Stock-Based Compensation
 12 Months Ended
Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
Equity Incentive Plans
Prior to the IPO, the Company had a stock-based compensation plan, the 2010 Equity Incentive Plan (the “2010 Plan”) under which the Company granted options to purchase shares of common stock to employees, directors and consultants.
In January 2015, the Company’s board of directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), which was subsequently ratified by its stockholders in February 2015. The 2015 Plan became effective immediately on adoption although no awards were to be made under it until the Effective Date. The 2015 Plan is the successor to and continuation of the 2010 Plan. As of the Effective Date, no additional awards were to be granted under the 2010 Plan, but all stock awards granted under the 2010 Plan remain subject to their existing terms. The number of shares of the Company’s common stock reserved for issuance under the 2015 Plan equaled the sum of 2,500,000 shares plus up to 4,537,868 shares reserved for issuance under the 2010 Plan. Of this amount, 1,521,843 shares are available for future grants to employees, non-employee directors, consultants and advisors as of December 31, 2015.
The 2015 Plan provides for the grant of the following awards: (i) incentive and nonstatutory stock options; (ii) stock appreciation rights; (iii) restricted shares; (iv) stock units; and (v) performance cash awards. The number of shares reserved for issuance under the 2015 Plan will be increased automatically on the first business day of each of the Company’s fiscal years, commencing in 2016, by a number equal to the least of: (1) 1,750,000 shares; (2) 5% of the shares of common stock outstanding on the last business day of the prior fiscal year; or (3) the number of shares determined by the Company’s board of directors.
The compensation committee of the Company’s board of directors administers the 2015 Plan. The compensation committee has complete discretion to make all decisions relating to the 2015 Plan and outstanding awards. The Company’s board of directors may amend or terminate the 2015 Plan at any time. If the Company’s board of directors amends the 2015 Plan, it does not need stockholder approval of the amendment unless required by applicable law, regulation or rules. The 2015 Plan will terminate automatically ten years after the later of the date when the Company’s board of directors adopted the 2015 Plan, or approved the latest share increase that was also approved by the Company’s stockholders.
The terms of the stock options, including the exercise price per share and vesting provisions, are determined by the board of directors. Historically, stock options were granted at exercise prices not less than the estimated fair market value of the Company’s common stock at the date of grant based upon numerous objective and subjective factors including: third-party valuations, preferred stock transactions with third-parties, current operating and financial performance, management estimates and future expectations. Subsequent to the completion of the IPO, the fair value of the Company's common stock on the grant date is equal to the most recent New York Stock Exchange closing price of the Company's stock. Stock option grants typically vest upon the expiration of an initial one year cliff and vest monthly thereafter over the remaining thirty-six months assuming continuing service, and expire ten years from the grant date.
The Plan allows for grants of stock options that may be exercised before the options have vested at the discretion and determination of the board of directors. Shares issued as a result of the early exercise of stock options are subject to repurchase by the Company upon termination of service. As of December 31, 2014 and 2015, there were 5,000 and no shares, respectively, subject to the Company’s right of repurchase. Payments received from early exercises are recorded in accrued expenses and other current liabilities in the consolidated balance sheets and reclassified to additional paid-in capital as the options vest.
Stock-based compensation expense related to stock options is included in the following line items in the consolidated statements of operations for the years ended December 31 (in thousands):
 
Year Ended December 31,
 
2013
 
2014 (1)
 
2015 (2)
Other cost of revenue
$
6

 
$
20

 
$
75

Sales and marketing
212

 
505

 
720

Research and development
276

 
756

 
1,114

General and administrative
85

 
1,058

 
1,444

 
$
579

 
$
2,339

 
$
3,353

 
(1)
Stock-based compensation expense included an unfavorable $0.5 million fair value adjustment related to stock option liability awards during the year ended December 31, 2014.
(2)
Stock-based compensation expense included a favorable $0.2 million fair value adjustment related to stock option liability awards prior to reclassification to additional paid-in capital during the year ended December 31, 2015.
The Company values stock options using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the risk-free interest rate, expected life, expected stock price volatility and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected term of the Company’s employee stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method. The Company uses the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options. The Company assumes no dividend yield, which is consistent with the Company’s history of not paying dividends.
The following table summarizes the assumptions used for estimating the fair value of stock options granted to employees for the years ended December 31:
 
2013
 
2014
 
2015
Risk-free interest rate
0.94% - 2.05%
 
1.32% - 2.04% 
 
1.57% - 1.94%
Expected term (years)
5.64 - 6.08
 
4.00 - 6.08
 
6.03 - 6.08
Expected volatility
59% - 62%
 
56% - 60% 
 
46% - 59%
Dividend yield
—%
 
—%
 
—%

The following table summarizes the assumptions used for estimating the fair value of stock options granted to non-employees for the year ended December 31, 2013:
Risk-free interest rate
2.70%
Expected term (years)
10.00
Expected volatility
60%
Dividend yield
—%

