9. Stockholder's Equity and Stock Based Compensation

Convertible Preferred Stock

Upon the closing of the IPO on May 17, 2013, all outstanding convertible preferred stock was converted into 25,876,142 shares of common stock on a one-to-one basis. No remaining convertible preferred stock was outstanding as of December 31, 2015.

Stock Option Plans

2006 Plan

The Company's Board of Directors (Board) and the Company's stockholders adopted the 2006 Stock Plan (2006 Plan) in October 2006. The 2006 Plan was amended in May 2013. The 2006 Plan was terminated in connection with the IPO, and accordingly, no shares will be available for issuance under this plan. The 2006 Plan will continue to govern outstanding awards granted thereunder. The 2006 Plan provided for the grant of incentive stock options and nonqualified stock options. As of December 31, 2015, 2.8 million awards remained outstanding under the 2006 Plan.

2013 Equity Incentive Plan

The Board adopted, and the Company's stockholders approved, a 2013 Equity Incentive Plan (2013 Plan). The 2013 Plan was effective May 16, 2013. The 2013 Plan provides for the grant of incentive stock options, to the Company's employees and any parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company's employees, directors and consultants and the Company's subsidiary corporations' employees and consultants. In addition, the shares reserved for issuance under the 2013 Plan also include (a) those shares reserved but unissued under the 2006 Stock Plan (2006 Plan), and (b) shares returned to the 2006 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2013 Plan pursuant to (a) and (b) is 9,119,341 shares). The number of shares available for issuance under the 2013 Plan will also include an annual increase on the first day of each fiscal year beginning in 2014, equal to the least of:

3,250,000 shares;

5% of the outstanding shares of common stock as of the last day of the Company's immediately preceding fiscal year; or

such other amount as the Company's Board of Directors may determine.

If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited to or repurchased due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under the 2013 Plan. With respect to stock appreciation rights, the net shares issued will cease to be available under the 2013 Plan and all remaining shares will remain available for future grant or sale under the 2013 Plan. Shares used to pay the exercise price of an award or satisfy the tax withholding obligations related to an award will become available for future grant or sale under the 2013 Plan. To the extent an award is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2013 Plan. Options under the 2013 Plan may be exercised for periods of up to ten years from the grant date. As of December 31, 2015, 3.9 million shares remained available for future grants under the 2013 Plan.

Summary of Stock Option Activity

A summary of the Company's stock option activity for all stock option plans for fiscal 2015 is as follows:

	Number of Stock Options Outstanding (in thousands)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Balance as of December 31, 2014		5,404		$	11.55
Granted		65			29.12
Exercised		(1,292	)		4.64
Options Cancelled/Forfeited		(400	)		17.81

Balance as of December 31, 2015		3,777		$	13.55		6.61	$	65,915


Exercisable as of December 31, 2015		3,234		$	9.77		6.34	$	65,435


Vested and expected to vest as of December 31, 2015		3,655		$	13.20		6.57	$	64,761

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company's closing price of $28.71 as of December 31, 2015.

Option awards generally vest over a four year period, with 25% vesting after one year from date of grant and monthly thereafter. Stock options granted under the Company's 2006 Plan provided employee option holders with an early exercise provision, where in the event of termination any unvested shares purchased are subject to repurchase by the Company at the original purchase price. This right of repurchase lapses as the option vests. Options exercisable as of December 31, 2015 include options that are exercisable prior to vesting.

The weighted average grant date fair value of options granted and the total intrinsic value of options exercised during the periods presented were as follows:

	Year Ended December 31,
	2015		2014		2013
Weighted average grant date fair value	$	12.44	$	20.72	$	5.08
Total intrinsic value of options exercised (in thousands)	$	31,938	$	47,273	$	38,241

The total estimated grant date fair value of options vested during the years ended December 31, 2015, 2014 and 2013 was $13.9 million, $5.2 million and $4.2 million, respectively.

