Employee Incentive and Retirement Plans

The Company’s equity incentive plans provide for granting stock options and RSUs to employees, consultants, officers and directors. In addition, the Company offers a retirement plan and an ESPP to eligible employees.

Stock-based compensation expense was as follows for the periods presented:



Year Ended December 31,	2017		2016		2015
Stock options	$	15,103	$	23,203	$	30,717
RSUs	54,116		41,737		9,185
ESPP	1,605		1,686		1,904
Stock issued related to acquisition	159		2,575		9,416
Total stock-based compensation expense	$	70,983	$	69,201	$	51,222

The following table presents the Company’s stock-based compensation expense recorded in the Consolidated Statements of Operations:



Year Ended December 31,	2017		2016		2015
Sales and marketing	$	7,654	$	7,546	$	7,250
Origination and servicing	4,804		4,159		2,735
Engineering and product development	22,047		19,858		11,335
Other general and administrative	36,478		37,638		29,902
Total stock-based compensation expense	$	70,983	$	69,201	$	51,222

The Company capitalized $9.2 million, $9.8 million and $4.4 million of stock-based compensation expense associated with developing software for internal use during the years ended December 31, 2017, 2016, and 2015, respectively.

In addition, the Company recognized $0.2 million in tax deficits and $0.7 million in tax benefits from exercised stock options and RSUs for the years ended December 31, 2016 and 2015, respectively. During the first quarter of 2017, the Company adopted ASU 2016-09 relating to accounting for excess tax benefits associated with stock-based compensation. As a result of the adoption of ASU 2016-09, the Company recorded previously unrecognized excess tax benefits relating to stock-based compensation through December 31, 2016 to retained earnings with an equal and offsetting adjustment due to the Company’s full valuation allowance against its deferred tax assets. See “Note 17. Income Taxes” for additional information.

In the second quarter of 2016, the board of directors or the compensation committee of the board of directors, as appropriate, approved incentive retention awards to certain members of the executive management team and other key personnel. These incentive awards consisted of an aggregate of $16.3 million of RSUs and $18.6 million of cash. These incentive retention awards were recognized as compensation expense ratably through May 2017.

The cash retention awards were granted under the Cash Retention Plan. Under the terms of the Cash Retention Plan, employees who received an award were eligible to earn a cash retention bonus on the terms and in the amounts specified in their respective cash retention bonus award agreement, subject to continued services and other vesting requirements set forth in such agreement. Funds associated with the remaining retention liability as of December 31, 2016, were held in a Rabbi Trust established under the Cash Retention Plan and recorded as restricted cash on the Company’s Consolidated Balance Sheets. There was no remaining retention liability under the Cash Retention Plan, and therefore no associated funds held in the Rabbi Trust as of December 31, 2017.

The Company adopted ASU 2016-09 on January 1, 2017. See “Note 2. Summary of Significant Accounting Policies,” for additional information.

Equity Incentive Plans

The Company has two equity incentive plans: the 2007 Stock Incentive Plan (2007 Plan) and the 2014 Equity Incentive Plan (2014 Plan). Upon the Company’s IPO in 2014, the 2007 Plan was terminated and all shares that remained available for future issuance under the 2007 Plan at that time were transferred to the 2014 Plan. As of December 31, 2017, 15,500,667 options to purchase common stock granted under the 2007 Plan remain outstanding. If cancelled, these options are eligible for transfer into the 2014 Plan, which would increase shares available for grant within the 2014 Plan. As of December 31, 2017, the total number of shares reserved for future grants under the 2014 Plan was 49,277,465 shares, including shares transferred from the 2007 Plan.

Stock Options

The following table summarizes the activities for the Company’s stock options during 2017:



	Number of Options		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value ⁽¹⁾
Outstanding at December 31, 2016	30,669,177		$	4.79
Granted	—		$	—
Exercised	(7,213,167	)	$	2.01
Forfeited/Expired	(3,046,670	)	$	8.09
Outstanding at December 31, 2017	20,409,340		$	5.28	6.0	$	22,485
Vested and expected to vest at December 31, 2017	20,409,340		$	5.28	6.0	$	22,485
Exercisable at December 31, 2017	16,471,522		$	4.76	5.7	$	22,485


⁽¹⁾	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s closing stock price of $4.13 as reported on the New York Stock Exchange on December 29, 2017.

For the year ended December 31, 2016, the Company granted service-based stock options to purchase 7,482,011 shares of common stock with a weighted-average exercise price of $7.22 per option share, a weighted-average grant date fair value of $3.61 per option share and an aggregate estimated fair value of $27.0 million. Stock options granted during the year ended December 31, 2016 included 265,987 shares of fully-vested stock options granted in lieu of cash bonuses to be paid to certain employees for the 2015 performance period. In the third quarter of 2016, a portion of these options were modified and the cash bonuses were paid.

For the year ended December 31, 2015, the Company granted service-based stock options to purchase 1,164,929 shares of common stock with a weighted-average exercise price of $20.00 per option share, a weighted-average grant date fair value of $9.80 per option share and an aggregate estimated fair value of $11.4 million.

The aggregate intrinsic value of options exercised was $27.0 million, $74.4 million and $103.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. The total fair value of stock options vested for the years ended December 31, 2017, 2016, and 2015 was $19.6 million, $32.9 million and $36.8 million, respectively.

