We operate in two business segments: subscription business and other business. We generate revenue in our subscription business segment primarily from subscription fees for our medical plan, which we actively market to consumers. Our medical plan automatically renews on a monthly basis, and members pay the subscription fee at the beginning of each subscription period, in most cases by authorizing us to directly charge their credit card, debit card or bank account through automatic funds transfer. Subscription revenue is recognized on a pro rata basis over the monthly enrollment term. We generate revenue in our other business segment primarily from operations that are not directly marketed to consumers. These policies provide different coverage and are subject to materially different terms and conditions than our primary medical plan.
Our revenue increased from $115.9 million for the year ended December 31, 2014 to $147.0 million for the year ended December 31, 2015, representing 27% year-over-year growth. We have made and expect to continue to make substantial investments in member acquisition and in expanding our operations. For the year ended December 31, 2015, 2014, and 2013, we had a net loss of $17.2 million, $21.2 million and $8.2 million, respectively. As of December 31, 2015, our accumulated deficit was $74.4 million.
Total subscription pets enrolled. Total subscription pets enrolled reflects the number of pets subscribed to the plan marketed by Trupanion at the end of each period presented. We monitor total subscription pets enrolled because it provides an indication of the growth of our subscription business.
Monthly adjusted revenue per pet. Monthly adjusted revenue per pet is calculated as adjusted revenue divided by the total number of subscription pet months in the period. Adjusted revenue, a non-GAAP financial measure, is calculated as subscription business revenue, excluding sign-up fee revenue and the change in deferred revenue. We exclude sign-up fee revenue since it is collected at the time a new pet is enrolled and is used to partially offset initial setup costs, which are included in sales and marketing expenses. We exclude changes in deferred revenue in order to present monthly adjusted revenue per pet in a consistent manner across periods. Total subscription pet months in a period represents the sum of all pets enrolled for each month during the period. We monitor monthly adjusted revenue per pet because it is an indicator of the per unit economics of our business.
Average monthly retention. Average monthly retention is measured as the monthly retention rate of enrolled pets for each applicable period averaged over the 12 months prior to the period end date. As such, our average monthly retention rate as of December 31, 2015 is an average of each month’s retention from January 1, 2015 through December 31, 2015. We calculate monthly retention as the number of pets that remain after subtracting all pets that cancel during a month, including pets that enroll and cancel within that month, divided by the total subscription pets enrolled at the beginning of that month. We monitor average monthly retention because it provides a measure of member satisfaction and allows us to calculate the implied average subscriber life in months and manage our business.
We believe that using adjusted revenue, acquisition cost, net acquisition cost and adjusted EBITDA to calculate and present certain of our other key metrics is helpful to our investors. These measures, which are non-GAAP financial measures, are not prepared in accordance with U.S. GAAP. We define adjusted revenue as revenue from our subscription business segment excluding sign-up fee revenue and the change in deferred revenue between periods. We define acquisition cost as sales and marketing expenses, excluding stock-based compensation expense. We define net acquisition cost as acquisition cost net of sign-up fee revenue and other business segment sales and marketing expenses. We define adjusted EBITDA as net loss excluding stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, change in fair value of warrant liabilities and income tax expense (benefit).
Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash expenses, we believe that providing non-GAAP financial measures such as acquisition cost, net acquisition cost and adjusted EBITDA that exclude stock-based compensation expense and, in the case of adjusted EBITDA, the change in fair value of warrant liabilities allows for more meaningful comparisons between our operating results from period to period. We exclude sign-up fee revenue from the calculation of adjusted revenue because we collect it from new members at the time of enrollment and consider it to be an offset to a portion of our sales and marketing expenses. For this reason, we also net sign-up fees with sales and marketing expenses in our calculation of net acquisition cost. We exclude changes in deferred revenue from the calculation of adjusted revenue in order to eliminate fluctuations caused by the timing of pet enrollment during the last month of any particular period in which such measures are being presented or utilized. We exclude the change in fair value of warrant liabilities from our calculation of adjusted EBITDA in order to eliminate
Average monthly retention. Our performance depends on our ability to continue to retain our existing and newly enrolled pets and is impacted by our ability to provide a best-in-class value and member experience. Our ability to maintain the retention rate of enrolled pets may be affected by a number of factors, including the actual and perceived value of our services and the quality of our member experience, our claims payment process and the competitive environment. In addition, if the number of new pets enrolled increases at a faster rate than our historical experience, our average monthly retention rate could be adversely impacted, as our retention rate is generally lower during the first year of member enrollment.
