Stock-Based Compensation

The Company has stock plans under which directors, officers, key employees and consultants of the Company may be granted restricted stock awards, stock options and other equity-based instruments as a means of promoting the Company’s long-term growth and profitability. The plans are intended to encourage participants to contribute to, and participate in, the success of the Company.

On December 16, 2014, the Company's Board of Directors approved the 2015 Incentive Award Plan, or 2015 Plan, which was subsequently approved by the Company's stockholders on June 16, 2015. The number of shares reserved for issuance or transfer pursuant to awards under the 2015 Plan will be increased by the number of shares represented by awards outstanding under the Company's former equity plan, the 2011 Equity Incentive Award Plan (2011 Plan), that are forfeited or lapse unexercised and which, following the effective date of the 2015 Plan, are not issued under the Company's 2011 Plan. No further awards will be granted under the 2011 Stock Plan, and all outstanding awards will continue to be governed by their existing terms. As of December 31, 2015 and December 31, 2014, 2,428,990 and 2,682,457 shares of the Company’s common stock, respectively, remained available for future issuance under the 2015 Plan and 2011 Plan, respectively.

Stock-based compensation cost is included within salaries, wages and benefits in operating expenses in the accompanying statements of operations. Stock-based compensation cost amounted to $9.2 million, $8.8 million and $5.7 million for 2015, 2014 and 2013, respectively. During 2015, 2014 and 2013, there was $3.4 million, $3.2 million and $2.1 million tax benefit recognized in income related to stock-based compensation, respectively.

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock unit awards are valued at the fair value of the shares on the date of grant. Generally, granted shares and units vest 25% per year on each anniversary of issuance. Each restricted stock unit represents the right to receive one share of common stock upon vesting of such restricted stock unit. Vesting of restricted stock units is based on time-based service conditions. In order to vest, the participant must still be employed by the Company, with certain contractual exclusions, at each vesting event. Generally, within 30 days after vesting, the shares underlying the award will be issued to the participant. In the event a successor corporation in a change in control situation fails to assume or substitute for the restricted stock units, the restricted stock units will automatically vest in full as of immediately prior to the consummation of such change in control. In the event of death or permanent disability of a participant, the restricted stock units will automatically vest in full. Compensation expense, net of forfeitures, is recognized on a straight-line basis over the requisite service period.

A summary of the status of the Company’s restricted stock shares (restricted stock awards and restricted stock unit awards) as of December 31, 2015 and changes during the year ended December 31, 2015 is presented below:



	Number of Shares		Weighted-Average Grant Date Fair Value ($)
Outstanding at December 31, 2014	363,891		38.83
Granted	74,772		75.40
Vested	(132,108	)	34.94
Forfeited	(11,875	)	55.45
Outstanding at December 31, 2015	294,680		49.19

There were 74,772 and 182,464 restricted stock shares granted during the years ended December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015 and December 31, 2014, there was $9.8 million and $10.6 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock to be recognized over 2.4 years and 2.8 years, respectively.

The weighted-average fair value of restricted stock granted during the years ended December 31, 2015, 2014 and 2013 was $75.40, $55.14 and $27.70, respectively. The total fair value of restricted stock shares vested during the years ended December 31, 2015, 2014 and 2013 was $9.2 million, $6.5 million and $4.3 million respectively.

Stock Options

Stock option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant, vest over four years of continuous service and have ten-year contractual terms. The fair value of each stock option award is estimated on the date of grant using the Black Scholes model. There were no options granted during 2015, 2014, or 2013. The Company has not granted options since 2011, at which time the Company’s weighted average assumptions for expected volatility, dividends, term and risk-free interest rate were 46.25%, 0%, 6.25 years and 2.03%, respectively. Expected volatilities are based on the historical volatility of a group of peer entities within the same industry. The expected term of options is based upon the simplified method, which represents the average of the vesting term and the contractual term. The risk-free interest rate is based on U.S. Treasury yields for securities with terms approximating the expected term of the option.

