7. Stock-Based Compensation

During the year ended December 31, 2011, the board of directors approved the 2011 Equity Incentive Plan (2011 Plan). A total of 4,225,648 shares of common stock were reserved for future issuance under the 2011 Plan, which became effective on November 17, 2011. The Company has a 2004 Equity Incentive Plan (2004 Plan), but no longer grants stock options under this plan. Canceled or forfeited stock option grants under the 2004 Plan will be added to the total amount of shares available for grant under the 2011 Plan. In addition, shares authorized but unissued as of November 17, 2011 under the 2004 Plan were added to shares available for grant under the 2011 Plan. The 2011 Plan contains an "evergreen" provision, pursuant to which the number of shares available for issuance under the 2011 Plan may be increased on the first day of the fiscal year, in an amount equal to the least of (a) 2,535,389 shares, (b) 4.5% of the outstanding Shares on the last day of the immediately preceding fiscal year or (c) such number of shares determined by the board of directors. During 2015 the Company registered an additional 2,142,636 shares under its 2011 Plan.

The 2011 Plan allows the Company to award stock options (incentive and non-qualified), restricted stock, restricted stock units, stock appreciation rights, deferred stock awards, dividend equivalents, performance awards, stock payments, performance shares and other incentive awards, or any combination thereof to employees, officers, directors and consultants of the Company. The exercise price of incentive stock options, which may only be granted to employees, granted under the 2011 Plan to participants with less than 10% voting power of all classes of stock of the Company or any parent or subsidiary company may not be less than 100% of the fair market value of the Company's common stock on the date of the grant. The exercise price of incentive stock options granted under the 2011 Plan to participants with 10% or more voting power of all classes of stock of the Company or any parent or subsidiary company may not be less than 110% of the fair market value of the Company's common stock on the date of the grant. Options granted under the 2011 Plan generally expire ten years from the date of grant and are generally exercisable at any time after the date of grant when the shares are vested. Incentive and nonstatutory stock options granted generally vest at a rate of 25% on the first anniversary of the commencement or grant date and 1/48th each month thereafter. Incentive stock options granted to participants with 10% or more of the voting power of all classes of the Company's common stock on the date of grant have a maximum term of five years from the date of grant. During 2014, the Company granted $1.3 million of options with two year vesting, with 50% vesting on the first anniversary of the vesting commencement date and the remaining shares vesting monthly such that all shares are vested on the second anniversary of the vesting commencement date.

Option activity for the periods presented is as follows:


	Options Outstanding
				Weighted-
		Weighted-		Average	Aggregate
	Number of	Average		Remaining	Intrinsic
	Stock Options	Exercise		Contractual	Value
	Outstanding	Price		Life (Years)	(in thousands)
Balance as of December 31, 2012	7,426,417	$	3.57	6.4	$	40,040
Granted	1,720,242		7.53
Exercised	(2,031,903)		1.31
Cancelled	(646,013)		7.40
Balance as of December 31, 2013	6,468,743		4.96	6.7		8,991
Granted	6,086,984		2.43
Exercised	(593,173)		2.00
Cancelled	(1,481,663)		6.75
Balance as of December 31, 2014	10,480,891		3.25	7.4		1,073
Granted	4,069,813		1.84
Exercised	(1,126,788)		1.30
Cancelled	(2,111,698)		3.82
Balance as of December 31, 2015	11,312,218	$	2.83	8.0	$	2,450
Exercisable as of December 31, 2015	4,612,219	$	3.55	—	$	—
Vested and expected to vest as of December 31, 2015	9,839,708	$	2.83	—	$	—

Restricted stock award and restricted stock unit (RSUs) activity for the periods presented is as follows:


	Number of
	Stock RSUs	Weighted-Average Grant
	Outstanding	Date Fair Value
Balance as of December 31, 2012	254,863	$	6.45
Granted	847,750		8.13
Vested	(74,985)		—
Forfeited	(143,527)		8.56
Balance as of December 31, 2013	884,101		7.69
Granted	1,485,488		2.75
Vested	(285,270)		—
Forfeited	(466,768)		5.83
Balance as of December 31, 2014	1,617,551		3.79
Granted	40,000		1.66
Vested	(917,926)		—
Forfeited	(375,783)		4.55
Balance as of December 31, 2015	363,842	$	4.72
Vested and expected to vest as of December 31, 2015	265,932

Typically, vesting of RSUs occurs over four years and is subject to the employee's continuing service to the Company. During 2014, the Company granted $1.0 million of RSUs with a one year vesting period and subject to the employee's continuing service to the Company. The aggregate intrinsic value of RSUs outstanding at December 31, 2015 and 2014 was $0.8 million and $3.1 million, respectively.

