Note 10. Stock-Based Awards

2016 Equity Incentive Plan

In June 2016, our board of directors adopted and our stockholders approved the 2016 Equity Incentive Plan, or the 2016 Plan, which became effective in July 2016 at which time the 2010 Equity Incentive Plan, or the 2010 Plan, was terminated. Our 2000 Stock Plan was terminated in March 2010. The number of shares of common stock reserved for issuance under the 2016 Plan may increase on January 1 of each year, beginning on January 1, 2017 and ending on and including January 1, 2026, by the least of (1) 1,825,000; (2) 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; and (3) a lesser number of shares determined by our board of directors. All options granted under the 2000 Stock Plan, the 2010 Plan and the 2016 Plan have a maximum 10-year term and generally vest and become exercisable over four years of continued employment or service as defined in each option agreement. We generally grant stock options with exercise prices that equal the fair value of the common stock on the date of grant.

Option Awards

The following table summarizes option award activity for the year ended December 31, 2017 (in thousands, except per share data and years):

	Number of Shares Underlying Options			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Years)		Total Intrinsic Value
Outstanding at December 31, 2016		2,310		$	8.84
Granted		1,275			36.26
Exercised		(444	)		3.64
Forfeited or Cancelled		(291	)		16.16
Outstanding at December 31, 2017		2,850			21.16		8.01		20,802
Vested and exercisable at December 31, 2017		1,009		$	6.72		6.14	$	16,128

The fair value of options granted is estimated at the date of grant using the Black-Scholes-Merton option-pricing model with the following assumptions for the periods presented:

		Stock Options
		Year Ended December 31,
	2017		2016		2015
Risk-free interest rate	1.8% – 2.2%		1.1% – 2.1%		1.2% – 1.6%
Expected dividends yield	None		None		None
Expected volatility	52.2% – 59.1%		40.8% – 49.5%		41.5% – 43.4%
Weighted-average expected life	6.08		5.78		4.31
Weighted-average fair value of options granted	$	19.15	$	9.60	$	3.12

We determined that it was not practicable to calculate the volatility of our share price since we do not have an extensive public trading history for shares of our common stock. Therefore, we estimated our volatility based on a combination of our historical volatility since becoming a publicly traded company and reported market value data for a group of publicly-traded entities that we believe are relatively comparable after consideration of their size, stage of lifecycle, profitability, growth and risk and return on investment.

The total intrinsic value of options exercised during 2017, 2016 and 2015 was $14.9 million, $1.1 million and $3.8 million, respectively. The total fair value of options vested was $3.1 million, $1.4 million and $1.3 million during 2017, 2016 and 2015, respectively.

As of December 31, 2017, our total unrecognized stock-based compensation cost related to unvested stock options was $27.3 million, which will be recognized over the weighted-average remaining requisite service period of 3.0 years.

Unvested Shares

Prior to the adoption of our 2016 Equity Incentive Plan, we provided employees with the opportunity to early exercise stock options subject to the original vesting schedule of the option. In the event of voluntary or involuntary termination of employment with us, we have an irrevocable and exclusive option to repurchase the unvested portion of the shares at the original exercise price after the termination of employment. We account for cash received in consideration for the purchase of unvested shares of common stock or the early exercise of unvested stock options as a current liability and include it in accrued compensation and employee related benefits on the consolidated balance sheet. We repurchased 1,765 unvested shares from terminated employees in 2017 and none in 2016.

The following table summarizes activity of unvested shares related to early exercise of our common stock for the year ended December 31, 2017 (in thousands, except per share data):

	Shares Outstanding
	Number of Shares			Weighted-Average Exercise Price per Share
Outstanding at December 31, 2016		118		$	3.30
Issued		1			4.71
Vested		(69	)		2.59
Repurchased		(2	)		3.19
Outstanding at December 31, 2017		48			4.32

Restricted Stock Units

The following table summarizes activity for restricted stock units for the year ended December 31, 2017 (in thousands, except per share data):

	Shares Outstanding
	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2016		—	$	—
Granted		12		46.53
Outstanding at December 31, 2017		12		46.53

The fair value of the outstanding restricted stock units will be recorded as stock-based compensation expense over the vesting period. As of December 31, 2017, there was $267,000 of total unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average period of 0.7 years.

Employee Stock Purchase Plan

In 2016, we adopted the 2016 Employee Stock Purchase Plan, the ESPP, which became effective in July 2016. Under the ESPP, eligible employees can authorize payroll deductions for amounts up to 15% of their eligible compensation. A participant may purchase a maximum of 4,000 shares each six-month period or some lesser number of shares as determined by IRS rules. The offering periods generally start on the first trading day on or after February 20 and August 20 of each year, except for the first offering period, which commenced on July 21, 2016 and will end on the first trading day on or after February 20, 2017. Participants in an offering period will be granted the right to purchase common shares at a price per share that is 85% of the least of the fair market value of the shares at (1) the first day of the offering period and (2) the end of each purchase period within the offering period. The fair value of the ESPP options granted is determined using a Black-Scholes model and is amortized on a straight-line basis over the related offering period. The number of shares reserved for the ESPP may increase each year, beginning on January 1, 2017 and continuing through and including January 1, 2036, by the least of: (1) 1% of the total number of shares of common stock outstanding on the first day of such year; (2) 365,411 shares of common stock; and (3) such amount as determined by our board of directors.

As of December 31, 2017, the total unrecognized stock-based compensation related to the ESPP was $118,000 and will be recognized on a straight-line basis over the weighted-average remaining service period of 0.1 years.

The fair value of the ESPP options granted is estimated at the start of the offering period using the Black-Scholes-Merton option-pricing model with the following assumptions for the periods presented:

	Employee Stock Purchase Plan
	Year Ended December 31,
	2017	2016
Risk-free interest rate	0.7% – 1.1%	0.4%
Expected term	0.5 years	0.5 years
Expected volatility	66.5% – 71.2%	61.8%

Stock-Based Compensation Expense

The following table presents the detail of stock-based compensation expense amounts included in our consolidated statements of operations for the periods indicated (in thousands):

	Year Ended
	December 31,
	2017		2016		2015
Cost of revenue	$	231	$	96	$	31
Research and development expense		2,431		983		305
Sales and marketing expense		3,113		1,289		692
General and administrative expense		1,653		397		150
Total stock-based compensation expense	$	7,428	$	2,765	$	1,178