Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2013 |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | ' |
Stock-Based Compensation | ' |
10 | Stock-Based Compensation | | | | | | | | | | | | | | | |
2005 Stock Plan |
We granted options under our 2005 Stock Incentive Plan (the “2005 Plan”) until September 2012 when the 2005 Plan was terminated. Since the date of the plan termination, no more stock options or awards were issued under the plan, however the stock options issued prior to the plan termination continue to be outstanding. Under the terms of the 2005 Plan, we had the ability to grant incentive (“ISO”) and nonstatutory (“NSO”) stock options, restricted stock awards (“RSA”) and restricted stock units (“RSU”). The options were granted at a price per share not less than 100% of the fair market value per share at the grant date. Options granted under the 2005 Plan generally vest at a rate of 25% after the first year and then at 1/36 of the remaining shares each month thereafter and expire 10 years from the grant date. Certain options vest monthly over two to four years. |
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2012 Equity Incentive Plan |
Effective September 19, 2012, our board of directors adopted, and our stockholders approved, a 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the grant of ISOs, NSOs, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to our employees, directors, and consultants. Upon adoption of the 2012 Plan, a total of 2,370,000 shares of common stock were reserved for issuance plus up to 1,000,000 shares from the expiration or termination of awards under the 2005 Plan. The shares available are increased at the beginning of each fiscal year by the lesser of (i) 2,100,000 shares, (ii) 4% of outstanding common stock on the last day of the immediately preceding fiscal year, or (iii) such number determined by our board of directors. On January 1, 2013 the shares available for grant under the 2012 Plan were automatically increased by 1,102,112 shares. On June 5, 2013, the stockholders approved a 2,000,000 share increase to the 2012 Plan. Under the 2012 Plan, both the ISOs and NSOs are granted at a price per share not less than 100% of the fair market value per share of the underlying stock at the grant date. The board of directors determines the vesting period for each option award on the grant date, and the options generally expire 10 years from the grant date or such shorter term as may be determined by the board of directors. The restricted stock units are granted for zero purchase price. |
Market Leader 2004 Equity Incentive Plan |
Effective with the acquisition of Market Leader and pursuant to the Merger Agreement between us and Market Leader, we assumed Market Leader’s 2004 Equity Incentive Plan (“2004 Plan”), including all outstanding shares of restricted stock, all outstanding stock appreciation rights, all outstanding options and all shares available for future issuance under the 2004 Plan, and all of such securities became issuable for shares of our common stock, subject to appropriate adjustments to the number of shares pursuant to the Merger Agreement. We will now be able to grant equity-based awards, to the extent permissible by applicable law and NYSE rules, under the terms of the 2004 Plan or the terms of another plan adopted by us to issue the reserved but unissued Market Leader shares under the 2004 Plan and the shares that would otherwise be returned to the 2004 Plan due to (i) awards that lapse, expire, terminate or are canceled prior to the issuance of shares thereunder or (ii) shares of Market Leader common stock that are issued under the 2004 Plan and thereafter are forfeited to or otherwise reacquired by Market Leader. |
As of the date we assumed the 2004 Plan, a total of 283,522 shares of common stock were reserved for issuance. The shares available will be increased on January 1, 2014 by 202,770 shares under the automatic annual increase provisions of this plan. |
We did not assume Market Leader’s 1999 Stock Incentive Plan (the “1999 Plan”), however, pursuant to the Merger Agreement we have assumed all outstanding shares of restricted stock, all outstanding stock appreciation rights and all outstanding options issued under 1999 Plan. These equity awards will continue to be outstanding and will be governed by the provisions of the 1999 Plan. |
Total shares of common stock available for grant under our 2012 Plan and 2004 Plan were 2,030,584 and 2,127,279 as of September 30, 2013 and December 31, 2012, respectively. |
Stock Option Activity |
Stock option activity for the nine months ended September 30, 2013 under the 2005 Plan, 2012 Plan, 1999 Plan and 2004 Plan (for the period from August 20, 2013 through September 30, 2013) was as follows: |
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| | Stock | | | Weighted | | | Weighted | | | Aggregate | |
Options | Average | Average | Intrinsic |
Outstanding | Exercise Price | Remaining | Value |
| | Contractual | |
| | Life (Years) | |
| | | | | | | | | | | (In thousands) | |
Balance—December 31, 2012 | | | 3,570,566 | | | $ | 6.45 | | | | 7.56 | | | $ | 35,415 | |
Assumed in acquisition | | | 643,237 | | | | 15.27 | | | | | | | | | |
Granted | | | 586,211 | | | | 31.67 | | | | | | | | | |
Canceled | | | (139,100 | ) | | | 12.2 | | | | | | | | | |
Exercised | | | (1,160,694 | ) | | | 4.69 | | | | | | | | | |
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Balance—September 30, 2013 | | | 3,500,220 | | | $ | 12.64 | | | | 7.42 | | | $ | 120,460 | |
