STOCKHOLDERS’ EQUITY

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to stock options and RSUs, which was allocated as follows (amounts shown in thousands):



	Three Months Ended December 31,
	2017		2016
Cost of revenue	$	18	$	12
Selling and marketing	641		347
Research and development	367		208
General and administrative	863		518
Stock-based compensation expense included in expenses	$	1,889	$	1,085

The fair value calculations for stock-based compensation awards to employees for the three months ended December 31, 2017 and 2016 were based on the following assumptions:



	Three Months Ended December 31, 2017	Three Months Ended December 31, 2016
Risk-free interest rate	2.04%	1.68% – 1.92%
Expected life (years)	5.15	5.30
Expected volatility	60%	78%
Expected dividends	None	None

The expected life of options granted is derived using assumed exercise rates based on historical exercise patterns and vesting terms, and represents the period of time that options granted are expected to be outstanding. Expected stock price volatility is based upon implied volatility and other factors, including historical volatility. After assessing all available information on either historical volatility, or implied volatility, or both, the Company concluded that a combination of both historical and implied volatility provides the best estimate of expected volatility.

As of December 31, 2017, the Company had $17.8 million of unrecognized compensation expense related to outstanding stock options and RSUs expected to be recognized over a weighted-average period of approximately 2.6 years.

2012 Incentive Plan

In January 2012, the Company’s board of directors (the “Board”) adopted the Mitek Systems, Inc. 2012 Incentive Plan (the “2012 Plan”), upon the recommendation of the compensation committee of the Board. On March 10, 2017, the Company’s stockholders approved the amendment and restatement of the 2012 Plan. The total number of shares of Common Stock reserved for issuance under the 2012 Plan is 9,500,000 shares plus that number of shares of Common Stock that would otherwise return to the available pool of unissued shares reserved for awards under its 1999 Stock Option Plan, 2000 Stock Option Plan, 2002 Stock Option Plan, 2006 Stock Option Plan and 2010 Stock Option Plan (collectively, the “Prior Plans”). As of December 31, 2017, (i) stock options to purchase 2,015,701 shares of Common Stock, 2,256,814 RSUs and 2,100,000 Senior Executive Performance RSUs were outstanding under the 2012 Plan, and 1,381,201 shares of Common Stock were reserved for future grants under the 2012 Plan and (ii) stock options to purchase an aggregate of 1,046,566 shares of Common Stock were outstanding under the Prior Plans.

Director Restricted Stock Unit Plan

In January 2011, the Board adopted the Mitek Systems, Inc. Director Restricted Stock Unit Plan, as amended and restated (the “Director Plan”). On March 10, 2017, the Company's stockholders approved an amendment to the Director Plan. The total number of shares of Common Stock reserved for issuance thereunder is 1,500,000 shares. As of December 31, 2017, (i) 529,438 RSUs were outstanding under the Director Plan and (ii) 445,733 shares of Common Stock were reserved for future grants under the Director Plan.

Stock Options

The following table summarizes stock option activity under the Company’s equity plans during the three months ended December 31, 2017:



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)
Outstanding, September 30, 2017	2,845,866		$	4.21	5.4
Granted	299,397		$	8.60
Exercised	(63,329	)	$	2.16
Canceled	(19,667	)	$	3.89
Outstanding, December 31, 2017	3,062,267		$	4.68	5.6

The Company recognized $0.3 million and $0.2 million in stock-based compensation expense related to outstanding stock options in the three months ended December 31, 2017 and 2016, respectively. As of December 31, 2017, the Company had $2.4 million of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted-average period of approximately 2.4 years.

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the weighted-average exercise price, multiplied by the number of options outstanding and exercisable. The total intrinsic value of options exercised during the three months ended December 31, 2017 and 2016 was $448,000 and $18,000, respectively. The per-share weighted-average fair value of options granted during the three months ended December 31, 2017 was $4.56. The aggregate intrinsic value of options outstanding as of December 31, 2017 and September 30, 2017, was $13.9 million and $15.6 million, respectively.

Restricted Stock Units

The following table summarizes RSU activity under the Company’s equity plans during the three months ended December 31, 2017:



	Number of Shares		Weighted-Average Fair Market Value Per Share
Outstanding, September 30, 2017	2,357,021		$	5.65
Granted	915,779		$	8.60
Settled	(449,622	)	$	4.83
Canceled	(36,926	)	$	8.21
Outstanding, December 31, 2017	2,786,252		$	6.69

The cost of RSUs is determined using the fair value of Common Stock on the award date, and the compensation expense is recognized ratably over the vesting period. The Company recognized $1.2 million and $0.8 million in stock-based compensation expense related to outstanding RSUs in the three months ended December 31, 2017 and 2016, respectively. As of December 31, 2017, the Company had $15.4 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 2.9 years.

Senior Executive Performance RSUs

There were 2,100,000 Senior Executive Performance RSUs outstanding as of both December 31, 2017 and September 30, 2017. The Company recognized $0.4 million in stock-based compensation expense related to outstanding Senior Executive Performance RSUs during the three months ended December 31, 2017. As of December 31, 2017, the Company had $3.5 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 3.0 years.

Closing Shares

On June 17, 2015, the Company completed the acquisition of IDchecker NL B.V., a company incorporated under the laws of The Netherlands (“IDC NL”), and ID Checker, Inc., a California corporation and wholly owned subsidiary of IDC NL (“IDC Inc.” and together with IDC NL, “IDchecker”). In connection with the closing of this acquisition, the Company issued to the Sellers 712,790 shares of Common Stock (the “Closing Shares”). Vesting of these shares was subject to the continued employment of the founders of IDchecker and occurred over a period of 27 months (the “Service Period”) from the date of issuance. The cost of the Closing Shares was determined using the fair value of Common Stock on the award date, and the stock-based compensation is recognized ratably over the vesting period. Stock-based compensation expense related to the Closing Shares is recorded within acquisition-related costs and expenses on the consolidated statements of operations and other comprehensive loss. The Company recognized no stock-based compensation expense related to the Closing Shares in the three months ended December 31, 2017 and $0.3 million in stock-based compensation expense related to the Closing Shares in the three months ended December 31, 2016.

Earnout Shares

In connection with the acquisition of IDchecker, the Company issued 137,306 shares of Common Stock (the “Earnout Shares”) to the Sellers for achievement by IDchecker of certain revenue targets for the nine-month period ended September 30, 2015. Additionally, 81,182 Earnout Shares were earned by the Sellers for achievement by IDchecker of certain revenue targets for the twelve-month period ended September 30, 2016. The Company estimated the fair value of the Earnout Shares using the Monte-Carlo simulation (using the Company’s valuation date stock price, the annual risk-free interest rate, expected volatility, the probability of reaching the performance targets and a 10 trading day average stock price). In November 2017, a contingency triggered the immediate vesting of all Earnout Shares, resulting in an acceleration of all stock-based compensation related to the earnout shares. Stock-based compensation expense related to the Earnout Shares is recorded within acquisition-related costs and expenses on the consolidated statements of operations and other comprehensive loss. The Company recognized $0.4 million and $73,000 in stock-based compensation expense related to the Earnout Shares for the three months ended December 31, 2017 and 2016, respectively.