Stock-Based Compensation

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



	Year Ended December 31,
Stock-based compensation expense data:	2016		2015		2014
Sales and marketing	$	536	$	372	$	338
General and administrative	1,430		2,486		1,862
Research and development	2,035		1,266		1,067
Total stock-based compensation expense	$	4,001	$	4,124	$	3,267

The following table summarizes the components of non-cash stock-based compensation expense (in thousands):



	Year Ended December 31,
	2016		2015		2014
Stock options	$	3,783	$	3,154	$	3,181
Restricted stock units	141		—		—
Employee stock purchase plan	77		—		—
Compensation related to the sale of common stock	—		193		86
Compensation related to the cash settlement of stock options	—		777		—
Total stock-based compensation expense	$	4,001	$	4,124	$	3,267
Tax benefit from stock-based awards	$	5,048	$	700	$	782

2015 Equity Incentive Plan

We issue stock options pursuant to our 2015 Equity Incentive Plan (the "2015 Plan"). The 2015 Plan allows 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, or RSUs, performance-based stock awards, and other forms of equity compensation to our employees, directors and non-employee directors and consultants.

In June 2015, our board of directors adopted and our stockholders approved our 2015 Plan pursuant to which we initially reserved a total of 4,700,000 shares of common stock for issuance under the 2015 Plan, which included shares of our common stock previously reserved for issuance under our Amended and Restated 2009 Stock Incentive Plan (the "2009 Plan"). 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 31 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. As of December 31, 2016, 6,320,370 shares remained available for future grant under the 2015 Plan.

Stock Options

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 2009 Plan were granted at exercise prices as determined by the board of directors to be the fair market value of our common stock. Our stock options generally vest over a five-year period and each option, if not exercised or forfeited, expires on the tenth anniversary of the grant date.

Certain stock options granted under the 2015 Plan and previously granted under the 2009 Plan 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. There were 29,835 and 96,368 unvested shares of common stock outstanding subject to our right of repurchase as of December 31, 2016 and 2015. We repurchased 2,156 and 287 unvested shares of common stock related to early exercised stock options in connection with employee terminations during the years ended December 31, 2016 and 2015. As of December 31, 2016 and 2015, we recorded $0.2 million and $0.4 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 options 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.

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.

There were 653,900 and 540,548 stock options granted during the years ended December 31, 2016 and 2015. We declared and paid dividends in June 2015 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 assumptions used for estimating the fair value of stock options granted during the years ended December 31, 2016, 2015 and 2014:



	Year Ended December 31,
	2016		2015		2014
Volatility	47.6 - 50.6%		48.5 - 51.8%		47.2 - 49.6%
Expected term	5.6 - 6.3 years		4.5 - 6.3 years		4.0 - 5.7 years
Risk-free interest rate	1.3 - 1.9%		1.3 - 1.9%		1.4 - 1.9%
Dividend rate	—	%	—	%	—	%

The following table summarizes stock option activity for the year ended December 31, 2016:



	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, 2015	3,547,913		$	4.17	6.6	$	44,411
Granted	653,900		17.87
Exercised	(561,015	)	1.88			14,114
Forfeited	(91,261	)	9.45
Expired	(2,009	)	9.79
Outstanding at December 31, 2016	3,547,528		$	6.91	6.4	$	74,267
Vested and expected to vest at December 31, 2016	3,502,351		$	6.81	6.4	$	73,621
Exercisable at December 31, 2016	2,144,142		$	3.36	5.2	$	52,460

The weighted average grant date fair value for our stock options granted during the years ended December 31, 2016, 2015 and 2014 was $8.77, $5.90 and $4.20. The total fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was $2.2 million, $2.7 million and $1.5 million. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2016, 2015 and 2014 was $14.1 million, $3.3 million and $7.3 million. As of December 31, 2016, the total compensation cost related to nonvested awards not yet recognized was $4.5 million, which will be recognized over a weighted average period of 2.3 years.

Restricted Stock Units

In 2016, we granted an aggregate of 61,482 Restricted Stock Units (RSUs) to certain of our employees. Each of these awards vest over a five-year period from the vesting commencement date, which is generally the grant date. We account for RSUs 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 grant date to the vesting date for that tranche. The RSUs condition for vesting is based on continued employment and a forfeiture rate is estimated for recognizing compensation expense based on historical forfeiture rates of stock-option awards. As of December 31, 2016, the total unrecognized compensation expense related to restricted stock unit awards granted amounted to $1.5 million, which is expected to be recognized over a weighted average period of three years.

