NOTE 5: STOCK BASED AWARDS AND OTHER EQUITY INSTRUMENTS
On June 21, 2018, our stockholders approved the 2018 Stock and Annual Incentive Plan (the “2018 Plan”) primarily for the purpose of providing sufficient reserves of shares of our common stock to ensure our ability to continue to provide new hires, employees and management with equity incentives. The number of shares reserved and available for issuance under the 2018 Plan is 6,000,000 plus the number of shares available for issuance (and not subject to outstanding awards) under the TripAdvisor, Inc. Amended and Restated 2011 Stock and Annual Incentive Plan (the “2011 Plan”), as of the effective date of the 2018 Plan. Both plans provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards.
Stock-Based Compensation Expense
The following table presents the amount of stock-based compensation expense related to stock-based awards, primarily stock options and RSUs, on our unaudited condensed consolidated statements of operations during the periods presented:
|
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|
Three months ended |
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|
Six months ended |
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|
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|
June 30, |
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|
June 30, |
|
|
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
|
|
(in millions) |
|
|
(in millions) |
|
|
Selling and marketing |
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
11 |
|
|
$ |
11 |
|
|
Technology and content |
|
|
13 |
|
|
|
13 |
|
|
|
26 |
|
|
|
20 |
|
|
General and administrative |
|
|
13 |
|
|
|
9 |
|
|
|
24 |
|
|
|
16 |
|
|
Total stock-based compensation |
|
|
31 |
|
|
|
28 |
|
|
|
61 |
|
|
|
47 |
|
|
Income tax benefit from stock-based compensation |
|
|
(8 |
) |
|
|
(10 |
) |
|
|
(15 |
) |
|
|
(17 |
) |
|
Total stock-based compensation, net of tax effect |
|
$ |
23 |
|
|
$ |
18 |
|
|
$ |
46 |
|
|
$ |
30 |
|
We capitalized $4 million and $7 million of stock-based compensation expense as internal-use software and website development costs during the three and six months ended June 30, 2018, respectively, and $3 million and $6 million during the three and six months ended June 30, 2017, respectively.
Stock-Based Award Activity and Valuation
2018 Stock Option Activity
During the six months ended June 30, 2018, we granted 621,204 service-based non-qualified stock options under the 2011 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, 2018, is presented below:
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|
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Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
Options |
|
|
Price Per |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
|
Outstanding |
|
|
Share |
|
|
Life |
|
|
Value |
|
|
|
|
(in thousands) |
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|
|
|
|
|
(in years) |
|
|
(in millions) |
|
|
Options outstanding at December 31, 2017 |
|
|
6,853 |
|
|
$ |
52.78 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
621 |
|
|
|
41.61 |
|
|
|
|
|
|
|
|
|
|
Exercised (1) |
|
|
(532 |
) |
|
|
35.72 |
|
|
|
|
|
|
|
|
|
|
Cancelled or expired |
|
|
(190 |
) |
|
|
51.34 |
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2018 |
|
|
6,752 |
|
|
$ |
53.13 |
|
|
|
6.5 |
|
|
$ |
65 |
|
|
Exercisable as of June 30, 2018 |
|
|
3,265 |
|
|
$ |
55.96 |
|
|
|
4.7 |
|
|
$ |
28 |
|
|
Vested and expected to vest after June 30, 2018 (2) |
|
|
6,752 |
|
|
$ |
53.13 |
|
|
|
6.5 |
|
|
$ |
65 |
|
|
|
(1) |
Inclusive of 390,168 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 that had been convertible under stock options that were withheld under net share settlement remain in the authorized but unissued pool under the 2011 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, 2018 was $55.71. The total intrinsic value of stock options exercised was $6 million for both the six months ended June 30, 2018 and 2017.
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:
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Three months ended |
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Six months ended |
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|
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|
June 30, |
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|
June 30, |
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|
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
Risk free interest rate |
|
|
2.71 |
% |
|
|
1.87 |
% |
|
|
2.66 |
% |
|
|
1.91 |
% |
|
Expected term (in years) |
|
|
5.45 |
|
|
|
5.32 |
|
|
|
5.45 |
|
|
|
5.35 |
|
|
Expected volatility |
|
|
42.08 |
% |
|
|
40.93 |
% |
|
|
42.29 |
% |
|
|
41.52 |
% |
|
Expected dividend yield |
|
— % |
|
|
— % |
|
|
— % |
|
|
— % |
|
The weighted-average grant date fair value of options granted was $19.27 and $17.62 for the three and six months ended June 30, 2018, respectively. The weighted-average grant date fair value of options granted was $16.56 and $17.19 for the three and six months ended June 30, 2017, respectively. The total fair value of stock options vested was $12 million and $15 million for the six months ended June 30, 2018 and 2017, respectively. Cash received from stock option exercises was $3 million for both the six months ended June 30, 2018 and 2017.
