Stockholders’ Equity

Capital Structure

Common Stock

The Company is authorized to issue 450,000,000 shares of common stock with a par value of $0.001 per share. As of December 31, 2017 and 2016, the Company had 56,631,647 and 53,363,013 shares of common stock issued and outstanding, respectively.

Holders of the Company's common stock are entitled to dividends, if and when declared by the board of directors. In the event of liquidation, dissolution or winding up, subject to the rights of the holders of any then outstanding shares of preferred stock, holders of common stock will be entitled to receive the assets and funds of the Company that are legally available for distribution.

Preferred Stock

The Company is authorized to designate and issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share in one or more series without stockholder approval and to fix the rights, preferences, privileges and restrictions thereof. As of December 31, 2017 and 2016, there were no shares of preferred stock issued and outstanding.

Warrants

As of December 31, 2017 and 2016, the Company had outstanding warrants to purchase 13,013 and 131,597 shares of common stock, respectively, with a weighted average exercise price of $5.76 and $9.80 per share, respectively. The warrants outstanding as of December 31, 2017 will expire on October 18, 2023.

Common Stock Reserved for Future Issuance

As of December 31, 2017, shares of common stock reserved for future issuance related to outstanding equity awards, warrants, and employee equity incentive plans were as follows (in thousands):



		December 31, 2017
Stock options outstanding		4,047
Restricted stock units outstanding		2,033
Shares available for future grant under 2014 Plan		7,300
Shares available for future issuance under ESPP		1,371
Common stock warrants outstanding		13
Total shares of common stock reserved		14,764

Equity Incentive Plans

Prior to its initial public offering, or IPO, in April 2014, the Company granted stock options under its Amended and Restated 2004 Equity Incentive Plan, as amended, or the 2004 Plan.

Under the terms of the 2004 Plan, the Company had the ability to grant incentive and nonstatutory stock options. Incentive stock options could only be granted to Company employees. Nonstatutory stock options could be granted to Company employees, directors and consultants. Such options are exercisable at prices, as determined by the board of directors, generally equal to the fair value of the Company’s common stock at the date of grant. Options granted to employees generally vest over a four-year period, with an initial vesting period of 12 months for 25% of the shares, and the remaining 75% of the shares vesting monthly on a ratable basis over the remaining 36 months. Options generally expire 10 years after the grant date and are generally exercisable upon vesting. Vested options generally expire 90 days after termination of the optionee’s employment or relationship as a consultant or director, unless otherwise extended by the terms of the stock option agreement.

In March 2014, the Company’s board of directors and stockholders approved the 2014 Equity Incentive Plan, or 2014 Plan, and 5,300,000 shares of common stock were authorized for issuance under the 2014 Plan. In addition, on the first day of each year beginning in 2015 and ending in 2024, the 2014 Plan provides for an annual automatic increase to the shares reserved for issuance in an amount equal to 5% of the total number of shares outstanding on December 31st of the preceding calendar year or a lesser number as determined by the Company’s board of directors. Pursuant to the automatic annual increase, 2,831,582 additional shares were reserved under the 2014 Plan on January 1, 2018.

No further grants were made under the 2004 Plan once the 2014 Plan became effective on April 3, 2014. Upon the effectiveness of the 2014 Plan, all shares reserved for future issuance under the 2004 Plan became available for issuance under the 2014 Plan. Additionally, any forfeited or expired shares that would have otherwise returned to the 2004 Plan instead return to the 2014 Plan.

The 2014 Plan allows the Company to grant stock options, restricted stock units, or RSU, restricted stock awards, performance stock awards, stock appreciation rights, performance cash awards, and other stock awards. To date, the Company has granted stock options and RSUs under the 2014 Plan. Stock options granted under the 2014 Plan are in general at a price equal to the fair market value of the common stock on the date of grant and vest over four years. The Company's stock options expire 10 years from the date of grant. Each RSU granted under the 2014 Plan represents a right to receive one share of the Company’s common stock when the RSU vests. RSUs generally vest over one to four years.

Stock Options

A summary of the Company’s stock option activity during the year ended December 31, 2017 is as follows (in thousands, except years and per share data):



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value ⁽¹⁾
Outstanding as of December 31, 2016	5,556		$	5.23
Options granted	619		18.11
Options exercised	(1,986	)	3.04
Options forfeited or expired	(142	)	12.83
Outstanding as of December 31, 2017	4,047		$	8.00	6.4	68,334
Vested and expected to vest as of December 31, 2017	4,047		8.00		6.4	68,334
Exercisable as of December 31, 2017	2,911		6.20		5.6	54,380


(1) The aggregate intrinsic value amounts are computed based on the difference between the exercise price of the stock options and the fair market value of the Company’s common stock of $24.88 per share as of December 31, 2017 for all in-the-money stock options outstanding.

