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Stock Based Compensation
12 Months Ended
Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Based Compensation
11. Stock Based Compensation
2001 and 2010 Stock Option Plans
During 2001, the Company adopted the Bandwidth Inc. Stock Option Plan (the "2001 Plan"). As of July 26, 2010, the Company adopted the 2010 Equity Compensation Plan (the "2010 Plan"). On August 24, 2017, the 2010 Plan was amended to provide for a total of 3,466,275 shares of common stock reserved for issuance under the 2010 Plan.
Eligible plan participants include employees, directors and consultants. The 2001 Plan and the 2010 Plan each permit the granting of incentive stock options and non-qualified stock options.
Following the effectiveness of the 2010 Plan, the Company did not make any further grants under the 2001 Plan. However, the 2001 Plan continues to govern the terms and conditions of the outstanding awards granted under it. On November 9, 2017, the 2010 Plan was terminated in connection with the Company's IPO. Accordingly, no shares are available for future issuance under the 2010 Plan. However, the 2010 Plan will continue to govern the terms and conditions of the outstanding awards granted thereunder.
On November 9, 2017, the Company filed its second amended and restated certificate of incorporation. Upon the effectiveness of the Company's second amended and restated certificate of incorporation and the effectiveness of the Company's second amended and restated bylaws, options exercisable into shares of Old Class A common stock and Old Class B common stock became exercisable into shares of Class B common stock and Class A common stock, respectively.
2017 Incentive Award Plan
The Company's 2017 Incentive Award Plan (the "2017 Plan") became effective on November 9, 2017. The 2017 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, dividend equivalents, restricted stock units, and other stock or cash based awards to employees, consultants and directors of the Company. A total of 1,050,000 shares of the Company's Class A common stock were originally reserved for issuance under the 2017 Plan.
The terms of the stock option grants are determined by the Company’s Board of Directors. The Company’s stock options vest based on terms in the stock option agreements, which is generally over four years. The stock options have a contractual life of ten years.
Stock options    
The fair value, adjusted for the stock split, of options granted is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the table below:
 
Year Ended December 31,
 
2015
 
2016
 
2017
Expected dividend yield
0%
 
0%
 
0%
Expected stock price volatility
44%
 
44%
 
44%-49%
Average risk-free interest rate
1.5%-1.9%
 
1.3%-2.0%
 
1.9%-2.3%
Expected life
6.2 years
 
6.2 years
 
6.2 years
Fair value of common stock
$9.43-$9.57
 
$9.57-$9.60
 
$9.60-$20.83

The following summarizes the stock option activity for the periods presented:
 
Number of
Options
Outstanding
 
Weighted-
Average
Exercise Price
(per share)
 
Weighted-
Average
Remaining
Contract Life
(in years)
 
Aggregate
Intrinsic
value (in
thousands)
Outstanding as of December 31, 2016
3,582,241

 
$
6.54

 
5.12
 
$
11,049

Grants
179,922

 
13.79

 

 

Exercised
(58,162
)
 
5.27

 

 
445

Forfeited or cancelled
(44,210
)
 
9.46

 

 

Outstanding as of December 31, 2017
3,659,791

 
$
6.88

 
4.38
 
$
59,436

 
 
 
 
 
 
 
 
Options vested and exercisable at December 31, 2017
3,209,890

 
$
6.28

 
3.83
 
$
54,051

 
 
 
 
 
 
 
 
Options vested and expected to vest as of December 31, 2017
3,641,078

 
$
6.85

 
4.35
 
$
59,230


Aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the option exercise price and the estimated fair value of the Company’s common stock. This amount changes based on the fair value of the Company’s stock.
The weighted average grant-date fair value of stock options granted was $4.24 , $4.06 and $7.72 for the years ended December 31, 2015, 2016 and 2017, respectively.
The total estimated grant date fair value of options vested was $2,107, $2,082 and $1,299 for the years ended December 31, 2015, 2016 and 2017, respectively.
The Company recognized total stock-based compensation expense in continuing operations as follows:
 
Year Ended December 31,
 
2015
 
2016
 
2017
Cost of revenue
$
45

 
$
61

 
$
80

Research and development
189

 
138

 
155

Sales and marketing
239

 
182

 
172

General and administrative (1)
3,020

 
989

 
1,396

Total
$
3,493

 
$
1,370

 
$
1,803

________________________
(1) On September 1, 2017, the Company reached a separation agreement with one of its executives. The agreement resulted in a modification of the former employee's 194,234 outstanding options to purchase common stock, which accelerated the vesting period and extended the exercise period, resulting in the recognition of $394 of additional stock compensation expense for the year ended December 31, 2017.
The Company will recognize $1,935 of compensation cost in the future for stock-based employee compensation over the weighted-average period of 2.59 years for stock options granted before December 31, 2017.