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Employee Benefit Plans and Stock-based Compensation | 12 Months Ended
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Dec. 31, 2017
Employee Benefit Plans and Stock-based Compensation |
Employee Benefit Plans and Stock-based Compensation | Note 11. Employee Benefit Plans and Stock-based Compensation Stock Option Plans and Equity Incentive Plans In May 2007, our stockholders approved our 2007 Equity Incentive Plan (the “2007 Plan”), which provides for the grant of incentive and non-qualified stock options to our employees, consultants and directors. The 2007 Plan is a restatement of the 1997 Stock Option Plan which expired in 2007. The 1,928,994 share reserve of the 1997 Stock Option Plan became the reserve of the 2007 Plan, together with 1,300,000 additional shares approved for issuance under the 2007 Plan. In May 2013, the stockholders approved an additional 2,000,000 shares to be issued under the 2007 plan. Awards may be made under the 2007 Plan are stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock‑based awards. Stock options and stock appreciation rights awarded under the 2007 Plan may not be repriced without stockholder approval. Stock options and stock appreciation rights may not be granted below fair market value. Stock options or stock appreciation rights generally shall not be fully vested over a period of less than three years from the date of grant and cannot be exercised more than 10 years from the date of grant. Restricted stock, restricted stock units, and performance awards generally shall not vest faster than over a three-year period (or a twelve‑month period if vesting is based on a performance measure). In December 2008, the 2007 Plan was amended to comply with the applicable requirements under Section 409A of the Internal Revenue Code. In May 2015, our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan is a replacement of the 2007 Plan. The 399,562 share reserve of the 2007 Plan became the reserve of the 2015 Plan, together with 3,000,000 additional shares approved for issuance under the 2015 Plan. Awards that may be made under the 2015 Plan are stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock‑based awards. Stock options and stock appreciation rights awarded under the 2015 Plan may not be repriced without stockholder approval. Stock options and stock appreciation rights may not be granted below fair market value. Stock options or stock appreciation rights generally shall not be fully vested over a period of less than four years from the date of grant and cannot be exercised more than 10 years from the date of grant. Restricted stock, restricted stock units, and performance awards generally shall not vest faster than over a three-year period (or a twelve‑month period if vesting is based on a performance measure). However, options granted to consultants and restricted stock awards granted to independent board members typically vest in one year and the 2015 Plan does allow for similar vesting to employees. As of December 31, 2017, approximately 1,389,329 shares were available for grant under the 2015 Plan. Stock Options The following table summarizes the stock option transactions for each of the years ended December 31, 2015, 2016 and 2017 (in thousands, except per share data):
|  |  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  |  |  | average |  |  |  |
|  |  |  | Weighted- |  | Remaining |  |  |  |
|  | Number of |  | average |  | Contractual |  | Aggregate |
|  | Options |  | Exercise |  | Life |  | Intrinsic |
Stock Options |  | Outstanding |  | Price |  | (in years) |  | Value |
Balance as of January 1, 2015 |  | 3,198 |  |  | 3.12 |  | 6.95 |  | $ | 1,247 |
Granted |  | 866 |  |  | 2.19 |  |  |  |  |  |
Exercised |  | (119) |  |  | 1.38 |  |  |  |  |  |
Canceled and expired |  | (166) |  |  | 3.03 |  |  |  |  |  |
Balance as of December 31, 2015 |  | 3,779 |  |  | 2.97 |  | 6.26 |  | $ | 764 |