The weighted-average grant date fair value for the Company’s stock options granted during the years ended December 31, 2013, 2014 and 2015 was $3.03, $7.06 and $2.80 per share, respectively. The total compensation cost related to unvested stock options not yet recognized as of December 31, 2015 was $10.1 million and will be recognized over a weighted-average period of approximately 1.44 years. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2013, 2014 and 2015 was $0.8 million, $5.4 million and $3.9 million, respectively. There was no associated income tax benefit recognized for the years ended December 31, 2013, 2014 and 2015 based on the Company’s valuation allowance that is recorded against its net deferred tax assets.
During the year ended December 31, 2013, the Company granted options to purchase a total of 15,306 shares of common stock to non-employees. These options were exercised during the year ended December 31, 2015. The Company did not grant any stock options to non-employees for the years ended December 31, 2014 or 2015.
The Company recorded an insignificant amount of stock-based compensation expense for the years ended December 31, 2013, 2014 and 2015 for options issued to non-employees.
The following table summarizes the Company’s stock option activity for the year ended December 31, 2015:
 
Number of
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
 
 
 
 
 
(in years)
 
(in thousands)
Outstanding balance at January 1, 2013
2,102,985

 
$
1.21

 
8.89
 
$
4,771

Granted
528,403

 
5.30

 
 
 
 
Exercised
(97,248
)
 
0.73

 
 
 
 
Cancelled
(159,899
)
 
1.93

 
 
 
 
Outstanding balance at December 31, 2013
2,374,241

 
$
2.09

 
8.26
 
$
17,016

Granted
1,690,925

 
13.09

 
 
 
 
Exercised
(456,766
)
 
1.45

 
 
 
 
Cancelled
(183,283
)
 
3.89

 
 
 
 
Outstanding balance at December 31, 2014
3,425,117

 
$
7.51

 
8.36
 
$
26,260

Granted
1,776,150

 
6.34

 
 
 
 
Exercised
(543,979
)
 
1.44

 
 
 
 
Cancelled
(359,395
)
 
9.02

 
 
 
 
Outstanding balance at December 31, 2015
4,297,893

 
$
7.67

 
8.39
 
$
500

Exercisable at December 31, 2015
1,647,398

 
$
6.84

 
7.19
 
$
497

Vested and expected to vest at December 31, 2015
3,928,026

 
$
7.74

 
8.29
 
$
499


The following table provides a summary of options outstanding and vested as of December 31, 2015:
 
 
Options Outstanding
 
Options Exercisable
Exercise Prices
 
Number of Options
 
Weighted Average Exercise Price
 
Weighted-
Average
Remaining Contractual Term
 (in Years)
 