The following table summarizes RSU activity for the year ended December 31, 2016:



	Number of RSUs	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015	—	$	—	$	—
Granted	61,482	30.00		1,844
Vested	—	—		—
Forfeited	—	—		—
Outstanding at December 31, 2016	61,482	$	30.00	$	1,711
Vested and expected to vest at December 31, 2016	55,673	$	30.00	$	1,549

Employee Stock Purchase Plan

Our board of directors adopted our 2015 ESPP in June 2015. As of December 31, 2016, 1,624,019 shares have been reserved for future grant under the 2015 ESPP, with provisions established to increase the number of shares available on January 1 of each subsequent year for nine years. The annual automatic increase in the number of shares available for issuance under the 2015 ESPP is the lesser of 1% of each class of common stock outstanding as of December 31 of the preceding fiscal year, 1,500,000 shares of common stock, or such lesser number as determined by the board of directors. The 2015 ESPP allows eligible employees to purchase shares of our common stock at 90% of the fair market value, rounded up to the nearest cent, based on the closing price of our common stock on the purchase date. The maximum number of shares of our common stock that a participant may purchase during any calendar year shall not exceed such number of shares having a fair market value equal to the lesser of $15,000 or 10% of the participant's base compensation for that year.

The 2015 ESPP is considered compensatory for purposes of share-based compensation expense due to the 10% discount on the fair market value of the common stock. For the year ended December 31, 2016, an aggregate of 31,797 shares were purchased by employees for which we recognized $0.1 million of compensation expense. There were no purchases of shares during the year ended December 31, 2015 and less than $0.1 million compensation expense was recognized over the purchase period. Compensation expense is recognized for the amount of the discount, net of forfeitures, over the six-month purchase period.

Repurchase of Subsidiary Units

We have an agreement, as amended, with an employee, who is the president and founder of our subsidiary formed to offer professional property management and vacation rental management companies technology solutions for remote monitoring and control of properties, for the repurchase of subsidiary stock for cash. The vesting of the award is contingent upon the subsidiary meeting certain minimum financial targets from the date of commercial availability, which was determined as June 1, 2013, until the fourth anniversary. In 2016, we amended the term of the award, extending the valuation date for the payment in cash to December 31, 2017, amending the financial targets and allowing for payments in cash from 2018 through 2020 based on collection of financed customer receivables that existed as of the valuation date. We established a liability for the future payment for the repurchase of subsidiary units under the terms of the agreement based on estimating revenue, working capital, EBITDA and EBITDA margin of the subsidiary units over the period of the award through the repurchase date. We estimated the fair value of the liability by using a Monte Carlo simulation model for determining each of the projected measures by using an expected distribution of potential outcomes. The fair value of the liability is calculated with thousands of projected outcomes, the results of which are averaged and then discounted to estimate the present value. At each reporting date until the respective payment dates, we remeasure this liability, using the same valuation approach and record any changes in the employee's compensation expense in general and administrative expense.

We recorded a liability of $2.5 million in accounts payable, accrued expenses and other current liabilities and a liability of $0.3 million in other liabilities related to this commitment in our consolidated balance sheet as of December 31, 2016. We recorded $0.4 million related to this commitment in other liabilities in our consolidated balance sheet as of December 31, 2015. For the years ended December 31, 2016, 2015 and 2014, we recorded compensation expense of $2.4 million, $0.2 million and $0.1 million related to this award in general and administrative expense. As this award is payable in cash, the expense was not recorded in stock-based compensation for any of the periods.

Warrants

On March 30, 2015, we issued performance-based warrants to two employees, which 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 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 we have 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 or 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 as of April 1, 2015. These warrants were not exercisable as of December 31, 2016 and 2015 because the performance requirements had not been met. We recorded $0.1 million and less than $0.1 million of expense associated with the performance-based warrants during the years ended December 31, 2016 and 2015. We did not record expense associated with performance-based warrants during the year ended December 31, 2014.

Sale of Common Stock Subscriptions

In 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. No expense was recognized related to this sale for the year ended December 31, 2016. For the years ended December 31, 2015 and 2014, we recognized $0.2 million and less than $0.1 million related to this agreement in general and administrative expense in our consolidated statement of operations.