RSUs that vested during 2015 and 2014 had fair values of $2.8 million and $2.0 million as of the vesting date, respectively.

The following table presents details on grants made by the Company for the following periods:


	Years Ended			Years Ended
	December 31, 2015			December 31, 2014
		Weighted-			Weighted-
		Average Grant			Average Grant
	Shares Granted	Date Fair Value		Shares Granted	Date Fair Value
Stock options	4,069,813	$	1.84	6,086,984	$	1.34
RSUs	40,000	$	1.66	1,485,488	$	2.75

As of December 31, 2015 and December 31, 2014, the Company had reserved shares of common stock for issuance as follows:


	As of December 31, 2015	As of December 31, 2014
Number of stock options outstanding	11,312,218	10,480,891
Number of RSUs outstanding	258,878	897,231
Shares available for future grant	2,960,442	1,672,794
Number of warrants outstanding	—	90,000
Total shares reserved	14,531,538	13,140,916

The Company recognized stock-based compensation expense for awards granted to its employees and nonemployees as follows (in thousands):


				Years Ended
				December 31,
	2015		2014		2013
Cost of revenue	$	1,114	$	1,315	$	1,453
Research and development		1,668		1,234		1,301
Sales and marketing		651		1,470		1,175
General and administrative		2,240		2,002		1,554
Total stock-based compensation	$	5,673	$	6,021	$	5,483

The following table presents stock-based compensation expense, net of estimated forfeitures, by grant type (in thousands):


	December 31,
	2015		2014		2013
Stock options	$	4,283	$	3,631	$	3,906
Restricted stock awards and restricted stock units (RSUs)		1,390		2,390		1,577
Total stock-based compensation	$	5,673	$	6,021	$	5,483

The following table presents unrecognized compensation expense, net of estimated forfeitures, related to the Company’s equity compensation plans as of December 31, 2015, which is expected to be recognized over the following weighted-average periods, (in thousands, except for weighted-average period):


	Unrecognized		Weighted-
	Compensation		Average Period
	Expense		(in years)
Stock options	$	5,632	2.7
RSUs	$	665	1.9

There were no capitalized stock-based compensation costs or recognized stock-based compensation tax benefits during the years ended December 31, 2015 and 2014.

Additional information regarding options outstanding as of December 31, 2015, is as follows:


	Options Outstanding				Options Exercisable
		Weighted-Average
		Remaining	Weighted-Average			Weighted-Average
	Options	Contractual	Exercise Price			Exercise Price
Range of Exercise Prices	Outstanding	Life (Years)	per Share		Exercisable	per Share
$0.00 to $1.50	86,225	0.81	$	1.37	86,225		1.37
$1.51 to $3.00	9,371,294	8.47		2.08	3,136,714		2.14
$3.01 to $4.50	298,790	6.81		3.77	170,688		3.70
$4.51 to $6.00	342,493	7.82		5.56	201,800		5.55
$6.01 to $7.50	619,191	4.94		6.30	550,267		6.30
$7.51 to $9.00	394,028	6.49		8.71	291,491		8.70
$9.01 to $10.50	167,697	6.14		9.61	142,534		9.63
$10.51 to $12.00	32,500	5.65		11.96	32,500		11.96
	11,312,218	8.04	$	2.83	4,612,219	$	3.55

Determining Fair Value of Stock Options

Stock-based compensation cost is measured at the grant date based on the fair value of the award. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

Valuation Method—The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model.

Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. For option grants that are considered to be "plain vanilla," the Company used the simplified method to determine the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

Expected Volatility—The expected volatility is derived primarily from historical volatilities of several unrelated, publicly listed peer companies over a period approximately equal to the expected term of the award and to a lesser extent, the Company's weighted historical volatility following its IPO in November 2011.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the options.

Expected Dividend—The expected dividend has been zero as the Company has never paid dividends and does not expect to pay dividends.

Summary of Assumptions—The fair value of the employee stock options were estimated on the grant dates using a Black-Scholes option-pricing model with the following weighted average assumptions:


			December 31,
	2015		2014		2013
Expected term (in years)	5.9		5.9		6.0
Risk-free interest rate	1.6	%	1.8	%	1.4	%
Expected volatility	50	%	56	%	59	%
Expected dividend rate	—	%	—	%	—	%