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Options exercisable—September 30, 2013 | | | 1,619,212 | | | $ | 8.16 | | | | 6.28 | | | $ | 11,201 | |
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Options vested and expected to vest—September 30, 2013 | | | 3,394,359 | | | $ | 12.37 | | | | 7.38 | | | $ | 117,755 | |
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The options exercisable as of September 30, 2013 included options that were exercisable prior to vesting. The weighted average grant date fair value of options granted during the three months ended September 30, 2013 and 2012 was $19.70 and $7.94, respectively. The weighted average grant date fair value of options granted during the nine months ended September 30, 2013 and 2012 was $14.96 and $6.59, respectively. |
Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The aggregate intrinsic value of options exercised was $18.3 million and $1.4 million, for the three months ended September 30, 2013 and 2012, respectively. The aggregate intrinsic value of options exercised was $35.2 million and $2.8 million, for the nine months ended September 30, 2013 and 2012, respectively. |
The total estimated grant date fair value of employee options vested during the three and nine months ended September 30, 2013 was $5.0 million and $4.1 million, respectively. As of September 30, 2013 total unrecognized compensation cost related to non-vested stock options granted to employees was $18.1 million, net of estimated forfeitures of $1.1 million. These costs will be amortized on a straight-line basis over a weighted average vesting period of 2.1 years. |
Restricted Stock Units Activity |
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| | RSUs | | | Weighted | | | Weighted | | | Aggregate | |
Outstanding | Average | Average | Intrinsic |
| Grant Date | Remaining | Value |
| fair Value | Contractual | |
| | Life (Years) | |
| | | | | | | | | | | (in thousands) | |
Unvested —December 31, 2012 | | | 37,760 | | | $ | 16.41 | | | | 2.16 | | | $ | 613 | |
Assumed in acquisition | | | 124,832 | | | | 11.56 | | | | | | | | | |
Granted | | | 1,628,893 | | | | 34.33 | | | | | | | | | |
Canceled | | | (62,614 | ) | | | 27.39 | | | | | | | | | |
Released | | | (83,028 | ) | | | 28.21 | | | | | | | | | |
Value of awards withheld for tax liability | | | 4,155 | | | | 10.47 | | | | | | | | | |
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Unvested—September 30, 2013 | | | 1,649,998 | | | $ | 32.78 | | | | 3.14 | | | $ | 77,404 | |
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Restricted stock units expected to vest—September 30, 2013 | | | 1,466,941 | | | | | | | | 2.47 | | | $ | 68,990 | |
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As of September 30, 2013 total unrecognized compensation cost related to the unvested RSUs granted to employees was $46.8 million, net of estimated forfeitures of $4.1 million, respectively. This cost will be amortized on a straight-line basis over a weighted average vesting period of 3.14 years. |
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In the three months ended September 30, 2013 and June 30, 2013 we granted 2,105,000 stock unit awards in relation to the Market Leader acquisition, of which 1,576,250 were performance based awards and 528,750 were time based awards. The performance based awards were contingent upon closing of the acquisition of Market Leader referred to in Note 1 above, achievement of certain performance metrics, including comparative market-based returns, and the employees continued service relationship with us. The time based awards were contingent upon closing of the acquisition of Market Leader referred to in Note 1 above and the employees continued service relationship with us. On August 20, 2013 the first contingency was resolved when we closed the acquisition of Market Leader. Hence, the time-based awards are classified as restricted stock units and are included in the RSU table above. The performance-based awards are summarized in the table below. |
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| | PSUs | | | Weighted | | | Weighted | | | Aggregate | |
Outstanding | Average | Average | Intrinsic |
| Grant Date | Remaining | Value |
| fair Value | Contractual | |
| | Life (Years) | |
| | | | | | | | | | | (in thousands) | |
Unvested—December 31, 2012 | | | — | | | $ | — | | | | — | | | $ | — | |
Granted | | | 1,576,250 | | | | 22.84 | | | | | | | | | |
Canceled | | | — | | | | | | | | | | | | | |
Released | | | — | | | | | | | | | | | | | |
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Unvested—September 30, 2013 | | | 1,576,250 | | | $ | 22.84 | | | | 3.26 | | | $ | 74,131 | |
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Restricted stock units expected to vest—September 30, 2013 | | | 1,396,179 | | | | | | | | 3.25 | | | $ | 65,662 | |
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We estimated the fair value of the performance based awards with market-based conditions using a Monte Carlo simulation model. Total compensation cost recorded related to performance-based awards in the three months ended September 30, 2013 was $1.7 million. Additionally, for the performance based awards granted in the three months ended June 30, 2013 prior to closing of Market Leader acquisition in August 2013 we recorded an incremental expense of $383,000 in the three months ended September 30, 2013. |
