Stock-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

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 June 30, 2020, there were 7,142,549 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 4,545,733 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 assumptions used to estimate the fair value of stock options granted during the three and six months ended June 30, 2020 and June 30, 2019:

	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Risk-free interest rate	*	2.1%	*	2.1%
Expected term (in years)	*	2.6	*	2.6
Expected volatility	*	55.0%	*	55.0%
Expected dividend yield	*	—%	*	—%

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

The following table summarizes the stock option activity for the six months ended June 30, 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	(376,967)	5.98		—	16,706
Expired	(1,020)	12.00		—	—
Canceled	(34,080)	11.19		—	—
Outstanding at June 30, 2020	4,046,544	$	12.90	5.33	$	155,170
Exercisable at June 30, 2020	2,733,704	$	8.00	5.45	$	118,244

There were no stock options granted during the six months ended June 30, 2020. The weighted average grant date fair value of stock options granted during the six months ended June 30, 2019 was $13.57 per share. The total fair value of stock options that vested during the six months ended June 30, 2020 and June 30, 2019 was $1.0 million and $1.5 million, respectively. As of June 30, 2020, the total compensation cost related to unvested stock options not yet recognized was $6.1 million, which will be recognized over a weighted average period of 1.5 years.

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2020:

	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested and outstanding at January 1, 2020	1,022,835	$	31.39
Granted	231,333	52.46
Vested	(59,598)	32.82
Canceled	(77,593)	32.24
Non-vested and outstanding at June 30, 2020	1,116,977	35.62

As of June 30, 2020, total unrecognized compensation cost related to unvested RSUs was approximately $33.6 million, which will be recognized over a weighted average period of 2.3 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 and six months ended June 30, 2020 and June 30, 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
RSUs	$	2,475	$	1,902	$	4,774	$	8,671
Stock options	1,047		695		2,131		1,059
Common stock awards to Board of Directors	92		92		185		184
Total stock-based compensation expense	$	3,614	$	2,689	$	7,090	$	9,914

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 and six months ended June 30, 2020 and June 30, 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Cost of revenue
Subscriptions	$	229	$	161	$	442	$	315
Professional services	317		244		529		2,218
Operating expenses
Sales and marketing	657		814		1,410		3,195
Research and development	619		435		1,172		2,550
General and administrative	1,792		1,035		3,537		1,636
Total stock-based compensation expense	$	3,614	$	2,689	$	7,090	$	9,914