Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Stockholders' Equity

NOTE 6: STOCKHOLDERS’ EQUITY

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. Nonemployee directors are eligible to receive nonstatutory stock options automatically at designated intervals over their period of continuous service on the Board. In February 2014, the Board approved an amendment to the 2009 Plan authorizing an additional 3,000,000 shares available for grant. The amended 2009 Plan also 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.

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 issued to recipients other than nonemployee directors generally vest over four years with a one year cliff and monthly thereafter, and have a maximum contractual term of 10 years. Options issued to members of the Board of Directors are issued with varying vesting schedules. 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.

The Company also has granted restricted stock units to members of the Board of Directors and certain executives. These restricted stock units represent rights to receive shares of the Company’s common stock on satisfaction of applicable vesting conditions. The fair value of restricted stock units is equal to the fair value of the Company’s common stock on the date of grant. The restricted stock units vest at a rate of 25% at the end of the first year and then pro rata monthly thereafter over the remaining vesting term of three or two years, as applicable.

Stock option plan activity under the 2000 Plan and the 2009 Plan is summarized as follows:

	Shares Available for Grant
Balance at December 31, 2013		2,004,464
Authorized		3,000,000
Granted		(2,448,500	)
Forfeited		66,052
Expired		6,580
Balance at March 31, 2014		2,628,596

The following table summarizes stock option activity under the Company’s equity-based plans for the three months ended March 31, 2014:

	Number of Shares			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2013		6,281,148		$	1.74	8.55	$	53,373
Granted		2,448,500			11.20
Exercised		(590,482	)	0.84
Forfeited		(66,052	)		2.54
Expired		(6,580	)		0.50
Balance at March 31, 2014		8,066,534		$	4.67	8.81	$	134,227
Exercisable at March 31, 2014		1,408,826		$	0.79	7.63	$	28,905
Vested and expected to vest at March 31, 2014		7,322,533		$	3.88	8.76	$	127,667

The weighted-average grant-date fair value of stock options granted in each of the three months ended March 31, 2014 and March 31, 2013 was $6.18 and $3.72 per share, respectively. The total fair value of options vested for the three months ended March 31, 2014 and March 31, 2013 was $3.4 million and $1.7 million, respectively.

The total intrinsic value of options exercised for the three months ended March 31, 2014 and March 31, 2013 was $6.2 million and $0.8 million, respectively. Cash received from options exercised during the three months ended March 31, 2014 and March 31, 2013 was $0.5 million and $0.3 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 March 31, 2014, unrecognized compensation expense, net of forfeitures, associated with nonvested options outstanding was $27.7 million and is expected to be recognized over a weighted-average period of 3.21 years.

For the three months ended March 31, 2014, there were no grants, vesting, or forfeitures of restricted stock units.  The total grant date fair value of restricted stock units vested in the three months ended March 31, 2014 and 2013 was $0.0 million and $0.1 million, respectively. As of March 31, 2014, unrecognized compensation expense, net of forfeitures, associated with the nonvested restricted stock units outstanding was $0.5 million, and is expected to be recognized over a weighted-average period of 3.25 years.

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. All of the share numbers, share prices, and exercise prices have been adjusted within these financial statements, on a retroactive basis, to reflect this 2-for-1stock split.

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. We commenced our first purchase period under the ESPP on March 26, 2014 with the purchase price at 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 will be 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 that ends on November 14, 2014. Employees may contribute a minimum of 1% and a maximum of 15% of their earnings.

Stock-Based Compensation

Stock-based compensation expense of $2.1 million and $1.4 million was recognized for the three months ended March 31, 2014 and 2013, respectively. An income tax benefit of $0.6 million and $0.2 million was recognized relating to stock-based compensation expense for the three months ended March 31, 2014 and 2013, respectively. The actual tax benefit realized from stock options exercised was $2.4 million and $0.3 million for the three months ended March 31, 2014 and 2013, respectively.

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

	Three Months Ended March 31,
	2014			2013
Expected term (in years)	6.05			6.03
Expected volatility		58.3	%		49	%
Risk-free interest rate		1.80	%		1.13	%
Expected dividend yield		0	%		0	%