Equity Award Plan Activities

2014 Equity Incentive Plan

In April 2014, the board of directors and stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”), effective on the first day that our common stock was publicly traded. Our board of directors has terminated the 2004 and 2011 equity plans as to future grants. However, these plans will continue to govern the terms and conditions of the outstanding options previously granted thereunder.

Awards granted under the 2014 Plan could be in the form of Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), Restricted Stock Awards (“RSAs”), Stock Appreciation Rights (“SARs”) or Restricted Stock Units (“RSUs”). The number of shares available for grant and issuance under the 2014 Plan increases automatically on January 1 of each year commencing with 2016 by the number of shares equal to 3% of our shares outstanding on the immediately preceding December 31, but not to exceed 12,500,000 shares, unless the board of directors, in its discretion, determines to make a smaller increase. As of December 31, 2016, there remained approximately 11.8 million shares available for issuance under the 2014 Plan.

On February 6, 2017, our board of directors authorized an increase to the shares available for issuance under the plan of 3% of the total shares outstanding on December 31, 2016 effective January 1, 2017. The increase amounted to 2,124,333 shares.

2014 Employee Stock Purchase Plan

In April 2014, the board of directors and stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on the first day that our common stock was publicly traded. The number of shares reserved for issuance under the ESPP increases automatically on January 1 of each year by the number of shares equal to 1% of our shares outstanding immediately preceding December 31, but not to exceed 2,500,000 shares, unless the board of directors, in its discretion, determines to make a smaller increase.

Under our 2014 ESPP eligible employees are permitted to acquire shares of our common stock at 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the exercise date. Each offering period will be approximately two years starting on the first trading date after February 15 and August 15 of each year. Participants may purchase shares of common stock through payroll deductions up to 10% of their eligible compensation, subject to Internal Revenue Service mandated purchase limits. As of December 31, 2016, there remained 1,483,846 shares available for issuance under the ESPP.

On February 6, 2017, our board of directors authorized an increase to shares available for issuance under the plan of 1% of the total shares outstanding on December 31, 2016 effective January 1, 2017. The increase amounted to 708,111 shares.

Stock Option Activities

The following table summarizes the option activity under our stock plans and related information (in thousands, except years and per share amounts):



	Options Outstanding
	Number of Shares Underlying Outstanding Options		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (Years) of Stock Options	Aggregate Intrinsic Value of Stock Options Outstanding
Balance—December 31, 2015	11,630		$	24.49	7.6	$	620,802
Authorized
Options granted	441		56.95
Options exercised	(2,200	)	11.32
Options canceled	(362	)	31.22
Balance—December 31, 2016	9,509		$	28.79	6.9	$	646,394
Vested and exercisable—December 31, 2016	3,642		$	15.29	6.1	$	296,738
Vested and expected to vest—December 31, 2016	9,050		$	28.23	6.9	$	620,296

_________________

The weighted-average grant-date fair value of options granted during the year ended December 31, 2016 and 2015 was $23.66 and $29.20 per share, respectively. The aggregate intrinsic value of options exercised during the year ended December 31, 2016 was $147.6 million.

Restricted Stock Unit (RSU) Activities

A summary of the activity under our 2014 Plan and changes during the reporting period and a summary of information related to RSUs are presented below (in thousands, except years and per share amounts):



	Number of Shares		Weighted- Average Grant Date Fair Value Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Unvested balance—December 31, 2015	893		$	70.14	1.9	$	69,509
RSUs granted	816		76.54
RSUs vested	(244	)	69.32
RSUs forfeited/canceled	(90	)	67.97
Unvested balance—December 31, 2016	1,375		$	74.23	1.8	$	133,081
RSUs vested and expected to vest—December 31, 2016	1,288		$	74.14	1.7	$	124,683

Employee Stock Purchase Plan Activities

During the year ended December 31, 2016, we issued 256,223 shares at an average purchase price of $40.30 under our ESPP. Shares available for future issuance under our ESPP, subsequent to the increase authorized by our board of directors, are approximately 2.2 million.

Shares Available for Grant

The following table presents the stock activity and the total number of shares available for grant as of December 31, 2016 (in thousands):



	Number of Shares
Balance—December 31, 2015	10,495
Authorized	2,044
Options granted	(441	)
RSUs granted	(816	)
Options canceled	362
Options repurchased	5
RSUs forfeited	90
Shares traded for taxes	15
Balance—December 31, 2016	11,754

Early Exercise of Stock Options

We have historically allowed our employees and directors to exercise options prior to vesting. Upon an "early exercise" of these options, the unvested shares acquired through the exercise become options subject to our repurchase right that lapse in accordance with the original option vesting schedule. Upon termination of employment prior to our repurchase rights lapsing in full, we have a right to repurchase the unvested shares at the original purchase price. The proceeds received from the early exercise of stock options and are initially recorded in other liabilities and are reclassified to common stock and paid-in capital as our repurchase right lapse. For the year ended December 31, 2016, we repurchased 5,364 shares of common stock at the original exercise price due to the termination of the holders of the unvested shares. As of December 31, 2016, early exercised shares subject to repurchase were 0.3 million, with an aggregate value of $1.3 million.

Stock-Based Compensation Expense

Total stock-based compensation expense related to options, RSAs, ESPP and RSUs granted were charged to the department to which the associated employee reported as follow (in thousands):



	Year Ended December 31,
	2016		2015		2014
Cost of revenue	$	3,620	$	3,048	$	1,535
Research and development	31,892		25,515		14,986
Sales and marketing	15,666		11,454		7,643
General and administrative	7,854		5,286		3,455
Total stock-based compensation	$	59,032	$	45,303	$	27,619

Determination of Fair Value

We record stock-based compensation awards based on fair value as of the grant date. For option awards and ESPP offerings we use the Black-Scholes-Merton option-pricing model to determine fair value. We recognize such costs as compensation expense generally on a straight-line basis over the requisite service period of the award.

Stock Options

For the years ended December 31, 2016, 2015 and 2014 the fair value of each stock option granted under our plans was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions and fair value per share:



	Year Ended December 31,
	2016		2015		2014
Expected term (in years)	6.7		6.2		7.6
Risk-free interest rate	1.5	%	1.6	%	2.2	%
Expected volatility	38.9	%	42.9	%	47.7	%
Dividend rate	—	%	—	%	—	%

As of December 31, 2016, the total unrecognized stock-based compensation expense for unvested stock options, net of expected forfeitures, was $87.4 million, which is expected to be recognized over a weighted-average period of 3.7 years. The total fair value of options vested for the year ended December 31, 2016 was $28.6 million.

As of December 31, 2016, there was $87.6 million of unrecognized stock-based compensation expense related to unvested RSUs, net of estimated forfeitures. This amount is expected to be recognized over a weighted-average period of 3.4 years.

ESPP

The following table summarizes the assumptions relating to our ESPP:



	Year Ended December 31,
	2016		2015		2014
Expected term (in years)	1.2		1.4		1.4
Risk-free interest rate	0.6	%	0.3	%	0.3	%
Expected volatility	31.8	%	34.8	%	36.3	%
Dividend rate	—	%	—		—

As of December 31, 2016, the total unrecognized stock-based compensation expense related to unvested ESPP options, net of expected forfeitures, was $4.2 million, which is expected to be recognized over a weighted-average period of 1.5 years.