Timing of initiatives. Over time we plan to implement new initiatives to improve our member experience, make modifications to our medical plan and find other ways to maintain a strong value proposition for our members. These initiatives will sometimes be accompanied by price adjustments, in order to compensate for an increase in benefits received by our members. The implementation of such initiatives may not always coincide with the timing of price adjustments resulting in fluctuations in revenue and gross profit in our subscription business segment.
We operate in two business segments: subscription business and other business. Our subscription business segment includes revenue and expenses related to monthly subscriptions for our medical plan, which we actively market to consumers. Our other business segment includes revenue and expenses related to our other operations that are not directly marketed to consumers. During 2015, we began reporting certain pets previously included in our subscription business segment in our other business segment due to the characteristics of this business being marketed to enterprises rather than consumers, similar to other arrangements within the other business segment. These pets were previously included in our subscription business segment. Segment information for prior periods has been recast to reflect this change. We report our financial information in accordance with U.S. GAAP.
Other cost of revenue for our subscription business segment includes direct and indirect member service expenses, renewal fees to our independent referral network, credit card transaction fees and premium tax expenses. Other cost of revenue for our other business segment includes the commission we pay to the unaffiliated general agent and premium taxes on other policies in this segment.
Sales and marketing expenses primarily consist of costs to educate veterinarians and policy holders about our policy, converting leads to enrolled pets, print, online and promotional advertising costs, strategic partnership fees and employee compensation and related costs. Sales and marketing expenses are driven primarily by investments to acquire new members. We plan to continue to invest in existing and new member acquisition channels and marketing initiatives to grow our business. Investments in new member acquisition channels and marketing initiatives are generally more expensive than our traditional marketing channels and increase our average pet acquisition cost. We expect sales and marketing expenses to increase in absolute dollars, although it may fluctuate as a percentage of revenue. We generally target a ratio of lifetime value of a pet to average pet acquisition cost of 5 to 1.
Technology and development expenses primarily consist of personnel costs and related expenses for our operations staff, which includes information technology development and infrastructure support, third-party services and depreciation of hardware and amortization of capitalized software and intangible assets. We expect technology and development expenses to decrease in absolute dollars and decrease as a percentage of revenue in the near term as fewer resources are needed for the development of our direct pay technology.
Comparison of the years ended December 31, 2015, 2014 and 2013
Year ended December 31, 2015 compared to year ended December 31, 2014. Cost of revenue for our subscription business segment was $109.4 million, or 82% of revenue, for the year ended December 31, 2015, compared to $85.2 million or 82% of revenue for the year ended December 31, 2015. This $24.3 million increase in subscription cost of revenue was primarily the result of a 27% increase in enrolled pets and a 29% increase in claims expense for our subscription business. Compensation expense and related costs increased by $1.8 million due to a 12% increase in employee headcount to service our growth and improve our member experience. There was an additional $3.5 million benefit of foreign exchange rates on our Canadian costs.
Year ended December 31, 2015 compared to year ended December 31, 2014. Sales and marketing expenses increased $3.6 million to $15.2 million for the year ended December 31, 2015, or 31%, yet remained consistent as a percentage of revenue. The increase in sales and marketing expenses was primarily due to an increase of $0.5 million in expenditures related to new and expanded online marketing initiatives and public relations, a $0.8 million increase in print advertising and brand development and a $1.1 million increase related to developing our territory partner network and support functions. Additionally, there was a $1.1 million increase in compensation related costs and recruiting due to increased headcount in the sales and marketing department. Commissions to our territory partners increased $0.3 million based on increased enrollments.
Year ended December 31, 2014 compared to year ended December 31, 2013. Sales and marketing expenses increased $2.5 million to $11.6 million for the year ended December 31, 2014, or 28%. The increase in sales and marketing expenses was primarily due to an increase of $0.7 million in expenditures related to new and expanded online marketing initiatives, a $0.7 million increase in print advertising and brand development and a $0.6 million increase related to developing our territory partner network. Additionally, compensation related costs increased $0.3 million due to increased headcount in the sales and marketing department. Finally, commissions to our territory partners increased $0.2 million based on increased enrollments.
