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Table of Contents
53
Share-based Compensation
We measure and recognize compensation expense for all share-based awards made to employees, directors and
consultants, including stock options, restricted stock awards, RSUs, and our employee stock purchase plan, or ESPP, shares
based on estimated fair values. Prior to our IPO in November 2013, the fair value of our stock options, restricted stock awards
and RSUs included an estimation of the fair value of our common stock.
The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option pricing
model, which includes assumptions for the expected term, risk-free interest rate, expected volatility and expected
dividends. We expense share-based compensation, adjusted for estimated forfeitures, using the straight-line method
over the vesting term of the award. There was no capitalized share-based compensation expense as of
December 31, 2014 and 2013.
The fair value of restricted stock awards is determined based upon the fair value of the underlying common stock at
the date of grant. We issued unvested restricted stock to employee stockholders of acquired companies in 2011. As
these unvested awards are generally subject to continued post-acquisition employment, we have accounted for them
as post-acquisition share-based compensation expense.
The fair value of RSUs is determined based upon the fair value of the underlying common stock at the date of
grant. Our outstanding RSUs vest upon the satisfaction of both a time-based service component and a performance
condition. The service component for the majority of these awards is satisfied over three years.
The fair value of shares to be purchase under our ESPP is estimated at the beginning of each six-month offering
period using the Black-Scholes-Merton option pricing model, which includes assumptions for the expected term,
risk-free interest rate, expected volatility and expected dividends. We expense share-based compensation, using the
straight-line method over the life of the purchase period under the offering.
The Black-Scholes-Merton option-pricing model utilizes the estimated fair value of our common stock and requires
the input of subjective assumptions, including the expected term and the price volatility of the underlying stock. These
assumptions represent management’s best estimates. These estimates involve inherent uncertainties and the application of
management’s judgment. If factors change and different assumptions are used, our share-based compensation expense could be
materially different in the future. The assumptions required are estimated as follows:
Expected term - The expected term for options granted to employees, officers and directors is calculated as the
midpoint between the vesting date and the end of the contractual term of the options. The expected term for options
granted to consultants is determined using the remaining contractual life.
Risk-free interest rate - The risk-free interest rate used in the valuation method is the implied yield currently
available on the United States treasury zero-coupon issues, with a remaining term equal to the expected life term of our
options.
Expected volatility - The expected volatility is based on the average volatility of similar public entities within our
peer group.
Expected dividends - The dividend assumption is based on our historical experience. To date we have not paid any
dividends on our common stock.