Employee benefit plans

Equity incentive plans

The Company has outstanding equity grants from its three stock-based employee compensation plans: the 2014 Equity Incentive Plan (2014 Plan), the 2010 Equity Incentive Plan (2010 Plan), and the 2014 Employee Stock Purchase Plan (ESPP). In the second quarter of 2014, the Company terminated the authority to grant new awards under the 2010 Plan and no new options or awards have been granted under the 2010 Plan since June 2014. Outstanding options and awards under the 2010 Plan continue to be subject to the terms and conditions of the 2010 Plan.

The 2014 Plan serves as the successor to the 2010 Plan and provides for the granting of incentive and nonqualified stock options, restricted stock awards (RSAs), restricted stock units (RSUs), stock appreciation rights, stock bonus awards, and performance awards to qualified employees, non-employee directors, and consultants. Options granted under the 2014 Plan generally expire within 10 years from the date of grant and generally vest over four years and are exercisable for shares of the Company's Class A stock. Options with performance or market-based conditions are generally subject to a required service period along with the performance or market condition. RSUs granted under the 2014 Plan generally vest annually over a four year period based upon continued service and are settled at vesting in shares of the Company's Class A common stock.

The ESPP allows eligible employees to purchase shares of the Company's Class A common stock through payroll deductions at a price equal to 85% of the lesser of the fair market values of the stock as of the first date or the ending date of each six-month offering period. The 2014 Plan and the ESPP also provides for automatic annual increases in the number of shares reserved for future issuance.

Employee retirement plan

The Company has a 401(k) defined contribution retirement plan (Retirement Plan) covering U.S. full-time employees. The Retirement Plan provides for voluntary employee contributions from 1% to 86% of annual compensation, subject to a maximum limit allowed by Internal Revenue Service guidelines. The Company matches 100% of each employee’s contributions up to a maximum of 4% of the employee's eligible compensation. The Company's matching contribution to the plan was $5.5 million and $2.7 million in 2015 and 2014, respectively.

Stock option activity

A summary of the Company’s stock option activity in 2015 and related information is as follows:



	Options outstanding
(shares in thousands)	Shares		Weighted- average exercise price		Weighted- average remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2014:	25,134		$	6.62	7.09	$	1,425,339
Granted	792		39.66
Exercised	(12,375	)	2.01
Forfeited/Cancelled	(470	)	38.84
Outstanding at December 31, 2015:	13,081		$	11.82	6.70	$	108,846

Exercisable at December 31, 2015	8,449		$	6.19	5.89	$	103,696
Vested and expected to vest at December 31, 2015	12,858		$	11.62	6.67	$	108,681

The weighted average grant date fair values of all options granted and assumed were $18.40, $11.51 and $8.45 per share in 2015, 2014 and 2013, respectively. The total fair value of all options vested were $26.9 million, $16.0 million, and $5.2 million in 2015, 2014 and 2013, respectively.

The aggregate intrinsic value of the stock options outstanding as of December 31, 2015 was $108.8 million, which represents the value of the Company's closing stock price on December 31, 2015 in excess of the weighted-average exercise price multiplied by the number of options outstanding. The total intrinsic values of options exercised were $633.6 million, $253.3 million and $4.6 million in 2015, 2014 and 2013, respectively.

At December 31, 2015, there was $50.2 million of unearned stock-based compensation expense related to unvested options, which is expected to be amortized over a weighted average period of 2.2 years.

Restricted stock awards

A summary of the Company's RSA activity in 2015 is as follows:



	Shares (in thousands)	Weighted- average grant date fair value		Aggregate intrinsic value (in thousands)
Non-vested shares at December 31, 2014	17	$	6.30	$	1,017
Vested	(17)
Non-vested shares at December 31, 2015	—

The total fair value of all restricted stock and early exercised stock options subject to repurchase vested was zero, $11.2 million and $6.1 million in 2015, 2014 and 2013, respectively. Early exercised stock options were fully vested in 2014. At December 31, 2015, all RSAs were fully vested and there was no unearned stock-based compensation remaining.

