14. Stock Based Compensation

Summary of Plans

The Company’s equity compensation plans generally provide the board of directors the authority to grant incentive stock options, nonqualified stock options, restricted stock awards, unrestricted stock awards, performance share awards, restricted stock units, and stock appreciation rights (collectively, options) and to select the employees and consultants to whom options are granted and determine the terms of each option, including (i) the number of shares of common or preferred stock subject to the option, (ii) when the option becomes exercisable, (iii) the option exercise price, which, in the case of incentive stock options, must be at least 100% (110% in the case of incentive stock options granted to a stockholder owning in excess of 10% of the Company’s common stock) of the fair market value of the stock as of the date of grant and (iv) the duration of the option (which, in the case of incentive stock options, may not be less than five years or exceed 10 years). Options generally expire 10 years from the date of issuance.

The Company’s common and preferred stock incentive plans are summarized as follows (the table reflects options for preferred stock on an as converted to common stock basis):


Plan	Authorized and Reserved		Outstanding January 31, 2014			Available to Issue
1999 Series G Convertible Preferred Nonqualified Stock Option Plan (1)		384,615		2,820			—
2005 Series G Convertible Preferred Stock Incentive Plan (1)		1,846,153		1,278,627			—
2007 Stock Incentive Plan (1)		1,076,923		810,788			—
2011 Stock Incentive Plan		769,230		287,876	(2)		480,979

		4,076,921		2,380,111			480,979

(1)	Effective upon the consummation of its initial public offering on July 3, 2012, the Company ceased issuing awards under any plan other than its 2011 Stock Incentive Plan.

(2)	Outstanding awards include 5,224 restricted stock units granted for the first time in September 2013 to certain members of the board of directors, which will fully vest in June 2014.

Grant-Date Fair Value

Prior to the consummation of the Company’s initial public offering on July 3, 2012, the fair value of the shares of common stock that underlie the stock options granted under the various plans outstanding was historically determined by the Company’s board of directors based upon information available to it at the time of grant. Prior to the Company’s initial public offering, there was no public market for its common stock, and the board of directors determined the fair value of the common stock by utilizing, among other things, recent or contemporaneous valuation information available to it. All options have been granted at exercise prices not less than the fair value of the underlying shares on the date of grant.

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of stock options issued. The Black-Scholes model requires estimates regarding volatility, expected life of the award, the risk-free rate of return, dividend yields, and estimated forfeitures of awards during the service period.

The Company computes volatility under the “calculated value method” of ASC 718, Compensation—Stock Compensation. As the Company does not have a trading history for its common stock prior to its initial public offering or a significant trading range for its common stock trading since the initial public offering, the Company estimates the expected price volatility for its common stock by taking the average historic price volatility for selected industry peers based on daily price observations over a period equivalent to the expected term of the stock options granted. The Company’s industry peers consist of several public companies that are similar to the Company in size, stage of life cycle and financial leverage. The Company intends to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of its common stock becomes available, or unless circumstances change such that the currently utilized companies are no longer similar to the Company, in which case, more suitable companies with publicly available share prices will be utilized in the calculation.

Since adopting ASC 718, the Company has been unable to use historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. As such, the Company has utilized the “simplified” method, as prescribed by Staff Accounting Bulletin No. 107, Share-Based Payment, to estimate on a formula basis the expected term of its stock options considered to have “plain vanilla” characteristics.

The Company utilizes the Federal Reserve Board’s published Treasury Constant Maturity rate which most closely matches the option term. As an example, for a 6.25 year term, the Company would use the 7-year rate coinciding with the option issuance date.

The Company has never paid dividends and does not currently intend to pay dividends, and thus has assumed a dividend yield of zero.

The Company estimates potential forfeitures of stock grants and adjusts compensation cost recorded accordingly. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods.

The Company considers the indirect effect of income tax benefits from stock-based compensation in arriving at its income tax provision. In addition, the Company has elected to recognize excess income tax benefits from stock-based compensation as an addition to paid-in capital only if an incremental income tax benefit would be realized by applying the with-and-without method. Under this method, the excess tax benefit is considered realized and recognized for financial statement purposes only when an incremental benefit is provided after considering all other tax benefits including the Company’s net operating losses. The Company measures the tax benefit associated with excess tax deductions by multiplying the excess tax over book deduction by the statutory tax rates.

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


	Years Ended January 31,
	2014			2013			2012
Expected life (years)		6.25			6.25			6.48
Risk-free interest rate		2.21	%		1.09	%		2.11	%
Expected volatility		50.6	%		51.6	%		56.7	%
Expected dividend yield		0.0	%		0.0	%		0.0	%

A summary of the changes in common and preferred stock options issued under all of the existing stock option plans is as follows (the table reflects options for preferred stock on an as converted to common stock basis):


	Year Ended January 31, 2014
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (1)
Outstanding—beginning of period		2,307,280		$	4.58
Granted		184,728			13.36
Exercised		(73,167	)		3.46
Cancelled		(43,954	)		10.49

Outstanding—end of period		2,374,887		$	5.19		4.2	$	21,137

Exercisable—end of period		1,855,542		$	3.30		3.0	$	19,999

Vested or Expected to Vest—end of period		2,317,942		$	5.02		4.1	$	21,009

(1)	The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s stock on January 31, 2014 and the exercise price of the underlying options.

The number of options exercised during the year ended January 31, 2014 includes 4,170 options included in a cashless exercise, which allowed the optionee to pay the exercise price by surrendering options to the Company. The net shares of common stock resulting from option exercises is 68,997 as reflected in the consolidated statement of shareholder’s equity.

The following table summarizes information relating to stock options granted and exercised:


	Years Ended January 31
	2014		2013		2012
Weighted average fair value of options granted	$	6.80	$	5.39	$	6.37
Aggregate intrinsic value of options exercised (1)		528		287		285

(1)	The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s stock at exercise and the exercise price of the underlying options.

The Company also granted 5,224 restricted stock units for the first time in September 2013 to certain members of the board of directors, which will fully vest in June 2014.

Stock-Based Compensation Expense

The Company records stock-based compensation expense over the estimated service/vesting period. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.

Total stock-based compensation expense was recorded within the consolidated statement of operations for the fiscal years ended January 31, 2014, 2013 and 2012 as follows:


	Years Ended January 31
	2014		2013		2012
Cost of revenues	$	137	$	111	$	79
Sales and marketing		239		190		119
Research and development		376		308		227
General and administrative		458		315		211

Total	$	1,210	$	924	$	636

The total unrecognized compensation cost related to outstanding stock options is $2.4 million at January 31, 2014. This amount is expected to be recognized over a weighted-average period of 2.7 years.