STOCKHOLDERS’ EQUITY

Convertible Preferred Stock

On June 7, 2005, the Company issued 5,391,441 shares of Series G convertible preferred stock (Series G) at $11.00 per share for an aggregate cash purchase price of $59.3 million. The Company recorded the issuance of Series G at $59.1 million, net of issuance costs of $0.2 million. On June 1, 2009, the Company issued 4,124,986 shares of Series H convertible preferred stock (Series H) at $16.69 per share for an aggregate cash purchase price of $68.8 million. The Company recorded the issuance of Series H at $63.8 million, net of issuance costs of $5.0 million. Upon the issuance of Series H, certain terms related to Series G were amended. In March 2014, upon completion of the Company’s IPO, all of the outstanding shares of Series H and Series G were converted into 38,065,708 shares of common stock.

Common Stock

Upon closing of the IPO on March 31, 2014, the Company issued 15,000,000 shares of common stock at a public offering price $16 per share, for an aggregate offering price of $240.0 million, resulting in net proceeds to us of $216.8 million, after deducting underwriting discounts and commissions of approximately $16.8 million and offering expenses of approximately $5.6 million.

In February 2014, the Company issued 91,074 shares to a member of the Board of Directors at $10.98 per share, which was the then estimated fair market value, for an aggregate of $1.0 million in cash.

Equity-Based Incentive Plans

In 2000, the Company established the 2000 Equity Incentive Plan (the 2000 Plan), which provided for granting incentive stock options, nonstatutory stock options, bonus awards and restricted stock awards to eligible employees, directors, and consultants of the Company. In December 2009, the Board of Directors approved the 2009 Equity Incentive Plan (the 2009 Plan) as the successor to and continuation of the 2000 Plan. As of the 2009 Plan effective date, remaining shares available for issuance under the 2000 Plan were cancelled and became available for issuance under the 2009 Plan. No additional stock awards will be granted under the 2000 Plan. The 2009 Plan provides for the grant of the following awards to eligible employees, directors, and consultants: incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other stock awards. Incentive stock options may only be granted to employees. Non-employee directors are eligible to receive nonstatutory stock options automatically at designated intervals over their period of continuous service on the Board. The 2009 Plan, as amended, provides that the number of shares reserved for issuance under the 2009 Plan will increase on January 1 of each year for a period of up to five years by 4.5% of the total number of shares of capital stock outstanding on December 31 of the preceding calendar year, which will begin on January 1, 2015 and continue through January 1, 2019. On January 1, 2015, an additional 3,141,509 shares were automatically reserved for issuance under the amended 2009 Plan.

The exercise price per share of all incentive stock options granted under the 2000 Plan and the 2009 Plan must be at least equal to the fair market value of the shares at the date of grant as determined by the Board of Directors. Options generally have a maximum contractual term of 10 years. Incentive stock options granted at 110% of the fair market value to stockholders who have greater than 10% ownership have a maximum term of five years. Options granted to non-employee directors in connection with an initial election or appointment generally vest at the rate of 33% of the total options one year after the grant date and 1/36 of the total options granted monthly thereafter. All other options granted to non-employee directors generally vest 100% one year from grant date. Before 2015, options granted to employees generally vest over four years with a one year cliff and monthly thereafter. Starting in 2015, the options granted to newly hired employees generally vest at a rate of 25% of the total options a year after the grant date and then 1/16 of the total options granted on the 15th day of the second month of each calendar quarter thereafter. All other options granted to employees generally vest at a rate of 1/16 of the total options granted on the 15th day of the second month of each calendar quarter following the grant date.

The Company has granted restricted stock units (RSUs) to members of the Board of Directors, certain executives and employees. These RSUs represent rights to receive shares of the Company’s common stock on satisfaction of applicable vesting conditions. The fair value of RSUs is equal to the fair value of the Company’s common stock on the date of grant. RSUs granted to newly elected or appointed non-employee directors generally vest on the first anniversary of the Company’s most recent annual grants. RSUs granted to non-employee directors in connection with an annual grant generally vest 100% one year from the grant date. RSUs granted to newly hired employees generally vest at a rate of 25% of the total RSUs one year after the grant date and then 1/16 of the total RSUs granted on the 15th day of the second month of each calendar quarter thereafter. All other RSUs granted to employees generally vest at a rate of 1/16 of the total RSUs granted on the 15th day of the second month of each calendar quarter following the grant date.

