Stockholders’ Equity

9 Months Ended

Sep. 30, 2015

Stockholders' Equity Note [Abstract]

Stockholders' equity

Stockholders’ Equity

Warrants to Purchase Common Stock

Warrants Issued to USAA

Beginning in March 2009, the Company entered into various agreements with USAA, an affinity partner and significant stockholder of the Company, which provided for the issuance of warrants to purchase shares of the Company’s common stock if minimum performance milestones, based on the level of vehicle sales, were achieved. The Company issues warrants to USAA in exchange for marketing services performed by USAA under the Company’s affinity group marketing program. The purpose of the marketing services performed by USAA is to create awareness and to acquire traffic for, and drive users to, the Company’s auto buying platforms. Warrants issued to USAA are recorded as sales and marketing expenses in the Company’s consolidated statements of comprehensive loss.

In May 2014, the Company and USAA agreed to an extension of the affinity group marketing agreement. As part of the agreement, the Company issued to USAA a warrant to purchase 1,458,979 shares of the Company’s common stock, which will be exercisable in two tranches. The first tranche of 392,313 shares has an exercise price of $7.95 per share and the second tranche of 1,066,666 shares has an exercise price of $15.00 per share. The warrant becomes exercisable upon achievement of performance milestones based on the level of vehicle sales of USAA members through the Company’s auto buying platforms. The warrant terminates on the earlier of the eighth anniversary of the date of issuance, the first anniversary of the termination of the USAA car-buying program or the date on which the Company no longer operates the USAA car-buying program. In addition, the agreement provides for the Company to spend marketing program funds with the actual level of marketing spend to be mutually agreed upon by USAA and the Company, subject to limits based on the number of actual vehicle sales generated through the affinity marketing program (Note 12).

For the three months ended September 30, 2015 and 2014, the Company recognized expense of $0.1 million and $3.1 million related to warrants to purchase 39,999 shares and 245,837 shares of common stock that have been earned and are vested, respectively. For the nine months ended September 30, 2015 and 2014, the Company recognized expense of $0.2 million and $5.1 million related to warrants to purchase 59,997 shares and 586,395 shares of common stock that have been earned and are vested, respectively.

Warrant Issued to Third Party Marketing Firm

On February 25, 2011, the Company entered into a media and marketing services agreement with a direct marketing firm. Under the arrangement, the marketing firm will provide media purchasing, production, advertising, and marketing services in connection with the advertising and marketing of the Company’s services. In addition to cash consideration, the Company agreed to issue a warrant to the marketing firm to purchase up to 1,433,333 shares of the Company’s common stock at a price of $6.02 per share. All shares under the warrant agreement were earned as of June 30, 2014 and remain outstanding at December 31, 2014. In March 2015, the warrant to purchase 1,433,333 shares of the Company’s common stock was exercised through a net settlement election. The Company issued 959,676 shares of its common stock to the third party marketing firm.

For the nine months ended September 30, 2014, the Company recognized $2.3 million of expense related to 343,665 shares earned under the warrant. The expense has been reflected as sales and marketing expense on the accompanying consolidated statements of comprehensive loss.

Warrant Issued to Vulcan

In November 2013, in a private placement to Vulcan Capital Growth Equity LLC (“Vulcan”), the Company issued a warrant to purchase 666,666 shares of its common stock at an exercise price of $15.00 per share. The warrant is immediately exercisable and expires in November 2015. The warrant remains outstanding as of September 30, 2015.

Warrant Issued to Service Provider

In May 2014, the Company entered into a consulting agreement with an individual to provide marketing services to the Company. The Company agreed to issue a warrant to the individual to purchase up to 333,333 shares of the Company’s common stock at a price of $12.81 per share. All shares under the warrant agreement will become exercisable in accordance with the vesting schedule over a four year period. The warrant expires five years from the issuance date or, if earlier, twelve months following the termination of the consulting agreement.

For the three and nine months ended September 30, 2015, the Company recorded a reduction in warrant expense of $0.4 million and $1.0 million, respectively, due to the remeasurement to fair value of the unvested shares and vested shares earned during the period, which was primarily related to the reduction in the Company’s stock price. The reduction in expense has been reflected as a reduction to sales and marketing expense on the accompanying consolidated statements of comprehensive loss. For the three and nine months ended September 30, 2014, the Company recognized expense of $0.5 million and $0.9 million, respectively. At September 30, 2015 and December 31, 2014, the shares earned under this warrant agreement totaled 133,333 shares and 33,333 shares, respectively.