2018 RSU Activity
During the six months ended June 30, 2018, we granted 3,088,233 of primarily service-based RSUs under the 2011 Plan which typically vest over a four-year requisite service period. A summary of our RSU activity for service-based and performance-based awards during the six months ended June 30, 2018, is presented below:
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|
|
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Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
Grant- |
|
|
Aggregate |
|
|
|
|
RSUs |
|
|
Date Fair |
|
|
Intrinsic |
|
|
|
|
Outstanding |
|
|
Value Per Share |
|
|
Value |
|
|
|
|
(in thousands) |
|
|
|
|
|
|
(in millions) |
|
|
Unvested RSUs outstanding as of December 31, 2017 (1) |
|
|
6,015 |
|
|
$ |
48.14 |
|
|
|
|
|
|
Transfer (1) |
|
|
(213 |
) |
|
|
30.04 |
|
|
|
|
|
|
Granted |
|
|
3,088 |
|
|
|
41.43 |
|
|
|
|
|
|
Vested and released (2) |
|
|
(1,372 |
) |
|
|
53.22 |
|
|
|
|
|
|
Cancelled |
|
|
(401 |
) |
|
|
46.79 |
|
|
|
|
|
|
Unvested RSUs outstanding as of June 30, 2018 |
|
|
7,117 |
|
|
$ |
44.87 |
|
|
$ |
397 |
|
|
Expected to vest after June 30, 2018 (3) |
|
|
7,117 |
|
|
$ |
44.87 |
|
|
$ |
397 |
|
|
|
(1) |
RSUs outstanding as of December 31, 2017 include 213,000 MSUs awarded to the Company’s CEO in November 2017. This award has been transferred to the MSU activity table below. |
|
|
(2) |
Inclusive of 356,127 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 2011 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. |
|
|
(3) |
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 expected to vest calculation unless necessary for a performance condition award. |
A summary of our RSU activity for MSUs, during the six months ended June 30, 2018 is presented below:
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|
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|
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Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
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|
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|
Grant- |
|
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Aggregate |
|
|
|
|
MSUs |
|
|
Date Fair |
|
|
Intrinsic |
|
|
|
|
Outstanding |
|
|
Value Per Share |
|
|
Value |
|
|
|
|
(in thousands) |
|
|
|
|
|
|
(in millions) |
|
|
Unvested MSUs outstanding as of December 31, 2017 (1) |
|
|
213 |
|
|
$ |
30.04 |
|
|
|
|
|
|
Granted (2) |
|
|
71 |
|
|
|
59.40 |
|
|
|
|
|
|
Vested and released |
|
|
― |
|
|
|
― |
|
|
|
|
|
|
Cancelled |
|
|
― |
|
|
|
― |
|
|
|
|
|
|
Unvested MSUs outstanding as of June 30, 2018 |
|
|
284 |
|
|
$ |
37.41 |
|
|
$ |
16 |
|
|
|
(1) |
Represents 213,000 MSUs awarded to the Company’s CEO in November 2017. |
|
|
(2) |
MSUs provide for vesting based upon the Company’s total shareholder return, or TSR, performance over the period commencing January 1, 2018 through December 31, 2020 relative to the TSR performance of the Nasdaq Composite Total Return Index. 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 these 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, 2020. 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 2011 Plan. |
Total current income tax benefits associated with the exercise or settlement of TripAdvisor stock-based awards held by our employees were $5 million and $9 million during the three and six months ended June 30, 2018, respectively and $1 million and $15 million during the three and six months ended June 30, 2017, 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, 2018 related to our non-vested equity awards is presented below (in millions, except in years information):
|
|
|
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
RSUs |
|
|
MSUs |
|
|
Unrecognized compensation expense |
|
$ |
46 |
|
|
$ |
275 |
|
|
$ |
9 |
|
|
Weighted average period remaining (in years) |
|
|
3.0 |
|
|
|
2.9 |
|
|
|
2.5 |
|