Stock-Based Compensation

Stock Options

Stock options are granted with an exercise price equal to the stock’s fair value at the date of grant. The awards vest at various times from the date of grant, with most options vesting in tranches generally over four years. All options expire ten years after the date of grant. At September 30, 2015, there were 6,370,452 shares available for the Company to grant under the 2013 Equity Incentive Plan.

The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions for 2015 and 2014 grants are provided in the table below. Because the Company’s shares were not publicly traded prior to August 9, 2013 and its shares were rarely traded privately, and due to the limited trading history since August 9, 2013, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. Similarly, due to the Company's limited trading history, the expected term is calculated using the simplified method, which is an average of the respective options' remaining contractual term and their expected vesting dates. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant. Expense is recognized using the straight-line attribution method.

The following is a summary of the weighted average assumptions used in the valuation of stock-based awards under the Black-Scholes model:



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
Dividend yield	0.00	%	0.00	%
Volatility	41.53	%	45.34	%
Expected term (years)	6.45		6.34
Risk-free interest rate	1.99	%	1.58	%

Stock option activity during the periods indicated is as follows:



	Number of shares subject to options		Weighted average exercise price per share		Weighted average remaining contractual term (years)	Aggregate intrinsic value
Balance at December 31, 2014	4,166,214		$	12.70	7.56	$	63,186
Granted	1,041,400		27.10
Exercised	(769,070	)	2.75
Forfeited	(409,631	)	20.87
Expired	(283	)	5.95
Balance at September 30, 2015	4,028,630		$	17.50	7.69	$	65,121
Exercisable at September 30, 2015	1,236,482		$	3.04	5.31	$	37,859

The weighted average grant date fair value of options granted during the nine months ended September 30, 2015 was $12.47. The total intrinsic value of options exercised during the nine months ended September 30, 2015 was $15.8 million.

The Company recorded stock-based compensation expense related to options of $1.7 million and $1.0 million during the three months ended September 30, 2015 and 2014, respectively, and $5.1 million and $2.7 million during the nine months ended September 30, 2015 and 2014, respectively. At September 30, 2015, there was $18.0 million of total unrecognized compensation cost related to unvested stock options granted under the Plan, which is expected to be recognized over a weighted average period of 2.98 years.

On June 13, 2012, stock options for the purchase of 573,941 shares were exercised prior to vesting pursuant to an early exercise feature. The proceeds from the transaction were recorded as a liability within accrued and other current liabilities and other liabilities, non-current. During the nine months ended September 30, 2015, the remaining 188,875 of these options vested and the $0.3 million liability related to the vesting options was reclassified to stockholders’ equity. There are no remaining unvested options with the Company’s repurchase rights related to this transaction as of September 30, 2015.

Restricted Stock Units

During the nine months ended September 30, 2015, the Company issued restricted stock units (RSUs) to employees.

RSU activity during the periods indicated is as follows:



	Number of shares subject to restriction		Weighted average share value		Weighted average remaining contractual term (years)	Aggregate intrinsic value
Balance at December 31, 2014	422,263		$	28.43	2.62	$	11,756
Granted	449,495		27.16
Vested	(4,044	)	28.44
Forfeited	(65,012	)	27.32
Balance at September 30, 2015	802,702		$	27.81	2.02	$	27,019

The related compensation expense for restricted stock units recognized during the three months ended September 30, 2015 and 2014 was $1.2 million and $0.2 million, respectively, and $3.3 million and $0.4 million for the nine months ended September 30, 2015 and 2014, respectively. At September 30, 2015, there was $14.0 million of total unrecognized compensation cost related to unvested RSUs granted under the Plan. That cost is expected to be recognized over a weighted average period of 3.39 years.

Common Stock Valuations

Prior to the Company’s IPO in August 2013, the Company derived the value of its common stock using valuation models prepared by third parties. In addition, management and the Company’s Board of Directors also considered relevant market activity including the then anticipated IPO, and other events occurring in recent proximity to valuation dates, including the recapitalization transaction and issuance of New Series A Convertible Preferred Stock in July 2011 to determine an estimate of fair value per share for stock options granted prior to August 2013 and for options granted during the years ended December 31, 2012 and 2011.

Subsequent to the Company’s IPO, the value of the Company’s common stock was determined based on the closing market price of the Company’s common stock traded on the New York Stock Exchange on the grant date.