STOCK-BASED COMPENSATION

The following costs related to the Company’s stock compensation plans were included in the consolidated statements of income and comprehensive income:



	For the Years Ended December 31,
	2016		2015		2014
Cost of revenues	$	16,619	$	13,695	$	8,648
Selling, general and administrative expenses — Acquisition related	12,884		18,690		8,829
Selling, general and administrative expenses — All other	19,741		13,448		7,143
Total	$	49,244	$	45,833	$	24,620

Equity Plans

2012 Non-Employee Directors Compensation Plan — On January 11, 2012, the Company approved the 2012 Non-Employee Directors Compensation Plan (“2012 Directors Plan”) to be used to issue equity grants to its non-employee directors. The Company authorized 600,000 shares of common stock to be reserved for issuance under the plan. As of December 31, 2016, 547,560 shares of common stock remained available for issuance under the 2012 Directors Plan. The 2012 Directors Plan will expire after 10 years and is administered by the Company’s Board of Directors.

2015 Long-Term Incentive Plan — On June 11, 2015, the Company’s stockholders approved the 2015 Long-Term Incentive Plan (“2015 Plan”) to be used to issue equity awards to company personnel. As of December 31, 2016, 6,202,977 shares of common stock remained available for issuance under the 2015 Plan. All of the awards issued pursuant to the 2015 Plan expire 10 years from the date of grant.

2012 Long-Term Incentive Plan — On January 11, 2012, the Company approved the 2012 Long-Term Incentive Plan (“2012 Plan”) to be used to issue equity grants to company personnel. In June 2015, the 2012 Plan was discontinued; however, outstanding awards remain subject to the terms of the 2012 Plan and any shares that are subject to an award that was previously granted under the 2012 Plan and that expire or terminate for any reason prior to exercise will become available for issuance under the 2015 Plan. All of the awards issued pursuant to the 2012 Plan expire 10 years from the date of grant.

2006 Stock Option Plan — Effective May 31, 2006, the Board of Directors of the Company adopted the 2006 Stock Option Plan (the “2006 Plan”) to grant stock options to directors, employees, and certain independent contractors. In January 2012, the 2006 Plan was discontinued; however, outstanding awards remain subject to the terms of the 2006 Plan and any shares that are subject to an option award that was previously granted under the 2006 Plan and that expire or terminate for any reason prior to exercise will become available for issuance under the 2015 Plan. All of the awards issued pursuant to the 2006 Plan expire 10 years from the date of grant.

Stock Options

Stock option activity under the Company’s plans is set forth below:



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2014	5,823,536		$	13.99	$	122,003
Options granted	2,400,500		32.51		36,584
Options exercised	(1,171,097	)	9.05		(45,321		)
Options forfeited/cancelled	(214,193	)	25.33		(4,802		)
Options outstanding at December 31, 2014	6,838,746		$	20.98	$	183,073
Options granted	2,219,725		62.18		36,492
Options exercised	(1,405,826	)	14.70		(89,860		)
Options forfeited/cancelled	(201,731	)	34.48		(8,904		)
Options outstanding at December 31, 2015	7,450,914		$	34.07	$	331,938
Options granted	313,088		70.27		(1,866		)
Options exercised	(895,804	)	20.13		(39,577		)
Options forfeited/cancelled	(227,759	)	47.89		(3,740		)
Options expired	(3,200	)	1.52		(201		)
Options outstanding at December 31, 2016	6,637,239		$	37.20	$	179,936

Options vested and exercisable at December 31, 2016	3,350,682		$	25.96	$	128,499
Options expected to vest	3,127,635		$	48.28	$	50,136

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line method over the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions:

a. Expected volatility — the Company estimated the volatility of its common stock at the date of grant using historical volatility of peer public companies. During 2014, the Company began including the historical volatility for the Company in conjunction with peer public companies to formulate estimated volatility regarding stock options. The expected volatility was 31.9%, 34.1% and 45.9% in the years ended December 31, 2016, 2015 and 2014, respectively.

b. Expected term — the Company estimates the expected term of options granted using the simplified method of determining expected term as outlined in SEC Staff Accounting Bulletin 107 as the Company does not have sufficient history in order to develop a more precise estimate. The expected term was 6.24 years in 2016, 6.25 years in 2015, and 6.20 years in 2014.

c. Risk-free interest rate — the Company estimates the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant. The risk-free rate was approximately 1.5%, 1.8% and 2.0% in 2016, 2015 and 2014, respectively.

d. Dividends — the Company uses an expected dividend yield of zero since it has never declared or paid any dividends on its common stock. The Company intends to retain any earnings to fund future growth and the operation of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future.

Additionally, the Company records share-based compensation expense only for those awards that are expected to vest. The Company applies an estimated forfeiture rate at the time of grant and adjusts those estimated forfeitures to reflect actual forfeitures at least annually.

Aggregate grant-date fair value of stock options issued during the year ended December 31, 2016 was $6,874. The options are typically scheduled to vest over four years from the time of grant, subject to the terms of the applicable plan and stock option agreement. In general, in the event of the participant’s termination of service for any reason, unvested options are forfeited as of the date of such termination without any payment to the participant.

As of December 31, 2016, total remaining unrecognized compensation cost related to unvested stock options, net of estimated forfeitures, was approximately $44,162. The expense is expected to be recognized over a weighted-average period of 1.6 years. As of December 31, 2016, the weighted average remaining contractual term was 6.0 years for fully vested and exercisable options and 7.8 years for options expected to vest.

