NOTE 7: 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. 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, 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 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. 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 has granted restricted stock units (RSUs) to members of the Board of Directors and certain executives. 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. The RSUs granted to the members of the Board of Directors vest a year from the grant date. The RSUs granted to newly hired employees vest at a rate of 25% of the total RSUs a 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 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 for the six months ended June 30, 2015 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		(1,194,751	)
Forfeited		482,321
Expired		1,250
Balance at June 30, 2015		5,138,853

The following table summarizes stock option activity under the Company’s equity-based plans for the six months ended June 30, 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		277,200			33.42
Exercised		(1,442,538	)		3.28
Forfeited		(467,002	)		8.17
Expired		(1,250	)		10.98
Balance at June 30, 2015		5,259,220		$	8.17		7.95	$	90,346

Exercisable at June 30, 2015		1,830,015		$	4.74		7.39	$	37,723
Vested and expected to vest at June 30, 2015		5,031,744		$	7.96		7.92	$	87,501

The weighted-average grant date fair value of stock options granted in each of the three months ended June 30, 2015 and June 30, 2014 was $11.63 and $12.46 per share, respectively. The weighted-average grant date fair value of stock options granted in each of the six months ended June 30, 2015 and June 30, 2014 was $13.49 and $6.33 per share, respectively. The total fair value of options vested for the three months ended June 30, 2015 and June 30, 2014 was $1.3 million and $1.3 million, respectively. The total fair value of options vested for the six months ended June 30, 2015 and June 30, 2014 was $5.7 million and $4.6 million, respectively.

The total intrinsic value of options exercised for the three months ended June 30, 2015 and June 30, 2014 was $12.8 million and $3.8 million, respectively. The total intrinsic value of options exercised for the six months ended June 30, 2015 and June 30, 2014 was $43.0 million and $10.0 million, respectively. Cash received from options exercised during the six months ended June 30, 2015 and June 30, 2014 was $4.7 million and $0.6 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 June 30, 2015, unrecognized compensation expense, net of forfeitures, associated with nonvested options outstanding was $19.5 million and is expected to be recognized over a weighted-average period of 1.83 years.

The following table summarizes RSU activity under the Company’s equity-based plans for the six months ended June 30, 2015:

Restricted Stock Unit Activity	Number of Units			Weighted-Average Grant Date Fair Value

Nonvested at December 31, 2014		7,750		$	13.21
Granted		744,265		$	33.42
Vested		(35,639	)	$	32.66
Forfeited		(15,319	)	$	33.51
Nonvested at June 30, 2015		701,057		$	33.24

The total grant date fair value of RSUs granted in the three months ended June 30, 2015 was $0.3 million. The total grant date fair value of RSUs granted in the six months ended June 30, 2015 was $24.9 million. The total grant date fair value of RSUs vested in the three months ended June 30, 2015 was $1.0 million. The total grant date fair value of RSUs vested in the six months ended June 30, 2015 was $1.1 million. As of June 30, 2015, unrecognized compensation expense, net of forfeitures, associated with the nonvested RSUs outstanding was $20.8 million, and is expected to be recognized over a weighted-average period of 3.41 years.

The following table summarizes PSU activity under the Company’s equity-based plans for the six months ended June 30, 2015:

Performance Based Restricted Stock Unit Activity			Weighted-Average
			Grant Date
	Number of Units		Fair Value
Outstanding units at December 31, 2014		-	$	-
Granted		173,286	$	33.51
Units converted		-	$	-
Forfeited		-	$	-
Outstanding units at June 30, 2015		173,286	$	33.51

The maximum total grant date fair value of PSUs granted in the six months ended June 30, 2015 was $5.8 million, assuming maximum 200% performance target is met. As of June 30, 2015, unrecognized compensation expense assuming a 100% performance target is met, net of forfeitures, was $2.0 million, and is expected to be recognized over a weighted-average period of 2.5 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 six months ended June 30, 2015, employees purchased 107,858 shares under the ESPP at a price of $25.25 per share for cash proceeds of $2.7 million.

Stock Repurchases

During the six months ended June 30, 2015, the Company repurchased 895,625 shares of outstanding common stock for $30.0 million. On June 29, 2015, the Board approved the repurchase of an additional $50.0 million of its outstanding common stock in the aggregate under the existing stock repurchase program. As of June 30, 2015, a total of approximately $50.0 million remained available for further repurchases of the Company’s common stock under the Company’s stock repurchase program.

Stock-Based Compensation

Stock-based compensation expense of $8.8 million and $5.1 million was recognized for the six months ended June 30, 2015 and 2014, respectively. Income tax benefit of $2.8 million and $1.4 million was recognized relating to stock-based compensation expense for the six months ended June 30, 2015 and 2014, respectively. The actual tax benefit realized from stock options exercised was $13.9 million and $3.8 million for the six months ended June 30, 2015 and 2014, 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	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Expected term (in years)	6.11			5.85			6.08-6.11			6.04
Expected volatility		39	%		58	%		39	%		58	%
Risk-free interest rate		1.96	%		1.81	%	1.74-1.96%				1.80	%
Expected dividend yield		0	%		0	%		0	%		0	%

ESPP Assumptions	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Expected term (in years)	0.5			0.64			0.5			0.64
Expected volatility	33-43%				58	%	33-43%				58	%
Risk-free interest rate	0.07-0.08%				0.06	%	0.07-0.08%				0.06	%
Expected dividend yield		0	%		0	%		0	%		0	%

The volatility for the offering periods beginning on May 18, 2015, November 16, 2014 and March 26, 2014 were 43%, 33% and 58%, respectively.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Cost of providing services	$	1,214	$	801	$	1,972	$	1,255
Sales and marketing		1,309		774		2,226		1,291
General and administrative		1,842		1,045		3,863		2,053
Systems development and programming costs		518		303		742		471
	$	4,883	$	2,923	$	8,803	$	5,070