

NOTE 6.	Stockholders' Equity and Stock-based Compensation

Common Stock

The Company had reserved shares of common stock for future issuance as of December 31, 2016 as follows:



Options and RSUs outstanding under equity incentive plans
2000 Equity Incentive Plan		2,718,517
2012 Equity Incentive Plan		5,396,496
Shares available for future grants under an equity incentive plan
2012 Equity Incentive Plan		1,425,230
Total shares reserved for future issuance		9,540,243

Preferred Stock

Effective October 3, 2012, the Company is authorized to issue 20,000,000 shares of undesignated preferred stock with a par value of $0.001 per share. Each series of preferred stock will have such rights and preferences including dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price, and liquidation preferences as determined by the Board. As of December 31, 2016 and 2015, there are no issued or outstanding shares of preferred stock.

Stock Options

2012 Equity Incentive Plan

The 2012 Equity Incentive Plan (the 2012 Plan) was adopted and approved in September 2012 and became effective on September 26, 2012. Under the 2012 Plan, the Company is authorized to grant to eligible participant's incentive stock options (ISOs), nonstatutory stock options (NSOs), stock appreciation rights (SARs), restricted stock awards (RSAs), restricted stock units (RSUs), performance units and performance shares equivalent to up to 8,069,184 shares of common stock as of December 31, 2016. The number of shares of common stock available for issuance under the 2012 Plan includes an annual increase on January 1 of each year by an amount equal to the least of 3,050,000 shares; 5% of the outstanding shares of stock as of the last day of the immediately preceding fiscal year; or an amount determined by the board of directors. 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. Options granted generally vest over a period of up to four years, with a maximum term of ten years. ISOs may only be granted to employees and any subsidiary corporations' employees. All other awards may be granted to employees, directors and consultants and subsidiary corporations' employees and consultants. Options, SARs, RSAs, RSUs, performance units and performance awards may be granted with vesting terms as determined by the board of directors and expire no more than ten years after the date of grant or earlier if employment or service is terminated. As of December 31, 2016, 1,425,230 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 ISOs were granted at a price per share not less than the fair market value at the date of grant. The NSOs were granted at a price per share not less than 85% of the fair market value at the date of grant. Options granted generally vest over a period of up to four years, with a maximum term of ten years. The 2000 Plan was terminated in connection with the closing of the IPO, and accordingly, no shares are currently available for issuance under the 2000 Plan. The 2000 Plan continues to govern outstanding awards granted thereunder.

Options granted under the 2000 Plan were immediately exercisable, and unvested shares are subject to repurchase by the Company. Upon termination of employment of an option holder, the Company has the right to repurchase at the original purchase price any issued but unvested common shares. The amounts paid for shares purchased under an early exercise of stock options and subject to repurchase by the Company are not reported as a component of stockholders’ equity (deficit) until those shares vest. The amounts received in exchange for these shares are recorded as an accrued liability in the accompanying consolidated balance sheets and will be reclassified to common stock and additional paid-in capital as the shares vest.

Stock-based Compensation

Stock-based compensation included in the consolidated statements of operations is as follows:



	Year Ended December 31,
	2016		2015		2014
	(in thousands)
Cost of revenues	$	1,858	$	1,250	$	757
Research and development	5,678		4,936		2,470
Sales and marketing	4,870		3,867		2,407
General and administrative	7,743		7,441		4,915
Total stock-based employee compensation	$	20,149	$	17,494	$	10,549

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 December 31, 2016, the Company had $23.2 million of total unrecognized employee compensation cost related to unvested awards that it expects to recognize over a weighted-average period of 2.8 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:



