14. Stockholders' Equity

A summary of the changes in stockholders’ equity for the nine months ended September 30, 2016, consisted of the following:


	Nine Months
	Ended
	September 30,
	2016
	(in thousands)

Stockholders’ equity as of December 31, 2015	$	295,510
Net income		13,274
Accumulated other comprehensive loss		(106)
Exercise of stock options		17,584
Issuance of common stock to employees under the ESPP		915
Nonemployee share-based compensation expense		1,122
Employee share-based compensation expense		10,482
Repurchase of common stock(1)		(1,342)
Purchase of treasury stock		(8,986)
Stockholders’ equity as of September 30, 2016	$	328,453

⁽¹⁾

Repurchase of common stock relating to the tax withholding of equity award settlements.

2014 Employee Stock Purchase Plan

In June 2014, the Company adopted the ESPP in connection with its initial public offering. A total of 2,000,000 shares of common stock are reserved for issuance under this plan. The Company’s ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, the Company may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal to 85% of the lower of the fair market value of the common stock at the beginning of an offering period or on the date of purchase.

As of September 30, 2016, the Company has issued 193,849 shares of common stock under the ESPP and 1,806,151 shares of its common stock remain available for issuance.

For the three and nine months ended September 30, 2016, the Company recorded ESPP expense of $0.1 million and $0.4 million, respectively. For the three and nine months ended September 30, 2015, the Company recorded ESPP expense of $0.1 million and $0.4 million, respectively.

Share Buyback Program

On November 6, 2014, the Company’s Board of Directors authorized a $10.0 million share buyback program, which was completed in December 2015. On November 10, 2015, the Company’s Board of Directors authorized an additional $10.0 million share buyback program. The primary goal of the programs is to offset dilution created by the Company’s equity compensation programs.

Purchases are being made through the open market and private block transactions pursuant to Rule 10b5-1 plans, privately negotiated transactions or other means as determined by the Company’s management and in accordance with the requirements of the SEC. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, and other conditions. These repurchased shares are accounted for under the cost method and are included as a component of treasury stock in the Company’s consolidated balance sheets.

Pursuant to the Company’s share repurchase program, the Company purchased 46,333 and 710,833 shares of its common stock during the three and nine months ended September 30, 2016, for total consideration of $0.8 million and $9.0 million, respectively.

The 2015 Equity Incentive Plan

In March 2015, the Board of Directors adopted the Company’s 2015 Equity Incentive Plan, or the 2015 Plan, which was approved by the Company’s stockholders in May 2015 and is set to expire in March 2025. The 2015 Plan is designed to meet the needs of a publicly traded company, including the requirements for granting “performance based compensation” under Section 162(m) of the Internal Revenue Code. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares, and other stock or cash awards to employees of the Company and its subsidiaries, members of the Board of Directors and consultants.

The Company initially reserved 5,000,000 shares of common stock for issuance under the 2015 Plan. This number will be increased by the number of shares available for issuance under the Company’s prior equity incentive plans or arrangements that are not subject to options or other awards, plus the number of shares of common stock related to options or other awards granted under the Company’s prior equity incentive plans or arrangements that are repurchased, forfeited, expired, or cancelled on or after the effective date of the 2015 Plan. The 2015 Plan also contains an “evergreen provision” that allows for an annual increase in the number of shares available for issuance on January 1 of each year during the 10 year term of the 2015 Plan, beginning January 1, 2016. The annual increase in the number of shares shall be the lesser of (i) 3,000,000 shares, (ii) two and one-half percent (2.5%) of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares as determined by the Board of Directors. As of the effective date, there were 5,300,296 shares available for grant under the 2015 Plan.

As of September 30, 2016, the Company reserved an aggregate of 3,938,687 shares of common stock for future issuance under the 2015 Plan, including an additional 1,129,962 shares reserved under the 2015 Plan pursuant to the evergreen provision.

Share-Based Award Activity and Balances

Stock Options

The fair value of option awards made to employees and directors is estimated at the grant date using the Black-Scholes pricing model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period using the straight-line method.

The weighted-averages for key assumptions used in determining the fair value of options granted during the three and nine months ended September 30, 2016 and 2015, are as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Average volatility	31.9	%	27.5	%	30.4	%	27.1	%
Risk-free interest rate	1.3	%	2.0	%	1.5	%	1.3	%
Weighted-average expected life in years	6.3		6.3		5.5		4.5
Dividend yield rate	—	%	—	%	—	%	—	%

A summary of option activity under all plans for the nine months ended September 30, 2016, is presented below:


				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term (Years)	Value(1)
					(in thousands)
Outstanding as of December 31, 2015	12,240,467	$	15.41
Options granted	2,395,789		12.19
Options exercised	(1,262,020)		13.93
Options cancelled	(174,783)		13.48
Options expired	(245,538)		23.84
Outstanding as of September 30, 2016	12,953,915	$	14.82	4.50	$	67,739
Exercisable as of September 30, 2016	8,183,715	$	15.59	2.99	$	41,704

⁽¹⁾

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s common stock for those awards that have an exercise price below the estimated fair value at September 30, 2016.

