Stock-based Compensation

Stock Options

2012 Equity Incentive Plan

Under the 2012 Equity Incentive Plan (the "2012 Plan"), the Company is authorized to grant to eligible participants incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance units and performance shares equivalent to up to 6,348,478 shares of common stock. Options may be granted with an exercise price that is at least equal to the fair market value of the Company's stock at the date of grant and are exercisable when vested. As of June 30, 2015, 2,232,459 shares were available for grant under the 2012 Plan.

2000 Equity Incentive Plan

Under the 2000 Equity Incentive Plan (the "2000 Plan"), the Company was authorized to grant to eligible participants either ISOs or NSOs. The 2000 Plan was terminated in connection with the closing of the initial public offering ("IPO"), and accordingly, no shares are currently available for issuance under the 2000 Plan. The 2000 Plan continues to govern outstanding awards granted thereunder.

Employee Stock-based Compensation

Employee stock-based compensation is included in the condensed consolidated statements of operations as follows:



	Three months ended				Six months ended
	June 30,				June 30,
	2015		2014		2015		2014
	(in thousands)
Cost of revenues	$	344	$	158	$	672	$	307
Research and development	1,138		510		2,290		945
Sales and marketing	980		705		1,791		1,278
General and administrative	1,467		992		2,938		1,765
Total employee stock-based compensation	$	3,929	$	2,365	$	7,691	$	4,295

Compensation cost is recognized on a straight-line basis over the service period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

As of June 30, 2015, the Company had $25.3 million of total unrecognized employee compensation cost related to unvested awards that it expects to recognize over a weighted-average period of 2.1 years.

The fair value of each option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model based on the following assumptions:



	Three months ended		Six months ended
	June 30,		June 30,
	2015	2014	2015	2014
Expected term (in years)	4.9 to 5.9	5.3 to 5.9	4.9 to 5.9	5.3 to 5.9
Volatility	46%	49% to 50%	46% to 48%	49% to 52%
Risk-free interest rate	1.5% to 1.65%	1.65% to 1.67%	1.3% to 1.65%	1.52% to 1.67%
Dividend yield	—%	—%	—%	—%

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date. Volatility is based on historical volatility of several public entities that are similar to the Company, as the Company does not have sufficient historical transactions in its own shares on which to base expected volatility. The Company has not historically declared any dividends and does not expect to in the future.

Non-Employee Stock-based Compensation

The Company records compensation representing the fair value of stock options granted to non-employees. Stock-based non-employee compensation expense was $0.5 million and $0.1 million for the three months ended June 30, 2015 and 2014, respectively and $0.6 million and $0.3 million, for the six months ended June 30, 2015 and 2014, respectively. Non-employee stock-based compensation is recognized over the vesting periods of the options. The value of options granted to non-employees is remeasured as they vest over a performance period.

Stock Option Plan Activity

A summary of the Company’s stock option activity is as follows:



	Outstanding Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(in thousands)
December 31, 2014	7,605,407		$	12.93	6.5	$	188,743
Granted	584,700		44.70
Exercised	(484,876	)	11.44
Canceled	(348,274	)	27.31
June 30, 2015	7,356,957		14.88		6.2	189,858
Vested and expected to vest - June 30, 2015	6,916,031		13.85		6.0	184,876
Exercisable - June 30, 2015	4,813,369		7.68		4.9	157,244

Restricted Stock

The terms and conditions of RSAs, including vesting criteria and timing are set by the board of directors. The cost of RSAs is determined using the fair value of the Company’s common stock on the date of the grant. Compensation cost is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. Recipients of RSAs generally have voting and dividend rights without regard to vesting. The Company has the right to repurchase shares that do not vest.

During the three and six months ended June 30, 2014, the Company granted 1,401 shares of restricted stock, which vested immediately and had no further restrictions or service period, and resulted in compensation expense of $27,000. The Company did not issue restricted stock during the three and six months ended June 30, 2015.