In March 2015, the Company granted performance-based restricted stock units (PSUs) to its executives intended to represent 33.3% of each executive’s annual long-term incentive compensation award value in fiscal 2015. These PSUs vest over three years based on the Company’s attainment of annual financial performance goals as well as the executive’s continued employment through each vesting date. The number of shares that ultimately vest each year will range from 0 to 200% of the annual target amount, based on the Company’s performance. Cumulative financial performance metrics and goals are established for these awards at the grant date and the tranche of each award related to that period’s performance goal is treated as a separate grant for accounting purposes. The financial performance metric established for the performance awards is cumulative annual growth rate in the Company’s net service revenues. These values are being recognized over the tranches’ 12-month, 24-month and 36-month service periods. The Company began recording stock-based compensation expense for these tranches in March 2015, when the financial performance goals were established.

Equity incentive plan activity under the 2000 Plan and the 2009 Plan is summarized as follows:



Equity Incentive Plan Activity	Shares Available for Grant
Balance at December 31, 2014	2,708,524
Authorized	3,141,509
Granted	(1,569,865	)
Forfeited	674,786
Expired	1,250
Shares withheld for taxes and not issued	35,379
Balance at December 31, 2015	4,991,583

The following table summarizes stock option activity under the Company’s equity-based plans for the year ended December 31, 2015:



Stock Options Activity	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2014	6,892,810		$	6.13	8.22	$	173,338
Granted	312,200		31.66
Exercised	(2,112,131	)	3.44
Forfeited	(645,480	)	7.84
Expired	(1,250	)	10.98
Balance at December 31, 2015	4,446,149		$	8.96	7.56	$	52,108

Exercisable at December 31, 2015	2,100,591		$	6.20	7.16	$	28,922
Vested and expected to vest at December 31, 2015	4,257,065		$	8.70	7.53	$	50,675

The weighted-average grant date fair value of stock options granted in the years ended December 31, 2015, 2014 and 2013 was $12.73, $7.18 and $4.11 per share, respectively. The total fair value of options vested for the years ended December 31, 2015, 2014 and 2013 was $12.2 million, $7.5 million and $4.0 million, respectively.

The total intrinsic value of options exercised for the years ended December 31, 2015, 2014 and 2013 was $53.3 million, $35.1 million and $52.6 million, respectively. Cash received from options exercised during the years ended December 31, 2015, 2014 and 2013 was $7.3 million, $2.2 million and $7.1 million, respectively. The exercise price of all options granted was equal to the fair value of the common stock on the date of grant.

As of December 31, 2015, unrecognized compensation expense, net of forfeitures, associated with nonvested options outstanding was $13.9 million and is expected to be recognized over a weighted-average period of 2.19 years.

The following table summarizes RSU activity under the Company’s equity-based plans for the year ended December 31, 2015:



Restricted Stock Unit Activity	Number of Units		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2014	7,750		$	13.21
Granted	1,084,379		28.73
Vested	(106,136	)	32.83
Forfeited	(29,306	)	32.70
Nonvested at December 31, 2015	956,687		$	28.03

The total grant date fair value of RSUs granted in the year ended December 31, 2015 was $31.2 million. The total grant date fair value of RSUs vested in the years ended December 31, 2015, 2014 and 2013 was $3.5 million, $0.1 million and $0.1 million, respectively. As of December 31, 2015, unrecognized compensation expense, net of forfeitures, associated with the nonvested RSUs outstanding was $23.3 million, and is expected to be recognized over a weighted-average period of 3.05 years.

During the years 2015, 2014 and 2013, the Company withheld 35,379, 80,599 and 809,012 shares, respectively, to settle payroll tax liabilities resulting from the exercises of stock options and vesting of RSUs held by the employees.