Year ended December 31, 2015 compared to year ended December 31, 2014. Technology and development expenses increased $1.3 million to $11.2 million for the year ended December 31, 2015 or 13%. This increase was partially due to a $0.4 million increase related to infrastructure growth to support our growing business. Depreciation and amortization expense increased by $0.6 million as new projects relating to prior years were placed into service in 2015. Additionally, there was a $0.2 million increase in costs related to our direct pay initiative. Total expenses, net of capitalization, in technology related to our direct pay claims processing initiative were $4.3 million in 2015 and $4.4 million in 2014. Of these amounts, depreciation expense comprised $0.8 million in 2015 and $0.6 million in 2014.
Year ended December 31, 2015 compared to year ended December 31, 2014. General and administrative expenses increased $1.2 million to $15.6 million for the year ended December 31, 2015, or 9%. The increase in general and administrative expenses was primarily due to an increase in salaries and related expenses of $0.5 million resulting from increases in headcount. Regulatory fees incurred in our normal course of business increased $0.4 million, and depreciation and amortization increased $0.3 million due to property and equipment additions placed into service late in 2014.
Year ended December 31, 2014 compared to year ended December 31, 2013. Other expenses, net for the year ended December 31, 2014 increased $4.0 million to $5.2 million. This increase was primarily due to the expensing of unamortized debt discounts associated with the repayment of debt, partially offset by income from the revaluation of warrants classified as liabilities in our consolidated balance sheet during 2014.
Average pet acquisition cost is calculated in part based on acquisition cost and net acquisition cost, non-GAAP financial measures. Acquisition cost is defined as sales and marketing expenses, excluding stock-based compensation expense. Net acquisition cost is defined as acquisition cost, net of sign-up fee revenue and other business segment sales and marketing expense. For more information about acquisition cost, net acquisition cost and a reconciliation of sales and marketing expenses to acquisition cost and net acquisition cost, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures.”
Adjusted EBITDA is a non-GAAP financial measure that we define as net loss excluding stock-based compensation expense, depreciation and amortization expense, interest income, interest expense, change in fair value of warrant liabilities and income tax expense (benefit). For more information about Adjusted EBITDA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures.”
Since inception, we have financed our operations and met capital requirements primarily through the sale of equity securities and from borrowings. Our principal uses of cash are paying claims, funding operations and capital requirements, investing in new member acquisition, enhancements to our member experience and servicing debt. In July 2014, we closed our IPO, pursuant to which we sold 8,193,750 shares of common stock at an offering price of $10.00 per share. We received net proceeds of approximately $72.8 million.
As of December 31, 2015, we had $43.2 million of cash and cash equivalents and short-term investments and $18.4 million available under our line of credit which excludes $1.6 million reserved under the credit agreement for an outstanding letter of credit and other ancillary services. We believe that our existing cash and cash equivalents, short-term investments and line of credit will be sufficient to fund our operations and statutory capital requirements for at least the next 12 months. From time to time, we may explore additional financing, which could include equity, equity-linked and debt financing. However, there can be no assurance that any additional financing will be available to us on acceptable terms, or at all.
The Square 1 credit facility requires us to maintain certain financial covenants, including having APIC maintain statutory capital and surplus at all times of not less than the greater of $1.6 million or 110% of the highest amount of statutory capital and surplus required in any state in which APIC is licensed, maintaining a minimum cash balance of $1.6 million in our accounts at Square 1 (including for such purposes, APIC’s cash and depository products at Square 1), achieving certain monthly revenue and remaining within certain maximum EBITDA loss levels. EBITDA is defined for such purposes as earnings, plus an amount equal to the sum of (i) tax, plus (ii) depreciation and amortization, plus (iii) interest and non-cash expenses, plus (iv) any non-cash stock compensation expense, less (a) any increase in capitalized expenditures from the prior period, plus (b) any increase in capitalized software from the prior period, plus (c) any increase in deferred acquisition costs from the prior period.
The Square 1 credit facility also requires us to maintain certain non-financial covenants, including those that restrict our ability to dispose of our assets, change the name, location, office or executive management of our business, merge with or acquire other entities, incur other indebtedness, incur encumbrances, pay dividends or make distributions to holders of our capital stock, make investments, engage in transactions with our affiliates, permit withdrawals from APIC (with certain exceptions) and conduct operations in certain of our Canadian subsidiaries. As of December 31, 2015, we were in compliance with each of the financial and non-financial covenants.