As of September 30, 2013 total unrecognized compensation cost related to the unvested PSUs granted to employees was $18.5 million, net of estimated forfeitures of $1.7 million, respectively. This cost will be amortized on a straight-line basis over a weighted average vesting period of 3.26 years. |
Summary of Assumptions |
The fair value of each employee stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions: |
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| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Expected term (in years) | | | 5.4 | | | | 5.5 | | | | 5.5 | | | | 5.5 | |
Expected volatility | | | 52 | % | | | 53 | % | | | 52 | % | | | 53 | % |
Risk-free interest rate | | | 1.6 | % | | | 0.8 | % | | | 1.1 | % | | | 0.8 | % |
Dividend rate | | | — | % | | | 0 | % | | | — | % | | | 0 | % |
The fair value of each performance based award with market based condition was estimated using a Monte Carlo simulation model with the following weighted average assumptions: |
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| | As of May 29, | | As of August 29, | | | | | | | | | | | | |
2013 | 2013 | | | | | | | | | | | | |
Stock price | | $30.31 | | $41.67 | | | | | | | | | | | | |
Simulation period | | 2.93 years | | 2.68 years | | | | | | | | | | | | |
Risk free rate | | 0.47% | | 0.65% | | | | | | | | | | | | |
Volatility | | 52.60% | | 52.60% | | | | | | | | | | | | |
Dividend yield | | 0% | | 0% | | | | | | | | | | | | |
Cost of equity | | 12.60% | | 12.30% | | | | | | | | | | | | |
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Stock Appreciation Rights Activity |
We measure the fair value of stock appreciation rights similar to stock options. Additionally, we classify stock appreciation rights that can be settled in cash as a liability and remeasure it at fair value at the end of each reporting period. Any changes in fair value as a result of this remeasurement are recorded as cumulative compensation cost. Compensation expense related to stock appreciation rights is recognized over the vesting period using the straight-line method reduced for estimated forfeitures. We recognized $117,000 and $0 of expense in the three and nine months ended September 30, 2013 and 2012, respectively, related to these stock appreciation rights. Stock appreciation rights activity is summarized in the following table: |
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| | Stock | | | Weighted | | | Weighted | | | Aggregate | |
Appreciation | Average | Average | Intrinsic |
Rights | Exercise Price | Remaining | Value |
| | Contractual | |
| | Life (Years) | |
| | | | | | | | | | | (In thousands) | |
Balance—December 31, 2012 | | | — | | | $ | — | | | | — | | | $ | — | |
Assumed in acquisition | | | 159,713 | | | | 31.93 | | | | 3.3 | | | | 5,684 | |
Granted | | | — | | | | — | | | | | | | | | |
Canceled | | | — | | | | — | | | | | | | | | |
Exercised | | | — | | | | — | | | | | | | | | |
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Balance—September 30, 2013 | | | 159,713 | | | $ | 31.93 | | | | 3.3 | | | $ | 5,684 | |
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Exercisable—September 30, 2013 | | | 42,178 | | | $ | 10.28 | | | | 3.19 | | | $ | 1,550 | |
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Vested and expected to vest—September 30, 2013 | | | 146,928 | | | $ | 11.35 | | | | 3.29 | | | $ | 5,242 | |
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No stock appreciation rights were granted in the three or nine months ended September 30, 2013. |
The total estimated grant date fair value of employee stock appreciation rights vested during the three and nine months ended September 30, 2013 was $280,000 and $280,000, respectively. As of September 30, 2013 total unrecognized compensation cost related to non-vested stock options granted to employees was $3.7 million, net of estimated forfeitures of $240,000. These costs will be amortized on a straight-line basis over a weighted average vesting period of 2.14 years. |
The value of each employee stock appreciation right granted was estimated at the end of the reporting period using the Black-Scholes option-pricing model with the following weighted average assumptions: |
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| | Three Months | | | | | | | | | | | | | |
Ended September 30, | | | | | | | | | | | | |
2013 | | | | | | | | | | | | |
Estimated term (in years) | | | 1.18 | | | | | | | | | | | | | |
Risk-free interest rate | | | 0.1 | % | | | | | | | | | | | | |
Expected volatility | | | 42 | % | | | | | | | | | | | | |
Expected dividend yield | | | 0 | % | | | | | | | | | | | | |
Our stock appreciation rights typically vest on a graded basis over either a two or four year period and typically expire the earlier of five years from the date of grant or ninety days following termination of employment. |
Stock-Based Compensation Expense |
We recorded compensation expense for the stock-based awards granted to employees as follows (in thousands): |
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| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
Cost of revenue | | $ | 200 | | | $ | 6 | | | $ | 298 | | | $ | 20 | |
Technology and development | | | 2,039 | | | | 253 | | | | 3,028 | | | | 629 | |
Sales and marketing | | | 1,526 | | | | 97 | | | | 2,348 | | | | 276 | |
General and administrative | | | 3,525 | | | | 437 | | | | 4,994 | | | | 884 | |
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Total stock-based compensation expense | | $ | 7,290 | | | $ | 793 | | | $ | 10,668 | | | | 1,809 | |
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