11. Share Based Awards

2008 Plan

The 2008 Stock Plan, or 2008 Plan, which expired on June 12, 2014, provided for the grant of incentive and nonstatutory stock options to employees, nonemployee directors and consultants of the Company. Options granted under the 2008 Plan generally become exercisable within three to four years following the date of grant and expire 10 years from the date of grant. When options are subject to our repurchase right, we may buy back any unvested shares at their original exercise price in the event of an employee’s termination prior to full vesting.

Our 2008 Plan was terminated following the date our 2014 Equity Incentive Plan, or the 2014 Plan, became effective. Any outstanding stock awards under our 2008 Plan will continue to be governed by the terms of our 2008 Plan and applicable award agreements.

2014 Equity Incentive Plan

Our board of directors adopted our 2014 Plan on April 17, 2014, and our stockholders subsequently approved the 2014 Plan on May 27, 2014. The 2014 Plan became effective on the date that our registration statement was declared effective by the SEC. The 2014 Plan is the successor to and continuation of our 2008 Plan. Upon the effective date of the 2014 Plan, no further grants can be made under our 2008 Plan.

Our 2014 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, or the Code, to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Additionally, our 2014 Plan provides for the grant of performance cash awards to our employees, directors and consultants.

The initial number of shares of our common stock available to be issued under our 2014 Plan was 8,142,857, which number of shares will be increased by any shares subject to stock options or other stock awards granted under the 2008 Plan that would have otherwise returned to our 2008 Plan (such as upon the expiration or termination of a stock award prior to vesting), not to exceed 16,312,202.

The number of shares of our common stock reserved for issuance under our 2014 Plan automatically increase on January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. On January 1, 2016, we increased the number of shares of common stock reserved for issuance under our 2014 Plan by 4,066,933 shares, which was 5% of the total number of capital stock outstanding at December 31, 2015.

Amended and Restated 2015 Inducement Plan

On December 20, 2015, our board of directors adopted our Amended and Restated 2015 Inducement Plan, or the Inducement Plan, to reserve 1,600,000 shares of our common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company. The terms and conditions of the Plan are substantially similar to our stockholder-approved 2014 Plan. On January 5, 2016 our board of directors approved the amendment and restatement of the Inducement Plan to increase the share reserve under the Inducement Plan to 1,970,000 shares of our common stock. As of December 31, 2016 there were 1,970,000 options and restricted stock units outstanding under the Inducement Plan.

2014 Employee Stock Purchase Plan

Our board of directors adopted our 2014 Employee Stock Purchase Plan, or ESPP, on April 17, 2014, and our stockholders subsequently approved the ESPP on May 27, 2014. The ESPP became effective immediately upon the execution and delivery of the underwriting agreement related to our IPO. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. The ESPP permits eligible employees to purchase our common stock through payroll deductions, which may not exceed 15% of the employee’s base compensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of our common stock on either the first day of the offering or the last day of the applicable purchase period, whichever is lower.

As of December 31, 2016 and 2015, approximately 575,974 and 1,561,929 shares of common stock were available for future issuance under our ESPP, respectively. The number of shares of our common stock reserved for issuance under our ESPP increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (ii) 2,142,857 shares of common stock; or (iii) such lesser number as determined by our board of directors. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP. On January 1, 2016, we increased the number of shares available for issuance under the ESPP by 813,386 shares, which was 1% of the total number of capital stock outstanding at December 31, 2015.

Restricted Stock and Restricted Stock Units

Restricted stock activity in 2014 and 2015 was as follows:


	Restricted Stock
		Time - and -
	Time - based	performance based	Total
	shares	shares	shares
Unvested, December 31, 2013	886,718	1,031,902	1,918,620
Granted	16,294	—	16,294
Vested	(491,313)	(586,204)	(1,077,517)
Cancelled/Forfeited	(350,440)	(413,152)	(763,592)
Unvested, December 31, 2014	61,259	32,546	93,805
Granted	—	—	—
Vested	(41,137)	(32,546)	(73,683)
Cancelled/Forfeited	(20,122)	—	(20,122)
Unvested, December 31, 2015	—	—	—

No restricted stock was granted, vested or cancelled/forfeited in 2016.

For stock-based compensation expense, we measured the value of the restricted stock based on the fair value of our common stock on the date of grant. Our restricted stock grants were subject to service only or service and performance-based vesting conditions. We expensed the fair value of restricted stock grants with service only vesting conditions on a straight-line basis over the vesting period of the awards.

For restricted stock subject to service and performance conditions, we evaluated the probability of meeting the vesting conditions at the end of each reporting period to determine how much compensation expense to record. We amortized the fair value, net of estimated forfeitures, as stock-based compensation expense using the graded vesting method over the vesting periods of the awards. To the extent that actual results or updated estimates differed from our original estimates, the cumulative effect on current and prior periods of those changes was recorded in the period those estimates were revised.

