(4) Net Income Per Share

The Company computes net income per share of Class A and Class B common stock using the two class method. Under the provisions of the two class method, basic net income per share is computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net income per share of Class B common stock assumes the conversion of Class A common stock to Class B common stock, while the diluted net income per share of Class A common stock does not assume the conversion of those shares.

In accordance with the two class method, the undistributed earnings for each period are allocated based on the contractual participation rights of the Class A and Class B common shares and the restricted shares as if the earnings for the year had been distributed. Considering the terms of the Company’s charter which provides that, if and when dividends are declared on our common stock in accordance with Delaware General Corporation Law, equivalent dividends shall be paid with respect to the shares of Class A common stock and Class B common stock and that both classes of common stock have identical dividend rights and would share equally in our net assets in the event of liquidation, we have allocated undistributed losses on a proportionate basis. Additionally, the Company has paid dividends equally to both classes of common stock and the unvested restricted shares since it initiated a quarterly cash dividend in November 2006.

Instruments granted in unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities prior to vesting. As such, the Company’s restricted stock awards are considered participating securities for purposes of calculating earnings per share. Under the two class method, dividends paid on unvested restricted stock are allocated to these participating securities and therefore impacts the calculation of amounts allocated to common stock.

The following table calculates net income applicable to common stockholders used to compute basic net income per share for the periods ended (in thousands, except per share amounts):


	Three months ended March 31,
	2013						2014
	Class A			Class B			Class A		Class B
Numerator:
Net income from continuing operations	$	30		$	86		$	170	$	676
Dividends paid to participating securities		—			—			—		(36	)

Net income from continuing operations applicable to common stockholders	$	30		$	86		$	170	$	640
Discontinued operations, net of tax		(9	)		(22	)		2		7

Net income applicable to common stockholders	$	21		$	64		$	172	$	647

Denominator:
Weighted average number of shares outstanding used to calculate basic net income per share		9,570			25,585			7,741		29,035

Basic net income per share:
Net income from continuing operations applicable to common stockholders	$	0.00		$	0.00		$	0.02	$	0.02
Discontinued operations, net of tax		(0.00	)		(0.00	)		0.00		0.00

Basic net income per share applicable to common stockholders	$	0.00		$	0.00		$	0.02	$	0.02

The following table calculates net income to diluted net income applicable to common stockholders used to compute diluted net income per share for the periods ended (in thousands, except per share amounts):


	Three months ended March 31,
	2013						2014
	Class A			Class B			Class A		Class B
Numerator:
Net income from continuing operations	$	30		$	86		$	170	$	676
Dividends paid to participating securities		—			—			—		(36	)
Reallocation of net income for Class A shares as a result of conversion of Class A to Class B shares		—			30			—		170

Net income from continuing operations applicable to common stockholders	$	30		$	116		$	170	$	810
Discontinued operations, net of tax		(9	)		(22	)		2		7
Reallocation of discontinued operations for Class A shares as a result of conversion of Class A to Class B shares		—			(9	)		—		2

Discontinued operations, net of tax	$	(9	)	$	(31	)	$	2	$	9

Net income applicable to common stockholders	$	21		$	85		$	172	$	819

Denominator:
Weighted average number of shares outstanding used to calculate basic net income per share		9,570			25,585			7,741		29,035
Weighted average stock options and common shares subject to repurchase or cancellation		—			395			—		2,985
Conversion of Class A to Class B common shares outstanding		—			9,570			—		7,741

Weighted average number of shares outstanding used to calculate diluted net income per share		9,570			35,550			7,741		39,761

Diluted net income per share:
Net income from continuing operations applicable to common stockholders	$	0.00		$	0.00		$	0.02	$	0.02
Discontinued operations, net of tax		(0.00	)		(0.00	)		0.00		0.00

Diluted net income per share applicable to common stockholders	$	0.00		$	0.00		$	0.02	$	0.02

The weighted average number of shares used to calculate the diluted net income per share includes the weighted average number of shares from the assumed conversion of Class A common stock to Class B common stock.

The computation of diluted net income per share excludes the following because their effect would be anti-dilutive (in thousands):

•

For the three months ended March 31, 2013, outstanding options to acquire 6,665 shares of Class B common stock. For the three months ended March 31, 2014, outstanding options to acquire 1,998 shares of Class B common stock.

•

For the three months ended March 31, 2013 and 2014, 1,279 and 51 shares of unvested Class B restricted common shares, respectively, issued to employees and in connection with acquisitions. These shares were for future services that vest over periods ranging from one to six years.

•

For the three months ended March 31, 2013, 131 restricted stock units.