Stock-Based Compensation | 3 Months Ended |
Mar. 31, 2014 |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | ' |
Stock-Based Compensation | ' |
13. Stock-Based Compensation |
The following costs related to the Company’s stock-based compensation plan are included in the unaudited consolidated statements of income: |
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| | Three months ended March 31, | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | |
Cost of revenue | | $ | 1,013 | | | $ | 869 | | | | | | | | | |
General and administrative expenses | | | 1,514 | | | | 1,551 | | | | | | | | | |
Selling and marketing expenses | | | 1,649 | | | | 1,225 | | | | | | | | | |
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Total | | $ | 4,176 | | | $ | 3,645 | | | | | | | | | |
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The fair value of each stock option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: |
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| | Three months ended March 31, | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | |
Dividend yield | | | 0 | % | | | 0 | % | | | | | | | | |
Expected life (years) | | | 5.5 | | | | 5.5 | | | | | | | | | |
Risk free interest rate | | | 1.84 | % | | | 0.87 | % | | | | | | | | |
Volatility | | | 35 | % | | | 40 | % | | | | | | | | |
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The estimated expected term of options granted has been based on historical experience, which is representative of the expected term of the options. Volatility has been calculated based on the volatility of the Company’s common stock and the volatility of stock of comparative companies. The risk-free interest rate that the Company uses in the option valuation model is based on U.S. treasury zero-coupon bonds with a remaining term similar to the expected term of the options. |
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. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. 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. |
Stock option activity under the Company’s stock plans is shown below: |
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| | Number of | | | Weighted- | | | Aggregate | | | Weighted- | |
Options | Average | Intrinsic Value | Average |
| Exercise Price | | Remaining |
| | | Contractual |
| | | Life (Years) |
Outstanding at December 31, 2013 | | | 1,956,515 | | | $ | 16.25 | | | $ | 22,255 | | | | 5.55 | |
Granted | | | 9,794 | | | | 27.62 | | | | | | | | | |
Exercised | | | (104,294 | ) | | | 16.03 | | | | | | | | | |
Forfeited/Expired | | | (5,950 | ) | | | 8.58 | | | | | | | | | |
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Outstanding at March 31, 2014 | | | 1,856,065 | | | $ | 16.34 | | | $ | 27,117 | | | | 5.32 | |
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Vested and exercisable at March 31, 2014 | | | 1,436,462 | | | $ | 14.55 | | | $ | 23,494 | | | | 4.82 | |
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Available for grant at March 31, 2014 | | | 1,325,738 | | | | | | | | | | | | | |
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The unrecognized compensation cost for unvested options as of March 31, 2014 was $2,311, which is expected to be expensed over a weighted average period of 1.53 years. The weighted-average fair value of options granted during the three months ended March 31, 2014 and 2013 was $9.77 and $10.07, respectively. The total fair value of shares vested during the three months ended March 31, 2014 and 2013 was $1,192 and $2,118, respectively. |
Restricted Stock Units |
Restricted stock unit activity under the Company’s stock plans is shown below: |
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| | Restricted Stock Units | | | | | | | | | |
| | Number | | | Weighted-Average | | | | | | | | | |
Fair Value | | | | | | | | |
Outstanding at December 31, 2013* | | | 1,144,442 | | | $ | 24.95 | | | | | | | | | |
Granted | | | 402,087 | | | | 25.58 | | | | | | | | | |
Vested | | | (380,067 | ) | | | 21.57 | | | | | | | | | |
Forfeited | | | (18,470 | ) | | | 25.91 | | | | | | | | | |
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Outstanding at March 31, 2014* | | | 1,147,992 | | | $ | 26.27 | | | | | | | | | |
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* | Excludes 116,000 and 112,000 vested restricted stock units as of March 31, 2014 and December 31, 2013, respectively, for which the underlying common stock is yet to be issued. | | | | | | | | | | | | | | | |
As of March 31, 2014, unrecognized compensation cost of $25,965 is expected to be expensed over a weighted average period of 2.84 years. |
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Performance Based Stock Awards |
On February 13, 2014, the Compensation Committee of the Board of Directors of the Company approved the program of performance based grant of restricted stock units (“PRSUs”) for executive officers and other specified employees under its existing 2006 Omnibus Award Plan. Each of which represents the right to receive one common share based on the Company’s performance against specified targets. |
Under this program, the PRSUs will cliff vest at the end of a three-year performance period based on satisfaction of dual performance criteria: 50% of the PRSUs shall be based on satisfaction of our total revenue performance condition (“PUs”) measured on a cumulative basis over a three-year performance period and the other 50% shall be based on satisfaction of our market condition (“MUs”) of the Company meeting or exceeding the total shareholder return relative to a group of peer companies specified under the program, measured over a three-year performance period. In addition, up to one-third of the PUs may be earned based on the Company’s revenue performance in each of 2014 and 2015 against revenue targets in those years. The ultimate amount of PUs that the recipient earns, will be the greater of (x) the PUs earned in 2016 and (y) the sum of the earned PUs in 2014 and 2015. The award recipient may earn up to two hundred percent (200%) of the target based on the actual performance for both kinds of PRSUs. |
The fair value of each PU on the grant date was determined based on the market price of one common share of the Company on the date of grant, and assumes that performance targets will be achieved. The compensation expense for the PUs is recognized on a straight-line basis over the vesting terms. Over the performance 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 will be expensed on a straight-line basis over the vesting period. All 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: |
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| • | | The historical volatilities are used over the most recent three-year period for the components of the peer group. | | | | | | | | | | | | | |
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| • | | The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period. | | | | | | | | | | | | | |
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| • | | 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. | | | | | | | | | | | | | |
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| • | | 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. | | | | | | | | | | | | | |
Performance restricted stock unit activity under the Company’s stock plans is shown below: |
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| | Revenue Based PRSU’s | | | Market Condition Based PRSU’s | |
| | Number | | | Weighted Avg | | | Number | | | Weighted Avg | |
Fair Value | Fair Value |
Outstanding at Dec 31, 2013 | | | — | | | $ | — | | | | — | | | $ | — | |
Granted | | | 55,475 | | | | 25.63 | | | | 55,475 | | | | 33.6 | |
Vested | | | — | | | | — | | | | — | | | | — | |
Forfeited | | | — | | | | — | | | | — | | | | — | |
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Outstanding at March 31, 2014 | | | 55,475 | | | $ | 25.63 | | | | 55,475 | | | $ | 33.6 | |
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As of March 31, 2014, unrecognized compensation cost of $3,157 is expected to be expensed over a weighted average period of 2.76 years. |