WICL Segregated Account AX was established by WICL, with Trupanion, Inc. as the shareholder, to enter into a reinsurance agreement with Omega General Insurance Company. All of the assets and liabilities of WICL Segregated Account AX are legally segregated from other assets and liabilities within WICL and all shares of the segregated account are owned by Trupanion, Inc. Our agreements with WICL do not allow dividends to be paid to our parent company until 2017 or later. As required by the Office of the Superintendent of Financial institutions regulations related to our reinsurance agreement with Omega General Insurance Company, we were required to fund a Canadian Trust account with the greater of CAD $2 million or 115% of unearned Canadian premium plus 15% of outstanding Canadian claims, including all incurred by not reported claims. Additionally, WICL required initial capital of CAD $1.3 million. During January 2015, we funded CAD $3.3 million to initially satisfy these requirements.
Though we are not directly regulated by the Bermuda Monetary Authority (BMA), WICL’s regulation and compliance impacts us as it could have an adverse impact on the ability of Segregated Account AX to pay dividends. WICL is regulated by the BMA under the Insurance Act of 1978 (Insurance Act) and the Segregated Accounts Company Act of 2000. The Insurance Act imposes on Bermuda insurance companies, solvency and liquidity standards, certain restrictions on the declaration and payment of dividends and distributions, certain restrictions on the reduction of statutory capital, and auditing and reporting requirements, and grants BMA the powers to supervise and, in certain circumstances, to investigate and intervene in the affairs of insurance companies. Under the Insurance Act, WICL as a class 3 insurer is required to maintain available statutory capital and surplus at a level equal to or in excess of a prescribed minimum established by reference to net written premiums and loss reserves.
As of December 31, 2015, we had $27.7 million of short-term and long-term investments in our insurance entities. These investments are held to satisfy statutory requirements and support operating needs. The majority of our investments are highly rated U.S. treasury securities, certificates of deposit, and U.S. government funds. In addition we have one investment in a municipal bond which is insured by a third-party insurance company with a rating of “A2” with Moody’s. The unused proceeds from our IPO are currently held primarily in money market funds.
The following table shows a summary of our cash flows for the periods indicated (in thousands):
We derive operating cash flows from cash collected from the sale of subscriptions to our medical plan, which is used to pay claims, other cost of revenue and fixed expenses. Additionally, cash is used to support the growth of our business by reinvesting in sales and marketing to acquire new pets and projects to improve the member experience, including our substantial investment in our Trupanion ExpressTM software.
Historically, we have funded our operations through the issuance of common and preferred stock and the incurrence of indebtedness. In July 2014, we completed our IPO, pursuant to which we sold 8,193,750 shares of common stock at an offering price of $10.00 per share.
For the year ended December 31, 2015, net cash (used in) financing activities primarily consisted of debt repayments of $14.9 million. In addition, we received $1.3 million in proceeds from the exercise of stock options.
For 2014, net cash provided by financing activities included the net proceeds from our IPO of $72.8 million, debt financing of $17.0 million and the release of restricted cash of $3.0 million. Net cash used in financing activities consisted primarily of debt repayments of $32.0 million.
Key assumptions. Our Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying stock, the expected volatility of the price of our stock, the expected term of the option, risk-free interest rates and the expected dividend yield of our stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based expense could be materially different in the future. These assumptions are estimated as follows:
because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own share price becomes available.
Expected term-The expected term represents the period that our stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock-based awards granted, we have based our expected term for awards issued to employees on the simplified method, which represents the average period from vesting to the expiration of the stock option.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trupanion, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
No single customer made up more than 5% of accounts receivable as of December 31, 2015 or 2014.
Short-term-investments-Investments with an initial maturity of less than one year are reported at amortized cost, which approximates fair value.
Available-for-Sale-Investments in fixed maturities not classified as short-term-investments are reported at fair value, and the temporary declines or increases from amortized cost are included as a component of other comprehensive income.
If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.
The Company issued warrants to purchase common or convertible preferred stock to third parties as a part of certain business and financing transactions. The Company values warrants using the Black-Scholes-Merton option-pricing model. Certain warrants were considered liability awards and were remeasured each reporting period until exercised, settled or reclassified to stockholders’ equity. See Note 12 for additional information.
The Company generates revenue primarily from subscription fees for its medical insurance plan and other policies the Company writes, which is earned pro rata over the terms of the customer contracts.
No single customer accounted for more than 5% of the Company’s revenue in 2015, 2014 or 2013.
Claims expenses include claims incurred, the cost of personnel administering the claims and providing customer service related to claims, and other operating expenses directly or indirectly related to claims administration.
