Stockholders' Equity | 9 Months Ended |
Sep. 30, 2013 |
Stockholders' Equity | ' |
Stockholders' Equity | ' |
8. Stockholders’ Equity |
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Common Stock—As of December 31, 2012 and September 30, 2013, the number of authorized shares of common stock, par value $0.0001 per share, was 150,000,000, of which 37,613,327 and 38,125,858 were issued and outstanding, respectively. |
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During the nine months ended September 30, 2012, the Company issued 165,775 unregistered shares of its common stock and 132,617 unvested and unregistered shares of its common stock as part of the Anomalous purchase consideration, as described in Note 2. During the nine months ended September 30, 2013, the Company cancelled and retired the 132,617 unvested and unregistered shares of its common stock. Additionally, the Company issued 5,991 and 58,975 shares of its common stock to certain of its employees and members of its board of directors, respectively, during the nine months ended September 30, 2013 under the provisions of the Company’s 2011 Stock Incentive Plan (the “2011 Plan”). |
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At the June 5, 2013 annual meeting of the Company’s stockholders, an amendment to the 2011 Plan to reserve an additional 1,000,000 shares of common stock for issuance under the 2011 Plan was approved by a majority of the Company’s stockholders. The Company’s board of directors had previously approved such amendment. |
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In November 2012, the Company’s board of directors authorized a share repurchase program under which the Company may repurchase up to $20 million of its outstanding common stock on the open market or in privately negotiated transactions. During the nine months ended September 30, 2013, the Company repurchased 365,959 shares of common stock at an average price per share, including broker commissions, of $12.40, for an aggregate purchase price of $4.5 million. |
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Preferred Stock—As of December 31, 2012 and September 30, 2013, the number of authorized shares of preferred stock, par value $0.0001 per share, was 5,000,000, of which 0 were issued and outstanding. |
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Common Stock Warrants—During the nine months ended September 30, 2013, warrant holders exercised warrants to purchase a total of 14,907 shares of common stock. The Company received proceeds of $34,700 related to these warrant exercises. |
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On March 22, 2011, the Company issued a warrant to purchase up to 1,282,789 shares of its common stock to Dell Products, L.P. (“Dell”) in connection with the entry of the Company and Dell into a 49-month strategic relationship agreement. Under the terms of the warrant, the 1,282,789 shares of common stock may become exercisable upon the achievement of certain annual recurring revenue thresholds over the 49-month period. The warrant is exercisable at $5.987 per share. As of September 30, 2013, none of the shares that may become exercisable under this warrant were probable of being earned and becoming vested and accordingly no value was ascribed to this warrant. On a quarterly basis the Company reviews the actual annual recurring revenue related to the Dell strategic relationship agreement to determine if it is probable that Dell will reach any of the annual recurring revenue thresholds that would result in warrant shares being earned and becoming vested, and to the extent the Company deems it probable that any warrant shares will be earned and become vested, the Company will record the fair value of those shares to intangible assets and non-current liabilities using a Black-Scholes valuation model and mark to market each period thereafter until such time as the warrant shares are actually earned and vest. |
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On October 9, 2009, the Company issued a warrant to purchase up to 3,198,402 shares of its common stock to International Business Machines Corporation (“IBM”) in connection with the entry of the Company and IBM into a five-year strategic relationship agreement. Under the terms of the warrant, 890,277 shares of common stock were vested and exercisable immediately upon execution of the agreement. Up to an additional 2,308,125 shares of common stock were to become exercisable upon the achievement of certain billing thresholds over a three-year period. The warrant was exercisable at $4.148 per share. (Certain terms of this warrant were amended on June 8, 2011, as described in the paragraph below). The Company valued the initial 890,277 shares of common stock exercisable under the warrant at $1.7 million using the Black-Scholes valuation model at the time of the signing of the agreement. The Black-Scholes valuation assumptions included an expected term of seven years, volatility of 67.77% and a risk free interest rate of 2.93%. The Company recorded the $1.7 million value of the initial 890,277 shares of common stock as an increase to warrants for common stock and an increase to other non-current assets on the Company’s consolidated balance sheet. During the three months ended December 31, 2009, the Company determined that it was probable that IBM would reach certain of the billing thresholds to have an additional 947,103 shares of common stock become exercisable. The additional shares of common stock exercisable under the warrant were valued at $1.4 million using the Black-Scholes valuation model at the time the Company determined it was probable they would reach the billing thresholds. The Black-Scholes valuation assumptions included an expected term of 5.8 years, volatility of 61.15% and a risk free interest rate of 2.28%. The Company recorded the value of the additional shares of common stock to intangible assets and non-current liabilities. In December 2010, the Company reviewed the actual billings to date related to the strategic relationship agreement and determined it was probable IBM would reach the billing thresholds to earn 624,755 shares of the additional 947,103 shares of common stock accrued. The Company reversed $920,000 of market value related to the 322,348 shares of common stock no longer deemed probable of being earned. |