Prior to the Company's IPO, to the extent a market price was not available, the fair value of the Company’s common stock was estimated using a discounted cash flow analysis and market multiples, based on management’s estimates of revenue, driven by assumed market growth rates, and estimated costs as well as appropriate discount rates. These estimates were consistent with the plans and estimates management used to manage the Company’s business.

A summary of share option activity as of December 31, 2015 and changes during the year ended December 31, 2015 is presented below:



	Number of Options		Weighted- Average Exercise Price ($)	Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2014	31,625		8.32	5.7	2,126
Exercised	(3,500	)	9.23
Forfeited or expired	—		—
Outstanding at December 31, 2015	28,125		8.20	4.7	890
Exercisable at December 31, 2015	28,125		8.20	4.7	890
Vested or Expected to Vest at December 31, 2015	28,125		8.20	4.7	890

The total intrinsic value of share options exercised during the years ended December 31, 2015, 2014 and 2013 was $0.2 million, $1.3 million and $2.0 million, respectively. The total fair value of options vested during the years ended December 31, 2015, 2014 and 2013 was $4 thousand, $100 thousand and $200 thousand, respectively.

As of December 31, 2015, there was no unrecognized compensation cost related to options as all option awards were fully vested. As of December 31, 2014, there was $3 thousand of total unrecognized compensation cost related to options expected to be recognized over 0.7 years.

Performance Share Awards

The Company grants certain senior-level executives performance stock units that vest based on market and time-based service conditions as part of a long-term incentive plan, which are referred to herein as performance share awards. The number of shares of common stock underlying each award is determined at the end of a three-year performance period. In order to vest, the senior level executive must still be employed by the Company, with certain contractual exclusions, at the end of the performance period. At the end of the performance period, the percentage of the stock units that will vest will be determined by ranking the Company’s total shareholder return compared to the total shareholder return of the peer companies identified in the plan. Based on the level of performance, between 0% and 200% of the award may vest. Within 60 days after vesting, the shares underlying the award will be issued to the participant. In the event of a change in control of the Company or the death or permanent disability of a participant, the payout of any award is limited to a pro-rated portion of such award based upon a performance assessment prior to the change-in-control date or date of death or permanent disability.

The market condition requirements are reflected in the grant date fair value of the award, and the compensation expense, net of forfeitures, for the award is recognized assuming that the requisite service is rendered regardless of whether the market conditions are achieved.

The grant date fair value of the performance share awards is determined through the use of a Monte Carlo simulation model, which utilizes multiple input variables that determine the probability of satisfying the market condition requirements applicable to each award as follows:



	Weighted-Average at Grant Date for Twelve Months Ended December 31, 2015		Weighted-Average at Grant Date for Twelve Months Ended December 31, 2014
Expected volatility factor	0.36		0.42
Risk free interest rate	0.91	%	0.65	%
Expected term (in years)	2.55		2.77
Expected dividend yield	—	%	—	%

For grants awarded in 2015 and 2014, the volatility was based upon a weighted average historical volatility for the Company. For grants awarded in 2013, the volatility was based upon a weighted average of the volatility for the Company and the most recent volatility of the peer group as there was not sufficient historical data for the Company alone. The peer group used to calculate volatility is consistent with the group used for the traditional employee stock options. The Company chose to use historical volatility to value these awards because historical prices were used to develop the correlation coefficients between the Company and each of the peer companies within the peer group in order to model stock price movements. The volatilities used were calculated as the remaining term of the performance period at the date of grant. The risk-free interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the remaining performance period. The Company does not intend to pay dividends on its common stock in the foreseeable future. Accordingly, the Company used a dividend yield of zero in its model.

The following table summarizes the Company’s performance share awards for the year ended December 31, 2015:



	Number of Awards		Weighted-Average Fair Value at Grant Date ($)
Outstanding at December 31, 2014	142,570		39.67
Granted	36,955		50.07
Vested	(92,747	)	43.64
Forfeited	—		—
Outstanding at December 31, 2015	86,778		66.44

As of December 31, 2015 and December 31, 2014, there was $2.9 million and $4.5 million, respectively, of total unrecognized compensation cost related to performance share awards expected to be recognized over 1.51 years and 1.64 years, respectively.