STOCK-BASED COMPENSATION

2014 Equity Incentive Plan

On March 26, 2014, the Company's 2014 Equity Incentive Plan ("2014 Plan") became effective. On March 27, 2014, the Company's earlier 2006 Global Share Plan ("2006 Plan") was terminated and all reserved-but-unissued shares under the 2006 Plan were added to the 2014 Plan and all shares underlying stock awards granted under the 2006 Plan that otherwise would return to the 2006 Plan instead were rolled into the 2014 Plan. The Company may not grant additional awards under the 2006 Plan, but the 2006 Plan will continue to govern outstanding awards previously granted under the 2006 Plan.

The 2014 Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code (ISO), only to employees of the Company or any parent or subsidiary of the Company, and for the grant of nonstatutory stock options (NSO), restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants of the Company, and the employees and consultants of any parent or subsidiary of the Company.

The 2014 Plan provides for automatic annual increases in the number of shares reserved for issuance. On the first day of each fiscal year beginning January 1, 2017 through January 1, 2024, the number of shares of common stock reserved for issuance under the 2014 Plan may increase by an amount equal to the lesser of (i) 4,000,000 Shares, (ii) 5% of the Company’s outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the board of directors. In January 2016, the Company effected an increase of the 2,450,865 number of shares reserved under the 2014 Plan. As of December 31, 2016, the Company had 5,116,753 total shares of common stock reserved and available for grant under the 2014 Plan.

The following table summarizes the total number of shares available for grant under the 2014 Plan as of December 31, 2016:




	Shares Available for Grant

Balance, December 31, 2015	5,017,525
Authorized	2,450,865
Options granted	(936,000	)
Options canceled	814,728
Awards granted	(3,286,825	)
Awards canceled	1,056,460
Balance, December 31, 2016	5,116,753

Stock Options

The following table summarizes the information about outstanding stock option activity:



	Options Outstanding
	Number of Shares Underlying Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance, December 31, 2015	6,543,162		$	6.05	7.03	$	6,570
Options granted	936,000		6.13
Options exercised	(444,660	)	2.01
Options canceled	(814,728	)	7.57
Balance, December 31, 2016	6,219,774		$	6.15	6.42	$	6,056
Options exercisable, December 31, 2016	4,086,597		$	5.67	5.62	$	5,903
Options vested and expected to vest, December 31, 2016	5,964,671		$	6.12	6.35	$	6,046

The weighted-average-grant -date fair value of options granted was $3.15, $3.42 and $5.01 per share for the years ended December 31, 2016, 2015 and 2014, respectively. The aggregate-grant-date fair value of the Company's stock options granted was $3.0 million, $6.0 million and $6.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The aggregate intrinsic value of stock options exercised was $1.8 million, $2.4 million and $6.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. The intrinsic value for each share underlying an option represents the difference between the option exercise price per share and the closing stock price of a share of the Company’s common stock. The total grant-date fair value of the options vested was $7.0 million, $4.1 million and $5.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The stock options outstanding and exercisable under its stock option plan as of December 31, 2016, are as follows:



	Options Outstanding				Options Vested and Exercisable
Range of Exercise Prices	Number of Options Outstanding	Weighted Average Remaining Contractual Term (Years)	Weighted Average Exercise Price per Share		Number of Options Exercisable	Weighted Average Exercise Price per Share

$0.25 - $2.05	1,183,702	3.86	$	1.30	1,160,368	$	1.28
$2.28 - $6.00	1,358,528	6.37	5.27		1,104,796	5.22
$6.09 - $6.85	1,041,000	8.62	6.26		215,308	6.28
$7.15 - $7.48	1,039,063	7.40	7.17		417,772	7.17
$7.98 - $9.56	73,826	5.73	8.38		58,638	8.31
$9.58 - $11.31	1,523,655	6.34	9.81		1,129,715	9.82
	6,219,774	6.42	$	6.15	4,086,597	$	5.67

Restricted Stock Units

The Company currently grants Restricted Stock Units ("RSUs") to certain employees and directors. The RSUs typically vest over a period of time, generally one year to four years, and are subject to the participant’s continuing service to the Company over that period. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.

