Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

In May 2017, our board of directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our IPO. The 2017 Plan provides for the grant of incentive stock options to employees, and for the grant of nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards and other forms of equity compensation to employees, including officers, and to non-employee directors and consultants. We initially reserved 6,421,442 shares of Class A common stock for issuance under the 2017 Plan, which included 421,442 shares that remained available for issuance under our 2007 Stock Option Plan (the “2007 Plan”) at the time that the 2017 Plan became effective. The number of shares reserved under the 2017 Plan increases for any shares subject to outstanding awards originally granted under the 2007 Plan that expire or are forfeited prior to exercise. As a result of the adoption of the 2017 Plan, no further grants may be made under the 2007 Plan. As of December 31, 2019, there were 7,108,049 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,668,941 were available to be issued.

We estimate the fair value of stock options containing only a service condition using the Black-Scholes Option Pricing Model, which requires the use of subjective assumptions, including the expected term of the option, the current price of the underlying stock, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected term of the option. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, we use the simplified method to estimate the expected term for our stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected term of the stock options. We assume no dividend yield because dividends are not expected to be paid in the near future, which is consistent with our history of not paying dividends.

In May 2019, our board of directors granted a stock option to purchase 700,000 shares of our Class A common stock to our Chief Executive Officer (the "2019 CEO Grant") under the 2017 Plan with an exercise price of $33.98 per share. The 2019 CEO Grant is eligible to vest based on the achievement of a stock price appreciation target of our Class A common stock. Specifically, the 2019 CEO Grant will vest when shares of our Class A common stock closes at or above $84.63 per share for a period equal to or greater than 90 calendar days or upon the occurrence of a change in control in which the value of our Class A common stock is equal to or greater than $84.63 per share within five years of the grant date. The fair value of the 2019 CEO Grant was determined using a Monte Carlo simulation. The fair value of the award at the grant date was $9.5 million and will be amortized over the derived service period of 2.6 years.

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2019, 2018 and 2017:


	2019	2018	2017
Risk-free interest rate	2.1%	*	1.9% - 2.2%
Expected term (in years)	2.6	*	6.5
Expected volatility	55.0%	*	38.1% - 40.6%
Expected dividend yield	—%	*	—%

* Not applicable because no stock options were granted during the period.

Stock Options

The following table summarizes the stock option activity for the years ended December 31, 2019, 2018 and 2017:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2017	6,784,448	$	4.65	6.5	$	44,259
Granted	1,256,200	11.92
Exercised	(876,121)	1.27			14,807
Canceled	(153,640)	7.29
Outstanding at December 31, 2017	7,010,887	6.36		6.6	176,122
Granted	—	—
Exercised	(1,486,218)	2.10			41,606
Canceled	(503,601)	9.51
Outstanding at December 31, 2018	5,021,068	7.30		6.4	97,440
Granted	700,000	33.98
Exercised	(1,194,471)	4.11			44,081
Canceled	(67,986)	10.17
Outstanding at December 31, 2019	4,458,611	12.30		5.8	115,501
Exercisable at December 31, 2019	2,818,731	7.51		5.7	86,536

The weighted average grant-date fair value of options granted during the years ended December 31, 2019 and 2017 was $13.57 and $5.05 per option, respectively. No stock options were granted during the year ended December 31, 2018. The total fair value of stock options that vested during the years ended December 31, 2019, 2018 and 2017 was $2.0 million, $10.5 million and $5.6 million, respectively. As of December 31, 2019, the total compensation cost related to unvested stock options not yet recognized was $8.4 million, which will be recognized over a weighted average period of 1.9 years.

Restricted Stock Units

The following table summarizes the restricted stock unit activity for the years ended December 31, 2019, 2018 and 2017:


	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested outstanding at January 1, 2017	—	$	—
Granted	738,055	22.15
Vested	(4,930)	20.24
Canceled	(1,150)	21.40
Non-vested outstanding at December 31, 2017	731,975	22.16
Granted	622,166	29.60
Vested	(143,390)	22.19
Canceled	(35,702)	23.97
Non-vested outstanding at December 31, 2018	1,175,049	26.04
Granted	436,912	40.70
Vested	(521,460)	27.81
Canceled	(67,666)	26.38
Non-vested outstanding at December 31, 2019	1,022,835	31.39

As of December 31, 2019, total unrecognized compensation cost related to unvested restricted stock units was approximately $28.8 million and the weighted average remaining vesting period was 2.4 years.

In November 2018, our board of directors approved the grant of 255,930 restricted stock units under the 2017 Plan at a fair value of $30.06 per share to our three co-founders. The value of these awards at the grant date was $7.7 million and was amortized over the vesting periods. The restricted stock units vested during the three months ended March 31, 2019.

The following table summarizes the components of our stock-based compensation expense for the years ended December 31, 2019, 2018 and 2017 (in thousands):


	2019		2018		2017
Stock-based compensation expense related to stock options	$	3,408	$	7,947	$	9,607
Stock-based compensation expense related to restricted stock units	12,667		7,714		753
Stock-based compensation expense related to the issuance of common stock to directors	368		393		222
Stock-based compensation expense related to stock option modifications	—		—		2,394
Total stock-based compensation expense	$	16,443	$	16,054	$	12,976

Stock-based compensation expense for restricted stock units, stock options and issuances of common stock is included in the following line items in the accompanying consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 (in thousands):


	2019		2018		2017
Cost of revenue
Subscriptions	$	647	$	514	$	575
Professional services	2,748		1,717		1,295
Operating expenses
Sales and marketing	4,742		3,473		3,233
Research and development	3,480		2,416		2,822
General and administrative	4,826		7,934		5,051
Total stock-based compensation expense	$	16,443	$	16,054	$	12,976