9. Stock Incentive Plan

The Company’s 2009 Stock Incentive Plan (“2009 Plan”) is administered by the Board of Directors and Compensation Committee, which have the authority to designate participants and determine the number and type of awards to be granted and any other terms or conditions of the awards. Options generally vest over a four-year period and expire ten years from the date of grant. Restricted stock units with service-based vesting conditions generally vest over a three-year period while restricted stock units with market-based vesting conditions generally vest over two or three-year periods. Certain stock-based awards provide for accelerated vesting if there is a change in control. On May 22, 2014, the Company’s stockholders approved an amendment to the 2009 Plan that increased the shares available to grant under the plan by 1,200,000 shares. There were 2,072,394 shares available for grant under the 2009 Plan as of June 30, 2014.

The Company uses the Black-Scholes option-pricing model to estimate the grant date fair value of stock options. The Company estimates the expected volatility of its common stock at the date of grant based on the historical volatility of comparable public companies over the option’s expected term as well as its own stock price volatility since the Company’s IPO. The Company estimates expected term based on historical exercise activity and giving consideration to the contractual term of the options, vesting schedules, employee turnover, and expectation of employee exercise behavior. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free rate for periods within the estimated life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. Historical employee turnover data is used to estimate pre-vesting stock option forfeiture rates. The compensation expense is amortized on a straight-line basis over the requisite service period of the stock award, which is generally four years.

The Company used the following assumptions to apply the Black-Scholes option-pricing model:


	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2014(1)	2013	2014
Expected dividend yield	0.00%	—%	0.00%	0.00%
Risk-free interest rate	0.89%	—%	0.87% - 0.89%	1.48%
Expected term (in years)	6.25	—	6.25	6.25
Volatility	55%	—%	55%	55%

(1)	There were no stock options granted during the three months ended June 30, 2014.

The following table summarizes stock option activity, including performance-based options (shares and intrinsic value in thousands):


	Number of shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2014		2,389		$	26.85		6.4	$	22,330


Granted		35			41.03
Exercised		(500	)		20.62			$	11,037


Forfeited		(75	)		33.36


Outstanding at June 30, 2014		1,849		$	28.54		6.3	$	33,444


Exercisable at December 31, 2013		1,451		$	23.45		5.4	$	17,855


Exercisable at June 30, 2014		1,332		$	26.72		5.7	$	26,522

The aggregate intrinsic value was calculated based on the positive differences between the fair value of the Company’s common stock of $33.55 on December 31, 2013 and $46.62 per share on June 30, 2014, or at time of exercise, and the exercise price of the options.

The weighted average grant date fair value of stock options issued was $11.60 per share for the year ended December 31, 2013, and $21.78 for the six months ended June 30, 2014.

During the three and six months ended June 30, 2014, the Company granted 436,110 and 539,396 restricted stock units, respectively, containing time-based vesting conditions which generally lapse over a three year period.

In August 2013 and May 2014, the Company granted 74,000 and 71,000 restricted stock units with market-based vesting conditions, respectively, which were tied to the Company’s achievement of a relative total shareholder return target measured over an applicable performance period which ranges from two to three years (the “TSR Units”). The number of shares underlying these TSR Units that will vest upon the conclusion of the applicable performance periods can range from 0% of the shares awarded to 200% of the shares awarded, or up to 148,000 shares or 142,000 shares for the August 2013 grant and May 2014 grant, respectively. Vesting of such shares is also contingent upon the continued employment of the participant throughout the vesting period. All TSR Units granted by the Company are valued using a Monte Carlo simulation model. The number of awards expected to be earned is factored into the grant date Monte Carlo valuation for the TSR Unit. Compensation cost is recognized regardless of the actual number of awards that are earned based on the market condition. Expected volatility is based on the Company’s historical volatility. The risk-free interest rate is based upon U.S. Treasury securities with a term similar to the vesting term of the TSR Units.

The assumptions used in the Monte Carlo simulation model include (but are not limited to) the following:


	August 2013 Grant			May 2014 Grant
Risk-free interest rate		0.62	%		0.78	%
Volatility		54	%		54	%

Compensation cost is recognized on a straight-line basis over the requisite service period. At June 30, 2014, all of the TSR Units granted in August 2013 and May 2014 remain outstanding.

The following table summarizes restricted stock unit activity (shares in thousands):


	Number of shares Underlying Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested as of January 1, 2014		1,192		$	28.47
Restricted stock units granted		610			44.38
Restricted stock units vested		(303	)		26.88
Restricted stock units forfeited		(101	)		26.46


Unvested as of June 30, 2014		1,398		$	35.90

The Company recognized stock based compensation expense within the accompanying condensed consolidated statements of operations as summarized in the following table (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2014		2013		2014
Cost of revenue	$	181	$	274	$	384	$	509
Research and development		1,045		1,008		2,062		1,784
Sales and marketing		2,146		2,796		4,227		4,857
General and administrative		1,745		2,635		3,609		5,001


	$	5,117	$	6,713	$	10,282	$	12,151

As of June 30, 2014, there was approximately $47.7 million of total unrecognized share-based compensation cost, net of estimated forfeitures, related to unvested stock awards which are expected to be recognized over a weighted average period of 2.2 years. The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.