STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION. Equity Plans The Company’s 2006 Equity Incentive Plan, as amended and as assumed by Interactive Intelligence Group, Inc. (the "2006 Plan") authorizes the Board of Directors or the Compensation Committee, as applicable, to grant incentive and nonqualified stock options, stock appreciation rights, restricted stock, RSUs, performance shares, performance units and other stock-based awards. After adoption of the 2006 Plan by the Company’s shareholders in May 2006, the Company may no longer make any grants under previous plans. At the Company’s 2013 Annual Meeting of Shareholders on May 22, 2013, the Company’s shareholders approved an amendment to the 2006 plan which increased the number of shares available for issuance under the 2006 Plan by 2,000,000 shares. A maximum of 9,050,933 shares are available for delivery under the 2006 Plan. The number of shares available under the 2006 Plan is subject to adjustment for certain changes in the Company’s capital structure. The exercise price of options granted under the 2006 Plan is equal to the closing price of the Company’s common stock, as reported by The NASDAQ Global Select Market, on the business day immediately preceding the date of grant. As of December 31, 2015 , 2014 and 2013 there were 1,215,271 ; 1,897,742 ; and 2,338,146 shares of stock, respectively, available for issuance for equity compensation awards under the 2006 Plan. The Company grants RSUs and three types of stock options. The first type of stock option is non-performance-based subject only to time-based vesting, and these stock options were historically granted by the Company as annual grants to executives, to certain new employees and to newly-elected non-employee directors. These stock options vest in four equal annual installments beginning one year after the grant date. The fair value of these option grants is determined on the date of grant and the related compensation expense is recognized for the entire award on a straight-line basis over the requisite service period. The second type of stock option granted by the Company is performance-based and is subject to cancellation if the specified performance targets are not met. If the applicable performance targets have been achieved, the options will vest in four equal annual installments beginning one year after the grant date. The fair value of these stock option grants is determined on the date of grant and the related compensation expense is recognized over the requisite service period, including the initial period for which the specified performance targets must be met. The third type of stock option granted by the Company is director options granted to non-employee directors annually. These options are similar to the non-performance-based options described above except that the director options vest one year after the grant date. The fair value of these option grants is determined on the date of the grant and the related compensation expense is recognized over one year. Prior to 2015, these director options were generally granted at the Company’s Annual Meeting of Shareholders during the second quarter of each fiscal year. In 2015, the Company's non-employee directors received RSUs instead of stock options, as described below. If an incentive stock option is granted to an employee who, at the time the option is granted, owns stock representing more than 10% percent of the voting power of all classes of stock of the Company, the exercise price of the option may not be less than 110% of the market value per share on the date the option is granted and the term of the option shall be not more than five years from the date of grant. In 2015, the Company elected to grant RSUs in certain instances. The Company granted performance-based and non-performance-based RSUs to directors, executives, certain key employees and certain new employees and the fair value of the RSUs is determined on the date of grant. Non-performance-based RSUs granted to executives, certain key employees, certain new employees and new non-employee directors vest in four equal annual installments beginning one year after the grant date. Non-performance-based RSUs granted annually to non-employee directors vest in full one year after the grant date. Performance-based RSUs vest in four equal annual installments once the individual has achieved the performance targets. RSUs are not included in issued and outstanding common stock until the shares are vested and settlement has occurred. The 2006 Plan may be terminated by the Company's Board of