172

2016
 
 
 
$
123,202

 
$
122,990

 
$
123,072

 
$
271

 
595,563

2017
 
 
 
 
 
$
154,209

 
$
154,497

 
$
995

 
715,375

2018
 
 
 
 
 
 
 
$
188,825

 
$
12,537

 
800,074

 
 
 
 
 
 
 
 
$
561,191

 
$
13,875

 
 

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
 
2015
 
2016
 
2017
 
2018
 
2018
 
2018
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
2015
 
$
7,973

 
$
7,845

 
$
7,849

 
$
7,857

 
$
2

 
46,950

2016
 
 
 
$
9,027

 
$
8,842

 
$
8,855

 
$
4

 
59,493

2017
 
 
 
 
 
$
14,735

 
$
14,417

 
$
12

 
105,171

2018
 
 
 
 
 
 
 
$
23,775

 
$
2,169

 
160,393

 
 
 
 
 
 
 
 
$
54,904

 
$
2,187

 
 


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, 2018. Information for years 2015 through 2017 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
 
2015
 
2016
 
2017
 
2018
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
2015
 
$
88,808

 
$
94,406

 
$
94,621

 
$
94,725

2016
 
 
 
$
115,045

 
$
122,461

 
$
122,802

2017
 
 
 
 
 
$
143,958

 
$
153,502

2018
 
 
 
 
 
 
 
$
176,288


 
 
 
 
 
 
 
$
547,317

Total amounts unpaid and recorded as a liability
 
 
$
13,875



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
 
2015
 
2016
 
2017
 
2018
Year of Occurrence
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
2015
 
$
7,085

 
$
7,841

 
$
7,849

 
$
7,855

2016
 
 
 
$
8,048

 
$
8,831

 
$
8,851

2017
 
 
 
 
 
$
13,050

 
$
14,405

2018
 
 
 
 
 
 
 
$
21,606

 
 
 
 
 
 
 
 
$
52,717

Total amounts unpaid and recorded as a liability
 
 
$
2,187

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):
 
 
Year Ended December 31,
Subscription
 
2018
 
2017
 
2016
Reserve at beginning of year
 
$
11,059

 
$
8,538

 
$
5,384

Veterinary invoice expense during the period related to:
 
 
 
 
 
 
Current year
 
190,642

 
155,623

 
123,823

Prior years
 
409

 
(69
)
 
813

Total veterinary invoice expense
 
191,051

 
155,554

 
124,636

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
177,418

 
144,802

 
115,314

Prior years
 
10,130

 
7,777

 
5,832

Total paid
 
187,548

 
152,579

 
121,146

Non-cash expenses
 
687

 
454

 
336

Reserve at end of period
 
$
13,875

 
$
11,059

 
$
8,538


The Company's reserve for the subscription business segment increased $2.8 million from $11.1 million at December 31, 2017 to $13.9 million at December 31, 2018. This change was comprised of $191.1 million in expense recorded during the period less $187.5 million in payments of veterinary invoices. This $191.1 million in veterinary invoice expense incurred included an increase of $0.4 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. The Company's adjustments to prior year reserves were a reduction of $0.1 million and an increase of $0.8 million as a result of analysis of payment trends in the years ended December 31, 2017 and 2016, respectively.
Summarized below are the changes in total liability for the Company's other business segment (in thousands):
 
 
Year Ended December 31,
Other Business
 
2018
 
2017
 
2016
Reserve at beginning of year
 
$
1,697

 
$
983

 
$
890

Veterinary invoice expense during the period related to:
 
 
 
 
 
 
Current year
 
23,784

 
14,739

 
9,027

Prior years
 
(296
)
 
(171
)
 
(129
)
Total veterinary invoice expense
 
23,488

 
14,568

 
8,898

Amounts paid during the period related to:
 
 
 
 
 
 
Current year
 
21,615

 
13,053

 
8,048

Prior years
 
1,383

 
801

 
757

Total paid
 
22,998

 
13,854

 
8,805

Non-cash expenses
 

 

