Stock-based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Stockholders' Equity and Stock-based Compensation

Equity Incentive Plans

2012 Equity Incentive Plan

Under the 2012 Equity Incentive Plan (the "2012 Plan"), the Company is authorized to grant to eligible participants incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance units and performance shares equivalent to up to 15.7 million shares of common stock as of March 31, 2020. Options may be granted with an exercise price that is at least equal to the fair market value of the Company's stock at the date of grant and are exercisable when vested. As of March 31, 2020, 7.2 million shares were available for grant under the 2012 Plan.

2000 Equity Incentive Plan

Under the 2000 Equity Incentive Plan (the "2000 Plan"), the Company was authorized to grant to eligible participants either ISOs or NSOs. The 2000 Plan was terminated in connection with the closing of the Company's initial public offering, and accordingly, no shares are currently available for grant under the 2000 Plan. The 2000 Plan continues to govern outstanding awards granted thereunder.

Stock-based Compensation

The following table shows a summary of the stock-based compensation expense included in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019:



	Three Months Ended
	March 31,
	2020		2019
	(in thousands)
Cost of revenues	$	614	$	545
Research and development	3,437		2,340
Sales and marketing	1,560		1,068
General and administrative	4,386		4,492
Total stock-based compensation	$	9,997	$	8,445

As of March 31, 2020, the Company had $14.9 million of total unrecognized stock-based compensation cost related to unvested options which was expected to be recognized over a weighted-average period of 2.2 years, and $60.5 million of unrecognized stock-based compensation cost related to unvested RSUs which was expected to be recognized over a weighted-average period of 2.5 years. Compensation cost is recognized over the service period. Forfeitures are estimated at the time of grant and revised in subsequent periods, if actual forfeitures differ from those estimates.

Stock Option Plan Activity

A summary of the Company’s stock option activity is as follows:



	Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance as of December 31, 2019	2,866,675		$	40.54	6.0	$	125,647
Granted	82,300		$	88.57
Exercised	(144,989	)	$	32.51
Canceled	(19,235	)	$	80.57
Balance as of March 31, 2020	2,784,751		$	42.11	6.2	$	126,495
Vested and expected to vest - March 31, 2020	2,620,436		$	39.53	6.0	$	125,595
Exercisable - March 31, 2020	2,073,385		$	29.22	5.3	$	120,221

Restricted Stock

A summary of the Company’s RSU activity is as follows:



	Outstanding RSUs		Weighted Average Grant Date Fair Value Per Share

Balance as of December 31, 2019	1,214,818		$	67.99
Granted	64,397		$	87.34
Vested	(138,260	)	$	59.51
Canceled	(23,348	)	$	69.61
Balance as of March 31, 2020	1,117,607		$	70.12
Outstanding and expected to vest - March 31, 2020	826,637		$	68.49

Performance-Based Stock Options and Restricted Stock Units

On November 2, 2019, the Compensation Committee of the Company's board of directors granted the equity award for 2020, which consisted of time-based RSUs and performance-based non-statutory stock options ("NSOs"), to the Company’s Chairman and Chief Executive Officer, Philippe Courtot. The Compensation Committee, in consultation with its independent compensation consultant, designed these awards so that greater than 50% of this compensation was based on the achievement of performance goals linked to metrics designed to drive the creation of shareholder value.

The first portion of the award consists of 48,683 time-based RSUs that will vest in quarterly installments beginning on December 1, 2019, assuming continued service through each applicable vesting date. The second portion of the award consists of 123,856 NSOs that will vest at the end of the performance period based on achievement of goals related to revenue growth and free cash flow per share growth during the three-year period from January 2020 through December 2022, generally conditioned on Mr. Courtot’s continued status as a service provider through the date that performance is certified. If Mr. Courtot’s employment (a) is terminated by reason of death or disability or (b) is terminated by the Company for reasons other than cause within 12 months following a change in control (a “double trigger” termination), then 100% of any unvested portions of the award will vest, with any vesting in connection with change in control terminations conditioned upon the effectiveness of a release of claims in favor of the Company (2019 performance-based NSOs).

On December 21, 2018, the Compensation Committee granted the equity award for 2019, which consisted of time-based and performance-based RSUs, to Mr. Courtot. The Compensation Committee, in consultation with its independent compensation consultant, designed these awards so that greater than 50% of this compensation was based on the achievement of performance goals linked to metrics designed to drive the creation of shareholder value.

The first portion of the award consists of 56,250 time-based RSUs that will vest in 16 quarterly increments beginning on January 1, 2019, assuming continued service through each applicable vesting date. The second portion of the award consists of 33,089 performance-based RSUs that will vest based on achievement of goals related to revenue growth for a three-year period from January 2019 through December 2021 and adjusted EBITDA margin for the 2021 fiscal year, generally conditioned on Mr. Courtot’s continued status as a service provider through the date that performance is certified. The third portion of the award consists of 33,088 performance-based RSUs that will vest in three increments based on the achievement of goals related to revenue growth and adjusted EBITDA margin for each of the 2019, 2020 and 2021 fiscal years, generally conditioned on Mr. Courtot’s continued status as a service provider through the date that performance is certified for the relevant increment. If Mr. Courtot’s employment (a) is terminated by reason of death or disability or (b) is terminated by the Company for reasons other than cause or good reason within 12 months following a change in control (a “double trigger” termination), then 100% of any unvested portions of the award will vest, with any vesting in connection with change in control terminations conditioned upon the effectiveness of a release of claims in favor of the Company (2018 performance-based RSUs).

During the three months ended March 31, 2020,14,864 shares, which represent 135% of the target number of 11,030 shares under the 2018 performance-based RSUs, vested as a result of the Company achieving the performance goals for fiscal 2019.

During each of the three months ended March 31, 2020 and 2019, stock-based compensation costs of $0.1 million and $0.2 million, respectively, were recognized for the 2019 performance-based NSOs and the 2018 performance-based RSUs.

Share Repurchase Program

On February 5, 2018, the Company's board of directors authorized a $100.0 million two-year share repurchase program, which was announced on February 12, 2018. On October 30, 2018, October 30, 2019 and May 7, 2020, the Company announced that its board of directors had authorized an increase of $100.0 million, $100.0 million and $100.0 million, respectively, to the original share repurchase program authorization, resulting in an aggregate authorization of $400.0 million. Shares may be repurchased from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1 under the Exchange Act ("Rule 10b5-1"), until April 28, 2022.

Repurchased shares are retired and reclassified as authorized and unissued shares of common stock. On retirement of the repurchased shares, common stock is reduced by an amount equal to the number of shares being retired multiplied by the par value. The excess amount that is retired over its par value is first allocated as a reduction to additional paid-in capital based on the initial public offering price of the stock, with the remaining excess to retained earnings.

During the three months ended March 31, 2020, the Company repurchased 346,250 shares of its common stock for approximately $28.9 million. All share repurchases were made using cash resources. As of March 31, 2020, approximately $99.6 million remained available for share repurchases pursuant to the Company's share repurchase program.