Directors at any time. Stock-Based Compensation Expense Information The following table summarizes the allocation of stock-based compensation expense related to employee and director stock options and RSUs under FASB ASC 718 for the years ended December 31, 2015 , 2014 and 2013 (in thousands): Years Ended December 31, 2015 2014 2013 Stock-based compensation expense by category: Costs of recurring revenues $ 1,828 $ 1,345 $ 806 Costs of services revenues 717 432 245 Sales and marketing 3,959 4,077 3,109 Research and development 5,273 4,027 2,733 General and administrative 4,386 3,378 2,354 Total stock-based compensation expense $ 16,163 $ 13,259 $ 9,247 Effect of stock-based compensation expense on net income (loss) per share: Basic $ (0.75 ) $ (0.63 ) $ (0.46 ) Diluted (0.75 ) (0.63 ) (0.44 ) During the years ended December 31, 2015 and 2014 , the Company capitalized $1.4 million and $1.7 million of stock-based compensation expense related to capitalized software. No stock-based compensation expenses were capitalized during 2013 . At each quarter end, the Company evaluates the probability that the performance-based awards granted during the year will be forfeited at year-end for non-performance and reverses the associated expense recorded in previous periods. During the fourth quarter of 2015 , 2014 and 2013 , the Company reversed stock option expense recorded in previous periods associated with these performance-based options totaling $194,000 in 2015 , $300,000 in 2014 and $128,000 in 2013 . After taking into account the options that were cancelled during 2015 , 2014 and 2013 , the estimated total grant date fair value, not accounting for estimated forfeitures, is as follows (in thousands): Number of Options Granted Number of Options Cancelled Grant Date Fair Value Year: 2015 — — $ — 2014 271 101 7,068 2013 275 46 4,521 Stock Option and RSU Valuation RSUs are valued using the fair market value of the Company’s stock on the date of grant and expense is recognized on a straight-line basis taking into account an estimated forfeiture rate. The Company estimated the fair value of stock options using the Black-Scholes valuation model. There were no stock options granted during the year ended December 31, 2015 . The weighted-average estimated per option value of non-performance-based and performance-based options granted under the 2006 Plan during the years ended December 31, 2014 and 2013 was $31.38 and $17.99 , respectively, using the following assumptions: Years Ended December 31, Valuation assumptions for non-performance-based options: 2014 2013 Dividend yield — % — % Expected volatility 60.41 % 54.36 - 54.44% Risk-free interest rate 1.38 % 1.04 - 1.12% Expected life of option (in years) 4.00 4.25 Years Ended December 31, Valuation assumptions for performance-based options: 2014 2013 Dividend yield — % — % Expected volatility 59.76 % 57.56 % Risk-free interest rate 1.51 % 0.73 % Expected life of option (in years) 4.50 4.75 Years Ended December 31, Valuation assumptions for annual director options: 2014 2013 Dividend yield — % — % Expected volatility 61.70 % 49.33 % Risk-free interest rate 1.17 % 0.54 % Expected life of option (in years) 4.00 3.50 Expected Dividend: The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company has never declared or paid cash dividends on its common stock and does not expect to declare or pay any cash dividends in the foreseeable future. Expected Volatility: The Company’s volatility factor was based exclusively on its historical stock prices over the most recent period commensurate with the estimated expected life of the stock options. Risk-Free Rate: The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term commensurate with the estimated expected life of the stock options. Expected Term: The Company’s expected term represents the period that the Company’s stock options are expected to be outstanding. Previously, the simplified method as described in FASB ASC 718 was used to calculate the expected term. Beginning in 2013, the Company calculated expected term based on historical exercise data. Estimated Pre-vesting Forfeitures: The Company includes an estimate for forfeitures in calculating stock option expense. When estimating forfeitures, the Company considers historical termination behavior as well as any future trends it expects. In 2005, the Company began issuing options with a term of six years from the date of grant. Stock Option and RSU Activity The following table sets forth a summary of stock option activity for the years ended December 31, 2015 , 2014 and 2013 : Years Ended December 31, 