Additional information regarding options outstanding as of December 31, 2015 is as follows:

						Options Outstanding
						Options Outstanding				Options Exercisable
						Weighted Average Remaining Contractual Term (in years)				Options Exercisable
Range of Exercise Prices				Number of Shares Outstanding (in thousands)		Weighted Average Remaining Contractual Term (in years)		Weighted Average Exercise Price		Shares Exercisable (in thousands)		Weighted Average Exercise Price
$	0.12	$	1.50		460		4.11	$	1.17		460	$	1.17
	2.38		4.24		390		5.36		2.74		390		2.74
	4.56		4.56		626		6.29		4.56		611		4.56
	4.74		5.44		142		6.49		4.79		142		4.79
	7.42		7.42		1,011		6.97		7.42		1,011		7.42
	9.24		31.67		463		8.25		23.05		273		18.32
	32.65		32.99		45		3.79		32.83		35		32.88
	40.50		40.50		255		8.07		40.50		122		40.50
	41.40		41.40		158		8.08		41.40		76		41.40
	41.91		41.91		227		7.73		41.91		114		41.91

$	0.12	$	41.91		3,777		6.61	$	13.55		3,234	$	9.77

Determining Fair Value of Stock Options

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model. The following assumptions were used to estimate the fair value of options granted to employees:

	Year Ended December 31,
	2015	2014	2013
Expected term (in years)	6	6	6
Risk-free interest rate	1.55% - 1.87%	1.80% - 1.97%	0.86% - 1.78%
Expected volatility	43% - 45%	49% - 56%	57% - 58%
Expected dividend rate	0%	0%	0%

The assumptions are based on the following for each of the periods presented:

Expected Term—The Company estimates the expected term consistent with the simplified method identified by the SEC. The Company elected to use the simplified method because of its limited history of stock option exercise activity and its stock options meet the criteria of the "plain-vanilla" options as defined by the SEC. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award.

Volatility—Since the Company has limited trading history by which to determine the volatility of its own common stock price, the expected volatility being used is derived from the historical stock volatilities of a representative industry peer group of comparable publicly listed companies over a period approximately equal to the expected term of the options.

Risk Free Interest Rate—The risk free interest rate is based on U.S. Treasury zero coupon issues with remaining terms similar to the expected term on the options.

Expected Dividend—The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

Forfeiture—The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All service based stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

Restricted Stock Units

A summary of the Company's RSU activity and related information for fiscal 2015 is as follows:

	Number of RSUs (in thousands)			Weighted Average Grant Date Fair Value
Balance as of December 31, 2014		2,360		$	33.30
RSUs Granted		2,017			31.99
RSUs Vested		(633	)		33.18
RSUs Cancelled/Forfeited		(707	)		31.65

Balance as of December 31, 2015		3,037		$	32.84

RSUs are generally subject to a time-based vesting condition that ranges from three to four years, except for performance-based RSUs discussed in subsequent paragraphs.

During 2013 and 2012 the Company granted performance-based RSUs to certain employees. These RSUs were subject to a time-based vesting condition and a performance-based vesting condition, both of which must be satisfied before the RSUs are vested and settled for shares of common stock. The time-based vesting condition generally ranges from 2 to 4 years. The performance-based vesting condition was satisfied upon the completion of the Company's IPO, which occurred during the second quarter of 2013.

During 2014, in connection with an acquisition, the Company issued 42,932 performance-based RSUs to certain employees. These performance-based RSUs will vest based on the achievement against two product milestones. Of the total performance-based RSUs granted, 40% of the total RSUs granted was subject to the first milestone (which occurred in the second quarter of 2015) and 60% of the total RSUs granted was subject to the second milestone (which occurred in the fourth quarter of 2015). The RSUs had an estimated value of $1.4 million on the date of grant. During 2015, these RSUs were fully vested.

The weighted average grant date fair value of RSUs granted and the total intrinsic value of RSUs that vested during the periods presented were as follows:

	Year Ended December 31,
	2015		2014		2013
Weighted average grant date fair value	$	31.99	$	34.27	$	28.69
Total intrinsic value of vested RSUs (in thousands)	$	18,172	$	7,117	$	2,479

The aggregate grant date fair value of RSUs vested during fiscal 2015 was approximately $21.0 million.

Market Stock Units

In February 2015, the Compensation and Leadership Development Committee of the Company's Board of Directors granted market-performance based restricted stock units (MSUs) to its executive officers. The MSU awards were granted under the Company's 2013 Equity Incentive Plan.

Each MSU award granted in the first quarter of fiscal 2015 contains three separate tranches. The actual number of MSUs eligible to vest in each tranche is based on the performance of the Company's stock price relative to the performance of the NASDAQ Composite Index over the vesting period of each tranche, which ranges from one to three years. MSU participants have the ability to receive up to 100% of the target number of shares in tranche 1 and 2 and up to 150% of the target number of shares in tranche 3.

