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STOCK-BASED COMPENSATION - Note 7
 9 Months Ended
Dec. 31, 2016
Equity [Abstract]  
STOCK-BASED COMPENSATION - Note 7

7. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense (in thousands):

      Three Months Ended     Nine Months Ended
      December 31,     December 31,
      2016     2015     2016     2015
Cost of service revenue   $ 538    $ 346    $ 1,338    $ 828 
Cost of product revenue     -      -      -      - 
Research and development     1,061      850      2,811      2,107 
Sales and marketing     2,452      1,689      6,118      4,308 
General and administrative     2,020      1,778      5,363      3,959 
Total stock-based compensation expense                         
     related to employee stock options and                         
     employee stock purchases, pre-tax     6,071      4,663      15,630      11,202 
                         
Tax benefit     -      -      -      - 
Stock-based compensation expense                         
     related to employee stock options and                         
     employee stock purchases, net of tax   $ 6,071    $ 4,663    $ 15,630    $ 11,202 

 

Stock Options, Stock Purchase Right and Restricted Stock Unit Activity

Stock Option activity under all the Company's stock option plans for the nine months ended December 31, 2016, is summarized as follows:

          Weighted Average
    Number of     Exercise Price
    Shares     Per Share
Outstanding at March 31, 2016   4,793,266    $ 6.29 
     Granted    358,832      14.54 
     Exercised   (338,781)     2.17 
     Canceled/Forfeited   (42,469)     9.87 
Outstanding at December 31, 2016   4,770,848    $ 7.17 
           
Vested and expected to vest at December 31, 2016   4,770,848    $ 7.17 
Exercisable at December 31, 2016   3,265,483    $ 5.99 

 

Stock Purchase Right activity for the nine months ended December 31, 2016 is summarized as follows:

          Weighted     Weighted
          Average     Average
          Grant-Date     Remaining
    Number of     Fair Market     Contractual
    Shares     Value     Term (in Years)
Balance at March 31, 2016   82,171    $ 6.30      0.76 
Granted   -      -       
Vested   (68,426)     5.98       
Forfeited   (1,125)     6.73       
Balance at December 31, 2016   12,620    $ 8.00      1.20 

 

Restricted Stock Unit activity for the nine months ended December 31, 2016 is summarized as follows:

                Weighted
          Weighted     Average
          Average     Remaining
    Number of     Grant Date     Contractual
    Shares     Fair Value     Term (in Years)
Balance at March 31, 2016   4,544,799    $ 8.09      1.67 
Granted   2,115,744      15.07       
Vested   (1,351,014)     7.99       
Forfeited   (284,431)     9.35       
Balance at December 31, 2016   5,025,098    $ 10.99      1.66 

The following table summarizes stock options outstanding and exercisable at December 31, 2016:

    Options Outstanding   Options Exercisable
          Weighted   Weighted               Weighted      
          Average   Average               Average      
          Exercise   Remaining     Aggregate         Exercise     Aggregate
          Price   Contractual     Intrinsic         Price     Intrinsic
    Shares     Per Share   Life (Years)     Value   Shares     Per Share     Value
$0.55 to $4.26   991,768    $ 1.43    1.6    $ 12,760,718    991,768    $ 1.43    $ 12,760,718 
$4.32 to $6.86   1,288,863    $ 6.26    6.7      10,368,791    969,263    $ 6.06      7,990,967 
$7.52 to $9.21   1,047,938    $ 8.38    8.1      6,207,461    481,286    $ 8.44      2,821,376 
$9.35 to $10.97   1,017,107    $ 9.86    6.9      4,517,121    759,962    $ 9.80      3,418,142 
$11.26 to $15.40   425,172    $ 13.95    9.2      389,388    63,204    $ 11.96      156,748 
    4,770,848              $ 34,243,479    3,265,483          $ 27,147,951 

As of December 31, 2016, there was $49.7 million of unamortized stock-based compensation expense related to unvested stock options and awards which is expected to be recognized over a weighted average period of 2.12 years.

Unamortized stock-based compensation expense related to shares issued as part of a prior year acquisition was approximately $1.5 million, which will be recognized over a weighted average period of 2.42 years.

Assumptions Used to Calculate Stock-Based Compensation Expense

The fair value of each of the Company's option grants has been estimated on the date of grant using the Black-Scholes pricing model with the following assumptions:

      Three Months Ended     Nine Months Ended
      December 31,     December 31,
      2016     2015     2016     2015
Expected volatility     42%     51%     44%     53%
Expected dividend yield     -      -      -      - 
Risk-free interest rate     1.20%     1.75%     1.17%     1.60%
Weighted average expected option term     4.50 years     5.25 years     4.69 years     5.44 years
                         
Weighted average fair value of options granted   $ 5.54   $ 4.92   $ 5.47   $ 4.12

 

The estimated fair value of options granted under the Employee Stock Purchase Plan was estimated at the date of grant using Black-Scholes pricing model with the following weighted average assumptions:

      Three Months Ended     Nine Months Ended
      December 31,     December 31,
      2016     2015     2016     2015
Expected volatility     -      -      40%     45%
Expected dividend yield     -      -      -      - 
Risk-free interest rate     -      -      0.45%     0.30%
Weighted average expected ESPP option term     -      -      0.76 years     0.75 years
                         
Weighted average fair value of                        
     ESPP options granted   $ -    $ -    $ 4.04   $ 2.78

 

As of December 31, 2016, there were approximately $0.2 million of total unrecognized compensation cost related to employee stock purchases. This cost is expected to be recognized over a weighted average period of 0.2 years.

Performance Stock Units

During the nine months ended December 31, 2016, the Company issued restricted performance stock units (PSUs) to a group of executives with vesting that is contingent on both market performance and continued service. These PSUs vest (1) 50% on September 22, 2018 and (2) 50% on September 27, 2019, in each case subject to the performance of the Company's common stock relative to the Russell 2000 Index (the benchmark) during the period from grant date through such vesting date. A 2x multiplier will be applied to the total shareholder returns (TSR) for each 1% of positive or negative relative TSR, and the number of shares earned will increase or decrease by 2% of the target numbers. In the event 8x8's common stock performance is below negative 30%, relative to the benchmark, no shares will be issued. These PSU grants are included in the restricted stock unit activity disclosure for the nine months ended December 31, 2016.

To value these market-based restricted performance stock units under the Equity Compensation Plans, the Company used a Monte Carlo simulation model on the date of grant. Fair value determined using the Monte Carlo simulation model varies based on the assumptions used for the expected stock price volatility, the correlation coefficient between the Company and the NASDAQ Composite Index, risk free interest rates, and future dividend payments.

Stock Repurchases

In February 2015, the Company's board of directors authorized the Company to purchase up to $20.0 million of its common stock from time to time until February 29, 2016 (the "2015 Repurchase Plan"). In October 2015, the Company's board of directors authorized the Company to purchase an additional $15.0 million of its common stock from time to time until October 20, 2016. There were no stock repurchases during the nine months ended December 31, 2016. The plan expired in October 2016 with an unused authorized repurchase amount of $15.0 million.