The following is a summary of the Company’s RSU activity and related information for the year ended December 31, 2016:



	Restricted Stock Units Outstanding
	Shares		Weighted Average Grant Date Fair Value Per Share

Balance, December 31, 2015	4,046,106		$	6.49
Awards granted	3,286,825		6.20
Awards vested	(2,099,785	)	$	6.54
Awards canceled	(867,476	)	$	6.57
Balance, December 31, 2016	4,365,670		$	6.23

The weighted average grant date fair value of RSUs granted was $6.20, $6.45 and $7.16 per share for the years ended December 31, 2016, 2015 and 2014, respectively. The aggregate grant date fair value of RSUs granted for the years ended December 31, 2016, 2015 and 2014 was $20.4 million, $21.4 million and $23.5 million, respectively. The aggregate fair value of shares vested as of the respective vesting dates, was $12.5 million, $9.6 million and $0.9 million, respectively, for the years ended December 31, 2016, 2015 and 2014.

The number of RSUs vested includes shares that the Company withheld on behalf of certain employees to satisfy the minimum statutory tax withholding requirements, as determined by the Company. During the years ended December 31, 2016 2015 and 2014, the Company withheld 188,984, 523,366 and 65,221 shares of stock, respectively, for an aggregate value of $1.1 million, $3.2 million and $0.3 million, respectively. The Company returned such shares to the 2014 Plan, which are available under the plan terms for future issuance.

The number of RSUs granted includes 222,875 shares of performance-based restricted stock units ("PBRSUs") that the Company granted to certain executives in March 2016 pursuant to the 2014 Plan. Each PBRSU represents the right to receive one share of the Company's common stock upon vesting, subject to the Company's achievement of a specified revenue target measured over our fiscal year 2016 and the recipient's continued service through the applicable vesting date. As of December 31, 2016, the Company expects the minimum revenue target to be met. Accordingly, the Company recorded expense related to the PBRSUs expected to vest, net of estimated forfeitures, on a straight-line basis.

The number of RSUs granted also includes 404,000 shares of market-based restricted stock units ("MBRSUs") that the Company granted to certain executives effective June 2016 pursuant to the 2014 Plan. Each MBRSU represents the right to receive one share of the Company's common stock upon vesting subject to the Company's achievement of specified stock price targets and the recipient's continued service through the applicable vesting date. The Company estimates the fair value of the MBRSUs using the Monte Carlo option-pricing model on the date of grant as the MBRSUs contain both market and service conditions. The Company recorded the expense related to all of the MBRSUs, net of estimated forfeitures, on a graded-vesting method.

2014 Employee Stock Purchase Plan

The 2014 Employee Stock Purchase Plan ("ESPP") is a 10-year plan, effective in March 2014. The ESPP authorizes the Company to issue shares of common stock pursuant to purchase rights it grants to the Company's employees and those of its designated subsidiaries. The ESPP provides for automatic annual increases in the number of shares reserved for issuance. Under the ESPP, on the first day of fiscal year 2017, the number of shares of common stock reserved and available for issuance may increase in an amount equal to the lesser of (i) 1,000,000 Shares, (ii) 2.0% of the Company’s outstanding shares on January 1, 2017, or (iii) such number of shares determined by the board of directors. On the first day of each fiscal year beginning January 1, 2018 through January 1, 2024, the number of shares of common stock reserved for issuance may increase in an amount equal to the lesser of (i) 1,000,000 shares, (ii) 1.0% of the Company’s outstanding shares on the first day of the applicable fiscal year, or (iii) such number of shares determined by the board of directors. In January 2016, the Company effected an increase of 980,346 shares reserved under the ESPP. As of December 31, 2016, the Company had 1,575,605 total shares of common stock reserved for issuance under the ESPP.

Under the ESPP, the Company grants stock purchase rights to all eligible employees, currently covering a one-year offering period ending December 1, 2017, with purchase dates at the end of each interim six-month purchase period. ESPP participants purchase shares using employee payroll deductions at purchase prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the first day of each offering period or the date of purchase. The ESPP currently has a reset provision: If the closing price of the Company’s common stock on the last day of any purchase period during an offering period is lower than the closing sales price on the first day of the related offering period, that offering period will terminate upon the purchase of shares for such purchase period and participants will automatically re-enroll in the immediately following offering period. As a result, the reference price for purposes of determining the purchase price of shares for subsequent purchase periods for all participants of the new offering period resets to such lower price. No participant may purchase more than $25,000 worth of common stock in any calendar year, or 5,000 shares of common stock in any six-month purchase period. For the years ended December 31, 2016 and 2015, the Company issued 1,209,410 and 1,226,012 shares under the ESPP. No shares were issued to employees under the ESPP for the year ended December 31, 2014.

