Share-based Compensation | 6 Months Ended |
Jun. 30, 2014 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
Share-based Compensation | ' |
Share-based Compensation |
Restricted common shares and stock options—In May 2010, the Company’s Board of Directors approved the 2010 Plan. In May 2014, the Company's Board of Directors adopted the 2014 Equity Incentive Plan (the "2014 Plan," and together with the 2010 Plan, the "Incentive Plans"). With the adoption of the 2014 Plan, the Company has discontinued selling stock and issuing awards out of the 2010 Plan, but stock previously purchased and awards previously granted under the 2010 Plan remain outstanding. |
The Incentive Plans reserve 2,116,747 common shares for equity incentive awards consisting of incentive stock options, non-qualified stock options, restricted stock awards, and unrestricted stock awards. Under the Incentive Plans, the Company has sold 622,880 and 753,783 shares of restricted common stock to eligible employees as of June 30, 2014 and December 30, 2013, respectively. In addition, the Company has issued 963,913 and zero stock options under the Incentive Plans to eligible employees as of June 30, 2014 and December 30, 2013, respectively. |
Information with respect to restricted stock sales is as follows: |
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| NUMBER OF SHARES OF | | | | | | | | |
RESTRICTED COMMON STOCK | | | | | | |
| TIME VESTING | | MARKET CONDITION | | WEIGHTED AVERAGE | | | | | | |
VESTING | SALE DATE | | | | | | |
| FAIR VALUE | | | | | | |
Unvested, December 30, 2013 | 243,475 | | | 236,707 | | | $ | 2.49 | | | | | | | |
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Sold/Granted | — | | | — | | | — | | | | | | | |
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Vested | (90,510 | ) | | (4,555 | ) | | 4.55 | | | | | | | |
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Forfeited/Repurchased | (7,239 | ) | | (9,052 | ) | | 0.32 | | | | | | | |
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Unvested, June 30, 2014 | 145,726 | | | 223,100 | | | $ | 2.32 | | | | | | | |
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Information with respect to stock option activity is as follows: |
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| NUMBER OF SHARES OF | | | | | | |
STOCK OPTIONS |
| TIME | | MARKET | | WEIGHTED | | WEIGHTED | | AGGREGATE |
VESTING | VESTING | AVERAGE | AVERAGE | INTRINSIC |
| | EXERCISE | REMAINING | VALUE |
| | PRICE | CONTRACTUAL | (in thousands) |
| | | TERM | |
Outstanding, December 30, 2013 | — | | | — | | | $ | — | | | | | |
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Granted | 740,932 | | | 231,655 | | | 11.16 | | | | | |
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Exercised | — | | | — | | | — | | | | | |
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Forfeited | (5,783 | ) | | (2,891 | ) | | 11 | | | | | |
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Outstanding, June 30, 2014 | 735,149 | | | 228,764 | | | $ | 11.16 | | | 9.8 years | | $ | — | |
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Exercisable, June 30, 2014 | 337,664 | | | — | | | $ | 11.2 | | | 9.8 years | | $ | — | |
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Vested and expected to vest at June 30, 2014 | 675,526 | | | 194,449 | | | $ | 11.16 | | | 9.8 years | | $ | — | |
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The weighted average fair value of share-based compensation awards granted and vested, and the intrinsic value of options exercised during the period were (in thousands, except per share amounts): |
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| Three Months Ended | | Six Months Ended |
| June 30, | | July 1, | | June 30, | | July 1, |
2014 | 2013 | 2014 | 2013 |
Restricted Stock Sales: | | | | | | | |
Weighted average sale date fair value per share | $ | — | | | $ | 7.01 | | | $ | — | | | $ | 6.77 | |
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Total fair value of shares sold | $ | — | | | $ | 119 | | | $ | — | | | $ | 230 | |
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Total fair value of shares vested | $ | 47 | | | $ | 29 | | | $ | 432 | | | $ | 29 | |
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Stock Option Awards: | | | | | | | |
Weighted average grant date fair value per share | $ | 4.27 | | | $ | — | | | $ | 4.27 | | | $ | — | |
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Total fair value of awards granted | $ | 3,367 | | | $ | — | | | $ | 4,151 | | | $ | — | |
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Total fair value of awards vested | $ | 1,147 | | | $ | — | | | $ | 1,432 | | | $ | — | |
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Total intrinsic value of options exercised | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Compensation cost and valuation—Total compensation costs recognized in connection with the Incentive Plans for the three months ended June 30, 2014 and July 1, 2013 were $1.0 million and $0.2 million, respectively. Total compensation costs recognized in connection with the Incentive Plans for the six months ended June 30, 2014 and July 1, 2013 were $1.5 million and $0.2 million, respectively. Income tax benefits recognized for the three months ended June 30, 2014 and July 1, 2013 were $0.4 million and zero, respectively. Income tax benefits recognized for the six months ended June 30, 2014 and July 1, 2013 were $0.5 million and zero, respectively. |
As of June 30, 2014, the total unrecognized stock-based compensation expense, net of estimated forfeitures, was $1.8 million and the remaining weighted average contractual life was 2.6 years. |