In 2014 we began granting restricted stock units under our 2014 Plan. For stock-based compensation expense, we measure the value of the restricted stock units based on the fair value of our common stock on the date of grant. Our restricted stock unit grants are subject to service conditions and we expense the fair value of those shares on a straight-line basis over their vesting periods.

Our restricted stock unit activity for 2014, 2015 and 2016 was as follows:


	Restricted Stock Units
		Weighted-
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested, December 31, 2013	—	$	—
Granted	480,456		9.45
Vested	—		—
Cancelled/Forfeited	(1,667)		9.18
Unvested, December 31, 2014	478,789	$	9.45
Granted	9,932,561		6.92
Vested	(924,461)		8.36
Cancelled/Forfeitures	(1,653,927)		8.06
Unvested, December 31, 2015	7,832,962	$	6.66
Granted	10,724,225		3.36
Vested	(4,889,594)		4.99
Cancelled/Forfeitures	(3,192,618)		5.39
Unvested, December 31, 2016	10,474,975	$	4.45

Bonus Plans

In 2015, our board of directors approved the 2015 Executive Bonus Plan and 2015 Non-Executive Bonus Plan, or 2015 Bonus Plan, which provided for the issuance of shares of unrestricted common stock to employees based on meeting certain Company metrics.

We issued 1,653,371 shares of unrestricted common stock in the first quarter of 2016 based on amounts earned under the 2015 Non-Executive Bonus Plan. No shares were issued under the 2015 Executive Bonus Plan. Shares issued from the 2015 Non-Executive Bonus Plan reduced the 2014 Plan shares available for issuance.

In May 2016, our compensation committee approved the 2016 Executive Bonus Plan and 2016 Non-Executive Bonus Plan, or 2016 Bonus Plans, each effective as of January 1, 2016.

We recorded stock-based compensation expense related to the 2015 and 2016 Bonus Plans over the service period of eligible employees based on forecasted performance relative to the Company metrics. To the extent that updated estimates of bonus expense differed from original estimates, the cumulative effect on current and prior periods of those changes was recorded in the period those estimates were revised.

In 2015 we recorded $4.7 million of stock-based compensation expense under the 2015 Non-Executive Bonus Plan. In 2016 we recorded $6.6 million of stock-based compensation expense under the 2016 Bonus Plans and $923,000 under the 2015 Non-Executive Bonus Plan.

Stock Options

Stock option activity under the 2008 Plan, 2014 Plan and the Inducement Plan in 2014, 2015 and 2016 was as follows:


		Options Outstanding
						Weighted-
	Number of					Average	Aggregate
	Shares		Weighted-			Remaining	Intrinsic
	Available	Number of	Average		Contractual		Value
	for Issuance	Shares	Exercise Price			Term (Years)	(In thousands)
Balance—December 31, 2013	2,085,338	13,330,882	$	2.90		8.38	$	38,339
Authorized	9,913,915	—
Stock options granted	(5,373,131)	5,373,131		6.97
Restricted stock units granted	(480,456)	—
Exercised (1)	—	(1,089,708)		2.27
Stock options canceled	1,178,737	(1,178,737)		4.55
Restricted stock units canceled	1,667	—
Repurchased	66,088	—
Balance—December 31, 2014	7,392,158	16,435,568	$	4.15		7.83	$	95,791
Authorized	5,418,242	—
Stock options granted	(1,089,100)	1,089,100		6.95
Restricted stock units granted	(9,932,561)	—
Exercised	9,019	(2,817,915)		2.12
Stock options canceled	3,208,006	(3,208,006)		5.61
Restricted stock units canceled	1,653,927	—
Repurchased	12,545	—
Balance—December 31, 2015	6,672,236	11,498,747	$	4.51		6.86	$	6,256
Authorized	4,436,933	—
Stock options granted	(1,316,200)	1,316,200		3.36
Issuance of shares under 2016 Bonus Plans	(1,653,371)	—
Restricted stock units granted	(9,070,854)	—
Exercised	—	(1,040,902)		2.37
Stock options canceled	1,938,053	(1,938,053)		5.46
Restricted stock units canceled	3,192,618	—
Balance—December 31, 2016	4,199,415	9,835,992	$	4.39		6.23	$	5,734
Vested and exercisable—December 31, 2016		7,023,833	$	4.08			$	5,210
Vested and expected to vest(2)—December 31, 2016		9,497,378	$	4.37			$	5,657

(1)

Includes early exercises of 42,772 in 2014. In 2015 or 2016 no shares of common stock were issued for the exercise of common stock options prior to their vesting dates, or early exercises.

(2)

Options expected to vest are net of an estimated forfeiture rate.