A summary of the Company's MSU activity and related information for the year ended December 31, 2015 is as follows:

	Number of Shares Underlying MSUs			Weighted Average Grant Date Fair Value
	(in thousands)
Balance as of December 31, 2014		—		$	—
MSUs Granted		240			37.53
MSUs Cancelled/Forfeited		(47	)		37.53

Balance as of December 31, 2015		193		$	37.53

The fair value of each MSU award is determined by multiplying the fair value per share by the underlying number of shares. The fair value per share was determined on the grant date using the Monte Carlo valuation methodology and the assumptions described in the table below. The fair value per share for tranche 1, tranche 2, and tranche 3 is $9.10, $8.68 and $19.75, respectively. The Company amortizes the fair value of each MSU award using the graded-vesting method, adjusted for estimated forfeitures. Stock-based compensation expense associated with participants who fulfill their requisite service period is not reversed even if the performance conditions are not met. However, stock-based compensation expense is reversed for participants who forfeit their MSU awards prior to fulfilling their requisite service period.

The fair value of the MSUs granted during fiscal 2015 was estimated using the following weighted-average assumptions:

	For the Year Ended December 31, 2015
Expected term (in years)		3
Risk-free interest rate		0.99	%
Expected volatility		39	%
Expected dividend rate		0	%

Employee Stock Purchase Plan

The Board adopted, and the Company's stockholders approved, a 2013 Employee Stock Purchase Plan (ESPP). The ESPP became effective on May 1, 2013. The ESPP provides for annual increases in the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning in fiscal 2014, equal to the lesser of:

1% of the outstanding shares of the Company's common stock on the first day of such fiscal year;

650,000 shares; or

such other amount as may be determined by the Company's board of directors

The ESPP allows eligible employees to purchase shares of the Company's common stock at a discount through payroll deductions of up to 15% of their eligible compensation, at not less than 85% of the fair market value, as defined in the ESPP, subject to any plan limitations. A participant may purchase a maximum of 1,250 shares during an offering period. The offering period generally starts on the first trading day on or after February 15th and August 15th of each year, except that the first offering period commenced on the first trading day following the effective date of the Company's registration statement. During 2015, the Company issued approximately 0.2 million shares of common stock under the ESPP with an average purchase price of $23.88 per share. At December 31, 2015, a total of 1.5 million shares of common stock have been reserved for issuance and there were 0.9 million shares available for issuance under the ESPP.

Determining Fair Value of Employee Stock Plan Purchase Rights

The assumptions used to value employee stock purchase rights under the Black-Scholes model for the periods presented were as follows:

	Year Ended December 31,
	2015	2014	2013
Expected term (in months)	6	6 - 9	9
Risk-free interest rate	0.05% - 0.24%	0.05% - 0.11%	0.11%
Expected volatility	31% - 43%	41% - 43%	42%
Expected dividend rate	0%	0%	0%

Stock Compensation Expense

The stock-based compensation expense included in operating results was allocated as follows:

	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Cost of subscription and support revenue	$	2,691	$	1,626	$	496
Cost of professional services and other revenue		4,320		2,363		690
Research and development		7,637		5,353		2,084
Sales and marketing		12,655		8,860		2,293
General and administrative		11,879		6,918		2,512

Total stock-based compensation expense	$	39,182	$	25,120	$	8,075

For the year ended December 31, 2015, the Company incurred expenses of $8.4 million for options, $26.4 million for RSUs, $3.6 million for MSUs and $1.7 million for ESPP, of which $1.3 million, related to performance-based RSUs that are tied to product milestones issued in connection with an acquisition that occurred in December 2014. The Company capitalized $0.9 million associated with the Company's internal use software projects.

As of December 31, 2015, total unrecognized compensation cost related to unvested awards not yet recognized under all equity compensation plans, adjusted for estimate forfeitures, was as follows:

	December 31, 2015
	Unrecognized Expense		Weighted Average Expected Recognition Period
	(in thousands)		(in years)
Stock options	$	10,550		1.36
Restricted stock units and market stock units		66,546		2.79
Employee stock purchase plan		209		0.13

Total unrecognized stock-based compensation expense	$	77,305		2.59