The Company’s 2016 Equity Incentive Plan (the “2016 Plan”) became effective on September 15, 2016. The 2016 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and performance share awards to employees, directors and consultants of the Company. A total of 3,893,118 shares of the Company’s common stock were initially reserved for issuance under the 2016 Plan, which is the sum of (1) 2,000,000 shares, (2) the number of shares reserved for issuance under the Company’s 2008 Equity Incentive Plan or the 2008 Plan, at the time the 2016 Plan became effective (up to a maximum of 42,934 shares) and (3) shares subject to stock options or other stock awards granted under the 2008 Plan that would have otherwise returned to the Company’s 2008 Plan (up to a maximum of 1,850,184 shares). The number of shares of common stock reserved for issuance under the 2016 Plan will automatically increase on January 1 of each year, beginning on January 1, 2017, by 3% of the number of shares of the Company’s capital stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors.

As a result of the adoption of the 2016 Plan, no further grants may be made under the 2008 Plan. The 2008 Plan provided for the grant of stock options to the Company’s employees, directors and consultants. Stock option awards were granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant as determined by the Company’s board of directors. The option awards generally vested over four years and were exercisable any time after vesting. The stock options expire ten years after the date of grant.

The Company’s Employee Stock Purchase Plan (the “2016 ESPP”) became effective on September 15, 2016. A total of 500,000 shares of the Company’s common stock were initially reserved for issuance under the 2016 Plan. The number of shares reserved for issuance under the 2016 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2017, by the lesser of 200,000 shares of the Company’s common stock, 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors.

The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. The 2016 ESPP provides for separate six-month offering periods beginning each March and September of each fiscal year.

On each purchase date, eligible employees will purchase the Company’s stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company’s common stock on the offering date or (ii) the fair market value of the Company’s common stock on the purchase date.

For the nine months ended September 30, 2019 and 2018, 42,481 and 74,517 shares of common stock were purchased under the 2016 ESPP, respectively. The 2016 ESPP is considered compensatory for purposes of stock-based compensation expense. The Company recorded stock-based compensation expense of $0.2 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively. The Company recorded stock-based compensation expense of $0.7 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively.

The Company recorded stock-based compensation expense of $1.3 million and $0.7 million for the three months ended September 30, 2019 and 2018, respectively. The Company recorded stock-based compensation expense of $4.7 million and $4.7 million for the nine months ended September 30, 2019 and 2018, respectively.

The total intrinsic value of options exercised for the nine months ended September 30, 2019 was $44.5 million. This intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option. Based on the fair market value of the Company’s common stock at September 30, 2019, the total intrinsic value of all outstanding options was $28.2 million.

The fair value of stock option grants and ESPP are determined using the Black-Scholes option pricing model with the following weighted average assumptions. In addition, the fair value per share on grant date is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Employee Stock Options:
Fair value per share on grant date		—	$58.75			—	$33.06 - $58.75
Expected term (in years) ⁽¹⁾		—		6.00		—		6.00
Expected volatility ⁽²⁾		—	45%			—	45% - 50%
Risk-free interest rate ⁽³⁾		—	2.72%			—	2.72% - 2.98%
Dividend rate ⁽⁴⁾		—	0%			—	0%
Employee Stock Purchase Plan:
Expected term (in years) ⁽¹⁾		0.50		0.50		0.50		0.50
Expected volatility ⁽²⁾	45%		45% - 50%		45%		45% - 60%
Risk-free interest rate ⁽³⁾	1.93% - 2.52%		1.89% - 2.33%		1.93% - 2.52%		1.18% - 2.33%
Dividend rate ⁽⁴⁾	0%		0%		0%		0%

Total unrecognized compensation cost related to nonvested stock options was approximately $7.6 million as of September 30, 2019 and is expected to be recognized over a weighted average period of 2.1 years.

A summary of activities under the 2008 Plan and the 2016 Plan is shown as follows for the year ended December 31, 2018 and the nine months ended September 30, 2019:

	Stock options outstanding			Weighted average exercise price
Outstanding at December 31, 2017		2,440,290		$	16.55
Granted		557,896			35.01
Exercised		(778,370	)		13.04
Forfeited		(473,743	)		22.35
Outstanding at December 31, 2018		1,746,073			22.43
Granted		—			—
Exercised		(851,467	)		18.58
Forfeited		(96,758	)		23.95
Outstanding at September 30, 2019		797,848			26.36

Stock-based compensation expense is recognized over the award’s expected vesting schedule, which is reduced for forfeitures.

