10. Stock-Based Compensation

The Company has granted non-qualified and incentive stock options, restricted stock units and restricted stock awards under its incentive plans. The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors, including stock options, restricted stock awards and restricted stock units.

Stock-based Compensation Expense

The total stock-based compensation expense related to all stock-based awards was $14.2 million and $8.5 million during the three months ended September 30, 2018 and 2017, respectively, and $36.4 million and $23.9 million during the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, $175.7 million of total unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 3.0 years.

Excess tax benefits reflect the total realized value of the Company’s tax deductions from individual stock option exercise transactions and the vesting of restricted stock units in excess of the deferred tax assets that were previously recorded. During the three months ended September 30, 2018 and 2017, the Company recognized excess tax benefits from stock-based compensation of $7.6 million and $2.2 million, respectively, and $21.5 million and $5.7 million during the nine months ended September 30, 2018 and 2017, respectively, within income tax (benefit) expense on the condensed consolidated statements of operations and within cash flows from operating activities on the condensed consolidated statements of cash flows.

The Company capitalized stock-based compensation expense as website and software development costs of $2.6 million and $1.2 million during the three months ended September 30, 2018 and 2017, respectively, and $6.3 million and $3.3 million during the nine months ended September 30, 2018 and 2017, respectively.

Stock Options

The Company granted 584,305, including unvested ISOs assumed with the acquisition of LevelUp, and 618,899 stock options during the nine months ended September 30, 2018 and 2017, respectively. The fair value of each stock option award was estimated based on the assumptions below as of the grant date using the Black-Scholes-Merton option pricing model. Beginning in the first quarter of 2018, expected volatility is based on the historical and implied volatilities of the Company’s own common stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term calculation for option awards considers a combination of the Company’s historical and estimated future exercise behavior. The risk-free rate for the period within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions used to determine the fair value of the stock options granted during the nine months ended September 30, 2018 and 2017 were as follows:

	Nine Months Ended September 30,
	2018			2017
Weighted-average fair value options granted	$	65.86		$	15.19
Average risk-free interest rate		2.55	%		1.65	%
Expected stock price volatility _(a)		46.1	%		48.7	%
Dividend yield	None			None
Expected stock option life (years) _(b)		3.64			4.00

(a)

Prior to the first quarter of 2018, the expected stock price volatility was based on a combination of the historical and implied volatilities of comparable publicly-traded companies and the historical volatility of the Company’s own common stock due to its limited trading history as there was no active external or internal market for the Company’s common stock prior to the Company’s initial public offering in April 2014.

(b)

The expected term for the LevelUp assumed ISO awards was calculated based on their respective remaining vesting periods as of the acquisition date.

Stock option awards as of December 31, 2017 and September 30, 2018, and changes during the nine months ended September 30, 2018, were as follows:

	Options			Weighted-Average Exercise Price		Aggregate Intrinsic Value (thousands)		Weighted-Average Exercise Term (years)
Outstanding at December 31, 2017		2,705,849		$	25.53	$	125,197		7.28
Granted		584,305			68.74
Forfeited		(115,035	)		34.21
Exercised		(487,317	)		26.70
Outstanding at September 30, 2018		2,687,802			34.34		280,279		7.11
Vested and expected to vest at September 30, 2018		2,682,769			34.28		279,912		7.10
Exercisable at September 30, 2018		1,415,269		$	21.73	$	165,427		6.10

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the fair value of the common stock and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on each date. The aggregate intrinsic value of assumed LevelUp ISOs as of September 30, 2018 was approximately $23.0 million. This amount will change in future periods based on the fair value of the Company’s stock and the number of options outstanding. The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2018 and 2017 was $13.6 million and $5.6 million, respectively. The aggregate intrinsic value of awards exercised during the nine months ended September 30, 2018 and 2017 was $36.1 million and $13.7 million, respectively.

The Company recorded compensation expense for stock options of $4.5 million and $3.0 million for the three months ended September 30, 2018 and 2017, respectively, and $9.4 million and $8.9 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options was $40.1 million and is expected to be recognized over a weighted-average period of 2.7 years, including post-combination expense of approximately $14.5 million expected to be recognized related to the assumed LevelUp ISO awards.

Restricted Stock Units

Non-vested restricted stock units as of December 31, 2017 and September 30, 2018, and changes during the nine months ended September 30, 2018 were as follows:

	Restricted Stock Units
	Shares			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2017		2,454,801		$	37.56
Granted		1,107,806			94.35
Forfeited		(292,409	)		51.67
Vested		(796,579	)		35.94
Outstanding at September 30, 2018		2,473,619		$	61.84

Compensation expense related to restricted stock units was $9.7 million and $5.5 million during the three months ended September 30, 2018 and 2017, respectively, and $27.0 million and $15.0 million during the nine months ended September 30, 2018 and 2017, respectively. The aggregate fair value as of the vest date of restricted stock units that vested during the three months ended September 30, 2018 and 2017 was $26.3 million and $5.7 million, respectively, and $76.3 million and $19.9 million during the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, $135.6 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to 2,458,380 non-vested restricted stock units expected to vest with weighted-average grant date fair values of $61.60 is expected to be recognized over a weighted-average period of 3.0 years. The fair value of these awards was determined based on the Company’s stock price at the grant date and assumes no expected dividend payments through the vesting period.