Note 7. Equity Incentive Plans

2016 Equity Incentive Plan

The Company’s 2016 Equity Incentive Plan, or the 2016 Plan, became effective on September 21, 2016. The 2016 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees or any of the Company’s subsidiaries’ employees, and for the grant of nonstatutory stock options, or NSOs, restricted stock, restricted stock units, or RSUs, stock appreciation rights, performance units and performance shares to employees, directors and consultants of the Company and the Company’s subsidiaries’ employees and consultants. As of December 31, 2017, the total number of shares available for issuance under the 2016 Plan was 4,237,746. These available shares will automatically increase each January 1, by the least of 5,500,000 shares of Class A common stock, by 5% of the outstanding shares of all classes of the Company’s common stock as of the last day of the Company’s immediately preceding fiscal year, and such other amount as the Company’s board of directors may determine on or before the last day of the Company’s immediately preceding fiscal year. Pursuant to the above, on January 1, 2018, the number of available shares automatically increased by 2,105,647.

2007 Stock Plan

The Company granted options under its 2007 stock plan, as amended, or the 2007 Plan, until September 23, 2016, when the plan was terminated in connection with the Company’s IPO. Accordingly, no shares are available for future issuance under this plan. The 2007 Plan continues to govern outstanding equity awards granted thereunder.

2011 Executive Equity Incentive Plan

The Company granted options under its 2011 executive equity incentive plan as amended, or the 2011 Plan, until September 23, 2016, when the plan was terminated in connection with the Company’s IPO. Accordingly, no shares are available for future issuance under this plan. The 2011 Plan continues to govern outstanding equity awards granted thereunder.

2016 Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan, or 2016 ESPP, became effective on September 21, 2016. As of December 31, 2017, the total number of shares of Class A common stock available for issuance under the 2016 ESPP was 821,635 These available shares will automatically increase each January 1, by the least of 1,600,000 shares of Class A common stock, 1% of the number of shares of all classes of the Company’s common stock outstanding on the immediately preceding fiscal year, and such lesser number of shares as determined by the Company’s board of directors. Pursuant to the above, on January 1, 2018, the number of available shares automatically increased by 421,129.

The 2016 ESPP allows eligible employees to purchase shares of the Company’s Class A common stock at a discount through payroll deductions of their eligible compensation, subject to any plan limitations. Except for the initial offering period, the 2016 ESPP provides for separate six-month offering periods beginning November 30 and May 31 of each fiscal year. The initial offering period ran from September 23, 2016 through May 31, 2017. The initial offering period included the employee enrollment period, which ran from September 23, 2016 to November 10, 2016, at which time employee deductions commenced.

On each purchase date, eligible employees will purchase the Company’s Class A common stock at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s Class A common stock on the first trading day of the offering period, and/or (2) the fair market value of the Company’s common stock on the purchase date.

Stock Options

Stock options are exercisable at a price equal to the market value of the underlying shares of the Company’s common stock on the date of the grant as determined by the Company’s board of directors or, for those stock options issued subsequent to the IPO, the closing price of the Company’s common stock as reported on the Nasdaq Global Market on the date of grant. Stock options granted under the 2016 Plan, 2011 Plan and the 2007 Plan generally vest 25% one year from the date the requisite service period begins and continue to vest monthly for each month of continued employment over the remaining three years. Options granted generally are exercisable for a period of up to 10 years.

Stock option activity under the 2016 Plan, 2011 Plan and the 2007 Plan during the year ended December 31, 2017 was as follows (in thousands, except per share and contractual life data):

						Weighted-
				Weighted-		Average
				Average		Remaining		Total
	Options			Exercise Price		Contractual		Intrinsic
	Outstanding			per Share		Life (years)		Value
Outstanding at December 31, 2016		11,203		$	9.49
Options granted		451			16.97
Options exercised		(3,339	)		6.56
Options forfeited or canceled		(825	)		13.84
Outstanding at December 31, 2017		7,490		$	10.76		6.41	$	95,553
Vested and expected to vest at December 31, 2017		7,410		$	10.71		6.39	$	94,925
Exercisable at December 31, 2017		4,935		$	8.74		5.53	$	72,930

The weighted-average grant date fair value per share of options granted during 2017, 2016 and 2015 was $5.94, $5.73 and $6.05, respectively. The total fair value of shares vested during 2017, 2016 and 2015 was $11.6 million, $8.3 million and $7.6 million, respectively.

