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Employee Benefit Plans

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 Company considers its option program critical to its operation and productivity.

In fiscal 2010 and the first quarter of 2012, the Company granted a total of 418,500 and 320,000 performance option awards to certain executives of the Company, respectively. The performance option awards vest upon the completion of 7 years of service with the Company, and are subject to potential early vesting based upon the achievement of certain milestones as follows: 25% to vest upon an initial public offering, 25% to vest upon achieving certain revenue growth rate per year for two consecutive years, and an additional 50% will vest upon the achievement on an initial public offering and achieving consecutive growth rates. The Company completed its initial public offering in May 2012 and 25% of the awards have vested. At March 31, 2013, the Company anticipates that it is probable it will achieve revenue growth that will trigger early vesting of the awards and will prospectively accelerate the stock-based compensation associated with these awards to be recognized through the end of fiscal 2013.

In the third quarter of 2012, the Company granted a total of 37,500 performance option award to an executive of the Company. The performance option award is subject to the following vesting criteria: none of the options shall vest until September 18, 2019, provided however, that the shares shall immediately vest and become exercisable upon the achievement of the following milestone: the shares shall immediately vest and become exercisable upon achieving certain revenue growth rate per year for two consecutive years. At March 31, 2013, the Company anticipates that it is probable it will achieve a revenue growth that will trigger early vesting of the awards and will prospectively accelerate the stock-based compensation associated with these awards to be recognized through the end of fiscal 2013.

Stock-based compensation is classified in the consolidated statements of income in the same expense line items as cash compensation. None of the stock-compensation cost was capitalized as amounts were immaterial. Amounts recorded as expense in the consolidated statements of income are as follows (in thousands):


	Three Months Ended March 31,
	2012		2013
Cost of revenue	$	47	$	112
Technology and development		58		150
Sales and marketing		87		185
General and administrative		367		626

Total	$	559	$	1,073

As of March 31, 2013, there was $10.4 million of total unrecognized compensation cost related to unvested stock-based employee compensation arrangements which are expected to vest. The cost is expected to be recognized over a weighted average period of approximate 3.68 years as of March 31, 2013.

The following table summarizes the weighted-average fair value of stock options granted during the three months ended March 31, 2012 and 2013:


	Three Months Ended March 31,
	2012		2013
Stock options granted (in thousands)		792		452
Weighted average fair value at date of grant	$	5.34	$	11.69

The weighted average assumptions used in the Black-Scholes option pricing model to value option grants during the three months ended March 31, 2012 and 2013 were as follows:


	March 31,
	2012			2013
Expected volatility		55.84	%		51.62	%
Risk-free interest rate		1.37	%		1.08	%
Expected term		6.94 years			6.06 years
Dividend yield		—	%		—	%

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. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected life. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations and has never paid cash dividends on Common Stock. The Company uses the “simplified” method to estimate expected term as determined under SAB 107 due to the lack of option exercises exercise history as a public company.

Restricted Stock Units

The Company grants restricted stock units to certain employees, officers, and directors under the 2010 Plan. Restricted stock units vest upon either performance-based or service-based criteria. Generally, service-based restricted stock units vest over four years with 25% vesting after one year and the balance vesting monthly over the remaining period. 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 either over the requisite service period, for service-based awards, or based on the probable outcome of achievement of the financial metrics, for performance-based awards. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified performance criteria. No restricted stock units were granted prior to fiscal 2013.

In the first quarter of 2013, the Company granted a total of 195,000 performance-based restricted stock units to certain executives and employees and granted a total of 161,500 service-based restricted stock units to certain employees. Performance-based restricted stock units are typically granted such that they vest upon the achievement of specified financial metrics during a specified performance period for which participants have the ability to receive up to 150% of the target number of shares originally granted.

Stock-based compensation expense related to restricted stock units was $0.2 million for the three months ended March 31, 2013. Total unrecorded stock-based compensation cost at March 31, 2013 associated with restricted stock units was $7.6 million, which is expected to be recognized over a weighted-average period of 3.37 years.

The following table summarizes information about restricted stock units issued to officers, directors, and employees under our 2010 Plan:


			Weighted Average
			Grant Date
	Shares		Fair Value
	(in thousands)
Non-vested at December 31, 2012		—	$	—
Granted		357		23.76
Vested		—		—
Forfeitures		—		—

Non-vested at March 31, 2013		357	$	23.76