Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v3.7.0.1
Stock-Based Compensation
6 Months Ended
Jun. 30, 2017
Stock-Based Compensation [Abstract]  
Stock-Based Compensation
5.
Stock-Based Compensation

We account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all share-based payments to employees, including grants of stock options and restricted stock units (RSUs), to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award.

As described in Note 1 – “Summary of Significant Accounting Policies,” we adopted ASU 2016-09, which among other items, provides an accounting policy election to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. We elected to account for forfeitures as they occur and therefore, share-based compensation expense for the three and six months ended June 30, 2017 has been calculated based on actual forfeitures in our consolidated statements of income, rather than our previous approach which was net of estimated forfeitures. The net cumulative effect of this change did not have a material impact on the consolidated financial statements. Share-based compensation expense for the year ended December 31, 2016 was recorded net of estimated forfeitures, which were based on historical forfeitures and adjusted to reflect changes in facts and circumstances, if any.

We use the Black-Scholes-Merton option valuation model to estimate the fair value of share-based payment awards on the date of grant, which requires us to use a number of complex estimates and subjective assumptions, including stock price volatility, expected term, risk-free interest rates and projected employee stock option exercise behaviors. In the case of options we grant, our assumption of expected volatility is based on the historical volatility of our stock price over the term equal to the expected life of the options. We base the risk-free interest rate on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the options assumed at the date of grant.  The estimated expected life represents the weighted-average period the stock options are expected to remain outstanding, determined based on an analysis of historical exercise behavior.

Compensation expense for employee stock options granted is generally recognized using the straight-line method over their respective vesting periods of up to five years. Starting in the third quarter of fiscal 2016, our stock-based compensation expense included performance-based inducement equity awards relating to the ShippingEasy acquisition as described in Note 2 - “Acquisitions.” Stock-based compensation expense related to the ShippingEasy performance-based inducement equity awards is equal to the grant date fair value of the common stock and is recognized over the required performance period.  Total compensation expense related to ShippingEasy’s performance-based equity awards during the three and six months ended June 30, 2017 was approximately $1.2 million and $2.5 million, respectively.

The following table sets forth the stock-based compensation expense that we recognized for the periods indicated (in thousands):
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Stock-based compensation expense relating to:
                       
Employee and director stock options
 
$
10,723
   
$
8,154
   
$
21,858
   
$
15,435
 
Employee stock purchases
   
245
     
263
     
477
     
498
 
Total stock-based compensation expense
 
$
10,968
   
$
8,417
   
$
22,335
   
$
15,933
 
                                 
Stock-based compensation expense relating to:
                               
Cost of revenues
 
$
445
   
$
450
   
$
993
   
$
875
 
Sales and marketing
   
1,975
     
1,857
     
4,282
     
3,588
 
Research and development
   
2,221
     
1,425
     
4,717
     
2,780
 
General and administrative
   
6,327
     
4,685
     
12,343
     
8,690
 
Total stock-based compensation expense
 
$
10,968
   
$
8,417
   
$
22,335
   
$
15,933
 
 
 
The following are the weighted average assumptions used in the Black-Scholes valuation model for the periods indicated:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Expected dividend yield
   
     
     
     
 
Risk-free interest rate
   
1.5
%
   
1.0
%
   
1.5
%
   
1.0
%
Expected volatility
   
46.1
%
   
48.6
%
   
46.4
%
   
48.4
%
Expected life (in years)
   
3.4
     
3.4
     
3.4
     
3.4
 
Forfeiture rate
   
     
6.0
%
   
     
6.0
%