7.Commitments and Contingencies

Office Lease Commitments

The Company has contractual obligations in the form of operating leases for office space for which are recorded on a monthly basis. Certain leases contain periodic rent escalation adjustments and renewal options. Rent expense related to such leases is recorded on a straight-line basis. Operating lease obligations expire at various dates with the latest maturity in 2029.

In May 2014, the Company entered into a new facility lease (the “Lease”) in San Francisco (the “San Francisco Office”) that will increase the total future minimum lease commitments over the next 10 years, beginning August 1, 2014 by $7.0 million. In conjunction with this lease, the Company was required to obtain an irrevocable standby letter of credit in the amount of $0.8 million for the benefit of the landlord. Beginning August 1, 2017 through August 1, 2020, the letter of credit is subject to an annual reduction to as little as $0.2 million.

The Company has concluded that it is deemed the owner (for accounting purposes only) of the San Francisco Office during the construction period under build-to-suit lease accounting. As the Company assumed control of the construction project in the third quarter of 2014, the Company recorded the fair value of the leased property and a corresponding liability in “Property and equipment, net” and “Lease financing obligation” respectively, on the accompanying consolidated balance sheets. The Company will recognize an increase in the asset as additional building costs are incurred during the construction period and a corresponding increase in the lease financing obligation for any construction costs to be reimbursed by the landlord.

Upon completion of the construction, the Company will retain the fair value of the lease property and the obligation on its balance sheet as it does not qualify for sales and leaseback accounting due to requirements to maintain collateral in the lease. The Company will record the rent payments as a reduction of the Lease financing obligation and imputed interest expense; and ground rent as an operating expense. The fair value of the lease property will be depreciated over the building’s estimated useful life. At the conclusion of the lease term, the Company would de-recognize both the then carrying values of the asset and financing obligation.

In July 2014, the Company entered into a new facility lease in Santa Monica (the “Santa Monica Lease”) that will increase its total future minimum lease commitments over the next fifteen years, beginning in January 2015, by $36.3 million. In connection with this lease, the Company obtained an irrevocable standby letter of credit in the amount of $3.5 million for the benefit of the landlord. Beginning October 1, 2019 through October 1, 2025, the letter of credit is subject to an annual reduction to as little as $1.2 million.

Tenant improvement construction does not begin until January 2015 for the Santa Monica Lease. The Company is currently evaluating the improvement plans to determine if it will be the deemed owners during the construction period for accounting purposes, which will be determined based on the finalization of construction plans.

At September 30, 2014, future minimum payments for non-cancellable lease obligations are as follows (in thousands):


Three months ending December 31, 2014	$	663
2015		5,149
2016		5,922
2017		5,201
2018		5,530
Thereafter		37,008
Total minimum lease payments	$	59,473

The Company recorded rent expense of $0.8 million and $0.6 million for the three months ended September 30, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and 2013, total rent expense was $2.1 million and $1.9 million, respectively.

Software Subscription License Agreement

In August 2014, the Company entered into an agreement to purchase a perpetual software subscription license totaling $4.9 million, which was fully paid in the third quarter of 2014. In addition to the software license agreement, the Company purchased a support services package for a three year term totaling $2.4 million payable quarterly.

Automotive Website Program Partnership Agreement

As part of the Company’s prior partnership agreement with Yahoo!, Inc. in June 2012, the Company was required to issue a stand‑by letter of credit in the amount of $10.0 million. The Company was required to maintain restricted cash equal to the amount of the stand‑by letter of credit. In April 2013, the stand‑by letter of credit was reduced to $2.0 million and was fully released on September 29, 2014, the expiration date of the stand-by letter of credit agreement.

Legal Proceedings

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

Employment Contracts

The Company has entered into employment contracts with certain executives of the Company. Employment under these contracts is at‑will employment. However, under the provisions of the contracts, the Company would incur severance obligations up to twelve months of the executive’s annual base salary for certain events such as involuntary terminations. In addition, upon the consummation of the IPO, certain executives earned liquidity bonuses totaling $2.6 million, which were recorded in sales and marketing and general and administrative expenses in the Company’s consolidated statements of comprehensive loss during the nine months ended September 30, 2014.

Indemnity Obligations

In the ordinary course of business, the Company may provide indemnities of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third‑parties. These indemnification obligations may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss provisions. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is sometimes indeterminable. To date, there has not been a material claim paid by the Company, nor has the Company been sued in connection with these indemnification arrangements. At September 30, 2014 and December 31, 2013, the Company has not accrued a liability for these guarantees, because the likelihood of incurring a payment obligation, if any, in connection with these indemnity obligations is not probable or reasonably estimable.

Marketing Sponsorships

The Company has entered into marketing sponsorship agreements with professional sporting affiliations. At September 30, 2014, the sponsorship agreements require future commitments of $0.8 million all payable in 2015.