Number of Options
 
Weighted Average Exercise Price
 
Weighted-
Average
Remaining Contractual Term
(in Years)
$0.34 - $3.00
 
841,148

 
$
1.27

 
6.24
 
701,924

 
$
1.15

 
5.78
$3.01 - $5.00
 
1,136,835

 
4.53

 
9.18
 
168,606

 
4.15

 
7.52
$5.01 - $7.00
 
270,000

 
5.50

 
9.88
 
—

 
—

 
0.00
$7.01 - $9.00
 
183,000

 
7.79

 
9.43
 
135

 
7.24

 
9.35
$9.01 - $11.00
 
214,544

 
9.23

 
8.85
 
44,049

 
9.26

 
7.81
$11.01 - $13.00
 
301,249

 
11.36

 
8.20
 
252,411

 
11.36

 
8.21
$13.01 - $15.18
 
1,351,117

 
13.65

 
8.58
 
480,273

 
13.52

 
8.54
 
 
4,297,893

 
$
7.67

 
8.39
 
1,647,398

 
$
6.84

 
7.19

During the year ended December 31, 2014, the number of stock options granted by the Company exceeded the number of shares authorized for issuance and not already committed for other purposes, such as convertible preferred stock, warrants and previously granted stock option awards. As a result, those options granted during the year ended December 31, 2014 that exceeded the authorized limit were accounted for as liability-based awards and recorded in other long-term liabilities in the consolidated balance sheets as of December 31, 2014. During the year ended December 31, 2014, the Company granted 610,675 options, cumulatively, in excess of its common shares authorized. Of these, 597,425 were outstanding as of December 31, 2014. The Company recorded a liability of $0.5 million in its consolidated balance sheets as of December 31, 2014, and recorded stock-based compensation expense of $0.5 million related to these liability-based equity awards. The fair value of the liability-based awards was estimated each reporting period, and the estimate of fair value was reflected in the amount of stock-based compensation expense recorded during the period. Changes in fair value are recorded in stock-based compensation expense for the period. As of December 31, 2014, 8,000 liability-based awards were exercisable.
As described in Note 8, on February 10, 2015, the Company increased its number of authorized common shares by 3,000,000 shares. As the number of shares authorized was in excess of those committed for other purposes as of that date, the liability-based awards described above were reclassified to equity-based awards at fair value and reclassified to additional paid-in capital. The favorable fair value adjustment for liability-based awards for the year ended December 31, 2015 was $0.2 million. The reclassification from other long-term liabilities to additional paid-in capital in the consolidated balance sheets was $0.3 million as of February 10, 2015. See Note 3 for the assumptions used in determining the fair value adjustment related to these liability-based awards.
Employee Stock Purchase Plan
In January 2015, the Company’s board of directors adopted the 2015 Employee Stock Purchase Plan (the “2015 ESPP”), which was subsequently ratified by its stockholders in February 2015. The 2015 ESPP began as of the Effective Date.
The 2015 ESPP allows eligible employees to purchase shares of common stock through payroll deductions of up to 15% of their eligible compensation, subject to a total maximum share number of 1,500 per offering period and maximum share value of $25,000 per calendar year. The price at which common stock is purchased under the 2015 ESPP is equal to 85% of the fair market value of the common stock on the first day of an offering period or on the purchase date, whichever is lower.
There were two offering periods that commenced during the year ended December 31, 2015. The First, or initial, Offering Period commenced on March 5, 2015 and ended October 30, 2015. The Second Offering Period commenced November 1, 2015 and will end on or about April 30, 2016. The initial offering period, which started on the Effective Date, allowed eligible participants to purchase each share of common stock at the lower of 85% of $11.50, or 85% of the fair market value of the common stock on the purchase date. The fair market value of the common stock on the purchase date for the initial offering period was $4.82.
Unless otherwise determined by the compensation committee, two offering periods of six months’ duration will begin in each year on May 1 and November 1. For the year ended December 31, 2015, the Company issued 133,728 shares under the 2015 ESPP. The Company has accumulated employee withholdings of $0.2 million as of December 31, 2015 associated with the next purchase date.
Stock-based compensation expense related to the 2015 ESPP is included in the following line items in the consolidated statements of operations for the year ended December 31 (in thousands):
 
2015
Other cost of revenue
$
17

Sales and marketing
177

Research and development
244

General and administrative
66

 
$
504


All Company employees are eligible to participate if they are employed for more than 20 hours per week and for more than five months per year. Eligible employees may begin participating in the 2015 ESPP at the start of any offering period. Each offering period will last a number of months determined by the compensation committee of the board of directors, not to exceed 27 months. A new offering period will begin periodically, as determined by the compensation committee. Offering periods may overlap or may be consecutive.
The Company initially reserved 375,000 shares of its common stock for issuance under the 2015 ESPP. The number of shares reserved for issuance under the 2015 ESPP will automatically be increased on the first business day of each of the Company’s fiscal years, commencing in 2016, by a number equal to the least of: (1) 250,000 shares; (2) 1% of the shares of common stock outstanding on the last business day of the prior fiscal year; or (3) the number of shares determined by the Company’s board of directors. The compensation committee of the Company’s board of directors will administer the 2015 ESPP. The board of directors or the compensation committee may amend or terminate the 2015 ESPP at any time.
The fair value of the "look back" option for 2015 ESPP shares issued during the offering period is estimated using: (1) a 15% discount on the purchase of the stock; (2) 85% of the fair value of the call option; and (3) 15% of the fair value of the put option. The following table summarizes the assumptions used in the Black-Scholes option pricing model for estimating the fair value of shares to be granted under the 2015 ESPP for the year ended December 31:
 
First Offering Period
 
Second Offering Period
Risk-free interest rate
0.10%
 
0.27%
Expected term (years)
0.59
 
0.50
Expected volatility
61%
 
55%
Dividend yield
—%
 
—%
Stock price on valuation date
$11.50
 
$4.89
Fair value per share
$3.84
 
$1.49

The intrinsic value of shares of the Company's stock purchased pursuant to the 2015 ESPP for the offering period for the year ended December 31, 2015 was $0.1 million. As of December 31, 2015, the total unrecognized stock-based compensation cost related to the 2015 ESPP was $0.1 million and will be recognized over a period of approximately 0.3 years.