Granted |  | 624 |  |  | 4.92 |  |  |  |  |  |
Exercised |  | (555) |  |  | 2.41 |  |  |  |  |  |
Canceled and expired |  | (554) |  |  | 3.26 |  |  |  |  |  |
Balance as of December 31, 2016 |  | 3,294 |  | $ | 3.38 |  | 7.23 |  | $ | 5,301 |
Granted |  | 184 |  |  | 8.99 |  |  |  |  |  |
Exercised |  | (762) |  |  | 3.25 |  |  |  |  |  |
Canceled and expired |  | (50) |  |  | 3.47 |  |  |  |  |  |
Balance as of December 31, 2017 |  | 2,666 |  | $ | 3.81 |  | 6.87 |  | $ | 13,149 |
Options vested as of December 31, 2017 and unvested options expected to vest, net of forfeitures |  | 2,629 |  | $ | 3.78 |  | 6.84 |  | $ | 13,031 |
Options exercisable as of December 31, 2017 |  | 1,580 |  | $ | 3.37 |  | 5.83 |  | $ | 8,419 |
The options outstanding and exercisable as of December 31, 2017 were in the following exercise price ranges (in thousands, except per share data):
|  |  |  |  |  |  |  |  |  |  |  |  | Options Vested and |
|  |  |  |  |  | Options Outstanding as of |  | Exercisable as of |
|  |  |  |  |  | December 31, 2017 |  | December 31, 2017 |
|  |  |  |  |  |  |  |  |  |  | Weighted‑average |  |  |  |  |  |
Range of |  |  |  | Weighted‑average |  | Remaining |  |  |  | Weighted‑Average |
Exercise Price |  | Shares |  | Exercise Price |  | Contractual Life |  | Shares |  | Exercise Price |
$ | 2.04 | - | $ | 2.14 |  | 36 |  | $ | 2.10 |  | 4.47 |  | 31 |  | $ | 2.09 |
$ | 2.18 | - | $ | 2.18 |  | 634 |  | $ | 2.18 |  | 7.79 |  | 262 |  | $ | 2.18 |
$ | 2.29 | - | $ | 2.36 |  | 401 |  | $ | 2.33 |  | 6.05 |  | 376 |  | $ | 2.33 |
$ | 2.47 | - | $ | 2.51 |  | 284 |  | $ | 2.47 |  | 6.78 |  | 201 |  | $ | 2.47 |
$ | 2.56 | - | $ | 4.79 |  | 366 |  | $ | 3.55 |  | 4.94 |  | 332 |  | $ | 3.65 |
$ | 5.21 | - | $ | 5.21 |  | 518 |  | $ | 5.21 |  | 8.75 |  | 135 |  | $ | 5.21 |
$ | 5.61 | - | $ | 5.83 |  | 242 |  | $ | 5.76 |  | 3.11 |  | 242 |  | $ | 5.76 |
$ | 7.82 | - | $ | 7.82 |  | 1 |  | $ | 7.82 |  | 2.84 |  | 1 |  | $ | 7.82 |
$ | 7.95 | - | $ | 7.95 |  | 60 |  | $ | 7.95 |  | 9.08 |  | — |  | $ | — |
$ | 9.50 | - | $ | 9.50 |  | 124 |  | $ | 9.50 |  | 9.82 |  | — |  | $ | — |
|  |  |  |  |  | 2,666 |  | $ | 3.81 |  | 6.87 |  | 1,580 |  | $ | $3.37 |
There were 762,000, 555,000 and 119,000 options exercised in the years ended December 31, 2017, 2016, and 2015, respectively. The total intrinsic value of options exercised for the years ended December 31, 2017, 2016, and 2015, was $4,030,000, $1,302,000 and $118,000, respectively. As of December 31, 2017, the unamortized compensation costs related to unvested stock options granted to employees under our 2015 plan was approximately $1.7 million, net of estimated forfeitures of $190,000. These costs will be amortized on a straight-line basis over a weighted-average period of approximately 2.3 years and will be adjusted for subsequent changes in estimated forfeitures. We did not capitalize any stock‑based compensation to inventory as of December 31, 2017 and 2016, due to the immateriality of the amount. Restricted Stock Awards A summary of activity related to restricted stock awards for the years ended December 31, 2015, 2016 and 2017 is presented below (in thousands, except per share data):
|  |  |  | Weighted-Average |
|  |  |  | Grant Date |
Stock Awards |  | Shares |  | Fair Value |
Non-vested as of January 1, 2015 |  | 261 |  | $ | 2.71 |
Granted |  | 547 |  | $ | 2.42 |
Vested |  | (215) |  | $ | 2.81 |
Forfeited |  | (47) |  | $ | 2.47 |
Non-vested as of December 31, 2015 |  | 546 |  | $ | 2.39 |
Granted |  | 136 |  | $ | 4.66 |
Vested |  | (150) |  | $ | 2.34 |
Forfeited |  | (207) |  |  | 2.55 |
Non-vested as of December 31, 2016 |  | 325 |  | $ | 3.27 |
Granted |  | 312 |  | $ | 9.15 |
Vested |  | (157) |  | $ | 3.13 |
Forfeited |  | — |  | $ | — |
Non-vested as of December 31, 2017 |  | 480 |  | $ | 7.13 |