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On June 8, 2011, certain terms of the common stock warrant described above were amended by the Company and IBM. Under the terms of the amended warrant agreement, an additional 624,755 shares of common stock were vested and exercisable immediately (in addition to the 890,277 shares previously vested and exercisable), the additional warrant shares that could be earned were reduced from 2,308,125 to 651,626 shares of common stock, and the methodology for earning the additional warrant shares was revised to be based on specified new contractual revenue commitments from IBM that could occur between June 8, 2011 and June 30, 2012. Based on this amendment, the maximum number of warrant shares (issued and issuable) to IBM was reduced from 3,198,402 to 2,166,658 shares of common stock. The fair value of the 624,755 warrant shares vested as a result of this amendment was determined to be $4.5 million using the Black-Scholes valuation model at the time of the amendment. The Black-Scholes valuation assumptions included an expected term of 5.3 years, volatility of 59.58% and a risk free interest rate of 1.64%. The Company recorded these vested warrant shares as an increase to warrants for common stock, reversed the non-current liability associated with the previous accrual for these warrant shares, and the difference was added to intangible assets and is being amortized in proportion to the expected revenue over the remainder of the original ten-year period noted below. On August 30, 2011, the Company issued 930,511 shares of its common stock to IBM upon the exercise by IBM of this warrant, pursuant to a cashless exercise feature. As a result of the cashless exercise, 584,521 warrant shares were cancelled in lieu of the payment of cash consideration to the Company. As of June 30, 2012, the vesting terms of the amended warrant agreement between the Company and IBM expired with IBM earning no additional warrant shares. As a result, no further warrant shares are issuable under this warrant agreement. |
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The Company began to amortize the intangible asset in the first quarter of 2010, with the related charge recorded as contra-revenue. The related charge to revenue will be in proportion to expected revenue over approximately a ten-year period. For the nine months ended September 30, 2012 and 2013, the Company recorded $119,259 and $194,189, respectively, of amortization as a contra-revenue charge related to the common stock warrant. The warrant value was marked to market on a quarterly basis until the warrant shares were earned and vested or expired unearned and unvested. |
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A summary of warrants exercised to purchase common stock during the nine months ended September 30, 2013 is presented below: |
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| | Number of | | | | | | | | | | |
| | Stock | | | | | | | | | | |
Warrants | | Warrants | | | | | | | | | | |
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Outstanding at beginning of the year | | 25,617 | | | | | | | | | | |
Exercised | | (14,907 | ) | | | | | | | | | |
Issued | | — | | | | | | | | | | |
Cancelled | | — | | | | | | | | | | |
Outstanding at end of the period | | 10,710 | | | | | | | | | | |
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Weighted average exercise price | | $ | 13.26 | | | | | | | | | | |
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Stock Options—As of September 30, 2013, the Company had five stock-based compensation plans, the Employee Stock Option/Stock Issuance Plan (the “Employee Plan”), the Executive Stock Option/Stock Issuance Plan (the “Executive Plan”), the 2005 Stock Incentive Plan (the “2005 Plan”), the Traq Amended and Restated 1999 Stock Plan (the “1999 Plan”) and the 2011 Plan. In connection with the Company’s initial public offering, the Company’s board of directors determined that no future stock awards would be made under the Employee Plan, the Executive Plan, the 2005 Plan and the 1999 Plan. The 2011 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards. |
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Under the provisions of the Employee Plan, the Executive Plan, the 2005 Plan, the 1999 Plan and the 2011 Plan (the “Plans”), the exercise price of each option is determined by the Company’s board of directors or by a committee appointed by the board of directors. Under the 2011 Plan, the exercise price of all stock options must not be less than the fair market value of a share of common stock on the date of grant. The period over which options vest and become exercisable, as well as the term of the options, is determined by the board of directors or the committee appointed by the board of directors. The options generally vest over 4 years and expire 10 years after the date of the grant. During the nine months ended September 30, 2013, the Company’s board of directors granted options to purchase an aggregate of 463,475 shares of common stock under the 2011 Plan to employees and non-employees, at a weighted average exercise price of $14.25 per share. |
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A summary of the status of stock options issued pursuant to the Plans during the nine months ended September 30, 2013 is presented below: |
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Options | | Number of Shares | | Weighted | | Weighted | | | | | | |
Average | Average | | | | | |
Exercise | Contractual | | | | | |
Price | Life (years) | | | | | |
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Outstanding at beginning of the year | | 6,854,369 | | $ | 7.92 | | | | | | | | |
Granted | | 463,475 | | $ | 14.25 | | | | | | | | |
Forfeited | | (119,067 | ) | $ | 13.01 | | | | | | | | |
Exercised | | (847,134 | ) | $ | 4.62 | | | | | | | | |
Outstanding at end of the period | | 6,351,643 | | $ | 8.73 | | 7.1 | | | | | | |
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Exercisable at end of the period | | 3,933,447 | | $ | 6.54 | | 6.4 | | | | | | |
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Available for future grants at September 30, 2013 | | 1,018,338 | | | | | | | | | | |
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The intrinsic values of options outstanding, vested and exercised during the nine months ended September 30, 2013 were as follows: |
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| | 2013 | | | | | | | | |