The total intrinsic value of options exercised during 2017, 2016 and 2015 was $38.5 million, $2.9 million and $5.4 million, respectively. During 2017, 2016 and 2015, the Company received $21.9 million, $1.3 million and $2.7 million, respectively, from exercises of stock options. Shares are issued from plan reserves upon exercise.

The fair value of stock options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	Years Ended December 31,
	2017		2016		2015

Dividend yield		0.0%		0.0%		0.0%
Risk-free interest rate	1.8% - 2.1%		1.1% - 2.1%		1.3% - 2.0%
Expected life	4.1 - 5.6		5.6 - 7.9		5.0 - 6.1
Expected volatility	33.3% - 35.4%		37.4% - 42.4%		38.9% - 47.0%

The weighted-average volatility used in the fair value calculations of option grants for 2017, 2016 and 2015, was 34.7%, 38.9% and 42.7%, respectively.

The Company has not declared or paid any dividends. The risk-free interest rate used in the Black-Scholes option pricing model is based on the implied yield available at the time of the option grant in U.S. Treasury securities at maturity with a term equivalent to the expected life of the option. Expected volatility is based on an average volatility of stock prices for a group of publicly traded companies with similar software product offerings. The expected life of options represents the period that the stock-based awards are expected to be outstanding. Consideration was given to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. Prior to the IPO, given the absence of an active market for the Company’s common stock, the Company’s board of directors was required to estimate the fair value of the Company’s common stock at the time of each option grant based on several factors, including consideration of input from management and contemporaneous third-party valuations. These valuations include consideration of enterprise value and assessment of other common and convertible preferred stock transactions occurring during the period. Subsequent to the completion of the IPO, the Company uses the market-closing price for the Company’s Class A common stock as reported on the Nasdaq Global Market.

As of December 31, 2017, there was a total of $14.9 million of unrecognized compensation cost related to unvested stock-based compensation associated with options granted under the 2007, 2011 and 2016 Plans. That cost is expected to be recognized over a weighted-average remaining expected term of 2.3 years

RSUs

RSU activity under the 2016 Plan during the year ended December 31, 2017 was as follows (in thousands, except per share data):

				Weighted-Average
	RSUs			Grant Date Fair Value
	Outstanding			per Share
Non-Vested outstanding at December 31, 2016		628		$	16.43
Granted		1,741			15.97
Vested		(128	)		16.46
Forfeited or canceled		(211	)		15.27
Non-Vested outstanding at December 31, 2017		2,030		$	16.15

RSUs granted under the 2016 Plan generally vest 25% one year from the date the requisite service period begins and continue to vest quarterly for each quarter of continued employment over the remaining three years. The aggregate grant date fair value of RSUs granted in 2017 and 2016 was $27.8 million and $10.4 million, respectively.

We recognized $5.3 million of stock-based compensation associated with RSUs during the year ended December 31, 2017. As of December 31, 2017, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was approximately $28.8 million and weighted-average remaining vesting period was 3.3 years.

ESPP

There were 311,742 shares of Class A common stock issued under the 2016 ESPP. For the years ended December 31, 2017 and 2016, the fair value of common shares to be issued under the 2016 ESPP was estimated using the Black-Scholes option pricing model with the following assumptions:

	Years Ended December 31,
	2017		2016

Dividend yield	0.0%		0.0%
Risk-free interest rate	1.07% - 1.45%		0.6%
Expected life		0.50		0.56
Expected volatility	27.0% - 44.3%		33.9%

Stock-based compensation expense recognized in the Company’s statement of comprehensive loss was as follows (in thousands):


	Years Ended December 31,
	2017		2016		2015
Cost of revenue
Subscription	$	1,218	$	891	$	482
Professional services		1,131		820		738
Operating expenses
Research and development		4,491		2,977		2,283
Sales and marketing		4,614		3,132		2,477
General and administrative		4,616		2,639		1,835

Total stock-based compensation	$	16,070	$	10,459	$	7,815