Following is additional information pertaining to the Company’s stock option activity (in thousands, except per share data):



	Year Ended December 31,
	2017		2016		2015
Weighted average grant date fair value per share of options granted	$	8.81	$	4.50	$	2.38
Intrinsic value of options exercised ⁽¹⁾	33,820		5,865		3,233
Total fair value of options vested during the period	7,296		3,813		4,824
Cash received from options exercised	6,047		4,286		1,268


(1) Intrinsic value of options exercised is the difference between the fair market value of the Company’s common stock at the time of exercise and the exercise price paid.

Restricted Stock Units

A summary of RSU activity during the year ended December 31, 2017 is as follows (in thousands, except years and per share data):



	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding as of December 31, 2016	2,019		$	7.65
RSUs granted	1,176		18.29
RSUs vested and released	(971	)	8.85
RSUs forfeited	(191	)	11.42
Outstanding as of December 31, 2017	2,033		$	12.81

Following is additional information pertaining to the Company’s RSU activity (in thousands, except per share data):



	Year Ended December 31,
	2017		2016		2015
Weighted average grant date fair value per share of RSUs granted	$	18.29	$	9.71	$	5.10
Total fair value of RSUs vested during the period	21,161		10,706		2,907

Employee Stock Purchase Plan

In March 2014, the Company’s board of directors and stockholders adopted the 2014 Employee Stock Purchase Plan, or ESPP, and the shares authorized for issuance thereunder. The ESPP became effective on April 3, 2014.

The ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll deductions with up to 15% of their pre-tax earnings subject to certain Internal Revenue Code limitations. The purchase price of the shares is 85% of the lower of the fair market value of the Company’s common stock on the first day of a six month offering period, except for the initial offering period, or the relevant purchase date. In addition, no participant may purchase more than 1,500 shares of common stock in each purchase period.

The number of shares of common stock originally reserved for issuance under the ESPP was 880,000 shares, which increases automatically each year, beginning on January 1, 2015 and continuing through January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (ii) 1,000,000 shares of common stock (subject to adjustment to reflect any split or combination of our common stock); or (iii) such lesser number as determined by the Company’s board of directors. Pursuant to the automatic annual increase, 566,316 additional shares were reserved under the ESPP on January 1, 2018.

During 2017, 265,172 shares were purchased by employees under the ESPP at a weighted-average price of $15.47 per share.

Stock-Based Compensation

Stock-based compensation expenses for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):



	Year Ended December 31,
	2017		2016		2015
Cost of revenue	$	2,202	$	1,375	$	866
Research and development	3,042		2,059		1,790
Sales and marketing	4,364		2,363		1,800
General and administrative ⁽¹⁾	5,735		3,846		3,274
Total stock-based compensation	$	15,343	$	9,643	$	7,730


(1)	Effective December 2017, the Company’s former Chief Executive Officer and President resigned from his position and became the Executive Chairman of the Board. Due to this substantive change in status, certain of his stock option and RSU awards were modified which resulted in incremental stock based compensation expense of approximately $1.0 million.

As of December 31, 2017, unrecognized stock-based compensation expense by award type and their expected weighted-average recognition periods are summarized in the following table (in thousands, except years).



	Stock Option		RSU		ESPP
Unrecognized stock-based compensation expense	$	10,703	$	26,401	$	670
Weighted-average amortization period	2.5 years		2.8 years		0.4 years

The Company recognizes stock-based compensation expense that is calculated based upon awards that have vested, reduced for actual forfeitures. All stock-based compensation for equity awards granted to employees and non-employee directors is measured based on the grant date fair value of the award.

The Company values RSUs at the closing market price of its common stock on the date of grant. The Company estimates the fair value of each stock option and purchase right under the ESPP granted to employees on the date of grant using the Black-Scholes option-pricing model and using the assumptions disclosed in the table below. Expected volatility is based upon the historical volatility of a peer group of publicly traded companies. The expected term of options granted is estimated using the simplified method by taking the average of the vesting term and the contractual term of the option. The expected volatility assumption for purchase rights under the ESPP is based on the historical volatility of the Company's common stock. The risk-free rate for the expected term of the awards is based on U.S. Treasury zero-coupon issues at the time of grant. The Company has not paid, and does not anticipate paying, cash dividends on its shares of common stock. Accordingly, the expected dividend yield is zero.

The weighted-average assumptions used to value stock options and purchase rights under the ESPP granted during the years ended December 31, 2017, 2016 and 2015 were as follows:



Stock Options	Year Ended December 31,
	2017	2016	2015
Expected term (years)	5.9	5.7	6.1
Volatility	49%	46%	49%
Risk-free interest rate	2.1%	1.4%	1.6%
Dividend yield	—	—	—



ESPP	Granted In
	November 2017	May 2017	November 2016	May 2016	November 2015	May 2015
Expected term (years)	0.5	0.5	0.5	0.5	0.5	0.5
Volatility	36%	43%	42%	58%	54%	43%
Risk-free interest rate	1.4%	1.0%	0.6%	0.4%	0.3%	0.1%
Dividend yield	—	—	—	—	—	—