Noncash share based compensation

Employee noncash share based compensation plans:

The Company has two noncash share based compensation plans; the 1999 Stock Plan and the 2007 Stock Plan. These plans authorize the discretionary granting of various types of stock awards to key employees, officers, directors and consultants. The discretionary issuance of stock awards generally contains vesting provisions ranging from one to four years.

1999 Stock Plan. Under the 1999 Stock Plan, the Company is authorized to grant options to purchase shares of common stock to its employees, directors and consultants at the Company’s discretion. The Company’s 1999 Stock Plan was terminated in March 2007 for purposes of granting any future equity awards. There were issued and outstanding stock options to purchase 33,325 shares of the Company’s common stock under the 1999 Stock Plan as of December 31, 2014.

2007 Stock Plan. The Company’s 2007 Stock Plan was adopted in March 2007. The purpose of the 2007 Stock Plan is to promote the Company’s long-term growth and profitability. The 2007 plan is intended to make available incentives that will help the Company to attract, retain and reward employees whose contributions are essential to its success. Under the 2007 Stock Plan, the Company’s employees, officers, directors and other individuals providing services to the Company or any of its affiliates are eligible to receive awards. The 2007 Stock Plan has an evergreen provision that allows for an annual increase equal to the lesser of (i) 3.5% of the Company’s outstanding shares (ii) 900,000 shares or (iii) any lesser amount determined by the Compensation Committee of the Board of Directors. The Company may provide these incentives through the grant of: (i) restricted stock awards; (ii) restricted stock unit awards; (iii) stock options; (iv) stock appreciation rights; (v) phantom stock; and (vii) performance awards.

In February 2014, the Company increased the number of shares available to grant by 900,000 under the evergreen provision in the Company’s 2007 Stock Plan, increasing the number shares reserved for issuance to 8,168,000. As of December 31, 2014, the Company had outstanding equity awards to acquire 3,634,758 shares of its common stock held by the Company’s employees, directors and consultants under the 2007 Stock Plan. Included in the outstanding equity awards are 961,377 of stock options, 1,631,041 RSUs, 673,068 SARs and 369,272 MSUs held by the Company’s employees, directors and consultants. As of December 31, 2014, 867,109 shares remain available for grant under the 2007 Stock Plan. As of December 31, 2014, there were no restricted stock awards or phantom stock issued under the 2007 Stock Plan.

In February 2014, the Company granted inducement awards in an aggregate amount of up to 308,250 shares in accordance with NYSE Rule 303A.08. These inducement awards were in the form of RSUs and MSUs granted to our recently appointed Chief Operating Officer and RSUs granted to certain new employees in connection with our acquisitions of Cameleon and SignalDemand. As of December 31, 2014, the Company had outstanding equity inducement awards to acquire 308,250 shares of its common stock held by the Company's employees and officers. Included in the outstanding equity awards are 233,250 RSUs (time and performance based) and 75,000 MSUs.

Noncash share based compensation expense for all noncash share based payment awards granted is determined based on the grant-date fair value of the award. The Company recognizes compensation expense, net of estimated forfeitures, which represents noncash share based awards expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term. Noncash share based awards typically vest over four years. Stock options are generally granted for a ten-year term. The Company estimates forfeiture rates based on its historical experience for grant years where the majority of the vesting terms have been satisfied. Changes in estimated forfeiture rates are recognized through a cumulative catch-up adjustment in the period of change and thus impact the amount of noncash share based compensation expense to be recognized in future periods.

Noncash share based compensation expense is allocated to expense categories on the Consolidated Statements of Comprehensive Income. The following table summarizes noncash share based compensation expense, net of amounts capitalized, for the years ended December 31, 2014, 2013 and 2012.



	For the Year Ended December 31,
	2014		2013		2012
Share-based compensation:
Cost of revenue	$	3,469	$	2,071	$	1,451
Operating expenses:
Selling and marketing	5,142		3,834		2,335
General and administrative	9,375		7,055		3,938
Research and development	4,679		3,139		1,921
Total included in operating expenses	19,196		14,028		8,194
Total share-based compensation expense	$	22,665	$	16,099	$	9,645

At December 31, 2014, there was an estimated $45.6 million of total unrecognized compensation costs related to noncash share based compensation arrangements. These costs will be recognized over a weighted average period of 2.4 years.

Stock Options:

The following table summarizes the Company’s stock option activity for the year ended December 31, 2014:



	Number of shares under option	Weighted average exercise price		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Outstanding, December 31, 2013	1,160	$	11.12
Granted	—	—
Exercised	(196)	7.37
Forfeited	—	—
Expired	(3)	14.93
Outstanding, December 31, 2014	961	$	11.87	2.80	$	15,006
Vested and exercisable at December 31, 2014	961	$	11.87	2.80	$	15,006

(1) The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock on December 31, 2014 of $27.48 and the grant date fair value.

For the years ended December 31, 2014 and 2013, respectively, the Company did not grant any stock options. The total intrinsic value of stock options exercised for the years ended December 31, 2014, 2013 and 2012 was $4.5 million, $5.2 million and $0.6 million, respectively.