	Year Ended December 31,
	2016	2015	2014
Expected term (in years)	5.0 to 5.9	4.9 to 5.9	5.3 to 5.9
Volatility	45% to 49%	45% to 48%	48% to 52%
Risk-free interest rate	1.1% to 1.3%	1.3% to 1.7%	1.5% to 1.7%
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 a combination of the historical volatility of the Company and of several public entities that are similar to the Company. The Company bases volatility on this combination because it does not have sufficient historical transactions in its own shares on which to solely 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 was $0.7 million, $0.6 million and $0.7 million for 2016, 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)
Balance as of December 31, 2013	7,039,093		$	7.17	6.5	$	112,312
Granted	2,744,150		$	26.16
Exercised	(1,216,710	)	$	6.28
Canceled	(961,126	)	$	16.91
Balance as of December 31, 2014	7,605,407		$	12.93	6.5	$	188,743
Granted	1,526,450		$	39.50
Exercised	(807,846	)	$	12.50
Canceled	(744,953	)	$	27.67
Balance as of December 31, 2015	7,579,058		$	16.88	5.9	$	131,345
Granted	2,120,633		$	26.64
Exercised	(1,399,157	)	$	10.83
Canceled	(772,854	)	$	31.57
Balance as of December 31, 2016	7,527,680		$	19.25	6.0	$	101,717
Vested and expected to vest—December 31, 2016	7,008,375		$	18.43	5.7	$	99,875
Exercisable—December 31, 2016	5,137,869		$	14.49	4.6	$	91,928

The following table summarizes the outstanding and vested stock options at December 31, 2016:



	Outstanding				Exercisable
Exercise Price	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Number of Shares	Weighted Average Exercise Price Per Share
$1.90 - $1.90	938,282	$	1.90	0.07	938,282	$	1.90
$2.10 - $2.80	161,970	$	2.73	2.21	161,970	$	2.73
$3.80 - $3.80	1,057,235	$	3.80	2.92	1,057,235	$	3.80
$4.10 - $12.68	841,480	$	8.50	4.87	835,654	$	8.49
$13.50 - $25.17	1,126,929	$	22.19	7.74	592,323	$	20.13
$25.56 - $25.56	1,064,551	$	25.56	9.28	146,263	$	25.56
$26.86 - $30.58	1,065,841	$	28.78	7.37	968,961	$	28.74
$31.67 - $37.28	905,161	$	35.41	8.88	220,324	$	36.55
$40.68 - $40.89	225,661	$	40.82	7.55	154,011	$	40.79
$52.14 - $52.14	140,570	$	52.14	7.46	62,846	$	52.14
	7,527,680	$	19.25	5.96	5,137,869	$	14.49

The weighted-average grant date fair value of the Company’s stock options granted during 2016, 2015 and 2014 was $11.12, $16.51 and $12.07, respectively. The aggregate grant date fair value of the Company’s stock options granted during 2016, 2015 and 2014 was $23.6 million, $25.2 million and $33.1 million, respectively.

The intrinsic value of options exercised was $25.0 million, $22.7 million and $25.7 million during 2016, 2015 and 2014, respectively. Intrinsic value of an option is the difference between the fair value of the Company’s common stock at the time of exercise and the exercise price paid.

Restricted Stock

The terms and conditions of RSUs and RSAs, including vesting criteria and timing are set by the board of directors. The cost of RSUs and 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.

A summary of the Company’s RSUs and RSAs activity is as follows:



	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
Balance as of December 31, 2014	—		$	—
Granted	60,000		$	37.28
Vested	(12,500	)	$	37.28
Cancelled	—		$	—
Balance as of December 31, 2015	47,500		$	37.28
Granted	681,350		$	28.52
Vested	(39,998	)	$	27.49
Cancelled	(101,519	)	$	31.12
Balance as of December 31, 2016	587,333		$	28.85
Expected to vest as of December 31, 2016	409,789		$	28.81

As of December 31, 2016, the Company had $10.6 million of unrecognized compensation cost related to unvested awards that it expects to recognize over a weighted-average period of 3.2 years.

401(k) Plan

The Company’s 401(k) Plan (the “401(k) Plan”) was established in 2000 to provide retirement and incidental benefits for its employees. As allowed under section 401(k) of the Internal Revenue Code, the 401(k) Plan provides tax-deferred salary deductions for eligible employees. Contributions to the 401(k) Plan are limited to a maximum amount as set periodically by the Internal Revenue Service. As of December 31, 2016 and 2015, the Company has made contributions to the 401(k) Plan of $0.6 million and $0 million, respectively.