The following table summarizes PSU activity under the Company’s equity-based plans for the year ended December 31, 2015:



Performance Based Restricted Stock Unit Activity	Number of Units	Weighted-Average Grant Date Fair Value
Outstanding units at December 31, 2014	—	$	—
Granted	173,286	33.51
Units converted	—	—
Forfeited	—	—
Outstanding units at December 31, 2015	173,286	$	33.51

The maximum total grant date fair value of PSUs granted in the year ended December 31, 2015 was $5.8 million, assuming maximum 200% performance target is met. As of December 31, 2015, unrecognized compensation expense, net of forfeitures, was $0.8 million, and is expected to be recognized over a weighted-average period of 2 years.

Employee Stock Purchase Plan

The Company adopted the 2014 Employee Stock Purchase Plan (ESPP) in February 2014, which became effective on March 26, 2014. The ESPP was approved with a reserve of 1.1 million shares of common stock for future issuance under various terms provided for in the ESPP, which will automatically increase on January 1 of each year from 2015 through 2024 by the lesser of 1% of the total number of shares outstanding on December 31 of the preceding calendar year or 1,800,000 shares. On January 1, 2015, an additional 698,113 shares were automatically reserved for issuance under the ESPP. The Company commenced its first purchase period under the ESPP on March 26, 2014 with a purchase price equal to the lesser of 85% of the fair market value of the common stock on the offering date and 85% of the fair market value of the common stock on the applicable purchase date. Offering periods are six months in duration and will end on or about May 15 and November 15 of each year, with the exception of the initial offering period, which commenced on March 26, 2014 and ended on November 14, 2014. Employees may contribute a minimum of 1% and a maximum of 15% of their earnings. During the year ended December 31, 2015, employees purchased 272,836 shares under the ESPP at a price of $25.25 per share for the first offering period ending in 2015 and $15.71 per share for the second offering period ending in 2015 for total cash proceeds of $5.3 million.

Stock-Based Compensation

Stock-based compensation expense of $17.9 million, $11.0 million and $6.1 million was recognized for the years ended December 31, 2015, 2014 and 2013, respectively. Income tax benefit of $5.7 million, $2.0 million and $4.4 million was recognized relating to stock-based compensation expense for the years ended December 31, 2015, 2014 and 2013, respectively. The actual tax benefit realized from stock options exercised was $19.6 million, $13.5 million and $19.9 million for 2015, 2014 and 2013, respectively.

The fair value of stock-based awards is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



Stock Option Assumptions	Year Ended December 31,
	2015		2014		2013
Expected term (in years)	6.08		6.05		6.04
Expected volatility	39	%	58	%	48	%
Risk-free interest rate	1.73	%	1.80	%	1.26	%
Expected dividend yield	0	%	0	%	0	%



ESPP Assumptions	Year Ended December 31,
	2015		2014		2013
Expected term (in years)	0.50		0.50		n/a
Expected volatility	34-76%		33-58%		n/a
Risk-free interest rate	0.07-0.33%		0.06-0.07%		n/a
Expected dividend yield	0	%	0	%	n/a

Stock-based compensation expense for stock-based awards made to the Company’s employees pursuant to the equity plans was as follows (in thousands):



	Year Ended December 31,
	2015		2014		2013
Cost of providing services	$	4,244	$	2,658	$	1,193
Sales and marketing	4,490		2,755		1,284
General and administrative	7,501		4,517		3,220
Systems development and programming costs	1,688		1,030		416
	$	17,923	$	10,960	$	6,113

Earnings per Share

Prior to its IPO, the Company’s basic and diluted earnings per share (EPS) were computed using the two-class method, an earnings allocation method that determines earnings per share for common stock and participating securities. Shares of convertible preferred stock are considered participating securities and are entitled to dividend, on a pro rata basis, upon redemption, as if these had been converted to common stock. The undistributed earnings are allocated between common stock and participating securities as if all earnings had been distributed during the period.

Basic EPS is calculated by taking net income, less earnings available to participating securities, divided by the basic weighted average common stock outstanding.

Diluted EPS is calculated using the more dilutive of the if-converted method and the two-class method. Because the preferred stock participates in dividends on a pro rata basis as if the shares had been converted, the diluted earnings per share are the same under both methods. The two-class method has been presented below.

