Equity Awards

12 Months Ended

Dec. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

We currently have two equity incentive plans, our 2005 Stock Option Plan (the 2005 Plan) and our 2012 Equity Incentive Plan (the 2012 Plan). Our 2005 Plan was terminated in connection with our initial public offering in 2012 but continues to govern the terms of outstanding stock options that were granted prior to the termination of the 2005 Plan. We no longer grant equity awards pursuant to our 2005 Plan.

Our 2012 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, RSUs, performance-based stock awards and other forms of equity compensation (collectively, equity awards). In addition, the 2012 Plan provides for the grant of performance cash awards. Incentive stock options may be granted only to employees. All other equity awards may be granted to employees, including officers, as well as directors and consultants. The share reserve may increase to the extent outstanding stock options under the 2005 Plan expire or terminate unexercised. Prior to January 2019, the share reserve also automatically increased on January 1 of each year until January 1, 2022, by up to 5% of the total number of shares of common stock outstanding on December 31 of the preceding year as determined by our board of directors. Our board of directors elected not to increase the number of shares of common stock reserved for issuance under the 2012 Plan pursuant to the provision described in the preceding sentence for the year ending December 31, 2019. In January 2019, our Board of Directors amended the 2012 Plan to remove the automatic increase provision. Therefore, for the remaining term of the 2012 Plan, the share reserve will not be increased without stockholder approval.

Our 2012 Employee Stock Purchase Plan (the 2012 ESPP) authorizes the issuance of shares of common stock pursuant to purchase rights granted to our employees. The price at which common stock is purchased under the 2012 ESPP is equal to 85% of the fair market value of our common stock on the first or last day of the offering period, whichever is lower. Offering periods are six months long and begin on February 1 and August 1 of each year. The number of shares of common stock reserved for issuance automatically increases on January 1 of each year until January 1, 2022, by up to 1% of the total number of shares of common stock outstanding on December 31 of the preceding year as determined by our board of directors. Our board of directors elected not to increase the number of shares of common stock reserved for issuance under the 2012 ESPP pursuant to the provision described in the preceding sentence for the years ending December 31, 2019 and December 31, 2020.

Stock Options

Stock options are exercisable at a price equal to the market value of the underlying shares of common stock on the date of the grant as determined by our board of directors or, for those stock options issued subsequent to our initial public offering, the closing price of our common stock as reported on the New York Stock Exchange on the date of grant. Stock options granted under our 2005 Plan and the 2012 Plan to new employees generally vest 25% one year from the date the requisite service period begins and continue to vest monthly for each month of continued employment over the remaining three years. Options granted generally are exercisable for a period of up to ten years contingent on each holder’s continuous status as a service provider.

A summary of stock option activity was as follows:



	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)				(in years)	(in thousands)
Outstanding at December 31, 2017	3,370		$	38.43
Exercised	(1,462	)	$	26.23		$	204,337
Canceled	(97	)	$	70.52
Outstanding at December 31, 2018	1,811		$	46.55
Granted	161		$	266.31
Exercised	(640	)	$	34.61		$	138,389
Canceled	(178	)	$	86.02
Outstanding at December 31, 2019	1,154		$	77.70	5.1	$	236,055
Vested and expected to vest as of December 31, 2019	1,119		$	72.37	5.0	$	234,889
Vested and exercisable as of December 31, 2019	907		$	43.75	4.1	$	216,458

Aggregate intrinsic value represents the difference between the estimated fair value of our common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of the options exercised was $277.7 million for the year ended December 31, 2017. The weighted-average grant date fair value per share of options granted was $266.31 and $37.57 for the years ended December 31, 2019 and 2017, respectively. No stock options were granted during the year ended December 31, 2018. The total fair value of shares vested was $7.7 million, $12.3 million and $11.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

All of the options granted during the year ended December 31, 2019 are options with both service and market-based vesting conditions. These options were granted to our Chief Executive Officer in connection with the commencement of his employment with us during the year. The fair values of the options granted and the corresponding derived service periods were calculated using a Monte Carlo simulation, which estimates the potential outcome of reaching the market condition based on simulated future stock prices. A Monte Carlo simulation requires the use of various assumptions, including the stock price volatility and risk-free interest rate as of the valuation date corresponding to the length of time remaining in the performance period and expected dividend yield. The stock-based compensation expense associated with these options is recorded on a graded vesting basis.

Included in the number of shares canceled during the year ended December 31, 2019 are 171,912 options with both service and market-based vesting conditions. These options were granted to our former Chief Executive Officer during the year ended December 31, 2017 in connection with the commencement of his employment with us, and were canceled in connection with the termination of his employment as our Chief Executive Officer during the year ended December 31, 2019. The fair value of the options granted and the corresponding derived service periods were calculated using a Monte Carlo simulation as described above.

As of December 31, 2019, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options was approximately $17.9 million. The weighted-average remaining vesting period of unvested stock options at December 31, 2019 was 3.3 years.

RSUs

A summary of RSU activity was as follows:



	Number of Shares		Weighted-Average Grant-Date Fair Value Per Share		Aggregate Intrinsic Value
	(in thousands)				(in thousands)
Outstanding at December 31, 2017	11,403		$	81.50
Granted	5,303		$	160.08
Vested	(5,486	)	$	77.38	$	931,848
Forfeited	(1,018	)	$	100.55
Outstanding at December 31, 2018	10,202		$	121.84
Granted	5,338		$	240.32
Vested	(5,487	)	$	126.85	$	1,369,918
Forfeited	(1,320	)	$	145.34
Outstanding at December 31, 2019	8,733		$	185.39	$	2,465,387
Expected to vest as of December 31, 2019	7,506				$	2,119,197

RSUs outstanding as of December 31, 2019 were comprised of 8.1 million RSUs with only service conditions and 0.6 million RSUs with both service conditions and performance conditions.

RSUs granted with only service conditions under and the 2012 Plan to employees generally vest over a four-year period. The total intrinsic value of the RSUs vested was $573.9 million for the year ended December 31, 2017.

PRSUs with both service and performance conditions are considered as eligible to vest when approved by the compensation committee of our board of directors in January of the year following the grant. The ultimate number of shares eligible to vest for PRSUs range from 0% to 180% of the target number of shares depending on achievement relative to the performance metric over the applicable period. The PRSUs shares granted in the years ended December 31, 2019 and 2018 will vest 33% in February of the following year and continue to vest quarterly for the remaining two subsequent years, contingent on each holder’s continuous status as a service provider on the applicable vesting dates. The number of PRSUs granted shown in the table above reflects the shares that could be eligible to vest at 100% of target for PRSUs and includes adjustments for over or under achievement for PRSUs granted in the prior year. We recognized $67.6 million, $91.8 million, and $40.5 million of stock-based compensation expense, net of actual and estimated forfeitures, associated with PRSUs on a graded vesting basis during the year ended December 31, 2019, 2018, and 2017, respectively.

As of December 31, 2019, total unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs was approximately $1.2 billion and the weighted-average remaining vesting period was 2.8 years.