STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION Stock Options and Awards The Company’s equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant time based options, market condition based options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares, performance units, and other stock-based or cash-based awards to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. These options generally vest over four years and expire from seven to ten years from the date of grant. In addition to time based vesting, market condition based options are subject to a market condition: the closing price of the Company stock must exceed a certain level for a number of trading days within a specified timeframe or the options will be canceled before the expiration of the options. On June 2, 2017, the Company's stockholders approved an increase to the number of shares reserved for issuance by 3,476,850 shares. Restricted stock generally vests over one year. RSUs generally vest over 3 years. Awards granted other than an option or stock appreciation right shall reduce the common stock shares available for grant by 1.75 shares for every share issued. December 31, 2018 Common stock shares available for grant 1,791,088 Standard and market condition based stock options outstanding 2,134,504 Restricted stock awards outstanding 54,667 Restricted stock units outstanding 1,090,752 Employee Stock Purchase Plan The Company has an Employee Stock Purchase Plan (“ESPP”). Under the ESPP, eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the Company’s stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six -month offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1,000,000 shares of common stock have been reserved for issuance under the ESPP. As of December 31, 2018 , 724,822 shares had been purchased since the inception of the ESPP in 1999. The ESPP is considered a compensatory plan and the Company is required to recognize compensation cost related to the fair value of the award purchased under the ESPP. Shares purchased under the ESPP for the year ended December 31, 2018 are listed below. Shares purchased under the ESPP for the year ended December 31, 2017 were 48,750 . The intrinsic value listed below is calculated as the difference between the market value on the date of purchase and the purchase price of the shares. Year Ended December 31, 2018 Shares purchased under ESPP 26,689 Average price of shares purchased under ESPP $ 8.17 Intrinsic value of shares purchased under ESPP $ 106,000 Summary of Standard Stock Options The following table sets forth the summary of standard stock option activity under the Company’s stock option plans for the years ended December 31, 2018 , 2017 , and 2016 : Number of Shares Weighted Average Exercise Price Weighted Average Fair Value Of Options Granted Aggregate Intrinsic Value of Options Exercised (in thousands) Outstanding at January 1, 2016 3,596,533 $ 8.45 Granted 815,794 $ 7.85 $ 3.67 Exercised (395,515 ) $ 6.48 $ 918 Forfeited (344,541 ) $ 9.05 Expired (251,150 ) $ 8.87 Outstanding at December 31, 2016 3,421,121 $ 8.44 Granted 489,568 $ 8.48 $ 3.82 Exercised (70,608 ) $ 7.34 $ 151 Forfeited (361,687 ) $ 9.11 Expired (200,403 ) $ 15.04 Outstanding at December 31, 2017 3,277,991 $ 7.99 Granted 207,500 $ 12.50 $ 5.82 Exercised (1,452,306 ) $ 6.52 $ 8,222 Forfeited (78,390 ) $ 8.31 Expired (92,372 ) $ 11.93 Outstanding at December 31, 2018 1,862,423 $ 9.44 The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the options that were in-the-money. Information regarding standard stock options outstanding at December 31, 2018 , 2017 , and 2016 is summarized below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in millions) December 31, 2016 Options outstanding 3,421,121 $ 8.44 3.99 $ 9.0 Options vested and expected to vest using estimated forfeiture rates 3,223,919 $ 8.43 3.87 $ 8.5 Options exercisable 2,131,268 $ 8.22 3.10 $ 6.4 December 31, 2017 Options outstanding 3,277,991 $ 7.99 2.88 $ 2.2 Options vested and expected to vest using estimated forfeiture rates 3,175,002 $ 7.99 2.78 $ 2.2 Options exercisable 2,633,990 $ 7.94 2.14 $ 2.1 December 31, 2018 Options outstanding 1,862,423 $ 9.44 2.85 $ 0.8 Options vested and expected to vest using estimated forfeiture rates 1,785,740 $ 9.40 2.74 $ 