12. Stock Based Compensation

Stock Option Plans

The Company’s 2004 Stock Option Plan and 2013 Equity Incentive Plan authorize the grant of options to employees and consultants for up to 4,533,326 shares of the Company’s common stock as of December 31, 2014. All options granted have a ten-year term and generally vest and become exercisable over four years of continued employment or service as defined in each option agreement. The Board of Directors determines the option exercise price and may designate stock options granted as either incentive or nonstatutory stock options. The Company generally grants stock options to employees with exercise prices equal to the estimated fair value of the Company’s common stock on the date of grant.

A summary of the Company’s employee stock option activity and related information follows:


	Shares			Weighted- average exercise price per share		Weighted- average remaining contractual term (in years)		Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2013		2,112,632		$	4.47		8.12	$	26,968
Granted		1,553,581			17.12
Canceled		(206,997	)		13.40
Exercised		(164,394	)		2.41

Outstanding at December 31, 2014		3,294,822		$	9.98		8.08	$	17,985

December 31, 2014:
Options vested and expected to vest		3,288,066		$	9.79		7.93	$	18,286
Options exercisable		1,423,760		$	5.34		7.11	$	12,974

The total fair value of stock options vested during the year ended December 31, 2014 was $3.5 million.

The following table summarizes information about the Company’s options outstanding at December 31, 2014:


	Options Outstanding				Options Exercisable
Exercise Price	Number of Shares		Weighted- Average Remaining Contractual Life in Years		Number of Shares		Weighted- Average Remaining Contractual Life in Years
$0.32 – 1.92		787,662		7.09		570,418		7.04
2.24 – 3.84		359,622		5.34		358,138		5.34
5.12 – 6.72		389,070		7.85		200,015		7.81
8.96 – 12.50		493,918		9.08		120,841		8.71
13.93 – 20.65		1,264,550		9.16		174,348		9.08

		3,294,822				1,423,760

The fair value of each employee option grant as of December 31 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

2014

2013

2012

Risk-free interest rates

1.74%–2.15%

1.05%–1.95%

0.85%–1.44%

Expected term (years)

6.25

Expected dividend yield

—

Volatility

57.0%

57.0%–58.0%

54.0%–61.0%

The risk-free interest rates are based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. For purposes of determining the expected term of the awards in the absence of sufficient historical data relating to stock-option exercises, the Company applies a simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. The Company has not declared or paid any dividends and does not currently expect to do so in the foreseeable future. The Company based its expected volatility on the estimated volatility of similar companies whose share prices are publicly available.

Options granted during the three years ended December 31, 2014 were granted at exercise prices that the Company’s board of directors believed to be equal to the fair value of the common stock underlying such options on the date of grant. Prior to completion of its initial public offering, the Company assessed its estimate of fair value of its common stock for financial reporting purposes. Following this assessment, it was determined that for financial reporting purposes the fair value of the Company’s common stock was higher than the board of directors’ fair market value estimate for certain options previously granted. In 2013 and 2012, the Company granted options on 101,487 and 988,268 shares, respectively, that were subsequently determined to be granted at exercise prices that were less than the estimated per share value of the underlying common stock on the date of grant. The valuations of these stock options were adjusted to reflect the increase in estimated fair value of the underlying stock options. The weighted-average grant date fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was $9.45, $5.30 and $1.59, respectively.

The aggregate intrinsic value for options exercised during the years ended December 31, 2014, 2013 and 2012 was $2.2 million, $681,000 and $161,000, respectively, determined as of the date of option exercise.

Stock compensation expense for the years ended December 31 was as follows:


	2014		2013		2012
	(In thousands)
Cost of revenue	$	281	$	49	$	71
Research and development		1,018		273		204
Selling, general and administrative		3,234		823		470

Total stock compensation expense	$	4,533	$	1,145	$	745

At December 31, 2014, the total unrecognized compensation cost was approximately $12.8 million and will be recognized on a straight-line basis over the weighted-average remaining service period of approximately three years. Compensation expense of $0.4 million related to the 2013 Employee Stock Purchase Plan is not included in the table.

Employee Stock Purchase Plan

In July 2013, the Company’s stockholders approved the Company’s 2013 Employee Stock Purchase Plan (“ESPP”). The ESPP provides eligible employees with an opportunity to purchase common stock from the Company and to pay for their purchases through payroll deductions. The Purchase Plan has overlapping offering periods of approximately 12 months in length. The offering periods generally start with the first trading day on or after March 1 and September 1 of each year and end on the first trading day on or after March 1 and September 1 of the following year, approximately 12 months later. Within each offering period, shares will be purchased each 6 months on an exercise date. The first offering period began in August 2013.

An employee electing to participate in the Purchase Plan (a “Participant”) will be granted an option at the start of the offering period to purchase shares with contributions in any whole percentage ranging from zero percent to ten percent (or greater or lesser percentages or dollar amounts that the Administrator determines) of the participants eligible compensation. The participants contributions will be accumulated and then used to purchase the Company’s shares on each exercise date. The purchase price will be the lesser of (i) 85% of the fair market value of the Company’s shares on the first trading day of the offering period or (ii) 85% of the fair market value of the Company’s shares on the exercise date.

During 2014, 141,386 shares were issued under the ESPP. A total of 427,448 shares of common stock have been reserved for issuance under the ESPP, of which 286,062 shares were available for issuance as of December 31, 2014. No shares were issued under the ESPP during 2013 or 2012.