For the three and nine months ended September 30, 2016, the Company recorded stock option expense related to employees and the Board of Directors under all plans of $1.9 million and $6.7 million, respectively. For the three and nine months ended September 30, 2015, the Company recorded stock option expense related to employees and the Board of Directors under all plans of $2.1 million and $6.1 million, respectively.

Information relating to option grants and exercises is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
Weighted-average grant date fair value	$	6.34	$	4.54	$	3.42	$	3.44
Intrinsic value of options exercised		4,998		268		5,980		2,721
Cash received		14,331		816		17,584		11,257
Total fair value of the options vested during the year		2,688		2,888		7,948		5,423

A summary of the status of the Company’s nonvested options as of September 30, 2016 and changes during the nine months ended September 30, 2016 is presented below:


		Weighted-Average
		Grant Date
	Options	Fair Value
Nonvested as of December 31, 2015	5,202,095	$	3.44
Options granted	2,395,789		3.42
Options vested	(2,652,901)		3.00
Options forfeited	(174,783)		4.67
Nonvested as of September 30, 2016	4,770,200		3.63

As of September 30, 2016, there was $12.5 million of total unrecognized compensation cost, net of forfeitures, related to nonvested stock option based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.3 years and will be adjusted for future changes in estimated forfeitures.

Deferred Stock Units/Restricted Stock Units

Beginning in 2007, the Company granted deferred stock units, or DSUs, to certain employees and members of the Board of Directors with a vesting period of up to five years, and commencing in 2015, such equity was issued as restricted stock units, or RSUs (such RSUs and DSUs are collectively referred to as RSUs). The grantee receives one share of common stock at a specified future date for each RSU awarded. The RSUs may not be sold or otherwise transferred until certificates of common stock have been issued, recorded, and delivered to the participant. The RSUs do not have any voting or dividend rights prior to the issuance of certificates of the underlying common stock. The share-based expense associated with these grants was based on the Company’s common stock fair value at the time of grant and is amortized over the requisite service period, which generally is the vesting period, using the straight-line method. The Company recorded a total expense of $1.5 million and $4.5 million for the three and nine months ended September 30, 2016, respectively, for these RSU awards compared to the prior year expense of $1.1 million and $2.8 million for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2016, there was $11.4 million of total unrecognized compensation cost, net of forfeitures, related to nonvested RSU-based compensation arrangements granted under all Plans. The cost is expected to be recognized over a weighted-average period of 2.4 years and will be adjusted for future changes in estimated forfeitures.

Information relating to RSU grants and deliveries is as follows:


		Total Fair Market
		Value of RSUs
		Issued
	Total RSUs	as
	Issued	Compensation(1)
		(in thousands)
RSUs outstanding at December 31, 2015	866,540
RSUs granted	732,021	$	8,646
RSUs forfeited	(53,157)
Common stock delivered	(218,875)
RSUs surrendered for taxes	(108,457)
RSUs outstanding at September 30, 2016	1,218,072

⁽¹⁾

The total fair market value is derived from the number of RSUs granted times the current stock price on the date of grant.

Equity Awards to Consultants

The Company has entered into various consulting agreements with its stockholders and third-party consultants. Consulting expenses are accrued as services are rendered. Consulting services are paid in cash and/or in common stock or stock options of the Company. Share-based compensation expense is recorded over the service period based on the estimated fair value of the equity award at the date services are performed or upon completion of all services under the agreement. During the three months ended September 30, 2016, the Company recorded an immaterial amount of share-based compensation related to the issuance of equity awards for services rendered by consultants. During the nine months ended September 30, 2016, the Company recorded approximately $0.1 million, in share-based compensation related to the issuance of equity awards for services rendered by consultants. During the three and nine months ended September 30, 2015, the Company recorded approximately $0.1 million and $0.1 million, respectively, in share-based compensation related to the issuance of equity awards for services rendered by consultants.

The Company recorded share-based compensation expense under all plans and it is included in the Company’s consolidated statement of operations as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)
Cost of revenues	$	675	$	638	$	2,245	$	1,856
Operating expenses:
Selling, distribution, and marketing		45		49		176		148
General and administrative		2,593		2,536		8,339		6,676
Research and development		242		204		844		677
Total share-based compensation	$	3,555	$	3,427	$	11,604	$	9,357