Stock-based Compensation

We maintain one stock-based incentive plan, the Health Insurance Innovations, Inc. Long Term Incentive Plan (the “LTIP”), which became effective February 7, 2013, under which stock appreciation rights (“SARs”), restricted stock, restricted stock units and other types of equity and cash incentive awards may be granted to employees, non-employee directors and service providers. The LTIP expires after ten years, unless prior to that date the maximum number of shares available for issuance under the plan has been issued or our Board of Directors terminates this plan. At its inception, 1,250,000 shares of Class A common stock were reserved for issuance under the LTIP. The Company’s shareholders approved an increase of 2,000,000 shares of Class A common stock reserved for issuance in May 2017 under the LTIP and as of June 30, 2017, there were 5,250,000 total shares reserved under the LTIP.

Expense for stock-based compensation is recognized based upon estimated grant date fair value and is amortized over the requisite service period of the awards using the accelerated method. We offer awards which vest based on service conditions, performance conditions or market conditions. For grants of SARs and stock options, we apply the Black-Scholes option-pricing model, a Monte Carlo Simulation, or a lattice model, depending on the vesting conditions, in determining the fair value of share-based payments to employees. These models incorporate various assumptions, including expected volatility and expected term. Volatility is calculated using the Company’s trading history. The expected term of the awards represents the estimated period of time until exercise, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. The Company uses its best estimate and the simplified method for “plain vanilla” awards under GAAP for calculating the expected term, where applicable. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with a term equivalent to the expected term. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated based on our historical experience and future expectations.

None of the stock-based compensation was capitalized during the three and six months ended June 30, 2017 and 2016, respectively.

The Black-Scholes option-pricing model was used with the following weighted average assumptions:



	Six Months Ended June 30,
	2017		2016
Risk-free rate	1.7	%	1.2	%
Expected life	4.8 years		4.6 years
Expected volatility	64.1	%	55.4	%
Expected dividend	none		none

The following table summarizes restricted shares, SARs, and stock options granted during the three and six months ended June 30, 2017 and 2016 (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Restricted shares	855	27	855	27
SARs	85	569	85	584
Stock options	—	—	—	—

The weighted average fair value of Restricted shares granted during both the three and six months ended June 30, 2017, was $21.94 having an aggregate intrinsic value of $18.8 million. The weighted average fair value of SARs granted during the both the three and six months ended June 30, 2017, was $11.70. For each of the three and six months ended June 30, 2016, the weighted average fair value of Restricted shares granted was $6.77 having an aggregate intrinsic value of $180,000. The weighted average fair value of SARs granted during the three and six months ended June 30, 2016 was $3.26 and $3.25, respectively. For all new grants in 2017 and 2016, the Company utilized an estimated pre-vest forfeiture rate of 7.0%.

The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2017 and 2016 ($ in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Restricted shares	$	680	$	130	$	1,060	$	295
SARs	249		323		682		604
Stock options	5		29		13		70
	$	934	$	482	$	1,755	$	969

The following table summarizes unrecognized stock-based compensation and the remaining weighted average period over which such stock-based compensation is expected to be recognized as of June 30, 2017 ($ in thousands):



	Unrecognized Expense		Weighted Average Remaining years
Restricted shares	$	15,104	2.4
SARs	1,731		2.1
Stock options	3		0.4
	$	16,838

The amounts in the table above do not include the cost of any additional awards that may be granted in future periods nor any changes in our forfeiture rate.

During the three and six months ended June 30, 2017 there were 212,700 and 1.3 million SARs exercised, respectively, resulting in an increase of 150,000 and 934,100 issued Class A common stock, respectively. No SARs were exercised during the three and six months ended June 30, 2016. During the three and six months ended June 30, 2017 there were 17,500 outstanding SARs forfeited. During the three and six months ended June 30, 2016, 12,000 and 22,000 SARs were forfeited, respectively.

During the three and six months ended June 30, 2017 there were 10,800 and 18,800 options exercised, respectively, and 1,600 and 15,300 options exercised during the three and six months ended June 30, 2016, respectively. During the three and six months ended June 30, 2017 and 2016, there were no options forfeited.

For the three months ended June 30, 2017, there was no cash outflow with respect to shares redeemed to cover the recipient’s tax obligations for the settlement of stock based incentive plans. For the six months ended June 30, 2017, there was $185,000 of cash outflow with respect to shares redeemed to cover the recipient’s tax obligations. For the three and six months ended June 30, 2016, respectively, there was cash outflow of $14,000 and $39,000 with respect to shares redeemed to cover the recipient’s tax obligations.

We recognized income tax benefits from stock-based activity of $280,000 and $3.6 million for the three and six months ended June 30, 2017, respectively. For the three and six months ended June 30, 2016, we recognized income tax benefits of $28,000 and $42,000, respectively, from stock-based activity. During the three months ended March 31, 2017, the Company elected to early adopt ASU 2016-9 and as a result of this adoption, excess tax benefits of $3.3 million related to vested and exercised share-based compensation awards were recorded as a decrease in income tax expense and a $0.38 increase in our basic earnings per share in the condensed consolidated statement of income. The Company has elected to continue its policy of estimating forfeitures in accordance with the update.