Noncash Share-Based Compensation

Employee Noncash Share-based Compensation Plans

The Company has two noncash share-based compensation plans, the 2007 Stock Plan and the 2017 Stock Plan (collectively the "Stock Plans"). These plans authorize the discretionary granting of various types of stock awards to key employees, officers, directors and consultants. The discretionary issuance of stock awards generally contains vesting provisions ranging from one to four years.

2007 Stock Plan. The Company’s 2007 Stock Plan expired in March 2017 for purposes of granting future equity awards. As of December 31, 2018, the Company had outstanding equity awards to acquire 1,908,003 shares of its common stock held by the Company’s employees, directors and consultants under the 2007 Stock Plan (assuming MSU performance at 100% of the MSUs initially granted), and inclusive of zero stock options, 1,358,819 RSUs, 286,584 SARs and 262,600 MSUs.

2017 Stock Plan. The Company’s 2017 Stock Plan provides for the issuance of awards to employees, officers, directors and certain other individuals providing services to the Company are eligible to receive awards. The 2017 Stock Plan reserved an aggregate amount of 2,500,000 shares for issuance. The Company may provide these incentives through the grant of: (i) restricted stock awards; (ii) RSUs; (iii) stock options; (iv) SARs; (v) phantom stock; and (vi) performance awards, such as MSUs.

As of December 31, 2018, the Company had outstanding equity awards to acquire 981,746 shares of its common stock held by the Company’s employees, directors and consultants under the 2017 Stock Plan (assuming MSU performance at 100% of the MSUs initially granted), and inclusive of 825,178 RSUs and 156,568 MSUs. As of December 31, 2018, 1,347,240 shares remain available for grant under the 2017 Stock Plan. As of December 31, 2018, there were no options, SARs, restricted stock awards or phantom stock issued under the 2017 Stock Plan.

Noncash share-based compensation expense for all noncash share-based payment awards granted is determined based on the grant date fair value of the award. The Company recognizes compensation expense, net of estimated forfeitures, which represents noncash share-based awards expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term. Noncash share-based awards typically vest over four years. Stock options are generally granted for a ten-year term. The Company estimates forfeiture rates based on its historical experience for grant years where the majority of the vesting terms have been satisfied. Changes in estimated forfeiture rates are recognized through a cumulative catch-up adjustment in the period of change and thus impact the amount of noncash share-based compensation expense to be recognized in future periods.

Noncash share-based compensation expense is allocated to expense categories on the Consolidated Statements of Comprehensive Income (Loss). The following table summarizes noncash share-based compensation expense, net of amounts capitalized, for the years ended December 31, 2018, 2017 and 2016 (in thousands).



	For the Year Ended December 31,
	2018		2017		2016
Share-based compensation:
Cost of revenue	$	1,721	$	1,971	$	2,267
Operating expenses:
Selling and marketing	4,396		4,348		3,824
General and administrative	10,717		11,163		9,040
Research and development	4,619		5,314		5,335
Total included in operating expenses	19,732		20,825		18,199
Total share-based compensation expense	$	21,453	$	22,796	$	20,466

At December 31, 2018, there was an estimated $33.3 million of total unrecognized compensation costs related to noncash share-based compensation arrangements. These costs will be recognized over a weighted average period of 2.4 years.

Stock Options

The following table summarizes the Company’s stock option activity for the year ended December 31, 2018 (number of shares and intrinsic value in thousands):



	Number of shares under option	Weighted average exercise price		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Outstanding, December 31, 2017	135	$	12.52
Granted	—	—
Exercised	(135)	12.52
Forfeited	—	—
Expired	—	—
Outstanding, December 31, 2018	—	$	—	0	$	—
Vested and exercisable at December 31, 2018	—	$	—	0	$	—

(1) The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock on December 31, 2018 of $31.40 and the grant date fair value.

For the years ended December 31, 2018 and 2017, respectively, the Company did not grant any stock options. The total intrinsic value of stock options exercised for the years ended December 31, 2018, 2017 and 2016 was $2.5 million, $7.2 million and $1.0 million, respectively.

RSUs (time-based)

The Company has granted RSUs under the Stock Plans. Time-based RSUs granted to employees, directors and consultants vest in equal annual installments over a one to four year period from the grant date.

The following table summarizes the Company's unvested time-based RSUs as of December 31, 2018, and changes during the year then ended (number of shares and intrinsic value in thousands):



	Number of shares		Weighted average grant date fair value		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Unvested at December 31, 2017	2,133		$	18.90
Granted	829		27.61
Vested	(792	)	20.49
Forfeited	(201	)	20.45
Unvested at December 31, 2018	1,969		$	21.77	2.02	$	61,827
Expected to vest at December 31, 2018	1,902		$	21.65	2.00	$	59,731

(1) The aggregate intrinsic value was calculated based on the fair value of the Company’s common stock on December 31, 2018 of $31.40.

The weighted average grant-date fair value of the time-based RSUs granted during the years ended December 31, 2018, 2017 and 2016 was $27.61, $21.63 and $11.69, respectively.

RSUs (market-based)

During 2016, under the 2007 Stock Plan, the Company granted 460,000 RSUs with a market-based vesting condition to certain executive employees. These market-based RSUs will vest if the average trailing closing price of the Company's Common Stock meets certain minimum performance hurdles for at least 105 calendar days prior to September 9, 2020, with 25% vesting at $27, an additional 25% vesting at $33, and the remaining 50% vesting at $41.