Outstanding as of

September 30, 2019

Remaining

contractual

life (years)

Weighted

average

exercise price

Exercisable

as of

September 30,

2019

Remaining

contractual

life (years)

Weighted

average

exercise price

797,848

7.65

26.36

222,219

6.53

18.21

Outstanding as of

December 31, 2018

Remaining

contractual

life (years)

Weighted

average

exercise price

Exercisable

as of

December 31,

2018

Remaining

contractual

life (years)

Weighted

average

exercise price

1,746,073

7.89

22.43

579,319

6.73

8.13

	Vested				Nonvested
	Options outstanding		Weighted average exercise price		Options outstanding		Weighted average exercise price
Outstanding at September 30, 2019		222,219	$	18.21		575,629	$	29.50
Outstanding at December 31, 2018		579,319	$	8.13		1,166,754	$	26.58

During the nine months ended September 30, 2019, the Company granted 359,474 restricted stock units (“RSUs”) to members of its senior management and certain other employees pursuant to the 2016 Plan. The Company accounts for RSUs issued to employees at fair value, based on the market price of the Company’s common stock on the date of grant. During the three months ended September 30, 2019 and 2018, the Company recorded $3.7 million and $2.3 million, respectively, of stock-based compensation related to the RSUs that had been issued to-date. During the nine months ended September 30, 2019 and 2018, the Company recorded $12.0 million and $4.4 million, respectively, of stock-based compensation related to the RSUs. There were 272,022 RSUs that vested during the nine months ended September 30, 2019. There were 138,155 RSUs that vested during the nine months ended September 30, 2018.

As of September 30, 2019, there was $36.3 million of unrecognized compensation expense related to unvested employee RSU awards which is expected to be recognized over a weighted-average period of approximately 2.55 years. For RSUs subject to graded vesting, the Company recognizes compensation cost on a straight-line basis over the service period for the entire award.

During the nine months ended September 30, 2019, the Company granted 328,343 performance-based restricted stock units (“PSUs”) to members of its management pursuant to the 2016 Plan. The PSUs generally vest based on the Company achieving certain revenue growth thresholds which range from 20% to 40% compounded annual growth over a measurement period of two years for the first 50% of PSUs and three years for the remaining PSUs. The vesting of the PSUs is subject to the employee’s continued employment with the Company through the date of achievement. The share price of the Company’s common stock on the date of issuance of the PSUs ranged from $54.83 to $98.92 per share. The fair value is based on value of the common stock at the date of issuance and the probability of achieving the performance metric. Compensation cost is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions. During the three months ended September 30, 2019 and 2018, the Company recognized $3.1 million and $0.2 million, respectively, of stock compensation expense in connection with the PSU awards. During the nine months ended September 30, 2019 and 2018, the Company recognized $6.7 million and $0.4 million, respectively, of stock compensation expense in connection with the PSU awards.

As of September 30, 2019, there was $31.8 million of unrecognized compensation expense related to unvested PSUs which is expected to be recognized over a weighted-average period of approximately 2.14 years. Compensation cost is recognized under the accelerated method and is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions.

The Company granted no market-based restricted stock units (“market-based RSUs”) pursuant to the 2016 Plan during the nine months ended September 30, 2019. Market-based RSUs vested based on the Company achieving certain stock price thresholds, which range from $35 per share to $65 per share for 30 consecutive trading days as reported by The Nasdaq Stock Market, LLC, subject to the employee’s continued employment with the Company through the date of achievement. The share price of the Company’s common stock on the date of issuance of the market-based RSUs was $23.16 to $51.99 per share. The fair value was based on values calculated under the Monte Carlo simulation model on the grant date. The key estimates used in the Monte-Carlo simulation were a risk-free rate of 2.26% to 2.85%, dividend yield of zero, expected term of 10 years and volatility of 50% to 60%. Compensation cost is not adjusted in future periods for subsequent changes in the expected outcome of market related conditions. No stock-based compensation expense was recorded during the nine months ended September 30, 2019 as all issued market-based RSUs were fully vested previously. For the three and nine months ended September 30, 2018, the Company recognized $0.1 million and $10.3 million, respectively, of stock compensation expense in connection with these awards.

As of September 30, 2019, there was no unrecognized compensation expense related to unvested market-based awards. The Company recognizes compensation cost on a straight-line basis over the service period for the entire award.

There were 657 and 543,825 market-based RSUs which had vested during the nine months ended September 30, 2019 and 2018, respectively.

A summary of activity in connection with the Company’s RSUs, market-based RSUs and PSUs for the nine-month period ended September 30, 2019 is as follows:

The Company recorded the total stock-based compensation expense as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cost of revenue	$	509	$	312	$	1,356	$	1,877
Sales and marketing		2,423		1,180		7,338		7,147
Research and development		1,732		1,091		5,560		5,606
General and administrative		3,637		958		9,840		5,627
Total	$	8,301	$	3,541	$	24,094	$	20,257