Stock-based Compensation

9 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Equity Incentive Plan

Commencing March 8, 2016, the Company began granting stock options, RSUs, PRSUs and other equity-based awards under the 2016 Equity Incentive Plan (the "2016 Plan"). The exercise price per share for incentive stock options granted to employees owning shares representing more than 10% of the Company's outstanding voting stock at the time of grant cannot be less than 110% of the fair value of the underlying shares on the grant date. Nonqualified stock options and incentive stock options granted to all other persons are granted at a price not less than 100% of the fair value. Options generally expire ten years after the date of grant. Stock options and RSUs generally vest over four years; 25% at the end of one year and one

sixteenth per quarter thereafter. As of March 31, 2020, the Company had 231,312 authorized shares available for future issuance under the 2016 Plan.

Determining Fair Value

The Company's fair value of RSUs and PRSUs is based on the closing market price of the Company's common stock on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes-option-pricing model. This fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period. The key inputs in using the Black-Scholes-option-pricing model were as follows:

Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on the Company's historical experience.

Expected Volatility—Expected volatility is based on the Company's historical volatility.

Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input and the Company has no plans to pay dividends.

Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes valuation method is based on the United States Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

The fair value of stock option grants for the three and nine months ended March 31, 2020 and 2019 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:



	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Risk-free interest rate	0.53% - 1.49%			2.56		%	0.53% - 1.72%			2.56% - 2.97%
Expected term	6.27 years			6.05 years			6.27 years			6.05 years
Dividend yield	—		%	—		%	—		%	—		%
Volatility	49.61% - 50.46%			50.25		%	49.61% - 50.46%			47.34% - 50.25%
Weighted-average fair value	$	10.15		$	7.55		$	9.50		$	8.56

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



	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Cost of sales	$	370		$	390		$	1,149		$	1,256
Research and development	3,043			3,107			9,299			9,816
Sales and marketing	417			418			1,276			1,359
General and administrative	975			1,045			3,099			3,650
Stock-based compensation expense before taxes	4,805			4,960			14,823			16,081
Income tax impact	(2,978		)	(1,016		)	(5,142		)	(3,339		)
Stock-based compensation expense, net	$	1,827		$	3,944		$	9,681		$	12,742

As of March 31, 2020, $6.5 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.32 years, $34.2 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.63 years and $0.7 million of unrecognized compensation cost related to unvested PRSUs is expected to be recognized over a period of 1.04 years.

Stock Option Activity

The following table summarizes stock option activity during the nine months ended March 31, 2020 under all plans:



	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)
Balance as of June 30, 2019	7,374,635		$	18.02
Granted	251,930		$	19.39
Exercised	(1,454,507	)	$	15.98
Forfeited/Cancelled	(440,807	)	$	11.62
Balance as of March 31, 2020	5,731,251		$	19.09	4.11
Options vested and exercisable at March 31, 2020	4,988,991		$	18.88	3.54

RSU and PRSU Activity

In January 2015, the Company began to grant RSUs to employees. The Company grants RSUs to certain employees as part of its regular employee equity compensation review program as well as to selected new hires. RSUs are typically service based share awards that entitle the holder to receive freely tradable shares of the Company's common stock upon vesting.

In August 2017, the Compensation Committee granted two PRSU awards to the Company's Chief Executive Officer, both of which have both performance and service conditions. The first award was a one-year PRSU and the second award was a two-year PRSU. The one-year PRSUs would be earned based on the Company’s performance as it relates to a revenue growth metric and a minimum non-GAAP operating margin metric during the fiscal year ended June 30, 2018 with eligibility up to 200% of the targeted 30,000 units based on revenue growth if the minimum non-GAAP operating margin is achieved. If the performance metrics were met, 50% of the PRSUs would vest at June 30, 2018 while the remainder would vest in equal amounts over the following ten quarters if the Company's Chief Executive Officer continued to be employed during those ten quarters. In December 2019, the Compensation Committee of the Company's Board of Directors (the "Board") determined that the Company achieved the revenue and non-GAAP operating margin metrics for the fiscal year ended June 30, 2018 at a level that entitled the Chief Executive Officer to 200% of the originally targeted number of shares subject to the one-year PRSU. 50% of the PRSUs so earned were vested as of June 30, 2018, and an additional 35% of the PRSUs vested during the seven quarters ended March 31, 2020, in accordance with the terms of the grant.

The two-year PRSUs would be earned based on the Company’s performance for the average non-GAAP operating margin metric for the two fiscal years ended June 30, 2019 with eligibility up to 100% of the targeted number of units. If the performance metrics were met, 50% of the PRSUs would have vested at June 30, 2019 while the remainder would have vested in equal amounts over the following ten quarters if the Chief Executive Officer continued to be employed during those ten quarters. In December 2019, the Compensation Committee of the Board determined that the Company did not achieve the required performance metrics for the two-year PRSUs and none of the two-year PRSUs vested.

In March 2020, the Compensation Committee granted a PRSU award to one of the Company's senior executives. The award vests in two tranches and includes service and performance conditions. Each tranche has 15,000 RSUs that vest in May 2021 and November 2021 based on service conditions only. Additional units can be earned based on revenue growth percentage in fiscal year 2020 compared to fiscal year 2019, which units would vest in May 2021, and based on revenue growth percentage in fiscal year 2021 compared to fiscal year 2020, which units would vest in November 2021.

The following table summarizes RSU and PRSU activity during the nine months ended March 31, 2020 under all plans:



	Time-Based RSUs Outstanding		Weighted Average Grant-Date Fair Value per Share		PRSUs Outstanding			Weighted Average Grant-Date Fair Value per Share
Balance as of June 30, 2019	1,873,102		$	20.25	120,000		(1)	$	27.10
Granted	841,880		$	20.24	30,000			$	20.37
Released	(669,721	)	$	20.79	(102,000	)		$	27.10
Forfeited	(126,039	)	$	18.88	—
Balance as of March 31, 2020	1,919,222		$	20.14	48,000			$	22.89

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(1)

Reflects the number of PRSUs that have been earned based on the achievement of performance metrics.