Stock Repurchase Program

In February 2016, the Company's board of directors authorized a stock repurchase program of up to $10.0 million, with stock purchases made from time to time in compliance with applicable securities laws in the open market or in privately negotiated transactions. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability. The authorization does not require the purchase of any minimum number of shares, and the Company may suspend, modify or discontinue the program at any time without prior notice. Unless modified, or earlier suspended or discontinued, the authorization will expire as of June 30, 2017, without the Company's further action.

For the year ended December 31, 2016, the Company repurchased a total of 364,627 shares of its common stock on the open market at a total cost of $2.1 million with an average price per share of $5.87.

Determination of Fair Values

The Company determines the expected term of employee stock options using the simplified method as provided by the Securities and Exchange Commission. The simplified method is presumed to be the average of the time-to-vesting and the contractual life of the options. The expected term of ESPP is based on the contractual terms. Since the Company has not had sufficient public trading history of its common stock, the expected volatility is derived from the historical stock volatilities of the common stock of several publicly traded comparable companies over a period approximately equal to the expected term of the expected life of the options. The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for zero-coupon U.S. treasury notes with maturities equal to the option's expected term. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to do so.

Prior to the IPO, the fair value of the shares of common stock underlying the stock-based awards was historically determined by the board of directors, with input from management. Because there was no public market for the Company’s common stock, the board of directors determined the fair value of the common stock on the grant-date of the stock-based award by considering a number of objective and subjective factors, including valuations of comparable companies, sales of the Company’s convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, and general and industry-specific economic outlook. Subsequent to the completion of the Company’s IPO, the fair value of common stock underlying stock-based awards is determined based on the closing stock price of the Company’s shares on the date of grant.

Weighted average assumptions used to value the Company's stock options granted were as follows:



	Year Ended December 31,
	2016		2015		2014
Stock options:
Expected term (in years)	5.78		6.04		5.56
Expected volatility	55	%	51	%	49	%
Risk free interest rate	1.49	%	1.75	%	1.85	%
Dividend rate	—		—		—

Weighted average assumptions used to value MBRSUs under the Monte Carlo model were as follows:



	Year Ended December 31,
	2016		2015	2014
MBRSUs:
Expected volatility	53	%	N/A	N/A
Risk free interest rate	1.07	%	N/A	N/A
N/A - Not applicable. No MBRSUs granted in those years.

Weighted average assumptions used to value employee stock purchase rights under the Black-Scholes model were as follows:



	Year Ended December 31,
	2016	2015	2014
ESPP purchase rights:
Expected term (in years)	0.5 - 1.00	0.5 - 2.00	0.68 - 2.00
Expected volatility	34% - 44%	35% - 55%	35% - 40%
Risk free interest rate	0.49% - 0.82%	0.07% - 0.51%	0.08% - 0.49%

Stock-based Compensation Expense

The total stock-based compensation the Company recognized for stock-based awards in the consolidated statements of operations is as follows:



	Year Ended December 31,
	2016		2015		2014
	(in thousands)
Cost of revenue	$	1,305	$	902	$	411
Research and development	5,393		4,651		2,419
Sales and marketing	8,269		7,112		4,121
General and administrative	6,735		5,706		3,301
Total stock-based compensation	$	21,702	$	18,371	$	10,252

The following table presents stock-based compensation expense by award-type:



	Year Ended December 31,
	2016		2015		2014
	(in thousands)
Stock Options	$	4,933	$	4,733	$	5,780
Restricted Stock Units	14,316		11,652		3,188
Employee Stock Purchase Plan	2,453		1,986		1,284
Total stock-based compensation	$	21,702	$	18,371	$	10,252

As of December 31, 2016, unrecognized stock-based compensation related to outstanding stock options, RSUs (including PBRSUs and MBRSUs) and ESPP purchase rights, net of estimated forfeitures, was $6.5 million, $20.2 million and $1.5 million, respectively, which the Company expects to recognize over weighted-average periods of 2.17 years, 2.30 years and 0.92 years, respectively. For the years ended December 31, 2015 and 2014, the Company capitalized $0.3 million and $0.4 million stock-based compensation expense, respectively, to internal-use cloud services platform. There was no capitalized stock-based compensation expense for the year ended 2016.