NOTE 10. STOCK PLANS

Stock Incentive Plans

In 2014, the Company’s Board of Directors and stockholders approved and adopted the 2014 Stock Option/Stock Issuance Plan (the “2014 Plan”), which was amended in March 2015, October 2016 and April 2017. The Plan provides that awards granted may be options, restricted stock or restricted stock units. Stock option awards may be either incentive stock options or non-qualified options. Awards may be granted to eligible employees, directors and consultants under the 2014 Plan. The Company’s Board of Directors has resolved not to make any further awards under the 2014 Plan following the completion of the Company’s IPO. The 2014 Plan will continue to govern all outstanding awards granted thereunder.

In April 2017, the Company’s Board of Directors and stockholders approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective on May 11, 2017. Under the 2017 Plan, employees, non-employee directors, consultants and advisors may be granted options, stock appreciation rights, stock awards and restricted stock units. The Company had initially reserved 2,000,000 shares of its common stock for issuance under the 2017 Plan. The share reserve will increase automatically on the first trading day of January each calendar year, beginning with calendar year 2018, by an amount equal to 3% of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, up to an annual maximum of 750,000 shares. As of December 31, 2017, an aggregate of 1,372,767 shares of common stock were available for future grant under the 2017 Plan.

The 2014 Plan and the 2017 Plan are collectively referred to herein as the “Stock Plans.” The Stock Plans are administered by the compensation committee of the Board of Directors, which determines the recipients and the terms of the awards granted. All stock options granted under the Stock Plans have exercise prices equal to or greater than the fair market value of the Company’s common stock on the grant date, and expire ten years after the grant date, subject to earlier expiration in the event of termination of the optionee’s continuous service with the Company.

Equity awards that have been granted under the Stock Plans to employees (with the exception the Company’s Chief Executive Officer and President) and consultants generally vest over a period of four years (with certain limited exceptions), subject to the optionee’s continuous service with the Company. The restricted stock units awarded to members of the Company’s Board of Directors under the automatic grant program provisions of the 2017 Plan vest over a period of one year.

 

In May 2017, the Company granted to the Company’s Chief Executive Officer, Chad Steelberg, and President, Ryan Steelberg, pursuant to the terms of their employment agreements, (i) options to purchase an aggregate of 2,089,638 shares of the Company’s common stock, which are subject to time-based vesting conditions, and (ii) options to purchase an aggregate of 1,044,818 shares of the Company’s common stock, which are subject to performance-based vesting conditions. The exercise price of all such stock options is $15 per share, which was the IPO price of the Company’s common stock. The time-based stock options vest in equal monthly increments over three years, subject to each executive’s continuous service with the Company, and subject to acceleration of vesting under certain circumstances as set forth in the option agreements. The performance-based stock options were to vest upon the earlier of the first date on which the market capitalization of the Company’s common stock equaled or exceeded $400,000 over five consecutive business days, or five years after the IPO. In September 2017, the performance-based stock options vested in full, as the performance measure relating to the Company’s market capitalization was achieved. Total stock-based compensation expense of $9,282 was recorded in 2017 for these performance-based stock options.

The shares of common stock issuable to Chad Steelberg on a quarterly basis in lieu of salary pursuant to his employment agreement are fully vested upon issuance.

Stock-based Compensation

The Company recognizes stock-based compensation expense for awards granted under the Stock Plans ratably over the requisite service period, which is generally the vesting period. The Company also recognizes stock-based compensation expense related to the Company’s Employee Stock Purchase Plan (“ESPP”) ratably over each purchase interval.

The fair values of stock options and purchase rights under the ESPP are determined as of the grant date using the Black-Scholes option-pricing model. The assumptions used in calculating the fair values of options granted during the years ended December 31, 2017 and 2016 are set forth in the table below:

 

		Year Ended December 31, 2017		Year Ended December 31, 2016
Expected terms (in years)		5.83 - 6.31		5.58 - 6.08
Expected volatility		52% -65%		55%% - 60%
Risk-free interest rate		1.79% - 2.20%		1.30% - 1.72%
Expected dividend yield		—		—

The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the year ended December 31, 2017 are set forth in the table below:

 

		Year Ended December 31, 2017
Expected term (in years)		0.50
Expected volatility		53%
Risk-free interest rate		1.15%
Expected dividend yield		—

 

The Company’s stock-based compensation expense for the years ended December 31, 2017 and 2016 totaled $16,089 and $1,730, respectively. The stock-based compensation expense by type of award and by operating expense grouping are presented below:

 

		Year Ended December 31,
		2017				2016
Stock-based compensation expense by type of award:
Restricted stock		$	891			$	151
Common stock awards			375				1,442
Restricted stock units			327				—
Stock options			14,391				137
Employee stock purchase plan			105				—
Total		$	16,089			$	1,730
Stock-based compensation expense by operating expense grouping:
Sales and marketing		$	438			$	71
Research and development			464				31
General and administrative			15,187				1,628
Total		$	16,089			$	1,730

In recognizing stock-based compensation expense related to equity awards under the Company’s Stock Plans for the years ended December 31, 2017 and 2016, the Company applied an estimated forfeiture rate of ten percent (10%) based on historical and estimated future turnover of the Company’s employees.

