14. Stock-Based Compensation

In September 2016, the Company adopted the 2016 Equity Compensation Plan (the “2016 Plan”) and merged the 2014 Equity Compensation Plan (the “2014 Plan”) into the 2016 Plan on September 28, 2016. No additional grants were made thereafter under the 2014 Plan. Outstanding grants under the 2014 Plan will continue in effect according to their terms as in effect before the merger with the 2016 Plan, and the shares with respect to outstanding grants under the 2014 Equity Plan will be issued or transferred under the 2016 Plan. The 2016 Plan authorizes the issuance or transfer of up to the sum of the following: (1) 800,000 new shares, plus (2) the number of shares of common stock subject to outstanding grants under the 2014 Equity Plan as of the effective date of the 2016 Plan; provided, however, that the aggregate number of shares of the Company’s common stock that may be issued or transferred under the 2016 Plan pursuant to incentive stock options may not exceed 800,000. During the term of the 2016 Plan, the share reserve will automatically increase on the first trading day in January of each calendar year, beginning in calendar year 2017, by an amount equal to the lesser of 5% of the total number of outstanding shares of common stock on the last trading day in December of the prior calendar year or such other number set by the Board. During 2017, the Board approved an increase of 831,423 shares to the share reserve. As of September 30, 2017, 459,368 shares were available for future grants under the 2016 Plan.

The option price per share cannot be less than the fair market value of a share on the date the option was granted, and in the case of incentive stock options granted to an employee owning more than 10% of the total combined voting power of all classes of stock of the Company, the option price shall not be less than 110% of the fair market value of Company stock on the date of grant. Stock option grants under the Plan generally expire 10 years from the date of grant, other than incentive stock option grants to 10% shareholders, which have a 5 year term, 90 days after termination, or one year after the date of death or termination due to disability. Stock options generally vest over a period of four years, with 25% of the options becoming exercisable on the one-year anniversary of the commencement date and the remaining shares vesting monthly thereafter for 36 months in equal installments of 2.08% per month.

Employee Restricted Common Stock

On September 28, 2016, the Board granted 700,386 shares of restricted common stock to certain Company employees, including executive officers, under the 2014 Plan, prior to merging it with the 2016 Plan, pursuant to a special equity award pool previously approved by the Board which was made immediately prior to the effectiveness of the Company's registration statement filed in connection with the Company's IPO. The value of the grants is based on the IPO price of $12.00 per share and the related non-cash compensation expense was being recognized ratably over the vesting period from the date of grant through May 31, 2017, when the shares underlying the grant were scheduled to fully vest. For the nine months ended September 30, 2017, $5,159 of expense was recognized related to this grant. No expense was recognized for the three months ended September 30, 2017. For the three and nine months ended September 30, 2016, $102 of expense was recognized related to this grant. As of September 30, 2017, there was no unrecognized compensation expense related to this grant. On June 12, 2017, the Company entered into an amendment with each recipient of this grant to amend the vesting date from May 31, 2017 to May 31, 2018.

On August 3, 2017, the Board granted 20,000 shares of restricted common stock to a non-executive employee of the Company, pursuant to the 2016 Plan, which will vest in four substantially equal annual installments over the four years following the grant date. The value of the grant is based on the grant date fair value of the Company’s common stock of $14.56 per share. For the three and nine months ended September 30, 2017, $12 of expense was recognized related to this grant. As of September 30, 2017, there was unrecognized compensation expense of $279 related to this grant.

Non-Employee Director Restricted Common Stock

On September 28, 2016, the Company granted 22,260 shares of restricted common stock under the 2016 Plan to its non-employee directors, which represents both the initial and annual grants to such directors. The initial grant (“Initial Grant”) will vest in three substantially equal annual installments over three years following the grant date and the annual grant (“2016 Annual Grant”) will vest in full on the earlier of the next annual shareholder meeting or the one year anniversary of the grant date. The value of the grants is based on the IPO price of $12.00 per share.

On March 8, 2017, the Company granted 5,212 shares of restricted common stock under the 2016 Plan to a newly appointed non-employee director, which represents such director’s initial grant and will vest in three substantially equal annual installments over three years following the grant date. The value of the grant is based on the grant date fair value of the Company’s common stock of $13.68 per share.

