Stock-Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

10. Stock-Based Compensation

Equity Incentive Plans

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 initial public offering. 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 ("RSUs"), stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, 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 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 March 31, 2020, there were 7,129,569 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,595,825 were available to be issued.

Stock Options

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 stock option activity for the three months ended March 31, 2020:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2020	4,458,611	$	12.30	5.8	$	115,501
Granted	—	—
Exercised	(129,082)	5.16			$	4,900
Canceled	(21,520)	10.99
Outstanding at March 31, 2020	4,308,009	$	12.53	5.55	$	119,352

Exercisable at March 31, 2020	2,776,009	$	7.64	5.55	$	90,481

There were no stock options granted during the three months ended March 31, 2020 and March 31, 2019. The total fair value of stock options that vested during each of the three months ended March 31, 2020 and March 31, 2019 was $0.3 million. As of March 31, 2020, the total compensation cost related to unvested stock options not yet recognized was $7.2 million, which will be recognized over a weighted average period of 1.7 years.

Restricted Stock Units

The following table summarizes RSU activity for the three months ended March 31, 2020:


	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested and outstanding at January 1, 2020	1,022,835	$	31.39
Granted	135,280	53.92
Vested	(46,031)	33.34
Canceled	(42,916)	32.38
Non-vested and outstanding at March 31, 2020	1,069,168	34.11

As of March 31, 2020, total unrecognized compensation cost related to unvested RSUs was approximately $31.0 million, which will be recognized over a weighted average period of 2.4 years.

In November 2018, our co-founders were granted 255,930 RSUs under the 2017 Plan at a fair value of $30.06 per share. The awards were approved by the Board of Directors. The value of these awards at the grant date was $7.7 million and was amortized over the vesting periods. The RSUs vested during the three months ended March 31, 2019.

The following table summarizes the components of our stock-based compensation expense by instrument type for the three months ended March 31, 2020 and March 31, 2019 (in thousands):


	Three Months Ended March 31,
	2020		2019
RSUs	$	2,299	$	6,769
Stock options	1,084		364
Common stock awards to Board of Directors	93		92
Total stock-based compensation expense	$	3,476	$	7,225

Stock-based compensation expense for RSUs, stock options, and issuances of common stock is included in the following line items in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2020 and March 31, 2019 (in thousands):


	Three Months Ended March 31,
	2020		2019
Cost of revenue
Subscriptions	$	213	$	154
Professional services	212		1,974
Operating expenses
Sales and marketing	753		2,381
Research and development	553		2,115
General and administrative	1,745		601
Total stock-based compensation expense	$	3,476	$	7,225