Stock Based Compensation

On June 15, 2018, at the Company’s 2018 Annual Meeting of Stockholders, the Company's stockholders approved the 2018 Plan, which replaced and superseded the 2015 Plan, which was an amendment and restatement of the Company’s 2006 Omnibus Award Plan to, among other things, reserves 3,175,000 shares of the Company’s common stock for grants of awards under the 2018 Plan. As of December 31, 2018, the Company had 3,207,975 shares available for grant under the 2018 Plan (includes 34,487 shares against vested performance-based restricted stock units for which the underlying common stock was issued subsequent to December 31, 2018).

Under the 2018 Plan, the Compensation Committee (the “Committee”) may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, performance based compensation awards (including cash bonus awards and market condition based awards) or any combination of the foregoing.

The Committee determines which employees are eligible to receive the equity awards, the number of equity awards to be granted, the exercise price, the vesting period and the exercise period. The vesting period for the equity award issued is determined on the date of the grant and is non-transferable during the life of the equity award. The majority of options expire ten years from the date of grant. The equity awards generally vest proportionally over a period of four years from the date of grant, unless specified otherwise.

The Company applies the provisions of ASC 718, Compensation - Stock Compensation, to account for its stock based compensation, using the modified prospective method of transition. Under the provisions of this guidance, the estimated fair value of stock-based awards granted under stock incentive plans is recognized as compensation expense over the vesting period.

The following costs related to the Company’s stock-based compensation plan are included in the consolidated statements of income:



	Year ended December 31,
	2018		2017		2016
Cost of revenues	$	4,924	$	4,600	$	3,664
General and administrative expenses	10,371		10,363		8,372
Selling and marketing expenses	8,606		8,078		7,734
Total	$	23,901	$	23,041	$	19,770

Stock Options

The fair value of each stock option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. The Company accounts for the forfeitures as and when the actual forfeitures occur.

Stock option activity under the Company’s stock-based compensation plans is shown below:



	Number of Options		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Contractual Life (Years)
Outstanding at December 31, 2017	259,563		$	18.03	$	10,985	2.76
Granted	—		—		—		—
Exercised	(97,088	)	14.39		4,446		—
Forfeited	—		—		—		—
Outstanding at December 31, 2018	162,475		$	20.21	$	5,267	2.24
Vested and exercisable at December 31, 2018	162,475		$	20.21	$	5,267	2.24

The unrecognized compensation cost for unvested options as of December 31, 2018 is $nil. The Company did not grant any options during the years ended December 31, 2018, 2017 and 2016. The total grant date fair value of options vested during the years ended December 31, 2018, 2017 and 2016 was $nil, $nil and $706, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $4,446, $23,027 and $12,911, respectively.

The following table summarizes the status of the Company’s stock options outstanding, vested and exercisable at December 31, 2018:



	Options Outstanding, Vested and Exercisable
Range of Exercise Prices	Shares	Weighted- Average Exercise Price
$8.00 to $15.00	35,500	$	9.53
$15.01 to $21.00	25,466	18.74
$21.01 to $28.00	101,509	24.30
Total	162,475	$	20.21

Restricted Stock and Restricted Stock Units

An award of restricted stock is a grant of shares subject to conditions and restrictions set by the Committee. The grant or the vesting of an award of restricted stock may be conditioned upon service to the Company or its affiliates or upon the attainment of performance goals or other factors, as determined in the discretion of the Committee. The Committee may also, in its discretion, provide for the lapse of restrictions imposed upon an award of restricted stock. Holders of an award of restricted stock may have, with respect to the restricted stock granted, all of the rights of a stockholder, including the right to vote and to receive dividends.

The Committee is authorized to award restricted stock units to participants. The Committee establishes the terms, conditions and restrictions applicable to each award of restricted stock units, including the time or times at which restricted stock units will be granted or vested and the number of units to be covered by each award. The terms and conditions of each restricted stock award will be reflected in a restricted stock unit agreement.

Any cash or in-kind dividends paid with respect to unvested shares of restricted stock and restricted stock units are withheld by the Company and paid to the holder of such shares of restricted stock, without interest, only if and when such shares of restricted stock and restricted stock units vest. Any unvested shares of restricted stock and restricted stock units are immediately forfeited without consideration upon the termination of holder’s employment with the Company or its affiliates. Accordingly, the Company’s unvested restricted stock and restricted stock units do not include non-forfeitable rights to dividends or dividend equivalents and are therefore not considered as participating securities for purposes of earnings per share calculations pursuant to the two-class method.