General and administrative expenses consist primarily of personnel costs and related expenses for the Company’s finance, actuarial, human resources, business development and general management functions, as well as facilities and professional services.
Other (income) expense, net was comprised of the following (in thousands):
The Company measures compensation expense for stock-based transactions to employees at fair value on the date of grant and recognizes such cost, on a straight-line basis over the requisite service period (generally four years) net of estimated forfeitures, except for the restricted stock with a performance condition which is measured on graded and vesting schedule. Many factors are considered when estimating forfeitures, including types of awards, employee class and historical experience. Stock options are valued using the Black-Scholes-Merton option-pricing model. The fair value of restricted stock units (RSUs) and restricted stock awards is based on the fair value of the Company’s stock on the date of the grant.
The Company’s consolidated financial statements are reported in U.S. dollars. Assets and liabilities of international subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenue and expenses for each subsidiary are translated to U.S. dollars using a weighted-average rate for the relevant reporting period. Translation adjustments resulting from this process are included in accumulated other comprehensive loss, and totaled $0.4 million as of December 31, 2015. Gains and losses that arise from exchange rate fluctuations for monetary asset and liability balances that are not denominated in an entity’s functional currency are included within other income.
Credit risk with respect to accounts receivable is dispersed due to the large number of customers. In addition, the Company’s credit risk is mitigated by the relatively short collection period.
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Insurance contracts are excluded from the scope of this new guidance. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted, and must be applied retrospectively or modified retrospectively. The Company does not believe this ASU will have a material impact on its consolidated financial statements.
In November 2015, the FASB issued an ASU amending the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current on the consolidated balance sheet. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The ASU may be adopted either prospectively or retrospectively. The Company plans to adopt this guidance as of December 31, 2016.
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Excluded from the weighted-average number of shares outstanding are shares that have been issued and are subject to future vesting and unvested restricted stock. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. Potentially dilutive common stock equivalents are comprised of convertible preferred stock and common stock,
Property and equipment, along with their useful lives, were as follows for the years ended December 31, 2015 and 2014 (in thousands):
Depreciation and amortization expense for property and equipment was $2.5 million, $1.6 million and $0.9 million for 2015, 2014 and 2013, respectively.
The Company had one investment with an unrealized loss of $0.1 million and a fair value of $0.9 million at December 31, 2015 and 2014. This investment has been in an unrealized loss position for more than 12 months. The Company assessed the bond for credit impairment and determined that there is no intent to sell this bond and it is likely that it will hold the investment for a period of time sufficient to allow for recovery. Furthermore, future payments on this bond are insured by a financial guarantee insurer. Therefore, the Company believes that the unrealized loss on this bond constitutes a temporary impairment.
Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (in thousands):
The Company estimates fair value for its long-term debt based upon rates currently available to the Company for debt with similar terms and remaining maturities. This is a Level 3 measurement. Based upon the terms of the debt, the carrying amount of long term debt approximated fair value at December 31, 2014.
An increase or decrease in any of these unobservable inputs would result in a change in the fair value measurement, which may be significant. The liabilities were revalued each period-end until exercised, expired or modified to exclude recurring fair value measurement. Gains and losses on revaluation of the liabilities were recorded in other (income) expense, net in the Company’s consolidated financial statements.
During the third quarter of 2015, the Company entered into a lease agreement for a building located in Seattle, Washington. The initial 10-year term of the lease is expected to commence in the second quarter of 2016. The Company is obligated to pay a total of $21.0 million over the 10-year term.
The Company has operating leases, related to equipment and office facilities, which expire over the next three years with various renewal options. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease. Rental expense for operating leases was $1.0 million, $0.8 million and $0.8 million during 2015, 2014 and 2013, respectively.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2015, are as follows (in thousands):
During 2013, the Company determined that it owes goods and services tax (GST) and harmonized sales tax (HST) in Canada for certain intercompany fees charged to its Canadian entities from 2007 through 2013. The Company began a voluntary self-disclosure with the Canada Revenue Agency for these unpaid taxes in 2014 under the Canada Revenue Agency Voluntary Disclosures Program, which was accepted in 2014. During the second quarter of 2015, the Company received the final assessment of GST and HST owed and paid the full amount of $0.8 million to the Canada Revenue Agency.
