Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

Equity [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

2015 Long-Term Incentive Plan

On April 28, 2015, Nautilus shareholders approved our 2015 Long-Term Incentive Plan (the “2015 Plan”), which replaced our 2005 Long-Term Incentive Plan that expired in 2015. The 2015 Plan is administered by the Compensation Committee of the Board of Directors and authorizes us to grant various types of stock-based awards including: stock options, stock appreciation rights, RSAs, RSUs, and PSUs. Stock options granted under the 2015 Plan shall not have an exercise price less than the fair market value of our common stock on the date of the grant. The exercise price of a stock option or stock appreciation right may not be reduced without shareholder approval. Stock options generally vest over periods of three or four years of continuous service, commencing on the date of grant. Stock options granted under the 2015 Plan have a seven-year contractual term.

Upon adoption, there were approximately 4.8 million shares available for issuance under the 2015 Plan. The number of shares available for issuance upon adoption of the 2015 Plan included new shares approved, plus any shares of common stock which were previously reserved for issuance under our preceding plan and were not subject to grant as of April 28, 2015, or as to which the stock-based compensation award is forfeited on or after April 28, 2015. The number of shares available for issuance is reduced by (i) two shares for each share delivered in settlement of any stock appreciation rights, RSA, RSU or PSU awards, and (ii) one share for each share delivered in settlement of a stock option award. In no event shall more than 1.0 million aggregate shares of common stock subject to stock options, stock appreciation rights, RSA, RSU or PSU awards be granted to any one participant in any one year under the 2015 Plan. At December 31, 2018, we had 3.5 million shares available for future grant under our 2015 Plan, and a total of 4.3 million shares of our common stock are reserved for future issuance pursuant to awards currently outstanding under the 2015 Plan and our previous plan combined.

Stock Option Activity

Stock option activity was as follows (shares in thousands):

	Options Outstanding		Weighted- Average Exercise Price
Outstanding at December 31, 2017	297		$	5.37
Forfeited, canceled or expired	(4	)	17.48
Exercised	(127	)	2.89
Outstanding at December 31, 2018	166		$	6.97

Certain information regarding options outstanding at December 31, 2018 was as follows:

	Options Outstanding		Options Exercisable		Options Vested and Expected to Vest
Number (in thousands)	166		166		166
Weighted-average exercise price	$	6.97	$	6.97	$	6.97
Aggregate intrinsic value (in thousands)	$	698	$	698	$	698
Weighted average remaining contractual term (in years)	1.8		1.8		1.8

RSA Activity

Compensation expense for RSAs is recognized over the estimated vesting period. Following is a summary of RSA activity (shares in thousands):

	RSAs Outstanding		Weighted- Average Grant Date Fair Value per Share
Outstanding at December 31, 2017	47		$	16.28
Granted	20		14.65
Vested	(17	)	17.60
Outstanding at December 31, 2018	50		$	15.18

RSU Activity

Compensation expense for RSUs is recognized over the estimated vesting period. Following is a summary of RSU activity (shares in thousands):

	RSUs Outstanding		Weighted- Average Grant Date Fair Value per Share
Outstanding at December 31, 2017	191		$	17.64
Granted	254		12.06
Forfeited, canceled or expired	(32	)	15.55
Vested	(45	)	17.57
Outstanding at December 31, 2018	368		$	13.98

PSU Activity

Compensation expense for PSUs is recognized over the estimated requisite service period based on the number of PSUs ultimately expected to vest.

In April and September 2015, we granted PSU awards to certain of our executive officers and management team covering a total of 56,820 shares of our common stock. The PSUs vested in 2018 based on achievement of goals established for certain operating income and return on asset criteria for the three-year performance period ended December 31, 2017. These awards vested in full at approximately 111% achievement for a total of 49,953 shares, net of actual forfeitures.

In December 2015, in connection with the acquisition of Octane Fitness, we granted PSU awards to a certain executive officer and management team personnel covering a total of 117,230 shares of our common stock. As of December 31, 2018, these awards had been forfeited or were replaced by comparable awards and were no longer outstanding.

In February 2016, we granted PSU awards to certain of our executive officers and management team covering a total of 54,818 shares of our common stock. The PSUs vest based on achievement of goals established for growth in operating income as a percentage of net revenue and return on invested capital over the three-year performance period ended December 31, 2018. The number of shares that ultimately vest following conclusion of the performance period will be determined based on the level at which the financial goals are achieved. The number of shares vesting can range from 60% of the PSU awards if minimum thresholds are achieved to a maximum of 150%. These awards are expected to vest at 0% achievement. As of December 31, 2018, approximately 47,800 PSU shares remained, net of actual forfeitures to date.