 

Reserve at end of period
 
$
2,187

 
$
1,697

 
$
983



The Company’s reserve for the other business segment increased $0.5 million from $1.7 million at December 31, 2017 to $2.2 million at December 31, 2018. This change was comprised of $23.5 million in expense recorded during the period less $23.0 million in payments of veterinary invoices. This $23.5 million in veterinary invoice expense incurred included a reduction of $0.3 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. The Company's adjustments to decrease prior year reserves were $0.2 million and $0.1 million as a result of analysis of payment trends in each of the years ended December 31, 2017 and 2016, respectively.
v3.10.0.1
Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block] Debt
In June 2018, the Company amended its credit agreement, increasing its borrowing capacity from $30.0 million to $50.0 million, extending the maturity date to June 2021, and increasing the required amount of restricted cash. 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 December 31, 2018). The credit agreement includes other ancillary services and letters of credit of up to $4.5 million, and requires a deposit of restricted cash of $1.4 million. As of December 31, 2018, the Company was in compliance with all financial and non-financial covenants required by the credit agreement.
Borrowings on the revolving line of credit were limited to the lesser of $50.0 million or 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, 2018 and 2017. As of December 31, 2018, available borrowing capacity on the line of credit was $36.6 million, with an outstanding balance of $0.4 million for ancillary services and letters of credit, and borrowings under the facility of $13.0 million, recorded net of financing fees of $0.1 million.
v3.10.0.1
Stock-based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
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, 2018, 2017 and 2016 was as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Veterinary invoice expense
$
571

 
$
355

 
$
234

Other cost of revenue
356

 
239

 
41

Technology and development
209

 
216

 
246

General and administrative
2,304

 
1,887

 
1,893

Sales and marketing
1,335

 
722

 
532

Total stock-based compensation
$
4,775

 
$
3,419

 
$
2,946

As of December 31, 2018, the Company had 475,368 unvested stock options and 451,160 unvested restricted stock awards and restricted stock units. Total stock-based compensation expense of $3.1 million related to unvested stock options and $7.8 million related to unvested restricted stock awards and restricted stock units is expected to be recognized over a weighted-average period of approximately 1.9 years and 2.6 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. The Company did not grant any stock options during the year ended December 31, 2018. For the years ended December 31, 2017 and 2016, valuation assumptions are presented in the following table:
 
 
 
Year Ended December 31,
 
 
2017
 
2016
Valuation assumptions:
 
 
 
 
Expected term (in years)
 
6.25
 
5.04-6.25
Expected volatility
 
37.1%-39.8%
 
37.6%-42.1%
Risk-free interest rate
 
1.8%-2.2%
 
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 January 1, 2016
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

Granted

 

 

Exercised
(1,292,037
)
 
2.82

 
36,625

Forfeited
(92,859
)
 
15.36

 

Outstanding as of December 31, 2018
2,621,503

 
9.01

 
43,136

 
 
 
 
 
 
Exercisable at December 31, 2018
2,146,135

 
$
7.46

 
$
38,642

As of December 31, 2018, stock options outstanding and stock options exercisable had a weighted average remaining contractual life of 5.6 years and 5.0 years, respectively.

The weighted-average grant date fair value per share and the fair value of options vested were as follows for the years ended December 31, 2018, 2017, and 2016:
 
 
Weighted Average Grant Date Fair Value per Share
 
Fair Value
of Options
Vested (in thousands)
Year:
 
 
 
 
2016
 
$
5.64

 
$
4,645

2017
 
$
7.25

 
$
6,313

2018
 
$

 
$
2,665



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 ended December 31, 2018, 2017 and 2016:
 
 
Number of 
Shares
 
Weighted Average
Grant Date Fair Value per
Share
Unvested shares as of January 1, 2016
 
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

Granted
 
375,313

 
28.10

Vested
 
(149,213
)
 
9.74

Forfeited
 
(31,782
)
 
