STOCK-BASED COMPENSATION

2014 Equity Incentive Plan

On March 26, 2014, the Company's 2014 Equity Incentive Plan (2014 Plan) became effective. On March 27, 2014, the Company's earlier 2006 Global Share Plan (2006 Plan) was terminated and all reserved but unissued shares under the 2006 Plan were added to the 2014 Plan and all shares underlying stock awards granted under the 2006 Plan that otherwise would return to the 2006 Plan instead were rolled into the 2014 Plan. The Company may not grant additional awards under the 2006 Plan, but the 2006 Plan will continue to govern outstanding awards previously granted under it.

The 2014 Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code (ISO), only to employees of the Company or any parent or subsidiary of the Company, and for the grant of nonstatutory stock options (NSO), restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants of the Company, and the employees and consultants of any parent or subsidiary of the Company.

In January 2015, the Company effected an increase of the 2,306,812 number of shares reserved under the 2014 Plan. In May 2015, the Company’s stockholders approved an increase of 3,000,000 shares reserved under the 2014 Plan. As of December 31, 2015, the Company had 5,017,525 total shares of common stock reserved and available for grant under the 2014 Plan. On the first day of each fiscal year beginning January 1, 2016 through January 1, 2024, the number of shares of common stock reserved for issuance under the 2014 Plan may increase by an amount equal to the lesser of (i) 4,000,000 Shares, (ii) 5% of the Company’s outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the board of directors.

The following table summarizes the total number of shares available for grant under the 2014 Plan as of December 31, 2015:




	Shares Available for Grant

Balance, December 31, 2014	2,259,230
Authorized	5,306,812
Options granted	(1,759,063	)
Options canceled	1,375,261
Awards granted	(3,318,015	)
Awards canceled	1,153,300
Balance, December 31, 2015	5,017,525

Stock Options

The following table summarizes the information about outstanding stock option activity:



	Options Outstanding
	Number of Shares Underlying Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance, December 31, 2014	6,837,893		$	5.71	7.39	$	8,004
Options granted	1,759,063		6.87
Options exercised	(678,533	)	2.25
Options canceled	(1,375,261	)	7.25
Balance, December 31, 2015	6,543,162		$	6.05	7.03	$	6,570
Options exercisable, December 31, 2015	3,252,497		$	4.33	5.74	$	6,160
Options vested and expected to vest, December 31, 2015	6,145,853		$	5.95	6.93	$	6,548

The weighted average grant date fair value of options granted was $3.42, $5.01 and $4.86 per share for the year ended December 31, 2015, 2014 and 2013, respectively. The aggregate grant date fair value of the Company's stock options granted was $6.0 million, $6.2 million and $17.5 million for the year ended December 31, 2015, 2014 and 2013, respectively.

The aggregate intrinsic value of stock options exercised was $2.4 million, $6.7 million and $7.9 million for the year ended December 31, 2015, 2014 and 2013, respectively. The intrinsic value represents the difference between option exercise prices and (i) the estimated fair value of the Company’s common stock, prior to the IPO, (ii) or the closing stock price of the Company’s common stock, following the IPO.

The stock options outstanding and exercisable under its stock option plan as of December 31, 2015, are as follows:



	Options Outstanding				Options Vested and Exercisable
Range of Exercise Prices	Number of Options Outstanding	Weighted Average Remaining Contractual Term (Years)	Weighted Average Exercise Price per Share		Number of Options Exercisable	Weighted Average Exercise Price per Share

$0.08 - $1.83	1,080,321	4.52	$	1.00	1,077,605	$	1.00
$2.05 - $5.61	918,658	7.19	2.90		584,886	2.15
$6.00	1,182,285	5.66	6.00		907,365	6.00
$6.09 - $6.85	245,000	9.60	6.28		—	—
$7.15	1,175,624	9.03	7.15		156,240	7.15
$7.48 - $11.31	1,941,274	7.64	9.68		526,401	9.87
	6,543,162	7.03	$	6.05	3,252,497	$	4.33

Restricted Stock Units

The Company currently grants Restricted Stock Units (RSUs) to certain employees and directors. The RSUs typically vest over a period of time, generally one year, two years or four years, and are subject to the participant’s continuing service to the Company over that period. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.

The following is a summary of the Company’s RSU activity and related information for the year ended December 31, 2015:



	Restricted Stock Units Outstanding
	Shares		Weighted Average Grant Date Fair Value Per Share

Balance, December 31, 2014	2,938,231		$	7.03
Awards granted	3,318,015		6.45
Awards vested	(1,580,206	)	$	7.15
Awards canceled	(629,934	)	$	7.13
Balance, December 31, 2015	4,046,106		$	6.49

The weighted average grant date fair value of RSUs granted was $6.45 and $7.16 per share for the year ended December 31, 2015 and 2014, respectively. The aggregate grant date fair value of RSUs granted for the year ended December 31, 2015 and 2014 was $21.4 million and $23.5 million, respectively. The aggregate fair value of shares vested as of the respective vesting dates, was $9.6 million and $0.9 million, respectively, for the year ended December 31, 2015 and 2014. No RSUs were granted and vested for the years ended December 31, 2013.

