9. Stockholder’s Equity and Stock Based Compensation

Common Stock Authorized and Outstanding

As of June 30, 2014, the Company was authorized to issue 1,000,000,000 common shares with a par value of $0.0001 per share and 20,000,000 convertible preferred shares with a par value of $0.0001 per share. As of June 30, 2014, the Company had approximately 40.6 million shares of common stock issued and outstanding.

Summary of Stock Option Activity

A summary of the Company’s stock option activity under all stock option plans and related information for six months ended June 30, 2014 is as follows:

	OPTIONS OUTSTANDING
	Shares Available for Grant (in thousands)		Number of Stock Options Outstanding (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in thousands)

Balance as of December 31, 2013	3,486		6,343		$	5.33	7.98	$	201,305
Additional shares authorized	1,962
Granted	(870	)	870		39.04
Exercised			(989	)	3.37
Repurchased	68				25.86
RSUs granted, net of cancellations/forfeitures	(1,068	)
Cancelled/forfeited	250		(250	)	9.19
Balance as of June 30, 2014	3,828		5,974		10.40		7.95	120,792
Exercisable as of June 30, 2014			4,935		5.08		7.66	118,438
Vested and expected to vest as of June 30, 2014			5,861		$	10.52	7.96	$	118,024

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s closing price of $29.08 as of June 30, 2014 for options that were in-the-money as of that date.

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 our 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 June 30, 2014 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 were as follows (in thousands, except weighted average grant date fair value):

	Six Months Ended June 30,
	2014		2013
Weighted average grant date fair value	$	20.79	$	4.44
Total intrinsic value of options exercised	$	33,190	$	4,855

The total estimated grant date fair value of options vested during the six months ended June 30, 2014 was approximately $3.0 million.

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:

	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Expected term (in years)	6	6	6	6
Risk-free interest rate	1.90% - 1.97%	0.86% - 1.375%	1.84% - 1.97%	0.86% - 1.375%
Expected volatility	49% - 55%	57% - 58%	49% - 56%	57% - 58%
Expected dividend rate	0%	0%	0%	0%

Restricted Stock Units

A summary of the Company’s Restricted Stock Units (RSUs) activity and related information for the six months ended June 30, 2014 are as follows:

	Number of RSUs (in thousands)		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Balance as of December 31, 2013	582		$	22.57	$	21,579
RSUs Granted	1,136		38.29
RSUs Vested	(137	)	5.88
RSUs Cancelled/Forfeited	(68	)	38.35
Balance as of June 30, 2014	1,513		$	35.19	$	43,988

RSUs granted during the six months ended June 30, 2014 are subject to a time-based vesting condition that ranges from 3 to 4 years.

The aggregate intrinsic value of RSUs outstanding at June 30, 2014 was determined using the Company’s closing stock price of $29.08 per share as of June 30, 2014.

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 (in thousands, except weighted average grant date fair value):

	Six Months Ended June 30,
	2014		2013
Weighted average grant date fair value	$	38.29	$	15.10
Total intrinsic value of vested RSUs	$	4,237	$	6,383

Employee Stock Purchase Plan

The assumptions used to value employee stock purchase rights under the Black-Scholes model during the three and six months ended June 30, 2014 were as follows:

Expected term (in months)		6 - 9
Risk-free interest rate		0.08% - 0.11%
Expected volatility		41% - 42%
Expected dividend rate		0%

For the six months ended June 30, 2014, the Company recorded stock-based compensation expense relating to the employee stock purchase plan (ESPP) of approximately $1.2 million.

In February 2014 the Company issued approximately 0.3 million shares of common stock under the ESPP with an average purchase price of $11.05 per share.

Stock Compensation Expense

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013

Cost of subscription and support revenue	$	419	$	114	$	803	$	177
Cost of professional services and other revenue	610		154		1,057		247
Research and development	1,173		937		2,252		1,147
Sales and marketing	2,095		863		3,874		1,093
General and administrative	1,614		548		2,932		953
Total stock-based compensation expense	$	5,911	$	2,616	$	10,918	$	3,617

As of June 30, 2014, total unrecognized compensation cost related to unvested awards not yet recognized under all equity compensation plans, adjusted for estimate forfeitures, was as follows:

	June 30, 2014
	Unrecognized Expense		Average Expected Recognition Period
	(in thousands)		(in years)
Stock options	$	21,769	2.46
Restricted stock units	36,925		3.37
Employee Stock Purchase Plan	275		0.13
Total unrecognized stock-based compensation expense	$	58,969	3.02