Stock-based Compensation and Awards

Stock Option Activity

A summary of the stock option activity for the nine months ended September 30, 2014 is presented below:



	Options outstanding
	Number of Options		Weighted Average Exercise Price		Weighted average remaining contractual term	Aggregate intrinsic value
	Number of Options		Weighted Average Exercise Price		(in years)	(in thousands)
Outstanding at December 31, 2013	3,287,207		$	9.62	6.45	$	24,880
Options granted	972,734		11.85
Options exercised	(246,456	)	3.55
Options canceled	(353,454	)	14.25
Outstanding at September 30, 2014	3,660,031		$	10.17	6.20	$	8,265

At September 30, 2014, there was $7.4 million of unrecognized net compensation cost related to options which is expected to be recognized over a weighted-average period of 2.89 years. As of September 30, 2014, there were 419,743 shares that remained available for future issuance of options, restricted stock units (“RSUs”) or other equity awards under the 2012 Equity Incentive Plan.

The Company did not grant non-employee options in the nine months ended September 30, 2013. During the nine-months ended September 30, 2014 the Company modified 35,528 outstanding restricted stock units and 84,758 stock options to allow for continued vesting of the awards pursuant to the terms of consulting arrangements entered into with the Company’s former Chief Financial Officer and Executive Chairman. The share based compensation expense recognized during the period and remaining unamortized share based compensation expense as of September 30, 2014 for the awards were not material and will be fully recognized by the quarter ended June 30, 2015 at the expected termination of the consulting arrangements. The share amounts and related compensation expense are included in the options and RSU tables below, as well as in the income statement allocation table.

The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options on their grant date. The following assumptions were used for each respective period for employee stock options:



	Three months ended September 30,		Nine months ended September 30,
	2014	2013	2014	2013
Expected Term (in years)	5.45	5.38	5.41 - 5.45	5.38 - 5.43
Volatility	41.4%	46.7%	44.0% - 48.2%	46.7% - 48.1%
Risk-free interest rate	1.78%	1.80%	1.59% - 1.78%	0.81% - 1.80%
Dividend yield	0%	0%	0%	0%

Exercise of common stock warrants

During the nine months ended September 30, 2013, holders of common stock warrants exercised 34,142 shares for cash proceeds of $0.2 million. There were no cash exercises of warrants during nine months ended September 30, 2014.

Employee Stock Purchase Plan

In March 2012, the Company’s 2012 Employee Stock Purchase Plan (the “ESPP”) was approved. During the nine months ended September 30, 2014, employees purchased 86,646 shares of common stock at an average purchase price of $10.91. During the nine months ended September 30, 2013, employees purchased 115,784 shares of common stock at an average purchase price of $13.79. As of September 30, 2014, 356,945 shares remained available for future issuance under the ESPP.

The following Black-Scholes option-pricing assumptions were used for each respective period for the ESPP:



	Three months ended September 30,		Nine months ended September 30,
	2014	2013	2014	2013
Expected Term (in years)	0.50	0.25	0.50	0.25 - 0.50
Volatility	35.9%	33.3%	35.9% - 36.0%	33.3%
Risk-free interest rate	0.05%	0.05%	0.05% - 0.10%	0.05% - 0.13%
Dividend yield	0%	0%	0%	0%

Restricted Stock Awards and Restricted Stock Units

A summary of restricted stock and RSU activity for the nine months ended September 30, 2014 is presented below:



	Restricted Stock Awards				Restricted Stock Units
	Number of shares		Weighted Average Grant Date Fair Value per Share		Number of shares		Weighted Average Grant Date Fair Value per Share
Outstanding at December 31, 2013	12,076		$	12.42	755,271		$	19.24
Granted	—		—		769,262		11.87
Vested	(12,076	)	12.42		(269,443	)	18.97
Forfeited	—		—		(144,776	)	17.25
Outstanding at September 30, 2014	—		$	—	1,110,314		$	14.46

At September 30, 2014, there was no remaining unrecognized net compensation cost related to restricted stock awards. At September 30, 2014, there was $11.5 million of unrecognized net compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 2.15 years.

Allocation of Stock-Based Compensation Expense

The following table presents the stock-based compensation allocation of expense (both for employees and non-employees):



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2014		2013		2014		2013
Cost of revenue	$	320	$	272	$	857	$	707
Research and development	266		194		725		632
Sales and marketing	1,123		816		3,158		2,121
General and administrative	1,076		1111		3,420		2,653
Total stock-based compensation	$	2,785	$	2,393	$	8,160	$	6,113