CONTROL4 CORP - 10-Q filing on 2016-11-04

Equity Compensation

9 Months Ended

Sep. 30, 2016

8. 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, restricted stock units and restricted stock awards. 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 after 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 5% of the outstanding number of shares of the Company’s Common Stock as of the preceding December 31. The Company and its Board of Directors decided to forego increasing the number of reserved shares on January 1, 2016, and will revisit this option for an annual increase next year.

A summary of stock option activity for the nine months ended September 30, 2016 is presented below:


						Weighted
		Weighted				Average
	Shares Subject	Average		Weighted		Remaining
	to Options	Grant Date		Average		Contractual
	Outstanding	Fair Value		Exercise Price		Life (Years)
Balance at December 31, 2015	4,572,672			$	10.72
Granted	50,000		4.63		8.16
Exercised	(619,757)				4.87
Expired	(69,832)				14.79
Forfeited	(51,588)				15.68
Balance at September 30, 2016	3,881,495				11.48

Exercisable options at September 30, 2016	2,990,429				10.41	5.6
Vested and expected to vest at September 30, 2016	3,822,911				11.44	6.1

The following table summarizes information about stock options outstanding and exercisable at September 30, 2016:


				Options Outstanding				Options Exercisable
							Weighted-		Weighted-
				Weighted			Average		Average
				Average		Number of	Remaining	Number of	Remaining
				Exercise		Underlying	Contractual	Underlying	Contractual
Range of Exercise Prices				Price		Shares	Life (in years)	Shares	Life (in years)
$	2.34	-	3.59		3.25	60,694	0.8	60,694	0.8
$	4.78	-	7.28		5.94	1,246,543	4.6	1,225,444	4.5
$	7.49	-	11.28		9.77	1,044,374	5.9	838,969	5.4
$	11.72	-	17.66		14.75	863,004	8.1	427,361	8.0
$	19.56	-	22.92		21.04	666,880	7.2	437,961	7.1
						3,881,495		2,990,429

For the stock option awards vested during the three and nine months ended September 30, 2016, the total fair value was $1.3 million and $4.2 million, respectively. The following table summarizes the aggregate intrinsic-value of options exercised, exercisable and vested and expected to vest (in thousands):


	For the Nine Months Ended
	and as of September 30,
	2016		2015
Options Exercised	$	2,978	$	1,327
Options Exercisable		10,491		5,333
Options Vested and Expected to Vest		11,065		5,389

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016		2015				2016			2015
Expected volatility		—			53	%		62	%	53	-	55	%
Expected dividends		—			0	%		0	%			0	%
Expected terms (in years)		—	5.3	-	6.1			6.1		5.3	-	6.1
Risk-free rate		—	1.5	-	1.8	%		1.1	%	1.3	-	1.8	%

No stock options were granted during the three months ended September 30, 2016.

Restricted stock units

A summary of restricted stock unit activity for the nine months ended September 30, 2016 is presented below:


	Number of	Weighted Average
	Shares	Grant Date Fair Value
Non-vested balance at December 31, 2015	425,000	$	8.18
Awarded	1,139,846		7.37
Vested	(17,670)		7.85
Forfeited	(89,719)		7.84
Non-vested balance at September 30, 2016	1,457,457		7.57

During the nine months ended September 30, 2016, 17,670 restricted stock units vested of which 6,949 shares were withheld for tax purposes resulting in the issuance of 10,721 shares of common stock.

Stock-based compensation expense

Total stock-based compensation expense has been classified as follows in the accompanying Condensed Consolidated Statements of Operations (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of revenue	$	38	$	40	$	128	$	126
Research and development		789		706		2,493		2,145
Sales and marketing		496		457		1,605		1,298
General and administrative		660		605		1,707		1,767
Total stock-based compensation expense	$	1,983	$	1,808	$	5,933	$	5,336

At September 30, 2016, there was $7.8 million of total unrecognized compensation cost related to non-vested stock option awards that will be recognized over a weighted-average period of 1.9 years. At September 30, 2016, there was $8.5 million of total unrecognized compensation cost related to non-vested restricted stock units that will be recognized over a weighted-average period of 2.4 years.