28.57

Unvested shares as of December 31, 2018
 
451,160

 
$
22.16

v3.10.0.1
Real Estate (Notes)
12 Months Ended
Dec. 31, 2018
Real Estate [Abstract]  
Business Combination Disclosure [Text Block] Real Estate
In August 2018, the Company purchased real property that houses the company headquarters located at 6100 Fourth Avenue South, Seattle, Washington. The purchase price was $65.2 million, consisting of $55.0 million in cash, 303,030 shares of common stock with an estimated fair value of $9.6 million, and transaction costs totaling $0.6 million. The issued shares are subject to a lock-up period that continues to and includes June 25, 2020. The fair value of the issued shares was estimated as of the closing date for the real estate acquisition using the Black-Scholes option pricing model and the following assumptions:
 
 
 
 
 
 
August 9, 2018
Assumptions
 
 
 
 
 
Fair Value
Risk free interest rate
 
 
 
 
 
2.5
%
Expected volatility
 
 
 
 
 
36.72
%
Expected life (years)
 
 
 
 
 
1.88

Expected dividend yield
 
 
 
 
 
%


The purchase price was allocated to the following assets based on estimates of their relative fair value (in thousands):
Building and improvements
 
 
 
 
 
$
46,379

Land and improvements
 
 
 
 
 
15,833

Lease-related intangible assets
 
 
 
 
 
2,959

Total purchase price
 
 
 
 
 
65,171

v3.10.0.1
Stockholder's Equity (Notes)
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Stockholders' Equity Note Disclosure [Text Block] Stockholders Equity
As of December 31, 2018, the Company had 100,000,000 shares of common stock authorized and 34,025,136 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, 2018, 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, 2018 due to restrictions in its credit agreements.
Warrants
During the year ended December 31, 2018, 330,000 of the Company's outstanding warrants were exercised. Warrants to purchase 480,000 shares of the Company's common stock at $10.00 per share remained outstanding at December 31, 2018, which expire in 2019.
v3.10.0.1
Segments
12 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block] Segments
The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscription fees related to the Company’s medical insurance which is marketed directly to consumers, while the other business segment includes all other business that is not directly marketed to consumers.
The chief operating decision maker uses two measures to evaluate segment performance: revenue and gross profit. Additionally, other operating expenses, such as sales and marketing expenses, are allocated to each segment and evaluated when material. Interest and other expenses and income taxes are not allocated to the segments, nor included in the measure of segment profit or loss. The Company does not analyze discrete segment balance sheet information related to long-term assets.
Revenue and gross profit of the Company’s segments were as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Revenue:
 
 
 
 
 
Subscription business
$
263,738

 
$
218,354

 
$
173,356

Other business
40,218

 
24,313

 
14,874

 
303,956

 
242,667

 
188,230

Veterinary invoice expense:
 
 
 
 
 
Subscription business
191,051

 
155,554

 
124,636

Other business
23,488

 
14,568

 
8,898

 
214,539

 
170,122

 
133,534

Other cost of revenue:
 
 
 
 
 
Subscription business
24,941

 
21,329

 
16,685

Other business
13,110

 
8,166

 
4,723

 
38,051

 
29,495

 
21,408

Gross profit:
 
 
 
 
 
Subscription business
47,746

 
41,471

 
32,035

Other business
3,620

 
1,579

 
1,253

 
51,366

 
43,050

 
33,288

 
 
 
 
 
 
Technology and development
9,248

 
9,768

 
9,534

General and administrative
18,164

 
16,820

 
15,205

Sales and marketing:
 
 
 
 
 
Subscription business
24,622

 
18,886

 
15,029

Other business
377

 
218

 
218

 
24,999

 
19,104

 
15,247

Operating loss
$
(1,045
)
 
$
(2,642
)
 
$
(6,698
)


The following table presents the Company’s revenue by geographic region of the member (in thousands):
 
 
Year Ended December 31,
 
2018
 
2017
 
2016
United States
$
246,280

 
$
195,297

 
$