The following table sets forth the computation of the Company’s basic and diluted net income per share attributable to common stock (in thousands, except per share data):



	Year Ended December 31,
	2015		2014			2013
Numerator (basic)
Net income	$	31,695	$	15,497		$	13,147
Less net income allocated to participating securities	—		(2,224		)	(9,926		)
Net income attributable to common stock	$	31,695	$	13,273		$	3,221
Denominator (basic)
Weighted average shares of common stock outstanding	70,228		56,161			12,353
Basic EPS	$	0.45	$	0.24		$	0.26
Numerator (diluted)
Net income	$	31,695	$	15,497		$	13,147
Less net income allocated to participating securities	—		(2,114		)	(9,303		)
Net income attributable to common stock	$	31,695	$	13,383		$	3,844
Denominator (diluted)
Weighted average shares of common stock	70,228		56,161			12,353
Dilutive effect of stock options and restricted stock units	2,390		3,406			3,379
Weighted average shares of common stock outstanding	72,618		59,567			15,732
Diluted EPS	$	0.44	$	0.22		$	0.24

Common stock equivalents excluded from income per diluted share because of their anti-dilutive effect	1,004		526			1,389

Special Dividend

In August 2013, the Board of Directors declared a special dividend of $5.88 per common-equivalent share for holders of record of the Company’s preferred stock as of August 21, 2013, or a total of $223.6 million, and $5.88 per share for holders of record of the Company’s common stock as of August 30, 2013, or a total of $87.1 million. These dividends were fully paid in August 2013 and September 2013. Dividends have also been declared to holders of restricted stock units at $5.88 per share, or a total of $0.1 million, and are payable as the restricted stock units vest.

In December 2013, the Board of Directors declared a special dividend of $0.88 per common-equivalent share for holders of record of the Company’s preferred stock as of December 25, 2013, or a total of $33.3 million, and $0.88 per share for holders of record of the Company’s common stock as of December 25, 2013, or a total of $13.4 million. These dividends were fully paid in December 2013. Dividends have also been declared to holders of restricted stock units at $0.88 per share and are payable as the restricted stock units vest.

As a result of the August 2013 special dividend and in accordance with the provisions of the 2009 Plan, the Company adjusted the exercise prices on all outstanding options downward by $5.88, exactly equal to the amount of the dividend, except in three instances in which: i) the exercise price was lower than $6.38, ii) the holder of the incentive stock option under the 2009 Plan did not consent to the adjustment when consent was required, or iii) the incentive stock option was under the 2000 Plan. For options that were priced lower than $6.38, the Company adjusted the exercise price to $0.50.

As a result of the December 2013 special dividend and in accordance with the provisions of the 2009 Plan, the Company adjusted the exercise prices on all outstanding options downward by $0.88, exactly equal to the amount of the dividend, except in three instances in which: i) the exercise price was lower than $1.38, ii) the holder of the incentive stock option under the 2009 Plan did not consent to the adjustment when consent was required, or iii) the incentive stock option was under the 2000 Plan. For options that were priced lower than $2.75, the Company adjusted the exercise price to $0.50.

No changes were made to the original option grant-date fair value for the purpose of recognizing ongoing stock-based compensation cost. No changes were made to nonvested restricted stock units.

Stock Repurchases

In May 2014, the Board of Directors authorized a stock repurchase program that provided for the repurchase of up to $15 million of our outstanding common stock, with no expiration from the date of authorization. In November 2014, the Board of Directors authorized an additional $30 million stock repurchase program, with no expiration from the date of authorization. These stock repurchase programs are intended to offset dilution resulting from the issuance of shares under the Company’s ESPP and upon exercise of stock options. During 2014, the Company repurchased 490,419 shares of outstanding common stock for $15 million.

On June 29, 2015, the Board of Directors approved a $50.0 million incremental increase to the Company’s stock repurchase program. During the year ended December 31, 2015, the Company repurchased 1,895,625 shares of outstanding common stock for $48.4 million. Accordingly, as of December 31, 2015, a total of approximately $31.6 million remained available for further repurchases of the Company’s common stock under the Company’s stock repurchase program.

Stock Split

On March 7, 2014, the Company’s board of directors and stockholders approved and effected an amendment to the amended and restated certificate of incorporation providing for a 2-for-1 stock split of the outstanding common stock, which has been retroactively adjusted for all periods presented.