Share-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-based compensation expense is included in costs and expenses in the accompanying Unaudited Consolidated Condensed Statements of Income and Comprehensive Income as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)
Share-based compensation expense:
Cost of revenues	$	18	$	13	$	52	$	38
Sales and marketing		149		35		400		111
Technology support		62		57		187		173
General and administrative		142		78		389		236
Share-based compensation costs		371		183		1,028		558
Amount capitalized to internal use software		1		1		3		2
Total share-based compensation costs	$	370	$	182	$	1,025	$	556

Service-Based Options.  The Company granted the following service-based options for the three and nine months ended September 30, 2014 and 2013.  

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Number of service-based options granted		59,500		13,000		461,250		109,000
Weighted average grant date fair value	$	3.88	$	2.73	$	6.99	$	2.29
Weighted average exercise price	$	8.50	$	5.92	$	15.44	$	4.43

These options are valued using a Black-Scholes option pricing model and generally vest one-third on the first anniversary of the grant date and ratably over twenty-four months thereafter.  The vesting of these awards is contingent upon the employee’s continued employment with the Company during the vesting period.

Performance-based Options.  During the nine months ended September 30, 2014, the Company granted 40,000 performance-based inducement stock options in connection with the acquisition of AutoUSA (“AutoUSA Inducement Options”), with a weighted average grant date fair value of $6.08, using a Black-Scholes option pricing model and weighted average exercise price of $13.62.  The AutoUSA Inducement Options are subject to two vesting requirements and conditions: (i) level of achievement of performance goals based on revenue and gross margin of the Company’s retail dealer services group and (ii) time vesting.  No performance options were granted during the three months ended September 30, 2014.

During the nine months ended September 30, 2013, the Company granted 87,117 performance-based stock options (“2013 Performance Options”) to certain employees with a weighted average grant date fair value of $2.19, using a Black-Scholes option pricing model and a weighted average exercise price of $4.00.  The 2013 Performance Options were subject to two vesting requirements and conditions: (i) percentage achievement of 2013 revenues and earnings before taxes, depreciation and amortization (“EBITDA”) goals and (ii) time vesting.  Based on the Company’s 2013 revenues and EBITDA performance, 83,398 of the 2013 Performance Options vested under the performance vesting condition, and one-third of these options vested on the first anniversary of the grant date, with the remainder vesting ratably over twenty-four months thereafter.

During the nine months ended September 30, 2013, in connection with the acquisition of Advanced Mobile, the Company granted 88,641 performance-based inducement stock options (“2013 Inducement Options”) to one employee with a weighted average grant date fair value of $3.21, using a Black-Scholes option pricing model and weighted average exercise price of $7.17.  The 2013 Inducement Options are subject to two vesting requirements and conditions: (i) percentage achievement of 2014, 2015 and 2016 revenues and gross profit goals for the Advanced Mobile business and (ii) time vesting.

Market Condition Options.  In 2009, the Company granted 213,650 stock options to substantially all employees with an exercise price of $1.75 and grant date fair value of $0.97, using a Black-Scholes option pricing model.  One-third of these options cliff vested on the first anniversary following the grant date and the remaining two-thirds vest ratably over twenty-four months thereafter.  In addition, the remaining two-thirds of the awards were subject to satisfaction of market price conditions for the Company’s common stock, which conditions have been satisfied. During the nine months ended September 30, 2014, 15,793 of these market condition stock options were exercised.  No market condition options were exercised in the three months ended September 30, 2014.  During the three and nine months ended September 30, 2013, 596 and 5,672 of these market condition stock options were exercised, respectively.  

During the nine months ended September 30, 2014, 118,996 stock options (inclusive of the 15,793 market condition stock options exercised during the period) were exercised, with aggregate weighted average exercise prices of $4.20.  No stock options were exercised in the three months ended September 30, 2014.  There were 30,193 and 51,931 stock options (inclusive of the 596 and 5,672 market condition stock options exercised during the period) exercised during the three and nine months ended September 30, 2013, with aggregate weighted average exercise prices of $4.37 and $3.91, respectively.  The grant date fair value of stock options granted during these periods was estimated using the Black-Scholes option pricing model using the following weighted average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Dividend yield		—			—			—			—
Volatility		56	%		56	%		56	%		65	%
Risk-free interest rate		1.5	%		1.1	%		1.4	%		0.8	%
Expected life (years)		4.3			4.3			4.3			4.3