The Company has a revolving line of credit with a bank, which is secured by any and all interest the Company has in assets that are not otherwise restricted. The revolving line of credit bore a variable interest rate as of December 31, 2015 and 2014, equal to the greater of 5.0% or 1.5% plus the prime rate. Interest expense is due monthly on the outstanding principal amount with all amounts outstanding under the revolving line of credit due upon maturity in July 2017. The credit agreement requires the Company to comply with various financial and non-financial covenants. As of December 31, 2015 and December 31, 2014, the Company was in compliance with these covenants. This facility also had a compensating balance requirement of $0.5 million as of December 31, 2015 and 2014.
The Company entered into a new lease agreement during the third quarter of 2015 which required the Company to issue a security deposit in the form of an irrevocable standby letter of credit totaling $1.1 million which expires in August 2016 and renews annually thereafter. This amount reduces the Company’s available revolving line of credit. As of December 31, 2015, the Company had $18.4 million available under its revolving line of credit.
Interest expense during 2015, 2014 and 2013 related to all loans was $0.3 million, $6.7 million and $0.6 million, respectively.
In June 2014, the Company’s Board of Directors adopted the 2014 Equity Incentive Plan (2014 Plan), which succeeded the 2007 Equity Compensation Plan upon the Company’s IPO. The 2014 Plan authorizes the award of stock options or restricted stock to directors, officers, employees, and non-employees. All awards have 10-year contractual terms. At December 31, 2015, there were 3,068,551 additional shares available for the Company to grant under the 2014 Plan.
Expected volatility: As the Company does not have significant trading history for common stock, the expected stock price volatility for common stock is estimated by taking the average historical price volatility for identified peers based on daily price observations over a period equivalent to the expected term of the stock option grants. The Company does not rely on implied volatilities of traded options in identified peers’ common stock because the volume of activity is relatively low. The Company intends to continue to consistently apply this process using these or similar public companies until a sufficient amount of historical information regarding the volatility of the Company’s common stock price becomes available.
Expected dividend yield: The Company does not expect to pay any dividends in the foreseeable future.
As of December 31, 2015, stock options outstanding had a weighted average remaining contractual life of 6.1 years and vested and exercisable options had a weighted average remaining contractual life of 5.2 years.
The below table summarizes the Company’s restricted stock award activity for the years ending December 31, 2015, 2014 and 2013:
During the third quarters of 2015 and 2014, 116,877 shares of restricted stock, which were subject to a performance condition relating to the Company’s IPO, vested and resulted in $0.9 million and $1.6 million of expense, respectively, included in general and administrative expense in the consolidated statement of operations. The fair value of these vested shares was approximately $0.9 million and $1.2 million, respectively. The remaining 467,508 shares of unvested restricted stock related to this agreement are expected to vest over the remaining service term of approximately four years.
As of December 31, 2015, the Company had 200,000,000 shares of common stock authorized and 28,396,189 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, 2015, 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, 2015 due to restrictions in its credit agreements.
At December 31, 2015 and 2014, the Company had warrants to purchase 869,999 shares of common stock at $10.00 per share, which begin to expire in 2018. At the end of each reporting period prior to the IPO, the Company adjusted the fair value of the warrants (see Note 6). Immediately following the IPO, these warrants were no longer subject to contractual modification provisions and were reclassified from a liability classification to an equity classification on the consolidated balance sheet.
The Company has two segments: subscription business and other business. The subscription business segment includes monthly subscriptions related to the Company’s medical plan which are marketed directly to consumers, while the other business segment includes all other business that is not directly marketed to consumers. Prior to January 1, 2015, certain enrollments that were not marketed directly to consumers were included in the subscription business segment as they were not segregated in reporting used by the chief operating decision maker. As of January 1, 2015, the Company began reporting these pets in its other business segment due to the characteristics of this business being similar to other arrangements within the other business segment. In addition, the chief operating decision maker began using information related to the subscription business segment excluding these pets in order to evaluate the Company’s business and operations and make decisions. As such, these pets have been considered a part of the other business segment after January 1, 2015. Prior period segment information presented below has been recast to reflect this change.
Substantially all of the Company’s long-lived assets were located in the United States as of December 31, 2015 and 2014.
The statutory net income for 2015, 2014 and 2013 and statutory capital and surplus at December 31, 2015, 2014 and 2013, for the Company’s insurance subsidiary was as follows (in thousands):
The following table contains selected unaudited financial data for each quarter of 2015 and 2014. The unaudited information should be read in conjunction with the Company’s financial statements and related notes included elsewhere in this report. The Company believes that the following unaudited information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.