As of December 31, 2016, a total of 2,550 shares underlying options exercised through December 31, 2016, were in transfer with the Company’s transfer agent.

Restricted Stock and Restricted Stock Units

The Company grants awards of restricted stock to non-employee directors under the Company’s 2012 Directors Plan and restricted stock units (“RSUs”) to Company personnel under the Company’s 2015 Plan (and prior to its approval, under the 2012 Plan). In addition, the Company has issued in the past, and may issue in the future, its equity securities to compensate employees of acquired businesses for future services. Equity-based awards granted in connection with acquisitions of businesses are generally issued in the form of service-based awards (dependent on continuing employment only) and performance-based awards, which are granted and vest only if certain specified performance conditions are met. The awards issued in connection with acquisitions of businesses are subject to the terms and conditions contained in the applicable award agreement and acquisition documents with typical vesting period of 3 years, with 33.3% of the awards granted vesting in equal installments on the first, second and third anniversaries of the grant.

Service-Based Awards

The table below summarizes activity related to the Company’s equity-classified and liability-classified service-based awards for the years ended December 31, 2016, 2015 and 2014:



	Equity-Classified Equity-Settled Restricted Stock				Equity-Classified Equity-Settled Restricted Stock Units				Liability-Classified Cash-Settled Restricted Stock Units
	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Unvested service-based awards outstanding at January 1, 2014	344,928		$	18.74	—		$	—	—		$	—
Awards granted	452,720		41.63		70,500		32.55		—		—
Awards vested	(217,668	)	17.84		—		—		—		—
Awards forfeited/cancelled	(17,038	)	21.14		—		—		—		—
Unvested service-based awards outstanding at December 31, 2014	562,942		$	37.42	70,500		$	32.55	—		$	—
Awards granted	5,295		70.79		108,319		67.21		—		—
Awards vested	(261,504	)	33.74		(17,625	)	32.55		—		—
Awards forfeited/cancelled	106		36.57		(11,922	)	34.49		—		—
Unvested service-based awards outstanding at December 31, 2015	306,839		$	41.14	149,272		$	57.55	—		$	—
Awards granted	6,510		73.00		408,629		70.39		207,586		70.53
Awards vested	(156,535	)	42.64		(41,015	)	55.60		—		—
Awards forfeited/cancelled	(2,689	)	45.32		(31,698	)	70.44		(3,085	)	70.52
Unvested service-based awards outstanding at December 31, 2016	154,125		$	40.89	485,188		$	67.69	204,501		$	70.53

As of December 31, 2016, the aggregate unrecognized compensation expense for outstanding service-based equity-classified restricted stock was $3,444. This expense is expected to be recognized over the next 1.0 years using the weighted average method.

As of December 31, 2016, the aggregate unrecognized compensation expense for all outstanding service-based equity-classified RSUs was $22,584. This cost is expected to be recognized over the next 2.0 years using the weighted average method.

As of December 31, 2016, the aggregate unrecognized compensation expense for all outstanding service-based liability-classified cash-settled RSUs was $8,842, which is expected to be recognized over the next 2.1 years using the weighted average method.

Performance -Based Awards

In 2014, the Company granted performance-based awards in connection with the acquisitions completed during that year. The total number of the awards varies based on attainment of certain performance targets pursuant to the terms of the relevant transaction documents. During the year ended December 31, 2016, two-thirds of the performance-based awards issued in 2014 acquisitions vested, net of any forfeitures.

Summarized activity related to the Company’s performance-based awards for the years ended December 31, 2016, was as follows:



	Equity-Classified Equity-Settled Restricted Stock				Liability-Classified Equity-Settled Restricted Stock				Equity-Classified Equity-Settled Restricted Stock Units
	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Unvested performance-based awards outstanding at January 1, 2014	—		$	—	—		$	—	—		$	—
Awards granted	26,441		38.91		360,617		38.13		—		—
Awards vested	—		—		—		—		—		—
Awards forfeited/cancelled	(2,550	)	36.57		—		—		—		—
Changes in the number of awards expected to be delivered	9,154		36.57		(22,152	)	18.32		—		—
Unvested performance-based awards outstanding at December 31, 2014	33,045		$	38.44	338,465		$	39.43	—		$	—
Awards granted	—		—		—		—		14,000		70.22
Awards vested	(12,145	)	39.92		(105,604	)	40.44		—		—
Awards forfeited/cancelled	(1,360	)	36.57		—		—		—		—
Changes in the number of awards expected to be delivered	2,550		36.57		(21,655	)	32.27		—		—
Unvested performance-based awards outstanding at December 31, 2015	22,090		$	37.52	211,206		$	39.65	14,000		$	70.22
Awards granted	—		—		—		—		—		—
Awards vested	(9,978	)	40.15		(105,604	)	40.44		(4,666	)	70.22
Awards forfeited/cancelled	(6,539	)	36.97		—		—		(4,667	)	70.22
Unvested performance-based awards outstanding at December 31, 2016	5,573		$	33.47	105,602		$	38.86	4,667		$	70.22

As of December 31, 2016, the aggregate unrecognized compensation expense for all outstanding performance-based equity-classified restricted stock was $144. That cost is expected to be recognized over the next 1.0 year using the weighted average method.

As of December 31, 2016, the aggregate unrecognized compensation expense for all outstanding performance-based liability-classified restricted stock was $3,002. That cost is expected to be recognized over the next 1.0 year using the weighted average method.

As of December 31, 2016, the aggregate unrecognized compensation expense for all outstanding performance-based equity-classified RSUs was $471. This expense is expected to be recognized over the next 1.3 years using the weighted average method.