RSUs:

The Company has granted RSUs under the 2007 Stock Plan and as part of the February 2014 inducement awards grant. RSUs include both time-based awards as well as performance-based awards in which the number of shares that vest are based upon the revenue expected to be earned by the Company from binding customer agreements for the provision of CPQ solutions. Generally, the time-based RSUs granted to employees, directors and consultants vest in equal annual installments over a one to four year period from the grant date. At December 31, 2014 there were 1,864,291 shares related to RSUs outstanding and unvested.

The following table summarizes the Company's unvested RSUs as of December 31, 2014, and changes during the year then ended, is as follows:



	Number of shares		Weighted average grant date fair value		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Unvested at December 31, 2013	1,543		$	18.25
Granted	1,028		33.46
Vested	(582	)	17.42
Forfeited	(125	)	25.28
Unvested at December 31, 2014	1,864		$	26.67	4.65	$	51,231
Expected to vest at December 31, 2014	1,822		$	26.60	4.64	$	50,067

(1) The aggregate intrinsic value was calculated based on the fair value of the Company’s common stock on December 31, 2014 of $27.48.

The weighted average grant-date fair value of the RSUs granted during the years ended December 31, 2014, 2013 and 2012 was $33.46, $20.08 and $18.65, respectively.

SARs:

The Company has granted SARs under the 2007 Stock Plan. The SARs will be settled in stock at the time of exercise and vest four years from the date of grant subject to the recipient’s continued employment with the Company. The number of shares issued upon the exercise of the SARs is calculated as the difference between the share price of the Company’s stock on the date of exercise and the date of grant multiplied by the number of SARs divided by the share price on the exercise date.

The following table summarizes the Company's SARs activity for the year ended December 31, 2014:



	Stock appreciation rights		Weighted average exercise price		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Outstanding, December 31, 2013	721		$	10.74
Granted	—		—
Exercised	(48	)	10.59
Forfeited	—		—
Expired	—		—
Outstanding, December 31, 2014	673		$	10.75	5.82	$	11,260
Exercisable at December 31, 2014	662		$	10.74	5.81	$	11,083
Vested and expected to vest at December 31, 2014	673		$	10.75	5.82	$	11,260

The Company did not grant SARs in 2014, 2013 and 2012.

MSUs:

In 2014, 2013 and 2012 , the Company granted MSUs to certain executives and senior level employees under the 2007 Stock Plan as as part of the 2014 inducement awards grant. The MSUs are performance-based awards that vest based upon the Company’s relative shareholder return. The actual number of MSUs that will be eligible to vest is based on the total shareholder return of the Company relative to the total shareholder return of the Index over over a two or three year period ending December 31, 2013, December 31, 2015, December 31, 2016 and June 30, 2017 ("Performance Period"), respectively. The MSUs granted in 2012 vested on January 1, 2014, the MSUs granted in 2013 vest on January 1, 2016, and the MSUs granted in 2014 vest on January 1, 2017 and July 1, 2017. The MSUs maximum number of shares issuable upon vesting is 200% of the MSUs initially granted.



	Number of unvested awards		Weighted average grant date fair value		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Unvested at December 31, 2013	469		34.24
Granted	198		$	48.54
Exercised	(205	)	26.08
Forfeited	(18	)	43.07
Expired	—		—
Unvested at December 31, 2014	444		$	44.03	6.30	$	12,209

The Company estimates the fair value of MSUs on the date of grant using a Monte Carlo simulation model. The determination of fair value of the MSUs is affected by the Company's stock price and a number of assumptions including the expected volatilities of the Company's stock and the Index, its risk-free interest rate and expected dividends. The Company's expected volatility at the date of grant was based on the historical volatilities of the Company and the Index over the Performance Period. The Company did not estimate a forfeiture rate for the MSUs due to the limited size, the vesting period and nature of the grantee population and the lack of history of granting this type of award.

Significant assumptions used in the Monte Carlo simulation model for MSUs granted during December 31, 2014, 2013 and 2012 are as follows:



	For the Year Ended December 31,
	2014	2013	2012
Volatility	50.86%	57%	61%
Risk-free interest rate	0.68%	0.35%	0.28%
Expected option life in years	2.88	2.84	1.9
Dividend yield	—	—	—

The assumptions related to fiscal year 2014 are presented on weighted average basis for the various awards granted throughout the period.

Employee stock purchase plan:

In June 2013, the Board of Directors authorized an Employee Stock Purchase Plan (“ESPP”) which provides for eligible employees to purchase shares on an after-tax basis in an amount between 1% and 10% of their annual pay: (i) on June 30 of each year at a 5% discount of the fair market value of our common stock on January 1 or June 30, whichever is lower, and (ii) on December 31 of each year at a 5% discount of the fair market value of our common stock on July 1 or December 31, whichever is lower. An employee may not purchase more than $5,000 in either of the six-month measurement periods described above or more than $10,000 annually. During the year ended December 31, 2014, the Company issued 13,392 shares under the ESPP. As of December 31, 2014, 486,608 shares remain authorized and available for issuance under the ESPP. As of December 31, 2014, the Company held approximately $0.4 million on behalf of employees for future purchases under the ESPP and this amount was recorded in accrued liabilities in the Company's consolidated balance sheet.