0.7 Options exercisable 1,396,171 $ 9.22 1.97 $ 0.5 Additional information regarding standard options outstanding as of December 31, 2018 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $5.53 - $7.79 321,144 4.16 $ 7.21 189,149 $ 7.06 8.09 - 8.45 222,175 4.38 8.29 143,083 8.22 8.64 - 9.00 259,173 2.45 8.83 226,776 8.82 9.53 - 9.53 671,500 0.95 9.53 671,500 9.53 9.68 - 11.84 205,573 5.68 11.66 25,693 10.87 11.94 - 12.20 100,963 1.51 11.94 100,963 11.94 12.26 - 12.26 21,675 3.43 12.26 21,675 12.26 12.38 - 12.38 4,320 3.87 12.38 3,420 12.38 12.48 - 12.48 15,900 3.54 12.48 13,912 12.48 15.25 - 15.25 40,000 6.54 15.25 — — $5.53 - $15.25 1,862,423 2.85 $ 9.44 1,396,171 $ 9.22 Summary of Market Condition Based Stock Options In 2014, the Company began granting options that are subject to both time-based vesting and a market condition. For these options, the closing price of the Company stock must exceed a certain level for a number of trading days within a specified timeframe or the options will be canceled before the seven -year life of the options. The following table sets forth the summary of the market condition based option activity under the Company’s stock option plans for the years ended December 31, 2018 , 2017 and 2016 . There were no activities for the year ended December 31, 2018 . Number of Shares Weighted Average Exercise Price Weighted Average Fair Value Of Options Granted Aggregate Intrinsic Value of Options Exercised (in thousands) Outstanding at January 1, 2016 200,000 $ 9.05 Granted 75,000 $ 9.00 $ 3.68 Exercised — Forfeited (50,000 ) $ 11.94 Expired — Outstanding at December 31, 2016 225,000 $ 8.39 Granted 120,830 $ 8.65 $ 3.12 Exercised — Forfeited (73,749 ) $ 8.64 Expired — Outstanding at December 31, 2017 272,081 $ 8.44 Granted — Exercised — Forfeited — Expired — Outstanding at December 31, 2018 272,081 $ 8.44 The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for the options that were in-the-money. Information regarding these market condition based stock options outstanding at December 31, 2018 , 2017 and 2016 is summarized below: Number Weighted Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in millions) December 31, 2016 Options outstanding 225,000 $ 8.39 5.50 $ 0.5 Options vested and expected to vest using estimated forfeiture rates 209,141 $ 8.38 5.49 $ 0.5 Options exercisable 65,625 $ 8.09 5.17 $ 0.2 December 31, 2017 Options outstanding 272,081 $ 8.44 1.91 $ — Options vested and expected to vest using estimated forfeiture rates 272,081 $ 8.44 1.91 $ — Options exercisable 272,081 $ 8.44 1.91 $ — December 31, 2018 Options outstanding 272,081 $ 8.44 0.91 $ 0.1 Options vested and expected to vest using estimated forfeiture rates 272,081 $ 8.44 0.91 $ 0.1 Options exercisable 272,081 $ 8.44 0.91 $ 0.1 Additional information regarding market condition based stock options outstanding as of December 31, 2018 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $8.09 - $8.09 135,000 0.91 $ 8.09 135,000 $ 8.09 8.65 - 8.65 84,581 0.91 $ 8.65 84,581 $ 8.65 9.00 - 9.00 52,500 0.91 $ 9.00 52,500 $ 9.00 $8.09 - $9.00 272,081 0.91 $ 8.44 272,081 $ 8.44 Summary of Restricted Stock Units RSU activity for the years ended December 31, 2018 , 2017 , and 2016 was as follows: Number of Shares Weighted Average Grant Date Fair Value Fair Value of Released RSU’s (in thousands) Outstanding at January 1, 2016 487,423 Awarded 320,880 $ 8.67 Released (247,556 ) $ 2,118 Forfeited (133,555 ) Outstanding at December 31, 2016 427,192 Awarded 483,015 $ 8.46 Released (198,058 ) $ 1,991 Forfeited (203,269 ) Outstanding at December 31, 2017 508,880 Awarded 957,443 $ 11.74 Released (178,447 ) $ 2,133 Forfeited (197,124 ) Outstanding at December 31, 2018 1,090,752 Information regarding RSU’s at December 31, 2018 , 2017 , and 2016 is summarized below: Number of Shares Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in millions) Fair Value (in millions) December 31, 2016 RSUs outstanding 427,192 0.93 $ 4.5 $ 4.5 RSUs vested and expected to vest using estimated forfeiture rates 349,759 0.80 $ 3.7 December 31, 2017 RSUs outstanding 508,880 1.30 $ 3.6 $ 3.6 RSUs vested and expected to vest using estimated forfeiture rates 414,847 1.16 $ 2.9 December 31, 2018 RSUs outstanding 1,090,752 0.67 $ 9.8 $ 9.8 RSUs vested and expected to