On June 16, 2017, the Company granted 10,384 shares of restricted common stock (“2017 Annual Grant”) to its non-employee directors, which will vest in full on the earlier of the next annual shareholder meeting or the one year anniversary of the grant date. The value of the grant is based on the grant date fair value of the Company’s common stock of $13.54 per share.

On June 16, 2017, the date of the Company’s annual shareholder meeting, the 2016 Annual Grant, which in the aggregate equaled 7,420 shares, fully vested and were no longer subject to forfeiture. In addition, on September 28, 2017, 4,944 shares of the Initial Grant vested and were no longer subject to forfeiture.

For the three and nine months ended September 30, 2017, $56 and $165 of expense was recognized related to these non-employee director grants, respectively. For the three and nine months ended September 30, 2016, $1 of expense was recognized related to these grants. As of September 30, 2017, there was unrecognized compensation expense of $276 related to these grants.

Stock Options

The Company recorded $871 and $120 of stock-based compensation expense related to the vesting of employee and non-employee stock options for the three months ended September 30, 2017 and 2016, respectively. The Company recorded $2,440 and $378 of stock-based compensation expense related to the vesting of employee and non-employee stock options for the nine months ended September 30, 2017 and 2016, respectively.

The estimated fair value of options granted was calculated using a Black-Scholes option-pricing model. The computation of expected life for employees was determined based on the simplified method. The risk-free rate is based on the U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. The Company's common stock had not been publicly traded until the IPO commenced on September 29, 2016; therefore, expected volatility is based on the historical volatilities of selected public companies whose services are comparable to that of the Company. The table below sets forth the weighted average assumptions for employee grants during the nine months ended September 30, 2017 and 2016:


	Nine Months Ended
	September 30,
Valuation assumptions:	2017		2016
Expected volatility	61.00	%	59.00	%
Expected term (years)	6.03		6.08
Risk-free interest rate	2.21	%	1.49	%
Dividend yield	—		—

The weighted average grant date fair value of employee options granted during the nine months ended September 30, 2017 and 2016 was $8.13 and $7.29 per share, respectively.

The following table summarizes stock option activity under the 2016 Plan for the nine months ended September 30, 2017:


				Weighted
		Weighted		average
		average		remaining	Aggregate
	Number	exercise		contractual	intrinsic
	of shares	price		term	value
Outstanding at December 31, 2016	3,059,690	$	5.14
Granted	1,044,556		14.43
Exercised	(1,054,764)		3.21
Forfeited	(49,629)		10.52
Outstanding at September 30, 2017	2,999,853	$	8.97	7.3	$	53,340
Options vested and expected to vest at September 30, 2017	2,999,853	$	8.97	7.3	$	53,340
Exercisable at September 30, 2017	1,393,742	$	3.37	5.3	$	32,572

Included within the above table are 150,212 non-employee options outstanding as of September 30, 2017, of which 345 are unvested as of September 30, 2017 and therefore subject to remeasurement.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the Company’s closing stock price or estimated fair value on the last trading day of the fiscal quarter for those stock options that had exercise prices lower than the fair value of the Company's common stock. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised during the nine months ended September 30, 2017 and 2016 was $11,665 and $832, respectively.

As of September 30, 2017, there was $10,022 of total unrecognized compensation cost related to nonvested stock options granted under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.9 years.

Cash received from option exercises for the nine months ended September 30, 2017 was $194. During the nine months ended September 30, 2017, 362,440 shares of common stock were delivered by option holders as payment for the exercise price and employee payroll taxes owed for the exercise of 956,327 stock options with a gross exercise value of $3,187. During the nine months ended September 30, 2016, 7,930 shares of common stock were delivered by option holders as payment for the exercise of 71,150 stock options with a gross exercise value of $104. No cash was received from the exercise of stock options for the nine months ended September 30, 2016.

The Company recorded total stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016 in the following expense categories of its consolidated statement of operations:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Cost of revenue - product	$	138	$	27	$	359	$	85
Cost of revenue - service		91		7		203		21
Research and development		195		9		515		30
Sales and marketing		158		21		440		65
General and administrative		357		159		6,259		280
	$	939	$	223	$	7,776	$	481