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Stock Based Awards and Other Equity Instruments

6 Months Ended

Jun. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Based Awards and Other Equity Instruments

NOTE 5: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS

Stock-Based Compensation Expense

The following table presents the amount of stock-based compensation expense related to stock-based awards on our unaudited condensed consolidated statements of operations during the periods presented:

	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
	(in millions)						(in millions)
Selling and marketing	$	6		$	5		$	11		$	11
Technology and content		14			13			27			26
General and administrative		12			13			22			24
Total stock-based compensation expense		32			31			60			61
Income tax benefit from stock-based compensation		(8	)		(8	)		(14	)		(15	)
Total stock-based compensation expense, net of tax	$	24		$	23		$	46		$	46

We capitalized $5 million and $9 million of stock-based compensation expense as internal-use software and website development costs during the three and six months ended June 30, 2019, respectively, and $4 million and $7 million during the three and six months ended June 30, 2018, respectively.

Stock-Based Award Activity and Valuation

2019 Stock Option Activity

During the six months ended June 30, 2019, we granted 674,781 service-based non-qualified stock options under the TripAdvisor, Inc. 2018 Stock and Annual Incentive Plan (the “2018 Plan”). Our stock options generally have a term of ten years from the date of grant and typically vest equally over a four-year requisite service period.

A summary of our stock option activity during the six months ended June 30, 2019, is presented below:

				Weighted		Weighted
				Average		Average
				Exercise		Remaining		Aggregate
	Options			Price Per		Contractual		Intrinsic
	Outstanding			Share		Life		Value
	(in thousands)					(in years)		(in millions)
Options outstanding at December 31, 2018		6,041		$	54.00
Granted		675			53.31
Exercised (1)		(160	)		42.41
Cancelled or expired		(209	)		60.83
Options outstanding at June 30, 2019		6,347		$	54.00		6.3	$	20
Exercisable as of June 30, 2019		3,516		$	60.19		4.5	$	7
Vested and expected to vest after June 30, 2019 (2)		6,347		$	54.00		6.3	$	20

(1)

Inclusive of 100,356 of options which were not converted into shares due to net share settlement in order to cover the aggregate exercise price and the required amount of employee withholding taxes. Potential shares which had been convertible under stock options that were withheld under net share settlement remain in the authorized but unissued pool under the 2018 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the unaudited condensed consolidated statements of cash flows.

(2)

The Company accounts for forfeitures as they occur, rather than estimate expected forfeitures as allowed under GAAP and therefore do not include a forfeiture rate in our vested and expected to vest calculation unless necessary for a performance condition award.

Aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of outstanding, in-the-money options. Our closing stock price as reported on NASDAQ as of June 30, 2019 was $46.29. The total intrinsic value of stock options exercised for the six months ended June 30, 2019 and 2018 was $2 million and $6 million, respectively.

The fair value of stock option grants has been estimated at the date of grant using the Black–Scholes option pricing model with the following weighted average assumptions for the periods presented:

	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Risk free interest rate		2.22	%		2.71	%		2.42	%		2.66	%
Expected term (in years)		5.18			5.45			5.19			5.45
Expected volatility		40.84	%		42.08	%		42.17	%		42.29	%
Expected dividend yield	— %			— %			— %			— %
Weighted-average grant date fair value	$	19.75		$	19.27		$	21.80		$	17.62

The total fair value of stock options vested was $10 million and $12 million for the six months ended June 30, 2019 and 2018, respectively. Cash received from stock option exercises was $1 million and $3 million for the six months ended June 30, 2019 and 2018, respectively.

2019 RSU Activity

During the six months ended June 30, 2019, we granted 2,652,790 primarily service-based RSUs under the 2018 Plan which typically vest equally over a four-year requisite service period. A summary of our RSU activity during the six months ended June 30, 2019 is presented below:

				Weighted
				Average
				Grant-		Aggregate
	RSUs			Date Fair		Intrinsic
	Outstanding			Value Per Share		Value
	(in thousands)					(in millions)
Unvested RSUs outstanding as of December 31, 2018		6,640		$	44.93
Granted		2,653			53.38
Vested and released (1)		(1,755	)		47.40
Cancelled		(414	)		46.75
Unvested RSUs outstanding as of June 30, 2019		7,124		$	47.70	$	332

(1) Inclusive of 461,987 RSUs withheld due to net share settlement to satisfy required employee tax withholding requirements. Potential shares which had been convertible under RSUs that were withheld under net share settlement remain in the authorized but unissued pool under the 2018 Plan and can be reissued by the Company. Total payments for the employees’ tax obligations to the taxing authorities due to net share settlements are reflected as a financing activity within the unaudited condensed consolidated statements of cash flows.

A summary of our MSU activity during the six months ended June 30, 2019 is presented below:

Weighted

Average

Grant-

Aggregate

MSUs

Date Fair

Intrinsic

Outstanding

Value Per Share

Value

(in thousands)

(in millions)

Unvested MSUs outstanding as of December 31, 2018

284

37.41

Granted (1)

57.62

Vested and released

―

Cancelled

―

Unvested MSUs outstanding as of June 30, 2019

362

41.76

(1)

MSUs provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2019 through December 31, 2021 relative to the TSR performance of the Nasdaq Composite Total Return Index. Based upon actual attainment relative to the target performance metric, the grantee has the ability to receive up to 200% of the target number of MSUs originally granted, or to be issued none at all. These MSUs were granted under the 2018 Plan.

A Monte-Carlo simulation model, which simulated the present value of the potential outcomes of future stock prices and TSR of the Company and the Nasdaq Composite Total Return Index over the performance period, was used to calculate the grant-date fair value of our MSU awards. The estimated grant-date fair value of these awards is being amortized on a straight-line basis over the requisite service period through December 31, 2021.

Total current income tax benefits associated with the exercise or settlement of TripAdvisor stock-based awards held by our employees was $3 million and $22 million during the three and six months ended June 30, 2019, respectively and $5 million and $9 million during the three and six months ended June 30, 2018, respectively.

Unrecognized Stock-Based Compensation

A summary of our remaining unrecognized stock-based compensation expense and the weighted average remaining amortization period at June 30, 2019 related to our non-vested equity awards is presented below (in millions, except in years information):

	Stock
	Options		RSUs/MSUs
Unrecognized compensation expense	$	41	$	292
Weighted average period remaining (in years)		2.9		2.8