| | Number of | | Intrinsic | | | | | | | | |
| | Options | | Value | | | | | | | | |
Outstanding | | 6,351,643 | | $ | 95,907,266 | | | | | | | | |
Vested | | 3,933,447 | | $ | 68,020,878 | | | | | | | | |
Exercised | | 847,134 | | $ | 12,276,044 | | | | | | | | |
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During the nine months ended September 30, 2013, employees and former employees of the Company exercised options to purchase a total of 847,134 shares of common stock at exercise prices ranging from $0.25 to $20.39 per share. Proceeds from the stock option exercises totaled $3.9 million. |
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Restricted Stock Units—During the nine months ended September 30, 2013, the Company issued 627,534 restricted stock units to certain employees under the provisions of the 2011 Plan and 84,100 restricted stock units vested resulting in an equal number of shares of common stock being issued. The grants of restricted stock units made during the nine months ended September 30, 2013 had an aggregate value of $9.3 million. The value of a restricted stock unit award is determined based on the closing price of the Company’s common stock on the date of grant. A restricted stock unit award entitles the holder to receive shares of the Company’s common stock as the award vests. The restricted stock units vest over periods that range from 2 to 4 years. Stock-based compensation expense is amortized on a straight-line basis over the vesting period. |
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For the nine months ended September 30, 2013, the Company recorded stock-based compensation expenses of $3.0 million related to restricted stock units. |
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As of September 30, 2013, there was $9.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock units. This amount will be amortized on a straight-line basis over the requisite service period related to the restricted unit grants. |
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A summary of the status of restricted stock units issued pursuant to the Plans during the nine months ended September 30, 2013 is presented below: |
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Restricted Stock Units | | Number of Shares | | Weighted | | | | | | | | |
Average Fair | | | | | | | |
Value | | | | | | | |
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Outstanding at beginning of the year | | 221,314 | | $ | 17.27 | | | | | | | | |
Granted | | 627,534 | | $ | 14.85 | | | | | | | | |
Vested | | (84,100 | ) | $ | 17.14 | | | | | | | | |
Forfeited | | (1,050 | ) | $ | 15.08 | | | | | | | | |
Outstanding at end of the period | | 763,698 | | $ | 15.3 | | | | | | | | |
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In accordance with ASC 718, Share Based Payment (“ASC 718”), total compensation expense for stock-based compensation awards was $6.5 million and $9.8 million for the nine months ended September 30, 2012 and 2013, respectively, which is included on the accompanying condensed consolidated statements of operations as follows (in thousands): |
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| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2012 | | 2013 | | 2012 | | 2013 | |
Cost of goods sold | | $ | 362 | | $ | 529 | | $ | 947 | | $ | 1,609 | |
Sales and marketing expenses | | 586 | | 978 | | 1,455 | | 2,747 | |
General and administrative expenses | | 1,643 | | 1,551 | | 3,727 | | 4,664 | |
Research and development | | 164 | | 244 | | 410 | | 753 | |
Total stock-based employee compensation | | $ | 2,755 | | $ | 3,302 | | $ | 6,539 | | $ | 9,773 | |
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Stock-based employee compensation expense for equity awards granted since January 1, 2006 will be recognized over the following periods as follows (in thousands): |
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Years Ending December 31, | | | | | | | | | | | | |
2013 | | $ | 3,272 | | | | | | | | | | |
2014 | | 11,718 | | | | | | | | | | |
2015 | | 8,106 | | | | | | | | | | |
2016 | | 2,333 | | | | | | | | | | |
2017 | | 123 | | | | | | | | | | |
| | $ | 25,552 | | | | | | | | | | |
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Stock-based compensation costs for stock options are generally based on the fair value calculated from the Black-Scholes valuation model on the date of grant. The Black-Scholes valuation model requires the Company to estimate key assumptions such as expected volatility, expected terms, risk-free interest rates and dividend yields. The Company determined the assumptions in the Black-Scholes valuation model as follows: expected volatility is a combination of the Company’s competitors’ historical volatility; expected term is calculated using the “simplified” method prescribed in ASC 718; and the risk free rate is based on the U.S. Treasury yield on 5 and 7-year instruments in effect at the time of grant. A dividend yield is not used, as the Company has never paid cash dividends and does not currently intend to pay cash dividends. The Company periodically reviews the assumptions and modifies the assumptions accordingly. |
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As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock-based compensation expense to be recognized in future periods. The fair values of stock grants are amortized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense recognized is shown in the operating activities section of the statement of cash flows. |
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The fair value of the options granted during 2013 was determined at the date of grant using the Black-Scholes valuation model with the following assumptions: |
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| | 2013 | | | | | | | | | | | |
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Expected dividend yield | | 0% | | | | | | | | | | | |
Risk-free interest rate | | 1.04% to 1.86% | | | | | | | | | | | |
Expected term (in years) | | 5.7 - 6.1 years | | | | | | | | | | | |
Expected volatility | | 56.34% - 56.84% | | | | | | | | | | | |
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Based on the above assumptions, the weighted average fair value per share of stock options granted during the nine months ended September 30, 2013 was approximately $7.55. |
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