Prior to the IPO, the valuation of the Company’s common stock and Preferred Shares was based on the principles of option-pricing theory. This approach is based on modeling the value of the various components of an entity’s capital structure as a series of call options on the proceeds expected from the sale of the entity or the liquidation of its assets at some future date. Specifically, each of the preferred and common equity is modeled as a call option on the aggregate value of the Company with an exercise price equal to the liquidation preferences of the more senior securities. In estimating the fair value of the aggregate value of the Company, the Company considered both the income approach and the market approach. |
The key inputs required to calculate the value of the common stock using the option-pricing model included the risk free rate, the volatility of the underlying assets, and the estimated time until a liquidation event. The Company applied a marketability discount to the value of common stock based on facts and circumstances at each valuation date. |
During the reported periods prior to the IPO, the Company assumed the following: |
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| Three Months Ended | | Six Months Ended | | | | | | | | |
| June 30, | | July 1, | | June 30, | | July 1, | | | | | | | | |
2014 (A) | 2013 | 2014 (A) | 2013 | | | | | | | | |
Risk free rate | — | | 0.50% | | 0.36% | | 0.28~0.50% | | | | | | | | |
Volatility of the underlying assets | — | | 35% | | 45% | | 35~40% | | | | | | | | |
Estimated time until a liquidation event | — | | (B) | | (C) | | (B) | | | | | | | | |
Marketability discount—common stock | — | | (B) | | (C) | | (B) | | | | | | | | |
Marketability discount—preferred stock | — | | (B) | | (C) | | (B) | | | | | | | | |
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(A) | The last valuation of the Company was performed as of March 31, 2014. | | | | | | | | | | | | | | |
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(B) | On July 1, 2013, the Company began to apply a probability weighted expected return method, where equity values were calculated using an option pricing model under an IPO and non-IPO scenarios and each value was weighted based on estimated probability of occurrence. During the period, 1.25~2.50 years were used as estimated time until a liquidation event and 20~30% of marketability discount were used for common stock, depending on an IPO or non-IPO scenarios, respectively. No valuation of preferred stock was performed for preferred stock as of July 1, 2013 and no preferred stock was issued during the following quarter. As of July 1, 2013, a 10% weight was given to the IPO scenario. | | | | | | | | | | | | | | |
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(C) | During the period, 0.58~1.75 years were used as estimated time until a liquidation event and 10~25% and 8~15% of marketability discount were used for common and preferred stock, respectively, depending on an IPO or non-IPO scenarios. As of March 31, 2014, the date of the last valuation performed by the Company, a 95% weight was given to the IPO scenario. | | | | | | | | | | | | | | |
The fair value of the stock option awards granted in the three and six months ended June 30, 2014 was estimated with the following weighted-average assumptions. |
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| Three Months Ended | | Six Months Ended | | | | | | | | |
| June 30, | | July 1, | | June 30, | | July 1, | | | | | | | | |
2014 | 2013 | 2014 | 2013 | | | | | | | | |
Risk free rate | 2.10% | | — | | 2.00% | | — | | | | | | | | |
Expected volatility | 34.90% | | — | | 35.00% | | — | | | | | | | | |
Expected term | 6.5 years | | — | | 6.3 years | | — | | | | | | | | |
Expected dividend yield | 0.00% | | — | | 0.00% | | — | | | | | | | | |
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Preferred and common stock subject to put options—In July 2011, the Company entered into a share repurchase and put option agreement with an executive officer, pursuant to which the executive officer had the right and option to have the Company repurchase 74,491 shares of unrestricted preferred stock and 92,951 shares (41,075 pre-stock split) of unrestricted common stock, which the employee previously acquired at fair value, at a redemption value on December 31 of any given calendar year following December 31, 2011 ("Put Option") after a certain condition is met. In December 2012, the Put Option became exercisable. |
The Put Option was considered compensatory in nature as it was entered into in conjunction with an employment agreement modification. The combined shares and Put Option were evaluated in accordance with ASC Topic 718 and determined to be a liability-classified instrument on the date the Put Option was granted to the employee. Subsequent changes to the combined fair value of the shares and embedded Put Option are recorded as compensation expense. The fair value of the preferred and common stock subject to put options was determined by adding the fair value of put options to the fair value of common and preferred stock. The fair value of put options was determined using an option pricing method in a Monte Carlo simulation framework where total equity value at the hypothetical exit event among various equity classes of the Company was simulated and the payoff at the exercise of the put options was calculated based on the exercise price of the put options and the share values in each simulated scenario. The payoff of the put options in all scenarios was averaged and a present value calculated for each valuation date. The change in the fair value of the Put Option during the three and six months ended July 1, 2013 resulted in additional compensation expense of $0.2 million and $0.1 million. In December 2013, the share repurchase and put option agreement was canceled. |