The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. During the year ended December 31, 2015 and 2014, the Company withheld 523,366 and 65,221 shares of stock, respectively, for an aggregate value of $3.2 million and $0.3 million, respectively, from employees upon the vesting of their RSUs to satisfy the minimum statutory tax withholding requirement. Such shares were returned to the Company’s 2014 Equity Incentive Plan and are available under the plan terms for future issuance.

2014 Employee Stock Purchase Plan

The 2014 Employee Stock Purchase Plan (ESPP) is a ten-year plan, effective in March 2014. The ESPP authorizes the issuance of shares of common stock pursuant to purchase rights granted to employees of the Company and its designated subsidiaries. In January 2015, the Company effected an increase of 230,681 the number of shares reserved under the ESPP. In May 2015, the Company’s stockholders approved increasing by 2,000,000 the number of shares reserved under the ESPP. As of December 31, 2015, the Company had 1,804,669 total shares of common stock reserved for issuance under the ESPP. Under the ESPP, on the first day of each of fiscal years 2016 and 2017, the number of shares of common stock reserved and available for issuance may increase in an amount equal to the lesser of (i) 1,000,000 Shares, (ii) 2.0% of the Company’s outstanding shares on the first day of the applicable fiscal year, or (iii) such number of shares determined by the board of directors. Beginning fiscal year 2018 through fiscal year 2023, the number of shares of common stock reserved for issuance may increase in an amount equal to the lesser of (i) 1,000,000 shares, (ii) 1.0% of the Company’s outstanding shares on the first day of the applicable fiscal year, or (iii) such number of shares determined by the board of directors.

Under the ESPP, the Company grants stock purchase rights to all eligible employees, currently covering a two-year offering period, with purchase dates at the end of each interim six-month purchase period. Shares are purchased using employee payroll deductions at purchase prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the first day of each offering period or the date of purchase. The ESPP has a reset provision. If the closing price of the Company’s common stock on the last day of any purchase period during an offering period is lower than the closing sales price on the first day of the related offering period, the reference price for purposes of determining the purchase price of shares for subsequent purchase periods in the applicable offering period will be reset to such lower price. No participant may purchase more than $25,000 worth of common stock in any calendar year, or 5,000 shares of common stock in any six-month purchase period. For the year ended December 31, 2015, 1,226,012 shares of common stock were purchased under the ESPP at a weighted average purchase price of $4.24 per share. No shares were issued under the ESPP for the year ended December 31, 2014.

Determination of Fair Values

The Company determines the expected term of employee stock options using the simplified method as provided by the Securities and Exchange Commission. The simplified method is presumed to be the average of the time-to-vesting and the contractual life of the options. The expected term of ESPP is based on the contractual terms. Since the Company has not had sufficient public trading history of its common stock, the expected volatility is derived from the historical stock volatilities of the common stock of several publicly traded comparable companies over a period approximately equal to the expected term of the expected life of the options. 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 equal to the option's expected term. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to do so.

Prior to the IPO, the fair value of the shares of common stock underlying the stock-based awards was historically determined by the board of directors, with input from management. Because there was no public market for the Company’s common stock, the board of directors determined the fair value of the common stock on the grant-date of the stock-based award by considering a number of objective and subjective factors, including valuations of comparable companies, sales of the Company’s convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, and general and industry-specific economic outlook. Subsequent to the completion of the Company’s IPO on April 2, 2014, the fair value of common stock underlying stock-based awards is determined based on the closing stock price of the Company’s shares on the date of grant.

Weighted average assumptions for the Company's stock options granted were as follows:



	Year Ended December 31,
	2015		2014		2013
Stock options:
Expected term (in years)	6.04		5.56		5.99
Expected volatility	51	%	49	%	54	%
Risk free interest rate	1.75	%	1.85	%	1.48	%
Dividend rate	—		—		—

Weighted average assumptions used to value employee stock purchase rights under the Black-Scholes model were as follows:



	Year Ended December 31,
	2015	2014
ESPP purchase rights:
Expected term (in years)	0.5 - 2.00	0.68 - 2.00
Expected volatility	35% - 55%	35% - 40%
Risk free interest rate	0.07% - 0.51%	0.08% - 0.49%
Dividend rate	—	—

Stock-based Compensation Expense

The total stock-based compensation the Company recognized for stock-based awards in the consolidated statements of operations is as follows:



	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Cost of revenue	$	902	$	411	$	64
Research and development	4,651		2,419		929
Sales and marketing	7,112		4,121		1,573
General and administrative	5,706		3,301		1,721
Total stock-based compensation	$	18,371	$	10,252	$	4,287

The following table presents stock-based compensation expense by award-type:



	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Stock Options	$	4,733	$	5,780	$	4,287
Restricted Stock Units	11,652		3,188		—
Employee Stock Purchase Plan	1,986		1,284		—
Total stock-based compensation	$	18,371	$	10,252	$	4,287

As of December 31, 2015, unrecognized stock-based compensation related to outstanding stock options, RSUs and ESPP purchase rights, net of estimated forfeitures, was $9.4 million, $20.3 million and $2.3 million, respectively, which the Company expects to recognize over weighted-average periods of 2.61 years, 2.77 years and 0.92 years, respectively. For the year ended December 31, 2015 and 2014, the Company capitalized $0.3 million and $0.4 million stock-based compensation expense to internal-use cloud services platform. There was no capitalized stock-based compensation expense for the year ended 2013.