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 cancelled 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 three years. Awards granted other than an option or stock appreciation right reduce the common stock shares available for grant under the program by 1.75 shares for each share issued.



	September 30, 2018
Common stock shares available for grant	1,714,531
Standard and market condition stock options outstanding	2,322,517
Restricted stock awards outstanding	62,556
RSUs outstanding	1,090,938

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 common 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 has been reserved for issuance under the ESPP. As of September 30, 2018, 724,822 shares had been purchased since the inception of the ESPP in 1999. Under ASC 718-10, 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 nine months ended September 30, 2018 are listed below. Shares purchased under the ESPP for the nine months ended September 30, 2017 are 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.



	Nine Months Ended September 30, 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 activity with respect to standard stock options granted under the Company’s stock option plans for the nine months ended September 30, 2018:



	Nine Months Ended September 30, 2018
Beginning outstanding balance	3,277,991
Granted	207,500
Exercised	(1,326,718		)
Forfeited	(50,140		)
Expired	(58,197		)
Ending outstanding balance	2,050,436
Aggregate intrinsic value of options exercised	$	7,905,000
Weighted average fair value of options granted	$	5.82

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of the Company’s common stock for the options that were in-the-money.

Information regarding these standard stock options outstanding at September 30, 2018 is summarized below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
September 30, 2018
Options outstanding	2,050,436	$	9.31	2.97	$	3.3
Options vested and expected to vest using estimated forfeiture rates	1,956,894	9.27		2.82	3.1
Options exercisable	1,511,605	$	9.11	2.00	$	2.5

Summary of Market Condition Based Stock Options

The Company continued to have an outstanding balance of 272,081 market condition based stock options as of both December 31, 2017 and September 30, 2018. No activity noted in the period presented.

Summary of Restricted Stock Units

RSU activity for the nine months ended September 30, 2018 was as follows:



	Nine Months Ended September 30, 2018
Beginning outstanding balance	508,880
Awarded	922,443
Released	(178,447		)
Forfeited	(161,938		)
Ending outstanding balance	1,090,938
Weighted average fair value on grant date of RSUs	$	11.83
Total fair value of RSUs released	$	2,133,000

Information regarding RSUs outstanding at September 30, 2018 is summarized below:



	Number of Shares	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
September 30, 2018
RSUs outstanding	1,090,938	0.90	$	11.5
RSUs vested and expected to vest using estimated forfeiture rates	915,934	0.80	$	9.7

Summary of Restricted Stock Awards

Restricted stock award activity for the nine months ended September 30, 2018 was as follows:



	Nine Months Ended September 30, 2018
Beginning outstanding balance	44,538
Awarded	62,556
Released	(44,538		)
Forfeited	—
Ending outstanding balance	62,556
Weighted average grant date fair value of restricted stock awarded	$	13.32
Total fair value of restricted stock awards released	$	673,000

Stock Plan Assumptions

The assumptions used to value option grants under the Company’s stock plans were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Standard Stock Options
Expected life (in years)	4.5		4.6		4.4		4.5
Volatility	55	%	53	%	55	%	53	%
Interest rate	2.7	%	1.7	%	2.5	%	1.7	%
Dividend yield	N/A		N/A		N/A		N/A



	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018		2017
Market Condition Based Stock Options
Expected life (in years)	N/A	N/A	7.0		7.0
Volatility	N/A	N/A	55	%	55	%
Interest rate	N/A	N/A	2.0	%	2.0	%
Dividend yield	N/A	N/A	N/A		N/A



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Employee Stock Purchase Plan
Expected life (in years)	0.5		0.5		0.5		0.5
Volatility	39	%	46	%	58	%	48	%
Interest rate	2.2	%	1.1	%	1.9	%	0.9	%
Dividend yield	N/A		N/A		N/A		N/A

Compensation Costs

Total stock-based compensation recognized in the condensed consolidated statements of operations and comprehensive income (loss) is as follows:



(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Statement of Operations Classifications
Sales and marketing	$	377	$	317	$	675	$	808
Research and development	561		231		1,382		780
General and administrative	1,576		790		4,209		2,485
Total	$	2,514	$	1,338	$	6,266	$	4,073

As of September 30, 2018, there was $8.5 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options, restricted stock awards and RSUs granted to the Company’s employees and directors. This cost will be recognized over an estimated weighted-average period of approximately 2.64 years for standard options, 1.36 years for RSUs, and 0.72 years for restricted stock awards. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.