Employee Benefit Plans

6 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

(12) Employee Benefit Plans

(a) Employee Stock Option Plan

The Company’s stock option program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, officers, and directors, and to align stockholder and employee interests. The Company considers its option program critical to its operation and productivity.

Stock-based compensation is classified in the consolidated statement of operations in the same expense line items as cash compensation. None of the stock-compensation cost was capitalized as amounts were immaterial. Amounts recorded as expense in the consolidated statement of operations are as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2012		2011		2012
Cost of revenue	$	59	$	104	$	123	$	151
Technology and development		67		79		134		137
Sales and marketing		104		136		213		224
General and administrative		345		796		729		1,162
Total	$	575	$	1,115	$	1,199	$	1,674

As of June 30, 2012, there was $6.2 million of total unrecognized compensation cost related to nonvested stock-based employee compensation arrangements that is expected to vest. The cost is expected to be recognized over a weighted average period of approximate 3.64 years.

The following table summarizes the weighted-average fair value of stock options granted:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2012		2011		2012
Stock options granted (in thousands)		32		79		138		871
Weighted average fair value at date of grant	$	6.42	$	5.46	$	6.09	$	5.35

Stock option activity for the six months ended June 30, 2012 is as follows (shares in thousands):

	Shares			Weighted average exercise price		Remaining contractual term (years)		Aggregate intrinsic value (dollars in thousands)
December 31, 2011		4,540		$	7.29		6.62	$	10,888
Granted		871			9.69
Exercised		(8	)		1.00
Forfeited		(160	)		7.86
Outstanding as of June 30, 2012		5,243		$	7.68		6.72	$	38,665
Vested and expected to vest at June 30, 2012		4,451		$	7.62		6.31	$	29,845
Exercisable at June 30, 2012		4,196		$	7.32		6.07	$	28,690

(b) Valuation Assumptions

The Company calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions (annualized percentages):

	Three Months Ended June 30,		Six Months Ended June 30,
	2011	2012	2011	2012
Fair value of underlying stock per share	$12.10	$10.66	$10.98 - 12.10	$9.59 - 10.66
Expected volatility	54.72 - 54.77%	54.63 - 54.75%	54.72 - 56.09%	54.63 - 56.14%
Risk-free interest rate	2.18 - 2.23%	0.95 - 0.98%	2.18 - 2.72%	0.94 - 1.74%
Expected term	5.90 - 6.07 years	5.94 - 6.08 years	5.47 - 6.08 years	5.27 - 8.50 years
Dividend yield	—  %	—  %	—  %	—  %

The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatility is determined using weighted average volatility of peer publicly traded companies. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected life. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations and has never paid cash dividends on Common Stock. The Company uses the “simplified” method to estimate expected term as determined under SAB 107 due to the lack of option exercises exercise history as a public company.

As stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, it is reduced for estimated prevest forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In addition, ASC 718 requires that compensation cost recognized at any date must be at least equal to the amount attributable to options that are vested at that date. The Company calculates a true-up of its compensation costs to the vested amounts on a quarterly basis. Prevesting forfeitures are estimated based on weighted average historical forfeiture rates. Under the provisions of ASC 718, the Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture rate is higher than estimated.

(c) Employee Stock Purchase Plan

Concurrent with the closing of our IPO in May 2012, the Company established the 2012 Employee Stock Purchase Plan (ESPP) which is intended to qualify under Section 423 of the Internal Revenue Code of 1986. The Company’s executive officers and all of its other employees will be allowed to participate in the ESPP. A total of 500,000 shares of the Company’s common stock will be made available for sale under the ESPP. In addition, the ESPP provides for annual increases in the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning with the 2012 fiscal year, equal to the least of:

• 500,000 shares of common stock;

• 1% of the outstanding shares of our common stock as of the last day of our immediately preceding fiscal year; or

• such other amount as may be determined by the board.

Under the ESPP, employees are eligible to purchase common stock through payroll deductions of up to 25% of their eligible compensation, subject to any plan limitations. The ESPP has four consecutive offering periods of approximately three months in length during the year and the purchase price of the shares will be 85% of the lower of the fair value of our common stock on the first trading day of the offering period or on the last day of the offering period.