Note 12 - Stock-based Compensation

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

12. Stock-Based Compensation

In June 2010, the Board of Directors (the “Board”) approved the Company’s 2010 Stock Incentive Plan (the “2010 Plan”), which became effective in November 2010. The 2010 Plan provides for the grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants. The Compensation Committee administers the 2010 Plan, including the determination of the recipient of an award, the number of shares subject to each award, whether an option is to be classified as an incentive stock option or nonstatutory option, and the terms and conditions of each award, including the exercise and purchase prices and the vesting or duration of the award. Options granted under the 2010 Plan are exercisable only upon vesting. At December 31, 2019, 4,909,665 shares of common stock have been reserved for future grants under the 2010 Plan.

Stock Option Awards

The Company did not grant any stock options during the years ended December 31, 2019, 2018 and 2017.

The following table summarizes information regarding options outstanding:

	Number of Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 2018		1,159,121		$	12.94		2.62	$	22,267
Exercised		(253,980	)	$	10.30
Outstanding at December 31, 2019		905,141		$	13.68		1.81	$	54,616
Vested and Exercisable as of December 31, 2019		905,141		$	13.68		1.81	$	54,616

The intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the respective balance sheet dates.

The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 was $12,008, $4,553 and $11,312, respectively. The intrinsic value of exercised options is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date. Cash received from the exercise of stock options was $2,616, $719 and $2,214, respectively, for the years ended December 31, 2019, 2018 and 2017.

Restricted Stock Units and Awards

The Company granted restricted stock units (“RSUs”) to members of the Board and its employees. Most of the Company’s outstanding RSUs vest over four years with vesting contingent upon continuous service. The Company estimates the fair value of RSUs using the market price of the common stock on the date of the grant. The fair value of these awards is amortized on a straight-line basis over the vesting period.

The following table summarizes information regarding outstanding restricted stock units:

				Weighted
				Average
				Grant Date
	Number of			Fair Value
	Shares			Per Share
Outstanding at December 31, 2018		4,051,685		$	34.68
Granted		1,965,231		$	47.85
Vested		(1,811,511	)	$	34.19
Canceled		(383,080	)	$	37.71
Outstanding at December 31, 2019		3,822,325		$	41.38
Expected to vest in the future as of December 31, 2019		3,742,887

The RSUs include performance-based stock units subject to achievement of pre-established revenue and earnings per share goals on non-GAAP basis. Once the goals are met, the performance-based stock units are subject to four years of vesting from the original grant date, contingent upon continuous service. The total performance-based units that vested for the year ended December 31, 2019 was 55,759. As of December 31, 2019, the total performance-based units outstanding was 72,053.

Market Value Stock Units

In January 2018, the compensation committee of the Board approved long-term market value stock unit (MVSU) awards to certain executive officers and employees, subject to certain market and service conditions in the maximum total amount of 702,000 units. Recipients may earn between 0% to 225% of the target number of shares based on the Company’s achievement of total shareholder return (TSR) in comparison to the TSR of companies in the S&P 500 Index over a period of approximately three years in length ending in the first calendar quarter of 2021 after reporting of fiscal year 2020 results. If the Company’s absolute TSR is negative for the performance period, then the maximum number of shares that may be earned is the target number of shares. The fair value of the MVSU awards was estimated using a Monte Carlo simulation model and compensation is being recognized ratably over the service period. The expected volatility of the Company’s common stock was estimated based on the historical average volatility rate over the three-year period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with three-year measurement period. The total amount of compensation to recognize over the service period, and the assumptions used to value the grants are as follows:

Total target shares		312,000
Fair value per share	$	55.81
Total amount to be recognized over the service period	$	17,413
Risk free interest rate		2.29	%
Expected volatility		47.52	%
Dividend yield		—

Employee Stock Purchase Plan

In December 2011, the Company adopted the Employee Stock Purchase Plan (“ESPP”). Participants purchase the Company's stock using payroll deductions, which may not exceed 15% of their total cash compensation. Pursuant to the terms of the ESPP, the "look-back" period for the stock purchase price is six months. Offering and purchase periods will begin on February 10 and August 10 of each year. Participants will be granted the right to purchase common stock at a price per share that is 85% of the lesser of the fair market value of the Company's common shares at the beginning or the end of each six-month period.

The ESPP imposes certain limitations upon an employee’s right to acquire common stock, including the following: (i) no employee shall be granted a right to participate if such employee immediately after the election to purchase common stock, would own stock possessing 5% or more to the total combined voting power or value of all classes of stock of the Company, and (ii) no employee may be granted rights to purchase more than $25 fair value of common stock for each calendar year. The maximum aggregate number of shares of common stock available for purchase under the ESPP is 2,750,000. Total common stock issued under the ESPP during the years ended December 31, 2019, 2018 and 2017 was 208,721, 283,493, and 171,099, respectively.

The fair value of award under the employee stock purchase plan is estimated at the start of offering period using the Black-Scholes option pricing model with the following average assumptions for the years ended December 31, 2019, 2018 and 2017:

	Year Ended December 31,
	2019			2018			2017
Risk-free interest rate		2.26	%		2.01	%		0.94	%
Expected life (in years)		0.49			0.50			0.50
Dividend yield		—			—			—
Expected volatility		43	%		46	%		42	%
Estimated fair value	$	13.35		$	8.35		$	11.03

Stock-Based Compensation Expense

Stock-based compensation expense is included in the Company’s results of operations as follows:

	Year Ended December 31,
	2019		2018		2017
Cost of revenue	$	6,208	$	2,527	$	2,045
Research and development		42,265		37,397		28,846
Sales and marketing		15,561		13,470		8,340
General and administrative		12,821		10,490		5,602
	$	76,855	$	63,884	$	44,833

As of December 31, 2019, total unrecognized compensation cost related to unvested stock options and awards prior to the consideration of expected forfeitures, was approximately $125,015, which is expected to be recognized over a weighted-average period of 2.50 years.