Restricted Stock

The Company’s restricted stock activity for the year ended December 31, 2017 was as follows:

 

		Shares				Weighted Average Grant Date Fair Value
Unvested at December 31, 2016			208,886			$	4.80
Granted			64,240			$	15.47
Forfeited			(22,241)			$	8.42
Vested			(103,429)			$	8.50
Unvested at December 31, 2017			147,456			$	6.30

As of December 31, 2017, total unrecognized compensation cost related to restricted stock was $1,030, which is expected to be recognized over a period of 2.2 years. The weighted average grant date fair value per share of restricted stock granted was $15.47 and $4.71 for the years ended December 31, 2017 and 2016, respectively. The fair values of restricted stock vested during the years ended December 31, 2017 and 2016 totaled $2,185 and $243, respectively.

 

Restricted Stock Units

The Company’s restricted stock units activity for the year ended December 31, 2017 was as follows:

 

		Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2016		—		$	—
Granted		35,576		$	14.76
Forfeited		—		$	—
Vested		—		$	—
Unvested at December 31, 2017		35,576		$	14.76

As of December 31, 2017, total unrecognized compensation cost related to restricted stock units was $197, which is expected to be recognized over a period of 0.4 year.

Stock Options

The Company’s stock option activity for the year ended December 31, 2017 was as follows:

 

		No. of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Outstanding at December 31, 2016			680,434			$	2.27				8.49			$	3,031
Options Granted			4,383,208			$	15.27
Options Exercised			(80,829	)		$	1.62
Options Forfeited			(161,346	)		$	9.90
Options Expired			(18,873	)		$	1.50
Outstanding at December 31, 2017			4,802,594			$	13.89				9.17				$44,712
Exercisable at December 31, 2017			1,805,482			$	12.44				8.85				$19,433
Vested and expected to vest at December 31, 2017			4,715,202			$	13.87				9.17				$43,994

The aggregate intrinsic value in the table above represents the difference between the fair market value of the Company’s common stock and the average option exercise price of in-the-money options multiplied by the number of such options. The weighted average grant date fair value per share of stock options granted was $8.95 and $2.14 for the years ended December 31, 2017 and 2016, respectively. The aggregate intrinsic value of the options exercised during the years ended December 31, 2017 and 2016 was $1,875 and $258, respectively. The total grant date fair value of stock options vested during the years ended December 31, 2017 and 2016 was $13,094 and $95, respectively.

At December 31, 2017, total unrecognized compensation expense related to stock options was $23,408 and is expected to be recognized over a weighted average period of 2.8 years.

Employee Stock Purchase Plan

In April 2017, the Company’s Board of Directors and stockholders approved and adopted the ESPP, which became effective on May 11, 2017. The ESPP is administered by the compensation committee of the Board of Directors and is intended to qualify as an employee stock purchase plan under Section 423 of the Code. The purchase price for shares of the Company’s common stock under the ESPP will be established by the plan administrator prior to the start of the offering period, but will not be less than 85% of the lower of the fair market value of the Company’s common stock on (i) the date the eligible employee enters an offering period and (ii) the purchase date. Each purchase right granted to an employee will provide an employee with the right to purchase up to 1,000 shares of common stock on each purchase date within the offering period. However, no employee will have the right to purchase shares of the Company’s common stock in an amount that, when aggregated with the shares subject to purchase rights under all Company employee stock purchase plans that are also in effect in the same calendar year, have a fair market value of more than $25, determined as of the first day of the applicable offering period.

The Company has initially reserved 1,000,000 shares of its common stock for issuance under the ESPP. The share reserve will increase automatically on the first trading day of January each calendar year, beginning with calendar year 2018, by an amount equal to 1% of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, up to an annual maximum of 250,000 shares. Accrued employee contributions as of December 31, 2017 amounted to $253. As of December 31, 2017, no shares of common stock had been purchased by the Company’s employees under the ESPP.