Stock-Based Compensation

Stock Options

In June 2015, our board of directors adopted, our stockholders approved, and we registered the shares for our 2015 Equity Incentive Plan (the "2015 Plan"), pursuant to which we initially reserved and registered 4,700,000 shares of common stock for issuance to our employees, directors and non-employee directors and consultants including 141,222 shares of our common stock previously reserved for issuance under our Amended and Restated 2009 Stock Incentive Plan (the "2009 Plan") that were added to the shares reserved under the 2015 Plan upon its effectiveness. The 2015 Plan provides for the grant of incentive stock options to employees and for the grant of nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensations to employees, directors and non-employee directors and consultants. The number of shares of common stock reserved for issuance under the 2015 Plan will automatically increase on January 1 each year, for a period of not more than ten years, commencing on January 1, 2015 through January 1, 2024, by 5% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year, or a lesser number of shares as may be determined by the board of directors. As a result of the adoption of the 2015 Plan, no further grants may be made under the 2009 Plan described below. As of September 30, 2015 we made one grant under the 2015 Plan and 4,674,312 shares remained available for future grant.

The 2009 Plan provided for the grant of incentive stock options to employees and for the grant of nonqualified stock options and restricted stock to our employees, directors and non-employee directors and consultants. Stock options have been granted at exercise prices as determined by the board of directors to our officers and employees. These stock options generally vest over a five year period and each option, if not exercised or terminated, expires on the tenth anniversary of the grant date.

The 2009 Plan allows for the granting of options that may be exercised before the options have vested. Unvested shares issued as a result of early exercise are subject to repurchase by us upon termination of employment or services at the original exercise price. The proceeds from the early exercise of stock options are initially recorded as a current liability and are reclassified to common stock and additional paid-in capital as the awards vest and our repurchase right lapses. As of September 30, 2015, there were 124,791 unvested shares of common stock outstanding subject to our right of repurchase. As of December 31, 2014, there were 209,372 unvested shares of common stock outstanding subject to our right of repurchase. During the nine months ended September 30, 2015, we repurchased 287 unvested shares of common stock related to early exercised stock options in connection with employee terminations. As of September 30, 2015 and December 31, 2014, we recorded $0.5 million and $0.7 million in accounts payable, accrued expenses and other current liabilities on the consolidated balance sheets for the proceeds from the early exercise of the unvested stock options.

Included in the stock-based compensation expense for the nine months ended September 30, 2015 was $0.8 million related to the cash settlement of recently exercised stock options of a terminated employee, at the company's election. We accounted for this cash settlement as a liability modification of the stock option awards.

We account for stock-based compensation awards based on the fair value of the award as of the grant date. We recognize stock-based compensation expense using the accelerated attribution method, net of estimated forfeitures, in which compensation cost for each vesting tranche in an award is recognized ratably from the service inception date to the vesting date for that tranche.

The following table summarizes the components of stock-based compensation expense for the three and nine months ended September 30, 2015 and 2014 (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
Stock options	$	809	$	724		$	2,005	$	2,300
Compensation related to the sale of common stock	—		22			193		65
Compensation related to the repurchase of stock options	—		—			777		—
Total equity based compensation expense	$	809	$	746		$	2,975	$	2,365
Tax benefit / (expense) from stock-based awards	$	424	$	(73	)	$	665	$	675

Stock-based compensation expense is included in the following line items in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Sales and marketing	$	114	$	80	$	260	$	235
General and administrative	305		434		1,825		1,396
Research and development	390		232		890		734
Total stock-based compensation expense	$	809	$	746	$	2,975	$	2,365

There were 514,276 stock options granted during the nine months ended September 30, 2015. The dividends declared and paid in June 2015 were in anticipation of our IPO, which we closed on July 1, 2015. After the IPO, we do not expect to declare or pay dividends on a recurring basis. As such, we assume that the dividend rate is zero. The following table summarizes the assumptions used for estimating the fair value of stock options granted during the three and nine months ended September 30, 2015 and 2014:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Volatility	51.0	%	47.2	%	48.5 - 51.8%		47.2 - 49.6%
Expected term	6.3 years		5.6 years		4.5 - 6.3 years		4.0 - 5.7 years
Risk-free interest rate	1.8%		1.8	%	1.3 - 1.8%		1.4 - 1.9%
Dividend rate	—	%	—	%	—	%	—	%

The following table summarizes the stock option activity for the nine months ended September 30, 2015:



	Number of Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2014	3,345,993		$	2.68	7.0	$	27,725
Granted	514,276		11.90
Exercised	(276,925	)	1.53			3,119
Forfeited	(28,544	)	4.69
Cancelled	(4,476	)	1.54
Outstanding at September 30, 2015	3,550,324		$	4.09	6.8	$	27,038
Vested and expected to vest at September 30, 2015	3,506,414		$	4.05	6.8	$	26,681
Exercisable at September 30, 2015	1,844,358		$	1.78	5.4	$	18,221

The weighted average grant date fair value for our stock options granted during the nine months ended September 30, 2015 was $11.90. There were 514,276 stock options granted during the nine months ended September 30, 2015. The total fair value of stock options vested during the nine months ended September 30, 2015 and 2014 was $1.2 million and $0.4 million. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2015 and 2014 was $3.1 million and $7.1 million. As of September 30, 2015, the total compensation cost related to nonvested awards not yet recognized was $4.0 million, which will be recognized over a weighted average period of 2.2 years.

Warrants

In 2010, we issued a performance-based warrant to an executive officer that gives this individual the right to purchase up to 91,881 shares of our common stock in the aggregate if certain performance targets and market conditions are achieved. In 2012, we issued an additional performance-based warrant to an executive officer that gives that executive officer the right to purchase up to 27,000 shares of our common stock if certain performance targets and market conditions are achieved. On March 30, 2015, we issued performance-based warrants to two employees. These warrants give these individuals the right to purchase up to 54,694 shares of our common stock in the aggregate if certain performance targets are achieved.

The first performance-based warrant for 91,881 shares of our common stock has an exercise price of $0.41 per share and becomes exercisable if we have a change in control or if we complete an initial public offering. This warrant for 91,881 shares of our common stock expired in May 2015 upon the cessation of the holder of the warrant's employment with us.

The second performance-based warrant for 27,000 shares of our common stock has an exercise price of $3.89 per share and becomes exercisable if we have a change in control or if we complete an initial public offering. This warrant expired in July 2015 because the minimum annual revenue and EBITDA targets of the subsidiary unit required under the warrant were not met during the exercise period. The exercise period began upon the occurrence of a triggering event, which occurred on June 25, 2015, upon the effectiveness of the registration statement for our IPO, and closed 30 days after the effectiveness of our registration statement.

The third and fourth performance-based warrants, each for 27,347 shares of our common stock, have an exercise price of $10.97 per share and we may elect to terminate the warrants in exchange for a one-time cash settlement in the event of a change in control. If the warrants become exercisable, the number of shares that become exercisable which cannot exceed 27,347 shares for each warrant, is based upon the achievement of certain minimum annual revenue targets. These warrants will expire upon the earlier of March 2025 and the date upon which the holder of the warrant is no longer our employee or an employee of an affiliate of ours. We believe that the achievement of the minimum annual revenue targets is probable, and we began recognizing expense related to these performance-based warrants on April 1, 2015.

As of September 30, 2015 and December 31, 2014, none of the warrants that remained outstanding were exercisable because the performance requirements had not been met. We recorded $0.0 million of expense associated with the performance-based warrants during the three months ended September 30, 2015 and 2014 and $0.0 million of expense associated with the performance-based warrants during the nine months ended September 30, 2015 and 2014.