Stock-Based Compensation | 8. Stock-Based Compensation In May 2015, the Company’s stockholders approved the GrubHub Inc. 2015 Long-Term Incentive Plan (“the 2015 Plan”), pursuant to which the Compensation Committee of the Board of Directors may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other stock-based and cash-based awards. On May 20, 2015, the Company filed a registration statement on Form S-8 to register up to 14,256,901 shares of common stock reserved for issuance pursuant to awards granted under the 2015 Plan. Effective May 20, 2015, no further grants will be made under the Company’s 2013 Omnibus Incentive Plan. The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors, including stock options, restricted stock awards and restricted stock units. Stock Options The Company granted 1,432,597 and 1,739,273 stock options during the six months ended June 30, 2015 and 2014, respectively. The fair value of each stock option award was estimated based on the assumptions below as of the grant date using the Black-Scholes-Merton option pricing model. Expected volatilities are based on a combination of the historical and implied volatilities of comparable publicly-traded companies and the historical volatility of the Company’s own common stock due to its limited trading history. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of the award is estimated using a simplified method. The fair value at grant date prior to the Company’s initial public offering in April 2014 (the “IPO”) was determined considering the performance of the Company at the grant date as well as future growth and profitability expectations by applying market and income approaches. The risk-free rate for the period within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions used to determine the fair value of the stock options granted during the six months ended June 30, 2015 and 2014 were as follows: Six Months Ended June 30, 2015 2014 Weighted-average fair value options granted $ 16.54 $ 13.12 Average risk-free interest rate 1.44 % 2.00 % Expected stock price volatilities (a) 47.0 % 50.5 % Dividend yield None None Expected stock option life (years) 6.06 6.29 ( a) There was no active external or internal market for the Company’s common stock prior to the IPO in April 2014. Due to the Company’s limited trading history, the Company estimated expected volatility for the six months ended June 30, 2015 based on a combination of the historical and implied volatilities of comparable publicly-traded companies and the historical volatility of the Company’s own common stock. During the six months ended June 30, 2014, the expected volatility was based on the historical and implied volatilities of comparable publicly-traded companies as there was insufficient trading history for the Company’s own common stock as of June 30, 2014. Stock option awards as of December 31, 2014 and June 30, 2015, and changes during the six months ended June 30, 2015, were as follows Options Weighted-Average Exercise Price Average Intrinsic Value (thousands) Weighted-Average Exercise Term (years) Outstanding at December 31, 2014 6,180,795 $ 8.49 $ 172,661 7.87 Granted 1,432,597 35.84 Forfeited (419,821 ) 14.56 Exercised (2,164,709 ) 4.53 Outstanding at June 30, 2015 5,028,862 17.48 87,078 8.16 Vested and expected to vest at June 30, 2015 3,152,401 15.51 60,634 7.90 Exercisable at June 30, 2015 1,289,980 $ 5.85 $ 36,469 6.85 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the fair value of the common stock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on each date. This amount will change in future periods based on the fair value of the Company’s stock and the number of options outstanding. The stock options vest over different lengths of time depending upon the grantee. Compensation expense is recognized over the vesting period. The Company recorded compensation expense for stock options of $2.7 million and $2.3 million for the three months ended June 30, 2015 and 2014, respectively, and $5.5 million and $4.7 million for the six months ended June 30, 2015 and 2014, respectively. During the three and six months ended June 30, 2015, the Company capitalized $0.1 million and $0.2 million of stock-based compensation expense as website and software development costs, respectively. As of June 30, 2015, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options was $22.6 million and is expected to be recognized over a weighted-average period of 3.06 years. During the six months ended June 30, 2015, the Company reported excess tax benefits as a decrease in cash flows from operations and an increase in cash flows from financing activities of $14.4 million. Excess tax benefits were suspended during the six months ended June 30, 2014 due to net operating losses. Excess tax benefits reflect the total of the individual stock option exercise transactions in which the reduction to the Company’s income tax liability is greater than the deferred tax assets that were previously recorded. Restricted Stock Units and Restricted Stock Awards Non-vested restricted stock units and restricted stock awards as of December 31, 2014 and June 30, 2015, and changes during the six months ended June 30, 2015 were as follows: Restricted Stock Units Restricted Stock Awards Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Outstanding at December 31, 2014 2,899 $ 31.90 — $ — Granted 65,510 39.98 101,616 42.01 Forfeited — — — — Vested — — — — Outstanding at June 30, 2015 68,409 $ 39.63 101,616 $ 42.01 During the three and six months ended June 30, 2015, compensation expense recognized related to restricted stock awards was $0.5 million and $0.7 million, respectively. During each of the three and six months ended June 30, 2015, compensation expense recognized related to restricted stock units was $0.1 million. There were no non-vested restricted stock units or restricted stock awards or related expense during the three and six months ended June 30, 2014. As of June 30, 2015, $1.7 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to 68,409 non-vested restricted stock units with weighted-average grant date fair values of $39.63 is expected to be recognized over a weighted-average period of 2.4 years. As of June 30, 2015, $3.6 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to 101,616 non-vested restricted stock awards with weighted-average grant date fair values of $42.01 is expected to be recognized over a weighted-average period of 1.7 years. The fair value of these awards was determined based on the Company’s stock price at the grant date and assumes no expected dividend payments through the vesting period. There were no excess tax benefits related to restricted stock units or restricted stock awards during the six months ended June 30, 2015 and 2014. |