Restricted stock units

A summary of the Company’s RSU activity in 2015 and 2014 is as follows:



(shares in thousands)	Shares		Weighted- average grant date fair value
Non-vested shares at December 31, 2013	270		$	1.52
Granted	5,573		22.01
Vested	(1,533	)	18.42
Forfeited	(3	)	57.73
Non-vested shares at December 31, 2014	4,307		$	21.98
Granted	2,170		44.00
Vested	(1,735	)	19.84
Forfeited	(104	)	63.47
Non-vested shares at December 31, 2015	4,638		$	32.15

The total fair value of RSUs vested was $34.4 million in 2015 and $28.2 million in 2014. The intrinsic value of the non-vested RSUs was $83.5 million as of December 31, 2015. There were no RSUs granted during 2013.

In June 2014, the Company granted an award of 4.5 million RSUs to the Company's CEO (CEO RSUs), which included 1.5 million RSUs that vested immediately upon grant and 3.0 million RSUs that were subject to both a market-based condition and a service condition. The market-based condition was achieved in January 2015. Stock-based compensation expense related to the CEO RSUs was $29.4 million in 2015 and $38.3 million in 2014.

At December 31, 2015, there was $107.8 million of unearned stock-based compensation related to RSUs (including $7.0 million related to the CEO RSUs), which is expected to be recognized over a weighted average period of 2.5 years.

Employee stock purchase plan

In 2015, employees purchased an aggregate of 436,924 shares under the Company's ESPP at an average price of $26.88 per share. At December 31, 2015, there was $0.6 million of unearned stock-based compensation related to the ESPP, which is expected to be recognized over 0.1 years. Of the 5.0 million shares authorized for issuance, 4.5 million shares were available for issuance at December 31, 2015.

The weighted-average fair value per share for purchase periods beginning in 2015 and 2014 were $15.76 and $7.16, respectively. Cash proceeds from the issuance of shares under the ESPP were $11.7 million in 2015.

Fair value disclosures

The fair value of stock options granted and purchases under the Company's ESPP is estimated using the Black-Scholes option pricing model. Expected term of stock options granted was estimated based on the simplified method. Expected stock price volatility was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term. Risk-free interest rate was based on the yields of U.S. Treasury securities with maturities similar to the expected term. Dividend yield was zero as the Company does not have any history of, nor plans to make, dividend payments.

The fair value of stock options granted was estimated as of the grant date using the following assumptions:



	Year ended December 31,
	2015	2014	2013
Volatility	43%–54%	54%–56%	56%–60%
Expected term (years)	5.5–7.0	5.3–6.3	5.3–6.1
Risk-free interest rate	1.6%–2.0%	1.7%–2.0%	0.8%–2.4%
Dividend yield	—%	—%	—%

The fair value of stock purchase rights granted under the ESPP was estimated using the following assumptions:



	Year ended December 31,
	2015	2014
Volatility	39%–45%	45.5%
Expected term (years)	0.5	0.6
Risk-free interest rate	0.1%–0.2%	0.1%
Dividend yield	—%	—%

During 2014, the Company used a Monte Carlo valuation model to calculate the fair value of the CEO RSUs subject to a market condition based on the following assumptions: expected term of 10 years, expected volatility of 50.9%, risk-free interest rate of 2.69%, and a grant date fair value of $18.40 for the underlying shares.

Stock-based compensation expense

The following table summarizes stock-based compensation included in the consolidated statements of operations:



	Year ended December 31,
(in thousands)	2015			2014			2013
Cost of revenue	$	1,492		$	835		$	690
Research and development	18,024			11,640			3,003
Sales and marketing	13,762			10,428			5,670
General and administrative	47,402			48,496			1,524
Total stock-based compensation expense, before income taxes	80,680			71,399			10,887
Total tax benefit recognized	(27,971		)	(19,471		)	(1,104		)
Total stock-based compensation expense, net of income taxes	$	52,709		$	51,928		$	9,783