Stock-Based Compensation | 8. Stock-Based Compensation The condensed consolidated statements of operations include $0.9 million and $3.2 million of stock compensation expense for the three and nine months ended September 30, 2016, respectively. Stock compensation expense for the three months ended September 30, 2016 consists of $0.6 million for time-based restricted stock awards, $0.3 million for stock bonuses related to the short-term incentive plan (“STIP”), $13 for stock options and $42 for the Employee Stock Purchase Plan (“ESPP”). Stock compensation expense for the nine months ended September 30, 2016 consists of $2.1 million for time-based restricted stock awards, $0.4 million for shares to directors, $0.4 million for stock bonuses related to the STIP, $0.1 million for stock options and $0.1 million for the ESSP. The condensed consolidated statements of operations include $0.7 million and $1.4 million of stock compensation expense for the three and nine months ended September 30, 2015, respectively. Stock compensation expense for the three months ended September 30, 2015 consists of $0.5 million for time-based restricted stock awards, $33 related to performance awards, $57 for stock options, and $55 for the ESPP. The Company did not capitalize any stock compensation expense during the three and nine months ended September 30, 2016 or 2015. Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows: Three Months Ended Nine Months Ended September 30 September 30 2016 2015 2016 2015 Cost of revenues $ 61 $ 115 $ 325 $ 244 Research and development 183 99 525 244 Sales and marketing 158 230 486 370 General and administrative 542 206 1,851 534 Total $ 944 $ 650 $ 3,187 $ 1,392 Restricted Stock – Service Based The Company grants restricted shares as employee incentives. When service-based restricted stock is granted to employees, the Company records deferred stock compensation within additional paid in capital, representing the fair value of the common stock on the date the restricted shares are granted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restricted shares. These grants vest over various periods, but typically vest over four years. The following table summarizes service-based restricted stock activity for the nine months ended September 30, 2016: Weighted Average Grant Date Shares Fair Value Unvested Restricted Stock Awards - December 31, 2015 1,050,172 $ 6.11 Shares awarded 452,300 5.61 Shares vested (204,398 ) 6.61 Shares cancelled (134,726 ) 6.17 Unvested Restricted Stock Awards - September 30, 2016 1,163,348 $ 5.83 The intrinsic value of service-based restricted shares that vested during the three months ended September 30, 2016, and 2015, was $0.6 million and $57, respectively. The intrinsic value of service-based restricted shares that vested during the nine months ended September 30, 2016, and 2015, was $1.0 million and $1.1 million, respectively. At September 30, 2016, total unrecognized compensation expense related to restricted stock was approximately $3.7 million, net of forfeitures to be recognized through 2020 over a weighted average period of 1.8 years. Restricted Stock Units – Service Based The Company grants restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock. The Company records expense on a straight-line basis for restricted stock units. The following table summarizes the restricted stock unit activity during the nine months ended September 30, 2016: Weighted Average Grant Date Units Fair Value Unvested Restricted Stock Units - December 31, 2015 22,725 $ 5.65 Units awarded 15,000 5.61 Units vested (1,337 ) 7.25 Unvested Restricted Stock Units - September 30, 2016 36,388 $ 5.57 The intrinsic value of service-based restricted stock units that vested and were issued as shares during the nine months ended September 30, 2016 was $7. No units vested during the three months ended September 30, 2016. The intrinsic value of service-based restricted stock units that vested and issued as shares during the nine months ended September 30, 2015 was $20. As of September 30, 2016, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock units was approximately $0.1 million, to be recognized through 2020 over a weighted average period of 1.3 years. Stock Options The Company grants stock options to purchase common stock as long-term incentives. The Company issues stock options with an exercise price no less than the fair value of the Company’s stock on the grant date. The Company grants new stock options with a seven-year life that contain installment vesting over a period of four years, 25% after one year, and monthly thereafter. Stock options may be exercised at any time prior to their expiration date or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement. A summary of the Company’s stock option activity for the nine months ended September 30, 2016 is as follows: Weighted Average Options Exercise Outstanding Price Outstanding at December 31, 2015 1,220,442 $ 7.72 Granted 24,500 4.95 Expired or Cancelled (294,229 ) 8.84 Forfeited (63,471 ) 7.24 Outstanding at September 30, 2016 887,242 $ 7.31 Exercisable at September 30, 2016 662,089 $ 7.39 There were 24,500 options granted during the three months and nine months ended September 30, 2016. There were no exercises of stock options during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company received proceeds of $0.3 million from the exercise of 35,134 options. The intrinsic value of these options exercised was $34. The range of exercise prices for options outstanding and exercisable at September 30, 2016, was $4.50 to $11.00. The following table summarizes information about stock options outstanding under all stock option plans: Options Outstanding Options Exercisable Weighted Average Weighted- Weighted Range of Number Contractual Life Average Number Average Exercise Prices Outstanding (Years) Exercise Price Exercisable Exercise Price $ 4.50 -- $ 6.00 36,379 6.46 $ 5.28 1,755 $ 5.90 6.01 -- 6.50 16,267 2.54 6.23 16,267 6.23 6.51 -- 7.00 37,522 1.65 6.85 36,251 6.86 7.01 -- 7.50 641,360 3.43 7.17 499,454 7.17 7.51 -- 8.00 18,000 4.04 7.80 12,352 7.81 8.01 -- 8.50 75,232 4.73 8.12 35,415 8.14 8.51 -- 9.00 6,750 2.83 8.76 5,301 8.77 9.01 -- 9.50 38,832 0.38 9.29 38,832 9.29 9.51 -- 10.00 15,500 1.97 9.63 15,062 9.63 10.01 -- 11.00 1,400 1.84 10.46 1,400 10.46 $ 4.50 -- $ 11.00 887,242 3.42 $ 7.31 662,089 $ 7.39 The weighted average contractual life