Stock-Based Compensation

9 Months Ended

Sep. 30, 2016

Stock Option Activity

A summary of the Company’s stock option activity for the nine months ended September 30, 2016 is as follows (share numbers and aggregate intrinsic values in thousands):



	Number of Options Outstanding		Weighted Average Exercise Price		Weighted Average Contractual Term (Years)	Aggregate Intrinsic Value
Balance as of December 31, 2015	206		$	27.08
Granted	850		48.30
Exercised	(93	)	20.69
Forfeited, cancelled or expired	(4	)	42.94
Balance as of September 30, 2016	959		$	46.44	6.3	$	1,633
Options vested and expected to vest at September 30, 2016	959		$	46.44	6.3	$	1,633
Options vested at September 30, 2016	108		$	31.95	3.3	$	1,623

During the nine months ended September 30, 2016, the Company granted options to the Chief Executive Officer to purchase an aggregate of 850,000 shares of common stock at a exercise price of $48.30, with an estimated weighted-average grant-date fair value of $13.50. The total intrinsic value of options exercised during the three months ended September 30, 2016 and 2015 was $1.9 million and $0.7 million, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2016 and 2015 was $2.6 million and $3.6 million, respectively.

Net cash proceeds from the exercise of stock options for the three months ended September 30, 2016 and 2015 were $1.2 million and $0.4 million, respectively. Net cash proceeds from the exercise of stock options for the nine months ended September 30, 2016 and 2015 were $1.9 million and $2.7 million, respectively.

Valuation of Stock Options

The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The Company calculates volatility using an average of its historical and implied volatilities as it had sufficient public trading history to cover the entire expected term. The expected term of options gives consideration to historical exercises, post vest cancellations and the options contractual term. The risk-free rate for the expected term of the option is based on the U.S. Treasury Constant Maturity at the time of grant.

Restricted Stock Unit Activity

The Company grants restricted stock units (“RSUs”) to its employees under the provisions of the 2015 Plan and inducement awards to certain new employees upon hire in accordance with NASDAQ Listing Rule 5635(c)(4). The cost of RSUs is determined using the fair value of the Company’s common stock on the date of grant. RSUs typically vest and are settled annually, based on a four year total vesting term. Compensation cost associated with RSUs is amortized on a straight-line basis over the requisite service period.

A summary of the Company’s RSU activity for the nine months ended September 30, 2016, is as follows (share numbers in thousands):



	Number of Units Outstanding		Weighted Average Grant Date Fair Value
Awarded and unvested as of December 31, 2015	3,150		$	44.28
Granted	1,261		41.73
Vested	(1,056	)	43.69
Forfeited	(292	)	45.07
Awarded and unvested as of September 30, 2016	3,063		$	43.36
RSUs expected to vest after September 30, 2016	2,493

Included in the RSU grants for the nine months ended September 30, 2016, are 185,000 performance-based RSUs ("PBRSUs") that have both performance criteria tied to the Company’s 2016 financial performance and four year service criteria. Compensation cost associated with these PBRSUs is recognized on an accelerated attribution model and ultimately based on whether or not satisfaction of the performance criteria is probable. If in the future, situations indicate that the performance criteria are not probable, then no further compensation cost will be recorded and any previous costs will be reversed.

Employee stock-based compensation expense recognized in the three and nine months ended September 30, 2016 and 2015, was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

At September 30, 2016, the Company had $94.6 million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock options, RSUs and PBRSUs that will be recognized over a weighted-average period of approximately three years.

- 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.

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