2015 2014 2013 Options Weighted- Average Exercise Price Options Weighted- Average Exercise Price Options Weighted- Average Exercise Price Balances, beginning of year 1,350,799 $ 32.95 1,852,620 $ 22.25 2,631,198 $ 17.21 Options granted — — 225,250 63.15 251,250 41.91 Options exercised (251,464 ) 18.74 (672,321 ) 12.79 (1,007,578 ) 14.00 Options cancelled, forfeited or expired (38,477 ) 45.88 (54,750 ) 42.73 (22,250 ) 20.98 Options outstanding at end of year 1,060,858 35.85 1,350,799 32.95 1,852,620 22.25 Option price range at end of year $ 6.66 - 66.39 $ 6.66 - 66.39 $ 3.53 - 66.21 Weighted-average fair value of options granted $ — $ 31.38 $ 17.99 Options exercisable at end of year 767,052 31.92 723,801 24.98 1,010,495 15.53 The following table sets forth information regarding the Company’s stock options outstanding and exercisable at December 31, 2015 : Options Outstanding Options Exercisable Range of Exercise Prices Number Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price Number Weighted- Average Exercise Price $ 6.66 — $ 19.66 147,725 0.41 $ 18.11 147,725 $ 18.11 19.77 — 22.92 3,400 1.39 21.76 2,150 21.09 24.50 — 24.50 224,379 2.22 24.50 154,379 24.50 25.00 — 30.92 62,750 2.30 27.07 53,000 26.87 32.33 — 32.33 182,250 1.24 32.33 176,625 32.33 32.53 — 37.76 60,500 1.89 33.36 48,000 33.31 39.97 — 39.97 137,905 3.31 39.97 62,471 39.97 48.12 — 64.42 83,000 3.89 49.54 81,500 49.26 66.21 — 66.21 4,000 3.86 66.21 2,000 66.21 66.39 — 66.39 154,949 4.19 66.39 39,202 66.39 Total shares/average price 1,060,858 2.35 35.85 767,052 31.92 The total intrinsic value of options exercised during the year ended December 31, 2015 was $4.9 million . The aggregate intrinsic value of options outstanding as of December 31, 2015 was $3.8 million and the aggregate intrinsic value of options currently exercisable as of December 31, 2015 was $3.3 million . The aggregate intrinsic value represents the total intrinsic value, based on the Company’s closing stock price per share of $31.42 as of December 31, 2015 , which would have been realized by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of December 31, 2015 represented 357,254 shares with a weighted average exercise price of $22.19 . As of December 31, 2015 , there was $4.3 million of total unrecognized compensation expense related to non-vested stock options. This expense is expected to be recognized over the weighted average remaining vesting period of 1.25 years. The following table sets forth a summary of RSU activity for the year ended December 31, 2015 : Awards Weighted- Average Grant Date Price Balances, beginning of year 592,364 $ 50.24 RSUs granted 565,548 41.30 RSUs vested (236,284 ) 46.30 RSUs forfeited (71,400 ) 48.61 RSUs outstanding 850,228 45.53 As of December 31, 2015 , there was $30.6 million of total unrecognized compensation expense related to non-vested RSUs. This expense is expected to be recognized over the weighted average remaining vesting period of 2.43 years. 2000 Employee Stock Purchase Plan In May 2000, the Company adopted the 2000 Employee Stock Purchase Plan (the "2000 Purchase Plan"). A total of 500,000 shares of common stock were reserved for issuance under the 2000 Purchase Plan. In May 2005, the shareholders of the Company approved an amendment to the 2000 Purchase Plan that increased the number of shares of common stock available for purchase and issuance to 750,000 . The 2000 Purchase Plan permits eligible employees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 20% of their total compensation up to a maximum of $1,000 per pay period. The price at which the Company’s common stock may be purchased is 95% of the fair market value of the Company’s closing common stock price, as reported on The NASDAQ Global Select Market, on the last business day of the quarter. The actual purchase date is generally on the first business day of the next calendar quarter. An employee may set aside up to $25,000 to purchase shares annually. The initial offering period commenced on April 1, 2000. A total of 42,635 shares, 25,365 shares and 19,002 shares were purchased and issued during 2015 , 2014 and 2013 , respectively, under the 2000 Purchase Plan at an average price of $37.42 , $52.04 and $44.02 , respectively. As of December 31, 2015 , there were 20,728 shares available for purchase and issuance under the 2000 Purchase Plan. The 2000 Purchase Plan was modified, as of January 1, 2006, to ensure that it was considered non-compensatory under FASB ASC 718. As a result, the Company has not recognized any stock-based compensation expense related to its 2000 Purchase Plan. |