In February 2017, we granted PSU awards to certain of our executive officers and management team covering a total of 72,017 shares of our common stock. The PSUs vest based on achievement of goals established for growth in operating income as a percentage of net revenue and return on invested capital over the three-year performance period ending December 31, 2019. The number of shares that ultimately vest following conclusion of the performance period will be determined based on the level at which the financial goals are achieved. The number of shares vesting can range from 60% of the PSU awards if minimum thresholds are achieved to a maximum of 150%. These awards are currently expected to vest at 0% achievement. As of December 31, 2018, approximately 58,500 PSU shares remained, net of actual forfeitures to date.

In February 2018, we granted PSU awards to certain of our executive officers and management team covering a total of 119,351 shares of our common stock. The PSUs vest based on achievement of goals established for growth in operating income as a percentage of net revenue and return on invested capital over the three-year performance period ending December 31, 2020. The number of shares that ultimately vest following conclusion of the performance period will be determined based on the level at which the financial goals are achieved. The number of shares vesting can range from 60% of the PSU awards if minimum thresholds are achieved to a maximum of 150%. As of December 31, 2018, approximately 115,000 PSU shares remained, net of actual forfeitures to date.

Following is a summary of PSU activity (shares in thousands):

	PSUs Outstanding		Weighted- Average Grant Date Fair Value per Share
Outstanding at December 31, 2017	172		$	17.65
Granted and additional goal shares awarded	124		12.13
Forfeited, canceled or expired	(25	)	15.26
Vested	(50	)	17.61
Outstanding at December 31, 2018	221		$	14.73

Stock-Based Compensation

Stock-based compensation expense, primarily included in general and administrative expense, was as follows (in thousands):

	Year Ended December 31,
	2018		2017		2016
Stock options	$	6	$	84	$	389
RSAs	292		287		168
RSUs	1,527		954		734
PSUs	52		408		1,211
ESPP	104		123		111
	$	1,981	$	1,856	$	2,613

Certain other information regarding our stock-based compensation was as follows (in thousands):

	Year Ended December 31,
	2018		2017		2016
Total intrinsic value of stock options exercised	$	1,451	$	1,522	$	1,221
Fair value of RSUs vested	655		28		311
Fair value of PSUs vested	614		2,036		574

As of December 31, 2018, unrecognized compensation expense for outstanding, but unvested stock-based awards was $3.7 million, which is expected to be recognized over a weighted average period of 0.3 to 1.5 years.

Employee Stock Purchase Plan

On April 28, 2015, our shareholders approved our Employee Stock Purchase Plan (the “ESPP”). The ESPP is administered by the Compensation Committee of the Board of Directors and provides eligible employees with an opportunity to purchase shares of our common stock at a discount using payroll deductions. The ESPP authorizes the issuance of up to 0.5 million shares of our common stock, subject to adjustment as provided in the ESPP for stock splits, stock dividends, recapitalizations and other similar events.

Pursuant to the ESPP, and subject to certain limitations specified therein, eligible employees may elect to purchase shares of our common stock in one or more of a series of offerings conducted pursuant to the procedures set forth in the ESPP at a purchase price equal to 90% of the lower of the fair market value of the common stock on the first trading day of the offering period or on the last day of the offering period. Offering periods commence on May 15 and November 15 of each year and are six-months in duration, with the exception of the first offering period in 2015, which was a four-month offering. Purchases under the ESPP may be made exclusively through payroll deductions.

Persons eligible to participate in the ESPP generally include employees who have been employed for at least 12 months prior to the applicable offering date and who, immediately upon purchasing shares under the ESPP, would own directly or indirectly, an aggregate of less than 5% of the total combined voting power or value of all outstanding shares of our common stock.

Compensation expense for the ESPP is recognized over the six-month offering period based on the total estimated participant contributions and number of shares expected to be purchased.

ESPP activity was as follows (shares in thousands):

	Shares Available for Issuance		Weighted- Average Purchase Price		Weighted-Average Discount per Share
Balance at December 31, 2017	432
Employee shares purchased	(38	)	$	11.55	$	2.71
Balance at December 31, 2018	394

Assumptions used in calculating the fair value of employee stock purchases were as follows:

	Year Ended December 31,
	2018	2017	2016
Dividend yield	—%	—%	—%
Risk-free interest rate	1.7%	0.8%	0.4%
Expected life (years)	N/A	N/A	N/A
Expected volatility	40%	44%	56%

Dividend yield is based on our current expectation that no dividend payments will be made in future periods.

Risk-free interest rate is the U.S. Treasury zero-coupon rate, as of the grant date, for issues having a term approximately equal to the expected life of the stock option. For the ESPP, it is the U.S. Treasury six-month constant maturities rate, as of the offering date.

Expected life is the period of time over which stock options are expected to remain outstanding. We calculate expected term based on the average of the sum of the vesting periods and the full contractual term.

Expected volatility is the percentage amount by which the price of our common stock is expected to fluctuate annually during the estimated expected life for stock options. Expected price volatility is calculated using historical daily closing prices over a period matching the weighted-average expected life for stock options, as management believes such changes are the best indicator of future volatility. For the ESPP, expected volatility is the percentage amount by which the price of our common stock is expected to fluctuate semi-annually during the offering period.