Stock-Based Compensation | 8. Stock-based Compensation 2013 Equity Incentive Plan In October 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”), which became effective in March 2014 and serves as the successor to the Company’s 2006 Stock Plan (the “2006 Plan”). Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares and units to employees, directors and consultants. Stock Options The fair value of each option was estimated on the date of grant for the period presented using the following assumptions: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Expected life (in years) 6.25 6.08 5.50 - 6.25 2.50 - 6.08 Risk-free interest rate 1.98% 1.22% 1.87% - 2.14% 0.68% - 1.34% Volatility 50% 55% 50% 55% - 70% Dividend yield — — — — The weighted-average grant-date fair value of options granted was $5.81 and $6.87 per share during the three months ended September 30, 2017 and 2016, respectively, and $6.33 and $5.25 per share during the nine months ended September 30, 2017 and 2016, respectively. Restricted Stock Units The fair value of restricted stock units (“RSUs”) equals the market value of the Company’s common stock on the date of the grant. The RSUs are excluded from issued and outstanding shares until they are vested. On September 28, 2017 (the “Grant Date”), the Company granted 128,205 performance-based RSUs (“PSU Award”), under the 2013 Equity Incentive Plan, to Mir Aamir, in connection with his promotion to President and Chief Executive Officer. The PSU Award represents the right to receive shares of the Company’s common stock upon meeting certain vesting conditions which were tied to achievement of certain Company stock price goals. The fair value of the PSU Award was measured using a Monte Carlo simulation. During the three months ended September 30, 2017, the expense recognized in the consolidated financial statements related to the PSU Award was insignificant. Subsequent to September 30, 2017, the Company modified the terms of the PSU Award to provide incentives based on targets that can be directly tied to the Company’s performance. Refer to Part II – Other Information, Item 5. for further details. A summary of the Company’s stock option and RSU award activity under the 2013 Plan is as follows: RSUs Outstanding Options Outstanding Shares Available for Grant Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Balance as of December 31, 2016 3,424,730 5,504,084 $ 12.02 7,746,067 $ 8.83 6.12 $ 30,507 Increase in shares authorized 3,542,416 — — — — — — Options granted (1,319,680 ) — — 1,319,680 $ 12.76 — — Options exercised — — — (1,262,802 ) $ 4.01 — $ 9,683 Options canceled or expired 184,359 — — (184,359 ) $ 9.86 — — RSUs granted (2,401,441 ) 2,401,441 $ 11.95 — — — — RSUs vested — (1,774,008 ) $ 12.49 — — — — RSUs canceled or expired 684,840 (684,840 ) $ 11.45 — — — — RSUs withheld for taxes 178,748 — — — — — — Balance as of September 30, 2017 4,293,972 5,446,677 $ 12.12 7,618,586 $ 10.29 6.41 $ 48,718 Vested and exercisable as of September 30, 2017 5,279,392 $ 9.80 5.33 $ 38,421 The aggregate intrinsic value disclosed in the table above is based on the difference between the exercise price of the options and the fair value of the Company’s common stock. The aggregate total fair value of options which vested was $1.5 million and $0.9 million during the three months ended September 30, 2017 and 2016, respectively, and $5.5 million and $2.4 million during the nine months ended September 30, 2017 and 2016, respectively. Employee Stock Purchase Plan Eligible employees can enroll and elect to contribute up to 15% of their base compensation through payroll withholdings in each offering period which is six months in duration, subject to certain limitations. The fair value of the option feature is estimated using the Black-Scholes model for the period presented based on the following assumptions: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Expected life (in years) 0.50 0.50 0.50 0.50 Risk-free interest rate 1.04% 0.38% 0.62% - 1.04% 0.33% - 0.38% Volatility 50% 74% 50% 72% - 74% Dividend yield — — — — As of September 30, 2017, a total of 642,124 shares of common stock were issued under the 2013 Employee Stock Purchase Plan (“ESPP”), since inception of the plan. As of September 30, 2017, a total of 1,757,876 shares are available for issuance under the ESPP. Stock-based Compensation Expense The following table sets forth the total stock-based compensation expense resulting from stock options, RSUs and ESPP included in the Company’s condensed consolidated statements of operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Cost of revenues $ 521 $ 467 $ 1,457 $ 1,457 Sales and marketing 1,832 1,155 4,858 4,279 Research and development 1,894 1,837 5,890 5,728 General and administrative 4,233 3,269 12,097 10,183 Total stock-based compensation expense $ 8,480 $ 6,728 $ 24,302 $ 21,647 As of September 30, 2017, there was $62.9 million of unrecognized stock-based compensation expense, of which $12.2 million is related to stock options and ESPP shares and $50.7 million is related to RSUs. The total unrecognized stock-based compensation expense related to stock options and ESPP as of September 30, 2017 will be amortized over a weighted-average period of 2.7 years. The total unrecognized stock-based compensation expense related to RSUs as of September 30, 2017 will be amortized over a weighted-average period of 2.4 years. During the three and nine months ended September 30, 2017, the Company capitalized $0.2 million of stock-based compensation cost in projects in process as part of property and equipment, net on the accompanying consolidated balance sheets. |