As of December 31, 2017, the total unrecognized compensation cost related to outstanding stock options was $13.9 million, which is expected to be recognized over the next 1.8 years.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options granted with the following assumptions:



Year Ended December 31,	2016		2015
Expected dividend yield	—		—
Weighted-average assumed stock price volatility	51.6	%	49.4	%
Weighted-average risk-free interest rate	1.34	%	1.61	%
Weighted-average expected life (in years)	6.15		6.25

There were no stock options granted during the year ended December 31, 2017.

Restricted Stock Units

The following table summarizes the activities for the Company’s RSUs during the year ended December 31, 2017:



	Number of Units		Weighted- Average Grant Date Fair Value
Unvested at December 31, 2016	31,413,644		$	6.61
Granted	12,955,901		$	5.31
Vested	(11,087,906	)	$	6.18
Forfeited/expired	(6,703,341	)	$	7.07
Unvested at December 31, 2017	26,578,298		$	6.03
Expected to vest after December 31, 2017	26,578,298		$	6.03

As of December 31, 2017, the Company granted 12,955,901 RSUs with an aggregate fair value of $68.8 million.

As of December 31, 2017, there was $150.4 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over the next 2.9 years.

Employee Stock Purchase Plan

The Company’s ESPP became effective on December 11, 2014. The Company’s ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions, subject to plan limitations. Payroll deductions are accumulated during six-month offering periods. The purchase price for each share of common stock is 85% of the lower of the fair market value of the common stock on the first business day of the offering period or on the last business day of the offering period.

The Company’s employees purchased 1,319,537, 1,508,513 and 410,009 shares of common stock under the ESPP during the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, 2016 and 2015, a total of 8,695,999, 5,408,441 and 2,589,991 shares remain reserved for future issuance, respectively.

The fair value of stock purchase rights granted to employees under the ESPP is measured on the grant date using the Black-Scholes option pricing model. The compensation expense related to ESPP purchase rights is recognized on a straight-line basis over the 6-month requisite service period. We used the following assumptions in estimating the fair value of the grants under the ESPP which are derived using the same methodology applied to stock option assumptions:



Year Ended December 31,	2017		2016		2015
Expected dividend yield	—		—		—
Weighted-average assumed stock price volatility	45.1	%	50.1	%	43.7	%
Weighted-average risk-free interest rate	1.21	%	0.51	%	0.23	%
Weighted-average expected life (in years)	0.50		0.50		0.46

For the years ended December 31, 2017, 2016, and 2015, the dates of the assumptions were May 11, 2017 and November 11, 2017, May 11, 2016 and November 11, 2016 and June 11, 2015 and November 11, 2015, respectively.

Stock Issued Related to Acquisition

As part of the Springstone acquisition in 2014, the sellers received shares of the Company’s Series F convertible preferred stock having an aggregate value of $25.0 million (Share Consideration). $22.1 million of the Share Consideration is subject to certain vesting and forfeiture conditions over a three-year period for key continuing employees. This was accounted for as a compensation agreement and expensed over the three-year vesting period. In conjunction with the conversion of preferred stock upon the IPO, these preferred shares were converted into common shares.

Retirement Plan

Upon completing 90 days of service, employees may participate in the Company’s qualified retirement plan that is governed by section 401(k) of the IRS Code. Participants may elect to contribute a portion of their annual compensation up to the maximum limit allowed by federal tax law. In the first quarter of 2016, the Company approved an employer match of up to 4% of an employee’s eligible compensation with a maximum annual match of $5,000 per employee. Prior to 2016, the Company approved an employer match of up to 3% of an employee’s eligible compensation with a maximum annual match of $5,000 per employee. The total expense for the employer match for the years ended December 31, 2017, 2016, and 2015 was $4.4 million, $3.9 million and $2.1 million, respectively.

One-Time Severance Costs

On June 22, 2016, the Board of the Company approved a plan to reduce the number of employees, which includes payment of severance benefits to certain employees whose positions were affected. The plan authorized the reduction of up to 179 positions, or approximately 12% of the Company’s workforce. The purpose of the action was to reduce costs, streamline operations and more closely align staffing with anticipated loan volumes. As a result, the Company recorded and paid $2.7 million in severance costs during 2016 related to this reduction in employees, which were predominately comprised of cash severance. No such reduction plans were implemented during the years ended December 31, 2017 or 2015. The following table presents the severance expense recorded in the Company’s Consolidated Statements of Operations for the year ended December 31, 2016:



Year Ended December 31,	2016
Sales and marketing	$	772
Origination and servicing	1,174
Engineering and product development	134
Other general and administrative	650
Total severance expense	$	2,730

Performance-based Restricted Stock Units

During the first quarter of 2017, the Company’s chief executive officer received performance-based restricted stock units (PBRSUs). PBRSUs are equity awards that may be earned based on achieving pre-established performance metrics over a specific performance period. Depending on the probability of achieving the pre-established performance targets, the PBRSUs issued could range from 0% to 200% of the target amount. PBRSUs granted under the Company’s equity incentive plans generally have a one-year performance period with one-half of the grant vesting in one year following the completion of the performance period and the remaining one-half vesting in two years following the completion of the performance period. Over the performance period, the number of PBRSUs that may be earned and the related stock-based compensation expense that is recognized is adjusted upward or downward based upon the probability of achieving the pre-established performance targets against the performance metrics.