Employee Benefit Plans

Employee Stock Option Plan

The Company’s stock option program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, officers, and directors and to align stockholder and employee interests.

The following table summarizes the weighted-average fair value of stock options granted:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Stock options granted (in thousands)	14		281		51		777
Weighted-average fair value at date of grant	$	17.87	$	20.84	$	22.34	$	18.14

Stock option activity for the six months ended June 30, 2016 was as follows (shares in thousands):



	Shares		Weighted-average exercise price		Remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2015	3,037		$	25.18	6.41	$	65,229
Granted	777		47.64
Exercised	(637	)	15.17
Forfeited	(67	)	45.45
Outstanding as of June 30, 2016	3,110		$	32.40	7.29	$	85,303
Vested and expected to vest at June 30, 2016	2,958		$	31.72	7.20	$	83,136
Exercisable at June 30, 2016	1,502		$	18.23	5.45	$	62,492

As of June 30, 2016, there was $25.4 million of total unrecognized compensation cost related to unvested stock options which are expected to vest. The cost is expected to be recognized over a weighted-average period of approximately 3.0 years as of June 30, 2016.

The Company calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Expected volatility	43.15	%	42.42	%	43.99	%	42.71	%
Risk-free interest rate	1.51	%	1.31	%	1.54	%	1.17	%
Expected term (in years)	4.74		4.87		4.74		4.87
Dividend yield	—		—		—		—

Stock-based compensation cost is measured at the grant date based on the fair value of the award. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatility is determined using weighted-average volatility of peer publicly traded companies as well as the Company’s own historical volatility. The Company expects that it will increase weighting of its own historical data in future periods, as that history grows over time. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected term on the options. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations and has not paid cash dividends on its common stock. The Company estimates the expected term based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior such as exercises and forfeitures.

Restricted Stock Units

The Company grants restricted stock units to certain employees, officers, and directors under its 2010 Equity Incentive Plan (the "2010 Plan"). Restricted stock units vest upon performance-based, market-based, or service-based criteria.

Performance-based restricted stock units vest based on the satisfaction of specific performance criteria. At each vesting date, the holder of the award is issued shares of the Company’s common stock. Compensation expense from these awards is equal to the fair market value of the Company’s common stock on the date of grant and is recognized over the remaining service period based on the probable outcome of achievement of the financial metrics. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified performance criteria.

Market-based performance restricted stock units are granted such that they vest upon the achievement of certain per share price targets of the Company’s common stock during a specified performance period. The fair market values of market-based performance restricted stock units are determined using the Monte Carlo simulation method. The Monte Carlo simulation method is subject to variability as several factors utilized must be estimated including the future daily stock price of the Company’s common stock over the specified performance period, the Company’s stock price volatility and the risk-free interest rate. The amount of compensation expense is equal to the per share fair value calculated under the Monte Carlo simulation multiplied by the number of market-based performance restricted stock units granted, recognized over the specified performance period.

Generally, service-based restricted stock units vest over four years with 25% of such restricted stock units vesting after one year and the balance vesting monthly over the remaining period.

In the first quarter of 2015 and 2016, the Company granted a total of 140,000 and 263,000, respectively, of performance-based restricted stock units to certain executive officers. Performance-based restricted stock units are typically granted such that they vest upon the achievement of certain revenue growth rates and other financial metrics during a specified performance period for which participants have the ability to receive up to 150% or 200% of the target number of shares originally granted, depending on terms of the grant agreement.

The restricted stock units will be eligible to vest based on the Company’s achievement against an average annual earnings before interest, taxes, depreciation, and amortization margin target equal to or greater than 22% and compound revenue growth target for the specified performance period.

The following table describes the levels of revenue growth target that must be met for the specified performance period for the restricted stock units granted in 2016 to vest:



Achievement of Revenue Growth Objective	Percentage of Restricted Stock Unit Vesting
20% and Greater	200% will vest
Between 15% but less than 20%	Between 100% and 200% will vest
Between 10% but less than 15%	Between 50% and 100% will vest
Below 10%	None will vest

Stock-based compensation expense related to restricted stock units was $3.0 million and $4.9 million for the three months ended June 30, 2015 and 2016, respectively, and $5.6 million and $8.7 million for the six months ended June 30, 2015 and 2016, respectively. Total unrecorded stock-based compensation cost at June 30, 2016 associated with restricted stock units was $24.9 million, which is expected to be recognized over a weighted-average period of 1.97 years. These amounts have been restated as a result of the Company's corrected revenue and net income (loss) for the three and six months ended June 30, 2016. See Note 1 to our Condensed Consolidated Financial Statements in Part I, Item 1 included in this Quarterly Report on Form 10-Q/A for restatement details.

The following table summarizes information about restricted stock units issued to officers, directors and employees under the 2010 Plan (shares in thousands):



	Shares		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	763		$	44.83
Granted (1)	475		37.98
Vested (2)	(328	)	20.55
Forfeited	(10	)	45.20
Unvested at June 30, 2016	900		$	50.04


(1)	Includes additional shares of performance-based restricted stock units, granted to certain executives in 2013 upon satisfying specified financial metrics for the performance period of January 1, 2013 through December 31, 2015, resulting in actual shares vesting at 150% of the target number of shares originally granted.


(2)	Includes 264,000 shares vested from performance-based restricted stock units granted to certain executives in 2013 representing 150% of the target number of shares originally granted.

Stock-based compensation is classified in the condensed consolidated statements of income (loss) in the same expense line items as cash compensation. Amounts recorded as expense in the condensed consolidated statements of income (loss) were as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
			Restated				Restated
Cost of revenues	$	898	$	1,818	$	1,699	$	2,968
Technology and development	295		621		342		1,106
Sales and marketing	668		738		1,332		1,446
General and administrative	2,952		4,356		5,876		8,004
Total	$	4,813	$	7,533	$	9,249	$	13,524