CONTROL4 CORP - 10-Q filing on 2015-05-06

Equity Compensation

3 Months Ended

Mar. 31, 2015

7. Equity Compensation

Stock Options

In 2003, the Board of Directors adopted the 2003 Equity Incentive Plan (the “2003 Plan”), which provided for the granting of nonqualified and incentive stock options, stock appreciation rights, stock awards and restricted stock. Under the 2003 Plan, the Company was able to grant nonqualified and incentive stock options to directors, employees and non-employees providing services to the Company. On June 11, 2013, the Company’s Board of Directors adopted the 2013 Stock Option and Incentive Plan (the “2013 Plan”), which was subsequently approved by the Company’s stockholders. The 2013 Plan became effective as of the closing of the Company’s initial public offering. To the extent that any awards outstanding under the 2003 Plan are forfeited or lapse unexercised subsequent to August 1, 2013, the shares of common stock subject to such awards will become available for issuance under the 2013 Plan. The 2013 Plan provides for annual increases in the number of reserved shares of up to 5% of the outstanding number of shares of the Company’s Common Stock as of the preceding December 31. On January 1, 2015, the number of reserved shares was increased by 1,215,269 shares in accordance with the provisions of the 2013 Plan.

A summary of stock option activity for the three months ended March 31, 2015 is presented below:

	Shares Subject to Options Outstanding		Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Balance at December 31, 2014	4,851,221				$	10.57
Granted	41,000		$	6.87	13.14
Exercised	(96,990	)			5.05
Expired	(5,074	)			11.41
Forfeited	(14,081	)			12.35
Balance at March 31, 2015	4,776,076				10.70

Exercisable options at March 31, 2015	2,721,289				7.49		5.7
Vested and expected to vest at March 31, 2015	4,596,162				10.50		6.9

The following table summarizes information about stock options outstanding and exercisable at March 31, 2015:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Weighted Average Exercise Price		Number of Underlying Shares	Weighted- Average Remaining Contractual Life (in years)	Number of Underlying Shares	Weighted- Average Remaining Contractual Life (in years)
$0.78 - 1.72	$	1.10	26,639	0.5	26,639	0.5
1.97 - 3.38	2.57		238,762	1.6	238,762	1.6
3.58 - 6.14	5.66		1,510,318	5.4	1,412,151	5.4
6.34 - 9.94	8.29		981,727	7.0	668,671	6.9
11.28 - 16.97	13.91		1,214,668	8.8	162,600	6.2
17.66 - 22.92	21.00		803,962	8.9	212,466	8.8
			4,776,076		2,721,289

For the stock option awards vested during the three months ended March 31, 2015, the total fair value was $2.9 million. The following table summarizes the aggregate intrinsic-value of options exercised, exercisable and vested and expected to vest (in thousands):

	For the three months ended and as of March 31, 2015
Options Exercised	$	782
Options Exercisable	14,232
Options Vested and Expected to Vest	15,915

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended March 31,
	2014		2015
Expected volatility	56 – 60	%	54 – 55	%
Expected dividends	0	%	0	%
Expected terms (in years)	3.8 – 6.1		6.1
Risk-free rate	1.1 – 2.0	%	1.3 – 1.6	%

Total stock-based compensation expense has been classified as follows in the accompanying statements of operations (in thousands):

	Three Months Ended March 31,
	2014		2015
Cost of revenue	$	20	$	47
Research and development	478		772
Sales and marketing	222		454
General and administrative	527		576
Total stock-based compensation expense	$	1,247	$	1,849

At March 31, 2015, there was $16.9 million of total unrecognized compensation cost related to non-vested stock option awards that will be recognized over a weighted-average period of 2.9 years.