The following table summarizes the Company's unvested market-based RSUs as of December 31, 2018, and changes during the year then ended (number of shares and intrinsic value in thousands):



	Number of shares		Weighted average grant date fair value		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Unvested at December 31, 2017	345		$	10.86
Granted	—		—
Vested	(115	)	12.61
Forfeited	(15	)	9.98
Unvested at December 31, 2018	215		$	9.98	1.69	$	6,751
Expected to vest at December 31, 2018	211		$	9.98	1.69	$	6,611

(1) The aggregate intrinsic value was calculated based on the fair value of the Company’s common stock on December 31, 2018 of $31.40.

The Company estimates the fair value and the derived service period of the market-based RSUs on the date of grant using a Monte Carlo simulation model. The model requires the use of a number of assumptions including the expected volatility of the Company's stock, its risk-free interest rate and expected dividends. The Company's expected volatility at the date of grant was based on the historical volatility of the Company over the performance period.

The assumptions used to value the market-based RSUs granted in 2016 were as follows:



		December 31, 2016
Volatility		44.98%
Risk-free interest rate		1.08%
Dividend yield		—

The fair value of the market-based RSUs is expensed over the derived service period for each separate vesting tranche. The derived service period for the vesting tranches of the market-based RSUs ranges between 1.01 and 1.98 years.

SARs

The Company has granted SARs under the 2007 Stock Plan. The SARs will be settled in stock at the time of exercise and vest four years from the date of grant subject to the recipient’s continued employment with the Company. The number of shares issued upon the exercise of the SARs is calculated as the difference between the share price of the Company’s stock on the date of exercise and the date of grant multiplied by the number of SARs divided by the share price on the exercise date.

The following table summarizes the Company's SARs activity for the year ended December 31, 2018 (number of shares and intrinsic value in thousands):



	Stock appreciation rights		Weighted average exercise price		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Outstanding, December 31, 2017	356		$	10.97
Granted	—		—
Exercised	(69	)	11.17
Forfeited	—		—
Expired	—		—
Outstanding, December 31, 2018	287		$	10.92	1.86	$	5,869
Exercisable at December 31, 2018	287		$	10.92	1.86	$	5,869
Vested and expected to vest at December 31, 2018	287		$	10.92	1.86	$	5,869

The Company did not grant SARs in 2018, 2017 and 2016.

MSUs

In 2018, 2017 and 2016, the Company granted MSUs to certain executive employees under the Stock Plans. The MSUs are performance-based awards that vest based upon the Company’s relative shareholder return. The actual number of MSUs that will be eligible to vest is based on the total shareholder return of the Company relative to the total shareholder return of the Index over the three year Performance Period. The MSUs vested on January 1, 2018 and March 3, 2018, and will vest on March 1, 2019, March 1, 2020, October 9, 2020 and January 10, 2021, respectively. The MSUs maximum number of shares issuable upon vesting is 200% of the MSUs initially granted.

The following table summarizes the Company's MSUs activity for the year ended December 31, 2018 (number of shares and intrinsic value in thousands):



	Number of unvested awards		Weighted average grant date fair value		Weighted average remaining contractual term (year)	Aggregate intrinsic value (1)
Unvested at December 31, 2017	387		$	23.48
Granted	117		38.18
Exercised	(85	)	31.83
Forfeited	—		—
Expired	—		—
Unvested at December 31, 2018	419		$	25.90	1.10	$	13,162

The Company estimates the fair value of MSUs on the date of grant using a Monte Carlo simulation model. The determination of fair value of the MSUs is affected by the Company's stock price and a number of assumptions including the expected volatilities of the Company's stock and the Index, its risk-free interest rate and expected dividends. The Company's expected volatility at the date of grant was based on the historical volatilities of the Company and the Index over the Performance Period. The Company did not estimate a forfeiture rate for the MSUs due to the limited size, the vesting period and nature of the grantee population and the lack of history of granting this type of award.

Significant assumptions used in the Monte Carlo simulation model for MSUs granted during the years ended December 31, 2018, 2017 and 2016 are as follows:



	For the Year Ended December 31,
	2018	2017	2016
Volatility	43.67%	45.38%	44.06%
Risk-free interest rate	2.12%	1.56%	1.04%
Expected option life in years	2.97	3.07	2.93
Dividend yield	—	—	—

The assumptions related to fiscal year 2017 are presented on a weighted average basis for the various awards granted throughout the period.

Employee Stock Purchase Plan

In June 2013, the Board of Directors authorized an Employee Stock Purchase Plan ("ESPP") which provides for eligible employees to purchase shares on an after-tax basis in an amount between 1% and 10% of their annual pay: (i) on June 30 of each year at a 5% discount of the fair market value of the Company's common stock on January 1 or June 30, whichever is lower, and (ii) on December 31 of each year at a 5% discount of the fair market value of the Company's common stock on July 1 or December 31, whichever is lower. An employee may not purchase more than $5,000 in either of the six-month measurement periods described above or more than $10,000 annually. In November 2015, the Board of Directors amended the ESPP plan to increase the discount to 15% of the fair market value of the Company's common stock effective January 1, 2016. The amendment did not change the accounting treatment of the ESPP plan. During the year ended December 31, 2018, the Company issued 75,546 shares under the ESPP. As of December 31, 2018, 215,555 shares remain authorized and available for issuance under the ESPP. As of December 31, 2018, the Company held approximately $0.9 million on behalf of employees for future purchases under the ESPP and this amount was recorded in accrued liabilities in the Company's Consolidated Balance Sheet.