Total fair value of stock awards vested during the years ended December 31, 2017, 2016, and 2015 was $490,000 $351,000 and $605,000, respectively. As of December 31, 2017, we had $3.1 million of unrecognized compensation expense related to restricted stock awards, which will be recognized over the weighted average period of 2.0 years. Common Stock The following number of shares of common stock were reserved and available for future issuance as of December 31, 2017 (in thousands, except per share data):
Options outstanding |  | 2,666 |
Restricted stock awards outstanding |  | 480 |
Stock available for future grant: 2015 Equity Incentive Plan |  | 1,389 |
Total |  | 4,535 |
Stock-based Compensation We recorded $1.4 million, $1.1 million and $1.3 million of stock‑based compensation in our consolidated statements of operations for the years ended December 31, 2017, 2016, and 2015, respectively. The following table summarizes compensation costs related to our stock‑based compensation awards (in thousands, except per share data):
|  | Year Ended |
|  | December 31, |
|  | 2017 |  | 2016 |  | 2015 |
Stock‑based compensation in the form of employee stock options and restricted stock, included in: |  |  |  |  |  |  |  |  |  |
Cost of revenue |  | $ | 39 |  | $ | 23 |  | $ | 20 |
Selling, general and administrative |  |  | 1,146 |  |  | 908 |  |  | 1,148 |
Research and development |  |  | 220 |  |  | 165 |  |  | 181 |
Total stock-based compensation |  |  | 1,405 |  |  | 1,096 |  |  | 1,349 |
Tax effect on stock-based compensation |  |  | — |  |  | — |  |  | — |
Net effect on net income |  | $ | 1,405 |  | $ | 1,096 |  | $ | 1,349 |
Shares used in computing basic net income per share |  |  | 37,444 |  |  | 32,139 |  |  | 32,183 |
Shares used in computing diluted net income per share |  |  | 38,966 |  |  | 32,894 |  |  | 32,183 |
Effect on basic net income per share |  | $ | (0.04) |  | $ | (0.03) |  | $ | (0.04) |
Effect on diluted net income per share |  | $ | (0.04) |  | $ | (0.03) |  | $ | (0.04) |
We estimate the fair value of stock options using a Black‑Scholes valuation model, consistent with the provisions of ASC 718. There were 184,000, 624,000 and 866,000 stock options granted with a weighted-average grant date fair value of $3.67, $1.85 and $0.88 per share during 2017, 2016, and 2015, respectively. The fair value of options granted was estimated at the date of grant using the following weighted‑average assumptions:
|  | Year Ended |
|  | December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Expected term (in years) |  | 5.8 |  |  | 4.0 |  |  | 3.9 |
Volatility |  | 46.5 | % |  | 46.5 | % |  | 51.1 | %
Expected dividend |  | — | % |  | — | % |  | — | %
Risk-free interest rate |  | 2.10 | % |  | 1.47 | % |  | 1.75 | %
The expected term for stock options is based on the observed historical option exercise behavior and post-vesting forfeitures of options by our employees, and the contractual term, the vesting period and the expected term of the outstanding options. Expected volatility is based on the historical volatility of our common stock. The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded Treasury securities for terms equal to the expected term of the options. Retirement Savings Plan We have a 401(k) Savings Plan (“Savings Plan”) which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. All full-time U.S. employees are eligible to participate in the Savings Plan after 90 days from the date of hire. Employees may elect to reduce their current compensation by up to the statutory prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. We provide matching to employee contributions up to 4% of the employees’ base pay if employees contribute at least 6% of their base pay. If the contribution rate is less than 6% of the base pay, the matching percentage is prorated. Our contributions to the Savings Plan were $149,000, $133,000 and $125,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

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