vest using estimated forfeiture rates 959,209 0.56 $ 8.6 The aggregate intrinsic value is calculated as the market value as of the end of the reporting period. Summary of Restricted Stock Awards Restricted stock award activity for the years ended December 31, 2018 , 2017 , and 2016 was as follows: Number of Shares Weighted Average Grant Date Fair Value Total Fair Value of Awards Released (in thousands) Outstanding at January 1, 2016 21,356 $ 12.26 Awarded 77,540 $ 6.52 Released (21,356 ) $ 12.26 $ 139 Forfeited — Outstanding at December 31, 2016 77,540 $ 6.52 Awarded 44,538 $ 8.65 Released (77,540 ) $ 6.52 $ 671 Forfeited — Outstanding at December 31, 2017 44,538 $ 8.65 Awarded 62,556 $ 13.32 Released (44,538 ) $ 8.65 $ 673 Forfeited (7,889 ) $ 15.44 Outstanding at December 31, 2018 54,667 $ 13.02 Stock-based Compensation Valuation and amortization methods — The Company uses the Black-Scholes-Merton option pricing model (“Black-Scholes model”), single-option approach to determine the fair value of standard stock options and ESPP shares. All share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. Stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures. The Company estimates future forfeitures at the date of grant and revises the estimates if necessary, in subsequent periods if actual forfeitures differ from these estimates. The determination of the fair value of share-based payment awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual and projected employee stock option exercise behaviors that impact the expected term, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividends. Expected term — The Company estimates the expected term of options granted by calculating the average term from the Company’s historical stock option exercise experience. The expected term of ESPP shares is the length of the offering period. Expected volatility — The Company estimates the volatility of its common stock taking into consideration its historical stock price movement and its expected future stock price trends based on known or anticipated events. Risk-free interest rate — The Company bases the risk-free interest rate that it uses in the option pricing model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. Expected dividend — The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option-pricing model. Forfeitures — The Company is required to estimate future forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. The Company uses the Monte-Carlo Simulation model to value the stock options with a market condition. Valuation techniques such as a Monte-Carlo Simulation model have been developed to value path-dependent awards. The Monte-Carlo Simulation model is a generally accepted statistical technique used, in this instance, to simulate a range of future stock prices for the Company. The assumptions used to value option grants under the Company’s stock plans are as follows: Standard Stock Options 2018 2017 2016 Expected life (in years) 4.4 4.6 4.5 Interest rate 3.0 % 2.0 % 1.2 % Volatility 55 % 52 % 56 % Dividend yield — % — % — % Market Condition Based Stock Options 2018 (1) 2017 2016 Expected life (in years) N/A 7.0 7.0 Interest rate N/A 2.0 % 1.6 % Volatility N/A 55 % 59 % Dividend yield N/A — % — % (1) No market condition based stock options were granted during the year ended December 31, 2018. Employee Stock Purchase Plan 2018 2017 2016 Expected life (in years) 0.5 0.5 0.5 Interest rate 1.9 % 0.9 % 0.4 % Volatility 58 % 48 % 53 % Dividend yield — % — % — % Total stock-based compensation recognized in the consolidated statements of income is as follows: Year Ended December 31, 2018 2017 2016 Income Statement Classifications (in thousands) Sales and marketing $ 946 $ 1,025 $ 1,280 Research and development 1,948 981 1,297 General and administrative 5,792 4,096 3,534 Total $ 8,686 $ 6,102 $ 6,111 As of December 31, 2018 , there was $6.0 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options, restricted stock awards and RSU’s granted to the Company’s employees and directors. This cost will be recognized over an estimated weighted-average period of approximately 2.47 years for standard options, 0.46 years for restricted stock awards and 1.13 years for RSU’s. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. |