Stock-Based Compensation

6 Months Ended

Jun. 30, 2017

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

7. Stock-Based Compensation

The Company has various stock-based compensation plans (collectively, the “Plans”) that provide for the grant of stock options, restricted stock, and other awards based on WebMD Common Stock.

The 2005 Long-Term Incentive Plan (as amended, the “2005 Plan”) is the only existing plan under which future grants can be made. The maximum number of shares of the Company’s Common Stock that may be subject to awards under the 2005 Plan was 25,550,000 as of June 30, 2017, subject to adjustment in accordance with the terms of the 2005 Plan. At the Company’s Annual Meeting of Stockholders held on June 1, 2017, the Company’s stockholders approved an amendment to the 2005 Plan to increase the number of shares of Common Stock issuable under the 2005 Plan by 575,000 shares and those shares are included in that maximum number. The Company had an aggregate of 1,238,518 shares of Common Stock available for future grants under the 2005 Plan at June 30, 2017, of which 281,200 shares are available for grant only to individuals who are not executive officers of the Company (other than in the case of a new hire who joins the Company as an executive officer) or members of the Company’s Board of Directors.

Stock Options

Generally, options under the Plans vest and become exercisable ratably over periods ranging from three to four years based on their individual grant dates, subject to continued employment on the applicable vesting dates, and expire within ten years from the date of grant. Options are granted at prices not less than the fair market value of the Company’s Common Stock on the date of grant. The following table summarizes stock option activity for the Plans:


	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value ^(a)
Outstanding at January 1, 2017		6,118,824		$	41.55
Granted		175,300			50.72
Exercised		(467,556	)		36.54
Cancelled		(214,169	)		45.90

Outstanding at June 30, 2017		5,612,399		$	42.08		7.3	$	93,399

Vested and exercisable at the end of the period		2,408,594		$	36.25		5.7	$	54,034

(a)

The aggregate intrinsic value is based on the market price of the Company’s Common Stock on June 30, 2017, which was $58.65, less the applicable exercise price of the underlying option. This aggregate intrinsic value represents the amount that would have been realized if all the option holders had exercised their options on June 30, 2017.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model considering the weighted-average assumptions noted in the following table. Expected volatility is based on implied volatility from traded options of the Company’s Common Stock combined with historical volatility of the Company’s Common Stock. The expected term represents the period of time that options are expected to be outstanding following their grant date, and was determined using historical exercise data combined with assumptions for future exercise activity. The risk-free rate is based on the U.S. Treasury yield curve for periods equal to the expected term of the options on the grant date.


	Six Months Ended June 30,
	2017			2016
Expected dividend yield		0.0	%		0.0	%
Expected volatility		0.31 - 0.35			0.40 - 0.44
Risk-free interest rate		1.62% - 1.92	%		0.86% - 1.71	%
Expected term (years)		3.9 - 4.7			4.0 - 4.8
Weighted-average fair value of options granted during the period	$	15.77		$	18.89

Restricted Stock

The Company’s Restricted Stock consists of shares of the Company’s Common Stock which have been awarded to employees with restrictions that cause them to be subject to substantial risk of forfeiture and restrict their sale or other transfer by the employee until they vest. Generally, the Company’s Restricted Stock grants vest ratably over periods ranging from three to four years from their individual award dates subject to continued employment on the applicable vesting dates. The following table summarizes the activity of the Company’s Restricted Stock:


	Shares			Weighted Average Grant Date Fair Value
Balance at January 1, 2017		880,026		$	45.97
Granted		2,000			52.68
Vested		(156,264	)		43.81
Forfeited		(18,910	)		44.27

Balance at June 30, 2017		706,852		$	46.51

During November 2016, the Compensation Committee of the Board of Directors granted a total of 55,000 shares of performance-based Restricted Stock to two senior executives that will vest and be earned so long as the executive is employed at the end of the performance period, which is December 31, 2019, and only to the extent that the Committee determines that the performance criteria have been satisfied; provided, however, that the conditions to vesting and performance criteria may be deemed to have been met in certain circumstances, including in connection with a change in control of the Company. The performance criteria are based on Average Adjusted EBITDA during the performance period of January 1, 2016 through December 31, 2019. The 55,000 shares of performance-based Restricted Stock are included in the above table.

Proceeds received from the exercise of options to purchase shares of the Company’s Common Stock were $7,520 and $14,124 during the three and six months ended June 30, 2017, respectively, and $19,247 and $49,412 during the three and six months ended June 30, 2016, respectively. Additionally, in connection with the exercise of certain stock options and the vesting of restricted stock, the Company made payments of $553 and $4,417 during the three and six months ended June 30, 2017, respectively, and $2,920 and $3,810 during the three and six months ended June 30, 2016, respectively, related to employee statutory withholding taxes that were satisfied by withholding shares of Common Stock of equal value from the respective employees. The proceeds and payments described above are reflected within cash flows from financing activities within the accompanying consolidated statements of cash flows.

The intrinsic value related to stock options that were exercised, combined with the fair value of shares of restricted stock that vested, aggregated $4,597 and $15,478 for the three and six months ended June 30, 2017, respectively, and $17,060 and $39,294 for the three and six months ended June 30, 2016, respectively.

Other

Each year, the Company issues shares of its Common Stock, under the 2005 Plan, to non-employee members of its Board of Directors with a value equal to their annual Board and committee retainers. The Company recorded $116 and $233 of stock-based compensation expense for the three and six months ended June 30, 2017, respectively, and $116 and $233 of stock-based compensation expense for the three and six months ended June 30, 2016, respectively, in connection with these issuances.

Summary of Stock-Based Compensation Expense

The following table summarizes the components and classification of stock-based compensation expense:


	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Stock options	$	5,418	$	4,940	$	10,892	$	10,190
Restricted stock		3,378		2,816		6,810		5,977
Other		116		116		233		233

Total stock-based compensation expense	$	8,912	$	7,872	$	17,935	$	16,400

Included in:
Cost of operations	$	1,514	$	1,140	$	3,090	$	2,430
Sales and marketing		1,898		1,382		3,675		2,944
General and administrative		5,500		5,350		11,170		11,026

Total stock-based compensation expense	$	8,912	$	7,872	$	17,935	$	16,400

As of June 30, 2017, approximately $60,600 of unrecognized stock-based compensation expense related to unvested awards (excluding any estimate for forfeitures) is expected to be recognized over a weighted-average period of approximately 2.7 years, related to the Plans.

WebMD Health Corp. 10-Q