Sirius XM Holdings Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-based Compensation Plans and Awards

Stock-based Compensation Plans and Awards

9 Months Ended

Sep. 30, 2014

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

Stock-based Compensation Plans and Awards

Employee Stock Purchase Plan

In December 2013, our board of directors approved the Employee Stock Purchase Plan (“ESPP”), which was approved by our stockholders at the annual meeting in June 2014. The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions of up to 15% of their eligible compensation, subject to a maximum of $25,000 per calendar year. Shares reserved for issuance under the ESPP include 4,000,000 shares of common stock. The ESPP provides for six- month offering periods, commencing in February and August of each year. At the end of each offering period employees are able to purchase shares at 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the last day of the offering period.

We estimate the fair value of shares to be issued under the ESPP on the first day of the offering period using the Black-Scholes valuation model. The determination of the fair value is affected by our stock price on the first date of the offering period, as well as other assumptions including the risk-free interest rate, the estimated volatility of our stock price over the term of the offering period, the expected term of the offering period and the expected dividend rate. Stock-based compensation expense related to the ESPP is recognized on a straight-line basis over the offering period, net of estimated forfeitures.

The per-share fair value of shares to be granted under the ESPP is determined on the first day of the offering period using the Black-Scholes option pricing model using the following assumptions:



	Three months ended September 30,			Nine months ended September 30,
	2013	2014		2013	2014
Expected life (in years)	N/A	0.5		N/A	0.5
Risk-free interest rate	N/A	0.05 - 0.08%		N/A	0.05 - 0.08%
Expected volatility	N/A	42	%	N/A	42	%
Expected dividend yield	N/A	0	%	N/A	0	%

During the three and nine months ended September 30, 2014, we withheld $1.9 million and $4.4 million in contributions from employees and recognized $0.6 million and $1.5 million of stock-based compensation expense related to the ESPP. In the three and nine months ended September 30, 2014, 149,378 shares of common stock were issued under the ESPP.

Employee Stock-Based Awards

Our 2011 Equity Incentive Plan (the “2011 Plan”) provides for the issuance of stock options, restricted stock units and other stock-based awards to our employees. The 2011 Plan is administered by the compensation committee of our board of directors.

Stock options

We measure stock-based compensation expenses for stock options at the grant date fair value of the award and recognize expenses on a straight-line basis over the requisite service period, which is generally the vesting period. We estimate the fair value of stock options using the Black-Scholes option-pricing model. During the three months ended September 30, 2013 and 2014, we recorded stock-based compensation expense from stock options of approximately $3.7 million and $4.0 million. During the nine months ended September 30, 2013 and 2014, we recorded stock-based compensation expense from stock options of approximately $8.6 million and $11.2 million.

The per-share fair value of each stock option was determined on the grant date using the Black-Scholes option pricing model using the following assumptions.



	Three months ended September 30,				Nine months ended September 30,
	2013		2014		2013		2014
Expected life (in years)	6.32		6.08		5.99 - 6.32		6.08
Risk-free interest rate	2.04	%	1.93	%	0.99 - 2.04%		1.71 - 1.93%
Expected volatility	58	%	58	%	57 - 59%		58 - 59%
Expected dividend yield	0	%	0	%	0	%	0	%

Restricted stock units

The fair value of the restricted stock units is expensed ratably over the vesting period. RSUs vest annually on a cliff basis over the service period, which is generally four years. During the three months ended September 30, 2013 and 2014, we recorded stock-based compensation expense from RSUs of approximately $8.5 million and $17.5 million. During the nine months ended September 30, 2013 and 2014, we recorded stock-based compensation expense from RSUs of approximately $20.2 million and $47.4 million.

Stock-based Compensation Expense

Stock-based compensation expense related to all employee and non-employee stock-based awards was as follows:



	Three months ended September 30,				Nine months ended September 30,
	2013		2014		2013		2014
	(in thousands) (unaudited)				(in thousands) (unaudited)
Stock-based compensation expense:
Cost of revenue - Other	$	540	$	1,063	$	1,435	$	2,976
Product development	2,610		4,402		6,449		12,289
Sales and marketing	5,754		10,442		15,202		28,675
General and administrative	3,260		6,204		5,740		16,176
Total stock-based compensation expense	$	12,164	$	22,111	$	28,826	$	60,116

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References + Details