Stockholders' Equity

3 Months Ended

Dec. 31, 2016

Equity [Abstract]

Stockholders' Equity

5. 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,
	2016		2015
Cost of revenue	$	40	$	18
Sales and marketing		314		225
Research and development		213		181
General and administrative		518		565
Stock-based compensation expense included in expenses	$	1,085	$	989

    The fair value calculations for stock-based compensation awards to employees for the three months ended December 31, 2016 and 2015 were based on the following assumptions:

	ThreeMonths Ended December 31, 2016		ThreeMonths Ended December 31, 2015
Risk-free interest rate	1.68% – 1.92%		1.57% – 1.75%
Expected life (years)		5.30		5.90
Expected volatility		78%		83%
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, 2016, the Company had $12.6 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 2, 2016, the Company’s stockholders approved an amendment to the 2012 Plan that increased the total number of shares of Common Stock reserved for issuance thereunder from 4,000,000 shares to 6,000,000 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, 2016, (i) stock options to purchase 2,008,353 shares of Common Stock and 1,892,136 RSUs were outstanding under the 2012 Plan, and 1,165,111 shares of Common Stock were reserved for future grants under the 2012 Plan and (ii) stock options to purchase an aggregate of 1,098,728 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”), reserving up to 1,000,000 shares of Common Stock for the issuance of RSUs that may be granted to both employee and non-employee members of the Board. As of December 31, 2016, (i) 543,385 RSUs were outstanding under the Director Plan and (ii) 31,786 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, 2016:

	Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)
Outstanding, September 30, 2016		3,015,374		$	3.95		6.4
Granted		101,800		$	6.10
Exercised		(5,760	)	$	3.02
Cancelled		(4,333	)	$	2.82
Outstanding, December 31, 2016		3,107,081		$	4.02		6.3

The Company recognized $0.2 million and $0.5 million in stock-based compensation expense related to outstanding stock options in the three months ended December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company had $2.1 million of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted-average period of approximately 2.2 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, 2016 and 2015 was $18,000 and $105,000, respectively. The per-share weighted-average fair value of options granted during the three months ended December 31, 2016 was $3.96. The aggregate intrinsic value of options outstanding as of December 31, 2016 and 2015, was $8.8 million and $4.7 million, respectively.

Restricted Stock Units

The following table summarizes RSU activity under the Company’s equity plans during the three months ended December 31, 2016:

	Number of Shares			Weighted-Average FairMarket Value Per Share
Outstanding, September 30, 2016		2,046,169		$	4.90
Granted		891,185		$	5.77
Settled		(486,833	)	$	6.50
Cancelled		(15,000	)	$	5.59
Outstanding, December 31, 2016		2,435,521		$	5.27

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 $0.8 million and $0.5 million in stock-based compensation expense related to outstanding RSUs in the three months ended December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company had $10.5 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 3.1 years.

Closing Shares

In connection with the closing of the Acquisition, the Company issued to the Sellers 712,790 shares of Common Stock.  Vesting of these shares is subject to the continued employment of the founders of IDchecker and occurs over a period of 27 months (the “Service Period”) from the date of issuance.  The cost of the Closing Shares is determined using the fair value of Common Stock on the award date, and the stock-based compensation is recognized ratably over the vesting period. The Company recognized $0.3 million in stock-based compensation expense related to the Closing Shares for the three months ended December 31, 2016 and 2015, respectively, which is recorded within acquisition-related costs and expenses on the Consolidated Statements of Operations and Other Comprehensive Loss. As of December 31, 2016, the Company had $0.9 million of unrecognized compensation expense related to Closing Shares expected to be recognized over the remaining Service Period.

Earnout Shares

In addition to the Cash Payment and the issuance of Closing Shares, in each case at the closing of the Acquisition, the Company issued 137,306 Earnout Shares to the Sellers for achievement by IDchecker of certain revenue targets for the nine-month period ended September 30, 2015. Additionally, 55,297 Earnout Shares were earned by the Sellers for achievement by IDchecker of certain revenue targets for the twelve-month period ended September 30, 2016. Earnout Shares vest and will be eligible for resale such that 12.5% of the Earnout Shares will vest and be released for resale in July 2017 and thereafter, the remaining 87.5% of the applicable Earnout Shares will vest and be released for resale in equal quarterly installments. Vesting of the Earnout Shares is subject to the continued employment of the founders of IDC NL through January 2019.    

The Company calculated 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). This model will be updated and the respective fair value adjusted each reporting period based on the relevant facts and conditions at the reporting date.  The Company recognized $73,000 and $84,000 in stock-based compensation expense related to the Earnout Shares for the three months ended December 31, 2016 and 2015, respectively, which is recorded within acquisition-related costs and expenses on the Consolidated Statements of Operations and Other Comprehensive Loss.