12.

Stock-based Compensation

Stock Option Plans

The Company’s 2004 Stock Option Plan and 2013 Equity Incentive Plan (the “Plans”) authorize the grant of options, restricted stock units and other equity awards to employees, directors and consultants. As of December 31, 2015, there were 5,446,915 shares available under the Plans. 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 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, 2014		3,294,822		$	9.98		8.08	$	17,985
Granted		1,455,150			12.94
Canceled		(45,939	)		14.97
Forfeited		(335,449	)		14.00
Exercised		(201,622	)		3.58

Outstanding at December 31, 2015		4,166,962		$	10.94		7.81	$	19,163


December 31, 2015:
Options vested and expected to vest		4,117,768		$	10.93		7.80	$	19,074
Options exercisable		2,108,076		$	8.37		6.94	$	15,006

The following table summarizes information about the Company’s options outstanding at December 31, 2015:


	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
$0.00 – 1.92		645,113		6.26		589,799		6.19
2.24 – 3.84		317,814		4.28		317,796		4.28
5.12 – 6.72		371,802		6.98		277,781		6.97
8.96 – 10.94		273,276		8.32		113,223		7.82
11.14 – 12.56		283,315		8.49		87,449		8.09
12.77 – 13.93		972,726		9.11		216,977		9.09
14.04 – 16.22		414,690		9.24		64,635		8.45
$17.24 – 20.65		888,226		8.10		440,416		8.10

		4,166,962				2,108,076

The following table summarizes information about the Company’s stock option plan for the years ended December 31:


	2015		2014		2013

Fair value of vested stock options (in thousands)	$	6,468	$	3,543	$	920
Aggregate intrinsic value for options exercised (in thousands)	$	2,067	$	2,220	$	681
Weighted-average grant date fair value per share	$	7.20	$	9.45	$	5.30

Options granted during the three years ended December 31, 2015 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, the Company granted options of 101,487 shares 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.

Stock-based compensation

The following table sets forth stock-based compensation expense related to stock-based arrangements under the 2004 Stock Option Plan and the 2013 Equity Incentive Plan for the years ended December 31 as follows (in thousands):


	2015		2014		2013
Cost of revenue	$	471	$	281	$	49
Research and development		1,453		1,018		273
Selling, general and administrative		3,919		3,234		823

Total stock-based compensation expense	$	5,843	$	4,533	$	1,145

As of December 31, 2015, total unrecognized stock-based compensation cost related to unvested options was $14.3 million. This cost will be recognized on a straight-line basis over the weighted-average remaining service period of 2.61 years. The Company utilizes newly issued shares to satisfy option exercises. No tax benefit was recognized related to stock-based compensation cost since the Company has not reported taxable income to date and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets.

Valuation assumptions

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:


	2015	2014	2013

Risk-free interest rates	1.37%–1.97%	1.74%–2.15%	1.05%–1.95%
Expected term (years)	6.25	6.25	6.25
Expected dividend yield	—	—	—
Expected volatility	57.0%	57.0%	57.0%–58.0%

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 historical volatility of similar companies whose share prices are publicly available.

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 0% to 10% (or greater or lesser percentages or dollar amounts that the administrator determines) of the participant’s eligible compensation. The participant’s contributions will be accumulated and then used to purchase the Company’s shares on each exercise date. The purchase price on the exercise date will be 85% of the fair market value of the lessor of the Company’s share price on either the first trading day of the offering period or on the exercise date.

During 2015 and 2014, 136,078 and 141,386 shares were issued under the ESPP, respectively. The Company recorded share-based compensation expense for shares issued from the ESPP of $435,000 and $394,000 for the years ended December 31, 2015 and 2014, respectively. A total of 610,166 shares of common stock have been reserved for issuance under the ESPP, of which 332,704 shares were available for issuance as of December 31, 2015. No shares were issued under the ESPP during 2013.