Stock-Based Compensation | NOTE J – Stock-Based Compensation Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including restricted stock and restricted stock units, to employees, non-employee directors and other consultants who provide services to us. Restricted stock awards result in the issuance of new shares when granted. For other stock-based awards, new shares are issued when the award is exercised, vested or released according to the terms of the agreement. In January 2015, 980,924 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan. At December 31, 2015, there were approximately 3.3 million shares available for grant under approved equity compensation plans. We recorded stock-based compensation expense of $6.4 million, $5.4 million and $4.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. This expense was allocated as follows (in thousands): Year Ended December 31, 2015 2014 2013 Cost of revenues $ 989 $ 614 $ 475 Operating expenses Sales and marketing 1,978 1,933 1,481 Research and development 640 444 266 General and administrative 2,772 2,405 1,981 Total stock-based compensation expense $ 6,379 $ 5,396 $ 4,203 As of December 31, 2015, there was approximately $11.3 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight line basis over a weighted average period of 2.56 years. Stock Options Stock options generally vest over four years and have a contractual term of seven to ten years from the date of grant. Our stock option activity was as follows: Options (#) Weighted Average Outstanding at January 1, 2013 1,370,141 $ 12.41 Granted 225,439 40.64 Exercised (469,225 ) 7.96 Forfeited (29,132 ) 30.93 Outstanding at December 31, 2013 1,097,223 19.62 Granted 153,770 62.86 Exercised (153,196 ) 12.27 Forfeited (12,334 ) 41.38 Outstanding at December 31, 2014 1,085,463 26.53 Granted 181,487 67.50 Exercised (305,106 ) 14.55 Forfeited (18,741 ) 45.82 Outstanding at December 31, 2015 943,103 37.91 Of the total outstanding options at December 31, 2015, 640,096 were exercisable with a weighted average exercise price of $27.25 per share. The total outstanding options had a weighted average remaining contractual life of 4.7 years. The fair value of options that vested during the years ended December 31, 2015, 2014 and 2013 was $3.1 million, $2.9 million and $2.6 million, respectively. The intrinsic value of options exercised during the years ended December 31, 2015, 2014 and 2013 was $16.8 million, $7.4 million and $20.7 million, respectively. The intrinsic value of outstanding options at December 31, 2015, 2014 and 2013 was $30.5 million, $33.8 million and $50.1 million, respectively. The weighted-average fair values per share of options granted during 2015, 2014 and 2013 were $23.09, $24.36 and $14.60, respectively. The fair values of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: Year Ended December 31, 2015 2014 2013 Volatility 39 % 42 % 41 % Dividend yield — — — Life (in years) 4.52 4.17 4.75 Risk-free interest rate 1.36 % 1.44 % 0.86 % Prior to becoming a public entity in 2010, historical volatility was not available for our common stock. As a result, we did not have sufficient data to rely solely on the historical volatility of our common stock. Therefore, we estimated volatility based partially on the historical volatilities of the publicly traded shares of a selected peer group, and partially on the historical volatility of our common stock, which collectively provided a reasonable basis for estimating volatility. Beginning in 2015, we relied solely on the historical volatility of our common stock. We have not issued dividends on our common stock and do not expect to do so in the foreseeable future. The expected term of the options is based on the simplified method which does not consider historical or expected employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Restricted Stock Units and Awards Restricted stock units vest over four years and, upon vesting, the holder is entitled to receive shares of our common stock. With restricted stock awards, shares of our common stock are issued when the award is granted and the restrictions lapse over one year. Our restricted stock units activity was as follows: Restricted Stock Weighted Average Outstanding at January 1, 2013 68,241 $ 26.35 Granted 59,695 40.06 Vested and common stock issued (17,060 ) 26.09 Forfeited (8,232 ) 33.85 Outstanding at December 31, 2013 102,644 33.77 Granted 42,001 64.89 Vested and common stock issued (28,367 ) 32.92 Forfeited (1,145 ) 35.42 Outstanding at December 31, 2014 115,133 45.25 Granted 68,159 67.50 Vested and common stock issued (37,669 ) 40.91 Forfeited (5,058 ) 54.28 Outstanding at December 31, 2015 140,565 56.88 The number of restricted stock units outstanding at December 31, 2015 included 31,987 units that have vested but for which shares of common stock have not yet been issued pursuant to the terms of the agreement. Our restricted stock awards activity was as follows: Restricted Stock Awards (#) Weighted Average Outstanding at January 1, 2013 5,275 $ 27.55 Restricted common stock issued 5,688 48.66 Restrictions lapsed (9,541 ) 36.99 Forfeited — — Outstanding at December 31, 2013 1,422 48.66 Restricted common stock issued 5,352 51.74 Restrictions lapsed (5,199 ) 51.04 Forfeited (237 ) 48.66 Outstanding at December 31, 2014 1,338 51.74 Restricted common stock issued 4,110 67.37 Restrictions lapsed (4,416 ) 62.63 Forfeited — — Outstanding at December 31, 2015 1,032 67.39 Employee Stock Purchase Plan Effective July 1, 2012, we adopted an employee stock purchase plan which allows participating employees to purchase shares of our common stock at a discount through payroll deductions. The plan is available to all employees subject to certain eligibility requirements. Participating employees may purchase common stock, on a voluntary after tax basis, at a price that is the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period. The plan consists of two six-month offering periods, beginning on January 1 and July 1 of each calendar year. A total of 1.1 million shares of common stock are reserved for issuance under the plan. For the offering periods in 2015, we withheld approximately $1.5 million from employees participating in the plan and we purchased 28,362 shares on their behalf. For the offering periods in 2014, we withheld approximately $1.3 million from employees participating in the plan and we purchased 26,353 shares on their behalf. For the offering periods in 2013, we withheld approximately $1.2 million from employees participating in the plan and we purchased 32,114 shares on their behalf. For the years ended December 31, 2015, 2014 and 2013, we recorded approximately $408,000, $473,000 and $402,000 of stock-based compensation expense associated with the employee stock purchase plan. The fair value was estimated based on the market price of our common stock at the beginning of each offering period and using the Black-Scholes option pricing model with the following weighted-average assumptions: Year Ended December 31, 2015 2014 2013 Volatility 30 % 45 % 46 % Dividend yield — — — Life (in years) 0.50 0.50 0.50 Risk-free interest rate 0.12 % 0.08 % 0.10 % |