and intrinsic value at September 30, 2016, was the following: Weighted Average Contractual Life (years) Intrinsic Value Options Outstanding 3.42 $ 8 Options Exercisable 3.09 $ 0 The intrinsic value is based on the share price of $5.29 at September 30, 2016. The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions at September 30 th September 30, 2016 Dividend yield 3.8 % Risk-free interest rate 0.8 % Expected volatility 33 % Expected life (in years) 4.9 The fair value of each unvested option was estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options. The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The Company incorporates a forfeiture rate based on historical data in the expense calculation. The expected life used for options granted is based on historical data of employee exercise performance. The Company records expense based on the grading vesting method. As of September 30, 2016, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $0.1 million, net of estimated forfeitures to be recognized through 2020 over a weighted average period of 1.0 year. Performance-based Equity Awards The Company issued performance share awards to executives in 2014 and 2015. The fair value of these performance share awards was calculated based on the stock price on the date of grant. In June 2015, the Company’s Board of Directors approved the 2015 Long-Term Incentive Plan (“2015 LTIP”). Under the 2015 LTIP, shares can be earned by certain executive employees based upon achievement of revenue goals over a four-year period with a penalty if certain earnings levels are not maintained. The four-year period was divided into two interim periods (each an “Interim Period”), the first of which will end on December 31, 2016, and the second of which will end on December 31, 2018. At the award date, the number of shares that could be earned collectively by all participants at threshold and target were 212,000 and 424,000, respectively. Stock compensation expense is amortized over the performance period for these awards based on estimated achievement of the goals. No expense has been recorded during the year ended December 31, 2015 or during the nine months ended September 30, 2016 for the 2015 LTIP because the Company does not believe it will meet the revenue threshold for the year ended December 31, 2016. In March 2014, the Company’s Board of Directors approved the 2014 Long-Term Incentive Plan (“2014 LTIP”). Under the 2014 LTIP, shares can be earned by certain executive employees based upon achievement of revenue goals over a four-year period with a penalty if certain profit levels are not maintained. The four-year period was divided into two interim periods (each an “Interim Period”), the first of which will end on December 31, 2015, and the second of which will end on December 31, 2017. The number of shares that could be earned collectively by all participants at threshold and target were 190,000 and 380,000, respectively. Stock compensation expense is amortized over the performance period for these awards based on estimated achievement of the goals. No expense was recorded for the first Interim Period of the 2014 LTIP because the Company did not meet the revenue threshold for the year ended 2015. Unvested awards of 162,000 related to the Interim Period ended December 31, 2015 were cancelled in December 2015. The Company had 455,000 and 555,000 unvested performance awards at September 30, 2016 and December 31, 2015, respectively. There were forfeitures of 100,000 awards during the nine months ended September 30, 2016 due to employee attrition. Director shares In June 2016, the Company issued 85,374 shares to directors that immediately vested. The intrinsic value of these shares was $0.4 million based on the share price of $4.65 on the award date. In June 2015, the Company issued 37,379 shares to directors that immediately vested. The intrinsic value of these shares was $0.3 million based on the share price of $7.41 on the award date. Short-term incentive plan For the Company’s 2016 STIP, executives will be paid in shares of the Company’s stock. Any shares earned under the STIP will be awarded in the first quarter of 2017 based on the performance period ending December 31, 2016. During the nine months ended September 30, 2016, the Company recorded the expense based on an estimate of the achievement of the award on a pro-rata basis over the measurement period. Employee Stock Purchase Plan (“ESPP”) The ESPP enables eligible employees to purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. Each offering period is approximately six months. The Company received proceeds of $0.3 million from the issuance of 67,533 shares under the ESPP in August 2016 and received proceeds of $0.4 million from the issuance of 76,314 shares under the ESPP in August 2015. The Company received proceeds of $0.4 million from the issuance of 78,415 shares under the ESPP in February 2016 and received proceeds of $0.4 million from the issuance of 57,293 shares under the ESPP in February 2015. Based on the 15% discount and the fair value of the option feature of this plan, this plan is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions: September 30, 2016 2015 Dividend yield 3.8 % 3.4 % Risk-free interest rate 0.8 % 0.6 % Expected volatility 33 % 34 % Expected life (in years) 0.5 0.5 The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The expected life used is based on the offering period. Employee Withholding Taxes on Stock Awards For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards and short-term incentive plan stock awards for the value of the statutory withholding taxes. For each individual receiving a share award, the Company redeems the shares it computes as the value for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $0.4 million during the nine months ended September 30, 2016 and 2015, respectively. Stock Repurchases The Company repurchased 783,212 shares at an average price of $5.23 during the first quarter 2016. No shares were repurchased during the three months ended September 30, 2016. As of the first quarter 2016, the Company had no shares that could still be repurchased under previously approved programs. The Company repurchased 1,942,788 shares at an average price of $6.22 during the year ended December 31, 2015. In total, the Company repurchased 2,726,000 shares under share repurchase program during the past twelve months. |