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 reserved and registered 4,700,000 shares of common stock for issuance to our employees, directors and non-employee directors and consultants. The registration included 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, 2016 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 December 31, 2015, 4,663,399 shares remained available for future grant under the 2015 Plan.

The 2015 Plan (and the previous 2009 Plan) allow for the granting of incentive stock options to employees and for the granting of nonqualified stock options and restricted stock to our employees, directors and non-employee directors and consultants. Stock options under the 2015 Plan have been granted at exercise prices based on the closing price of our common stock on the date of grant. Stock options under the previous 2009 Plan 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 2015 Plan (and the previous 2009 Plan) allow 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 December 31, 2015 and 2014, there were 96,368 and 209,372 unvested shares of common stock outstanding subject to our right of repurchase. During the year ended December 31, 2015, we repurchased 287 unvested shares of common stock related to early exercised stock options in connection with employee terminations. As of December 31, 2015 and December 31, 2014, we recorded $0.4 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 year ended December 31, 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 non-cash stock-based compensation expense (in thousands):



	Year Ended December 31,
	2015		2014		2013
Stock options	$	3,154	$	3,181	$	787
Compensation related to the sale of common stock	193		86		54
Compensation related to the cash settlement of stock options	777		—		—
Total stock-based compensation expense	$	4,124	$	3,267	$	841
Tax benefit from stock-based awards	$	700	$	782	$	160

Stock-based compensation expense is included in the following line items in the accompanying consolidated statements of operations (in thousands):



Stock-based compensation expense data:	Year Ended December 31,
	2015		2014		2013
Sales and marketing	$	372	$	338	$	102
General and administrative	2,486		1,862		495
Research and development	1,266		1,067		244
Total stock-based compensation expense	$	4,124	$	3,267	$	841

We value our stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the risk-free interest rate, expected term, expected stock price volatility and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected term of our stock options. The expected term represents the period of time the stock options are expected to be outstanding and is based on the “simplified method.” Under the “simplified method,” the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. We use the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options.

The following table summarizes the assumptions used for estimating the fair value of stock options granted for the years ended December 31:



	Year Ended December 31,
	2015		2014		2013
Volatility	48.5 - 51.8%		47.2 - 49.6%		44.1 - 47.6%
Expected term	4.5 - 6.3 years		4.0 - 5.7 years		3.3 - 6.3 years
Risk-free interest rate	1.3 - 1.9%		1.4 - 1.9%		0.9 - 1.9%
Dividend rate	—	%	—	%	—	%

The dividends declared and paid in June 2015 were in anticipation of our IPO, which we closed on July 1, 2015. Subsequent to 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 stock option activity for the year ended December 31, 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	540,548		12.10
Exercised	(290,249	)	1.63			3,272
Forfeited	(42,936	)	5.97
Cancelled	(5,443	)	2.23
Outstanding at December 31, 2015	3,547,913		$	4.17	6.6	$	44,411
Vested and expected to vest at December 31, 2015	3,514,311		$	4.12	6.5	$	44,124
Exercisable at December 31, 2015	2,178,312		$	2.13	5.5	$	31,690

The weighted average grant date fair value for our stock options granted during the years ended December 31, 2015, 2014 and 2013 was $5.90, $4.20 and $4.02. The total fair value of stock options vested during the years ended December 31, 2015, 2014 and 2013 was $2.7 million, $1.5 million and $0.5 million. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2015 and 2014 was $3.3 million, $7.3 million and $0.7 million. As of December 31, 2015, the total compensation cost related to nonvested awards not yet recognized was $3.1 million, which will be recognized over a weighted average period of 2.2 years.

Warrants

In 2010, we issued performance-based warrants to two of our executive officers that gives these individuals the right to purchase up to 841,896 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 750,015 shares of our common stock has an initial exercise price of $0.001 per share and two separate tranches of shares become exercisable upon the occurrence of a triggering event, which is defined as: (1) a change in control event that results in any person or entity (other than our stockholders immediately prior to the transaction) owning more than 50% of the combined voting power of all classes of our capital stock, (2) a sale of substantially all of our assets, (3) an initial public offering, or (4) a liquidation or other dissolution of the Company. Upon the occurrence of a triggering event, the number of shares that become exercisable under the warrant is determined by the amount of cash consideration received by ABS Capital Partners, one of our stockholders, as a result of such triggering event. On July 11, 2012, we modified the terms of the performance-based warrant to provide for a $3.1 million cash payment in the event that a triggering event has not occurred on or before January 3, 2013. We considered this to be an equity to cash settled liability modification and recorded $3.1 million in compensation expense, included within general and administrative expense, on the modification date. The award was settled for $3.1 million on January 3, 2013.

The second 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 third 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 was upon the effectiveness of the registration statement for our IPO, and closed 30 days after the effectiveness of our registration statement.

The fourth and fifth 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 December 31, 2015, 2014 and 2013, none of the warrants that remained outstanding were exercisable because the performance requirements had not been met. We recorded less than $0.1 million expense associated with the performance-based warrants during the year ended December 31, 2015 and we did not record expense associated with the performance-based warrants during the years ended December 31, 2014 and 2013.

Sale of Common Stock Subscriptions

On May 22, 2013, we sold 238,500 shares of our common stock to one of our executive officers for $0.7 million, or $2.95 per share, an amount below fair value. Under the terms of the sale, we had the right to repurchase the shares for $2.95 per share subject to certain triggering events prior to April 2, 2017. Our repurchase right expired on July 1, 2015, the date of the closing of our IPO. The excess of the fair value over the sale price was being recorded to stock-based compensation expense, on a straight-line basis, over the four-year term of the repurchase agreement. In 2015, we recognized the remaining unamortized expense upon the expiration of our repurchase right. For the years ended December 31, 2015, 2014 and 2013, we recognized $0.2 million, less than $0.1 million and less than $0.1 million in general and administrative expense in our consolidated statement of operations.