Additional information regarding options outstanding at December 31, 2016 is as follows:


	Options Outstanding				Options Exercisable
		Weighted-
		Average
		Remaining	Weighted-			Weighted-
	Number of	Contractual	Average		Number of	Average
Range of exercises	Shares	Term (Years)	Exercise Price		Shares	Exercise Price
$0.04 — $2.90	2,000,481	4.08	$	1.19	2,000,481	$	1.19
$3.08 — $3.70	2,883,203	7.14		3.54	1,618,203		3.70
$3.77 — $5.77	2,868,971	5.96		4.98	2,106,222		4.88
$6.20 — $10.80	2,027,512	7.26		7.73	1,266,344		7.58
$12.05 — $12.05	55,825	7.67		12.05	32,583		12.05
Outstanding at December 31, 2016	9,835,992	6.23	$	4.39	7,023,833	$	4.08

The aggregate pretax intrinsic value of vested options exercised in 2016, 2015 and 2014 was $1.4 million, $11.8 million and $5.4 million, respectively. The intrinsic value is the difference between the estimated fair value of the Company’s common stock at the date of exercise and the exercise price for in-the-money options. The weighted-average grant-date fair value of options granted in 2016, 2015 and 2014 was $1.42, $3.04 and $4.09 per share, respectively.

Our stock-based compensation expense was recorded in the following cost and expense categories (in thousands):



	Year Ended December 31,
	2016		2015		2014
Contra-revenue	$	—	$	—	$	123
Cost of revenue		3,043		2,774		1,353
Research and development		11,728		10,607		5,980
Sales and marketing		10,474		9,508		5,930
General and administrative		9,144		5,902		3,363
Total	$	34,389	$	28,791		16,749

Determining Fair Value of Stock Options

The fair value of each grant of stock options was determined by us using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.

Expected Term—The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. For option grants that are considered to be “plain vanilla”, we have opted to use the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of time-to-vesting and the contractual life of the options.

Expected Volatility—The expected stock price volatility assumption was determined by examining the historical volatilities of a group of industry peers, as we do not have a significant trading history for our common stock. We will continue to analyze our historical stock price volatility and expected term assumptions as more historical data for our common stock becomes available.

Risk-Free Interest Rate—The risk free rate assumption was based on the U.S. Treasury instruments with terms that were consistent with the expected term of our stock options.

Expected Dividend—The expected dividend assumption was based on our history and expectation of dividend payouts.

Forfeiture Rate—Forfeitures were estimated based on historical experience.

Fair Value of Common Stock—Prior to the IPO, the fair value of the shares of common stock underlying the stock options was historically been the responsibility of and determined by our board of directors. Because there was no public market for our common stock, the board of directors determined fair value of common stock at the time of grant of the option by considering a number of objective and subjective factors including independent third-party valuations of our common stock, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors. Following the closing of the IPO offering, the fair value of our common stock is determined based on the closing price of our common stock on the NASDAQ Global Select Market.

We used the Black-Scholes Model to estimate the fair value of our stock options granted to employees with the following weighted-average assumptions:


	Year ended December 31,
	2016	2015	2014
Expected dividend yield	—	—	—
Risk-free interest rate	1.4% - 1.5%	1.6% - 1.8%	1.7% - 2.1%
Expected volatility	42%	43% - 45%	48% - 56%
Expected life (in years)	6.1	5.5 - 6.1	5.6 - 6.5

We used the Black-Scholes model to estimate the fair value of our Employee Stock Purchase Plan awards with the following assumptions:


	Year ended December 31,
	2016	2015	2014
Expected dividend yield	—	—	—
Risk-free interest rate	0.5% - 0.7%	0.1% - 0.7%	0.1% - 0.5%
Expected volatility	34% - 41%	34% - 35%	47% - 49%
Expected life (in years)	0.5 - 2.0	0.5 - 2.0	0.7 - 2.2

As required by Topic 718 Compensation—Stock Compensation, we estimate expected forfeitures and recognize compensation costs only for those equity awards expected to vest. Our stock options granted are typically granted with vesting terms of 48 months.

The following table summarizes our unrecognized stock-based compensation expense as of December 31, 2016 net of estimated forfeitures:


	Unrecognized		Remaining
	Stock-based		Weighted-Average
	Compensation		Recognition
	Expense		Period
	(in millions)		(in years)
Stock options	$	4.6	2.2
Restricted stock units		35.3	2.9
ESPP		1.3	0.6
Total	$	41.2

Early Exercise of Common Stock

In 2014 we issued 42,772 shares of common stock for the exercise of common stock options prior to their vesting dates, or early exercises. In 2015 or 2016 no shares of common stock were issued for the exercise of common stock options prior to their vesting dates, or early exercises. Cash received from all such early exercises of stock options is recorded in accrued expenses on the consolidated balance sheets and reclassified to stockholders’ equity as the options vest. The unvested shares are subject to our repurchase right at the original purchase price.

As of December 31, 2016 and 2015 there were 2,471 and 12,428 shares, respectively, legally outstanding, but not included within common stock outstanding for accounting purposes as a result of the exercise of common stock options which were not yet vested.

As of December 31, 2015, the aggregate price of shares subject to repurchase recorded in accrued expenses totaled $48,000. The aggregate price of shares subject to repurchase in accrued expenses as of December 31, 2016 was insignificant.