Stock-Based Compensation

Total estimated stock-based compensation expense for employees and non-employees, related to all of the the Company's stock-based awards, was comprised as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(in thousands)
Cost of revenue	$	151	$	15	$	219	$	56
Selling and marketing	279		93		607		251
Product development	241		93		656		249
General and administrative	848		455		2,434		1,363
Total stock-based compensation	$	1,519	$	656	$	3,916	$	1,919
Related income tax benefit	$	608	$	262	$	1,567	$	767
	$	911	$	394	$	2,349	$	1,152

On October 30, 2013 the Board of Directors adopted, and on December 27, 2013 the stockholders approved, the 2013 Stock-Based Incentive Compensation Plan (the “2013 Plan”), that became effective upon consummation of the Merger on January 15, 2014. The 2013 Plan succeeds the VTBH 2011 Equity Incentive Plan (the “2011 Plan”) and the Parametric 2012 Stock Option Plan (the “2012 Plan”). The total number of shares of common stock authorized for grant under the 2013 Plan is 2,250,000 shares plus 122,000 shares authorized to be granted but not issued under the 2012 Plan, plus any shares that may become available through forfeitures or otherwise terminate under the 2012 Plan.

The 2011 Plan and 2012 Plan were terminated as to new grants at the Merger but vested and unvested stock options previously granted of 3,960,783 and 1,392,854, respectively, as of the Merger continued.

The following table presents the stock activity and the total number of shares available for grant as of September 30, 2014:



	(in thousands)
Balance at December 31, 2013	1,439
VTBH 2011 Plan terminated at Merger	(1,439	)
2013 Plan adopted at Merger	2,372
Options granted	(1,777	)
Restricted Stock granted	(6	)
Forfeited/Expired shares added back	50
Balance at September 30, 2014	639

Stock Option Activity



	Options Outstanding
	Number of Shares Underlying Outstanding Options		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
				(In years)
Outstanding at December 31, 2013	3,960,793		4.71	8.45	3,031,094
Granted	1,777,327		11.92
Assumed in acquisition	1,392,854		6.02
Exercised	(485,559	)	3.19
Forfeited	(218,749	)	5.52
Outstanding at September 30, 2014	6,426,666		7.08	7.04	13,476,250
Vested and expected to vest at September 30, 2014	6,426,666		7.08	7.04	13,476,250
Exercisable at September 30, 2014	3,041,492		4.83	5.31	9,655,119

As described in Note 1, “Background and Basis of Presentation” option share and exercise prices reflect the application of the 0.35997 conversion ratio to historical VTBH share and weighted-average share amounts.

Stock options are time-based and exercisable within 10 years of the date of grant, but only to the extent they have vested. The options generally vest as specified in the option agreements subject, in some instances, to acceleration in certain circumstances. In the event participants in the 2011 Plan cease to be employed or engaged by the Company, then all of the options would be forfeited if they are not exercised within 90 days. The Company has a limited history of forfeiture of unvested options or grants. Accordingly, at this time the Company believes that an estimated forfeiture rate of 0% is reasonable. The Company reviews this assumption periodically and will adjust it if it is not representative of future forfeiture data and trends within employee types (executive vs. non-executive).

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The aggregate intrinsic value of options exercised was $4.0 million for the nine months ended September 30, 2014.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted as of the grant date. The following are assumptions for the nine months ended September 30, 2014.



Expected term (in years)	6.0 - 6.3
Risk-free interest rate	1.8% - 2.0%
Expected volatility	47.5% - 49.8%
Dividend rate	0%

Each of these inputs is subjective and generally requires significant judgment to determine.

The weighted average grant date fair value of options granted during the nine months ended September 30, 2014 was $7.30. The total estimated fair value of employee options vested during the nine months ended September 30, 2014 was $4.7 million. As of September 30, 2014, total unrecognized compensation cost related to non-vested stock options granted to employees was $13.3 million, which is expected to be recognized over a remaining weighted average vesting period of 2.9 years.

Restricted Stock Activity

As of September 30, 2014 total unrecognized compensation cost related to the nonvested restricted stock awards granted was $0.1 million, which is expected to be recognized over a remaining weighted average vesting period of 3.3 years.

Series B Redeemable Preferred Stock

In September 2010, VTBH issued 1,000,000 shares of its Series B Redeemable Preferred Stock with a fair value of $12.4 million. The Series B Redeemable Preferred Stock is required to be redeemed on the earlier of September 28, 2030, or the occurrence of a liquidation event at its original issue price of $12.425371 per share plus any accrued but unpaid dividends. The redemption value was $14.6 million and $13.7 million as of September 30, 2014 and December 31, 2013, respectively.

Phantom Equity Activity

In November 2011, VTBH adopted a 2011 Phantom Equity Appreciation Plan ("the Appreciation Plan") that covers certain employees, consultants, and directors of VTBH (“Participants”) who are entitled to phantom units, as applicable, pursuant to the provisions of their respective award agreements. The Appreciation Plan is shareholder-approved, which permits the granting of phantom units to VTBH’s Participants of up to 1,500,000 units. These units are not exercisable or convertible into shares of common stock but give the holder a right to receive a cash bonus equal to the appreciation in value between the exercise price and value of common stock at the time of a change in control event as defined in the plan.

As September 30, 2014 and 2013, 1,135,048, and 1,255,280 phantom units at a weighted-average exercise price of $0.77 and $0.89 have been granted and are outstanding. Because these phantom units are not exercisable or convertible into common shares, said amounts and exercise prices were not subject to the exchange ratio provided by the Merger agreement. As of September 30, 2014, compensation expense related to the Appreciation Plan units remained unrecognized because as of those dates a change in control, as defined in the plan, had not occurred.

Weighted Average Grant Date Fair Value Per Share

Nonvested restricted stock at December 31, 2013

Nonvested restricted stock at September 30, 2014