Restricted stock and restricted stock unit activity under the Company’s stock-based compensation plans is shown below:



	Restricted Stock				Restricted Stock Units
	Number		Weighted- Average Fair Value		Number		Weighted- Average Fair Value
Outstanding at December 31, 2017^*	182,267		$	42.64	1,046,999		$	42.26
Granted	—		—		444,063		60.64
Vested	(69,714	)	40.38		(444,470	)	38.36
Forfeited	(8,930	)	59.77		(93,014	)	50.75
Outstanding at December 31, 2018^*	103,623		$	42.68	953,578		$	51.81

* Excludes 9,641 and 11,058 restricted stock units vested during the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017 restricted stock units vested for which the underlying common stock is yet to be issued are 155,753 and 146,112, respectively.

The fair value of restricted stock and restricted stock units is generally the market price of the Company’s shares on the date of grant. As of December 31, 2018, unrecognized compensation cost of $36,460 is expected to be expensed over a weighted average period of 2.55 years. The weighted-average fair value of restricted stock and restricted stock units granted during the years ended December 31, 2018, 2017 and 2016 was $60.64, $48.02 and $48.97, respectively. The total grant date fair value of restricted stock and restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was $19,865, $19,430 and $10,761, respectively.

Performance Based Stock Awards

Under the 2018 Plan, the Company grants performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees. 50% of the PRSUs cliff vest at the end of a three-year period based on a revenue target for the third year (“PUs”). However, for PUs granted in 2018, up to one-third of the PUs may be earned based on the Company’s revenue performance in each of the first two years against annual revenue targets in those years. The total amount of PUs that the recipient earns based on these performance criteria will be the greater of (i) the PUs earned in the year of vesting and (ii) the sum of the earned PUs during the first two years. The remaining 50% is based on a market condition (“MUs”) that is contingent on the Company's meeting the total shareholder return relative to a group of peer companies specified under the program measured over a three-year performance period. The award recipient may earn up to two hundred percent (200%) of the PRSUs granted based on the actual achievement of targets.

The fair value of each PU was determined based on the market price of one common share on a day prior to the date of grant, and the associated stock compensation expense was calculated on the basis that performance targets at 100% are probable of being achieved. The stock compensation expense for the PUs is recognized on a straight-line basis over the service period, which is through the end of the third year. Over this period, the number of shares that will be issued will be adjusted upward or downward based upon the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized as an expense will be based on a comparison of the final performance metrics to the specified targets.

The grant date fair value for the MUs was determined using a Monte Carlo simulation model and the related stock compensation expense was expensed on a straight-line basis over the vesting period. All stock compensation expense related to the MUs will be recognized if the requisite performance period is fulfilled, even if the market condition is not achieved.

The Monte Carlo simulation model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model also incorporates the following ranges of assumptions:


•	The historical volatilities are used over the most recent three-year period for the components of the peer group.


•	The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period


•	Since the plan stipulates that the awards are based upon the TSR of the Company and the components of the peer group, it is assumed that the dividends get reinvested in the issuing entity on a continuous basis.


•	The correlation coefficients are used to model the way in which each entity tends to move in relation to each other are based upon the price data used to calculate the historical volatilities.

The fair value of each MU granted to employees is estimated on the date of grant using the following weighted average assumptions:



	Year ended December 31,
	2018		2017		2016
Dividend yield	—		—		—
Expected life (years)	2.86		2.86		2.85
Risk free interest rate	2.38	%	1.40	%	0.88	%
Volatility	21.79	%	23.78	%	28.00	%

Performance restricted stock unit activity under the Company’s stock plans is shown below:



	Revenue Based PRSUs				Market Condition Based PRSUs
	Number		Weighted Avg Fair Value		Number		Weighted Avg Fair Value
Outstanding at December 31, 2017	113,190		$	48.13	113,174		$	60.80
Granted	55,268		60.58		55,262		70.97
Adjustment upon final determination of level of performance goal achievement*	(44,467	)	48.57		(14,896	)	67.94
Vested	(2,459	)	48.57		(32,028	)	67.94
Forfeited	(21,179	)	51.51		(21,176	)	63.78
Outstanding at December 31, 2018	100,353		$	54.07	100,336		$	62.43

* Represents adjustment of shares issued in respect of PUs and MUs granted in February 2016 upon certification of the level of achievement of the performance targets for such awards for which the underlying common stock was issued subsequent to December 31, 2018.

As of December 31, 2018, unrecognized compensation cost of $7,652 is expected to be expensed over a weighted average period of 1.74 years.