STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Description of Equity Incentive Plans

2006 Plan

Under the Company’s 2006 Equity Incentive Plan (the “2006 Plan”), equity awards granted generally vest over a 4‑year period from the date of grant with a contractual term of up to 10 years. As of December 31, 2019, there were less than 0.1 million shares of options outstanding under the 2006 Plan. No further stock options or other stock awards may be granted under the 2006 Plan.

2011 Plan

Under the 2011 Equity Incentive Plan (the “2011 Plan”), the Company could initially issue up to 2,643,171 shares of its common stock pursuant to stock options, stock appreciation rights (“SARS”), restricted stock awards (“RSA”), RSUs, PSUs, and other forms of equity compensation, or collectively, stock awards, all of which may be granted to employees, including officers, and to non-employee directors and consultants. Options granted under the 2011 Plan before August 1, 2012 generally expire 10 years after the grant date and options granted thereafter generally expire 7 years after the grant date. Equity awards granted under the 2011 Plan generally vest over a 4-year period from the date of grant based on continued employment. The number of shares of the Company’s common stock authorized for issuance under the 2011 Plan automatically increases on each January 1 by 4.5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or such lesser number of shares of common stock as determined by the board of directors. As of December 31, 2019, 4,355,838 shares remained available for issuance pursuant to future grants under the 2011 Plan. On January 1, 2020, the shares available for issuance under the 2011 Plan automatically increased by 5,539,886 shares.

2011 Employee Stock Purchase Plan

The 2011 Employee Stock Purchase Plan (“ESPP”) became effective immediately upon the execution and delivery of the underwriting agreement for the Company’s initial public offering on March 29, 2012. The ESPP authorized the issuance of 669,603 shares of the Company’s common stock pursuant to purchase rights granted to employees. The number of shares of common stock reserved for issuance will automatically increase, on each January 1, by a lesser of (i) 330,396 shares of the Company’s common stock or (ii) 1.0% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, as determined by the Company’s board of directors. At the Annual Meeting of Stockholders held on May 18, 2017 the Company’s stockholders approved a one-time amendment to the Company’s ESPP to increase the aggregate number of shares available for purchase by 400,000 shares and to increase the annual automatic minimum increase in shares reserved for issuance from 330,396 to 700,000 shares effective January 1, 2018. As of December 31, 2019, 936,020 shares remained available for future issuance under the ESPP. On January 1, 2020, the shares available for issuance under the ESPP automatically increased by 700,000 shares.

The ESPP is implemented by concurrent offering periods and each offering period may contain up to four interim purchase periods. In general, offering periods consists of the 24-month periods commencing on each May 15 and November 15 of a calendar year.

Generally, all full-time employees, including executive officers, are eligible to participate in the ESPP. The ESPP permits eligible employees to purchase the Company’s common stock through payroll deductions, which may not exceed 15% of the employee’s total compensation subject to certain limits. Stock may be purchased under the plan at a price equal to 85% of the fair market value of the Company’s stock on either the date of purchase or the first day of an offering period, whichever is lower. A two‑year look-back feature in the Company’s ESPP causes an offering period to reset if the fair value of the Company’s common stock on a purchase date is less than that on the initial offering date for that offering period. The reset feature, when triggered, will be accounted for as a modification to the original offering, resulting in additional expense to be recognized over the 24-month period of the new offering. During any calendar year, participants may not purchase shares of common stock having a value greater than $25,000, based on the fair market value per share of the common stock at the beginning of an offering period.

Valuation of Equity Awards

Stock Options

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

• Expected term—The expected term of the option awards represents the period of time between the grant date of the option awards and the date the option awards are either exercised, converted or canceled, including an estimate for those option awards still outstanding. The Company used the simplified method, as permitted by the SEC for companies with a limited history of stock option exercise activity, to determine the expected term for its option grants.

• Expected volatility—The expected volatility was calculated based on the Company’s historical stock prices, supplemented as necessary with historical volatility of the common stock of several peer companies with characteristics similar to those of the Company.

• Risk-free interest rate—The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant and with a maturity that approximated the Company’s expected term.

• Dividend yield—The dividend yield was based on the Company’s dividend history and the anticipated dividend payout over its expected term.

The following table presents the weighted-average grant date fair value of options granted for the periods presented and the assumptions used to estimate those values using a Black-Scholes option pricing model.

	Years Ended December 31,
	2019			2018			2017
Weighted average grant date fair value	$	9.16		$	2.83		$	0.76
Expected term (in years)	3.8			4.0			4.4
Expected volatility	89.1		%	88.5		%	83.9		%
Annual risk-free rate of return	2.1		%	2.6		%	1.8		%
Dividend yield	—		%	—		%	—		%

Restricted Stock Units

The fair value of the Company’s restricted stock units (“RSU”) awards granted is based upon the closing price of the Company’s stock price on the date of grant.

Performance Stock Units

The fair value of the Company’s non-market performance stock units (“PSU”) awards granted was based upon the closing price of the Company’s stock price on the date of grant. The fair value of awards of the Company’s PSU awards containing market conditions was determined using a Monte Carlo simulation model based upon the terms of the conditions, the expected volatility of the underlying security, and other relevant factors.

Stock-based Compensation Expense

Stock-based compensation expense for all stock-based awards expected to vest is measured at fair value on the date of grant and recognized ratably over the requisite service period. The following table summarizes the components of total stock-based compensation expense included in the consolidated statements of operations for the periods presented.

	Years Ended December 31,
	2019		2018		2017
	(In thousands)
Cost of revenues	$	1,650	$	1,071	$	1,072
Research and development	4,897		2,940		2,573
Sales and marketing	5,678		3,074		1,157
General and administrative	7,216		4,347		1,925
Restructuring	735		—		—
Total	$	20,176	$	11,432	$	6,727

The following table summarizes the various types of stock-based compensation expense for the periods presented.

	Years Ended December 31,
	2019		2018		2017
	(In thousands)
Stock options, RSUs, and PSUs	$	19,216	$	10,691	$	5,559
Employee stock purchase plan	960		741		1,168
Total	$	20,176	$	11,432	$	6,727

As of December 31, 2019, there was approximately $31.5 million of total unrecognized stock-based compensation expense related to unvested equity awards, which are expected to be recognized over a weighted-average period of 2.3 years.

Equity Awards Activity

Stock Options

The following is a summary of stock option activity.

	Number of Shares Outstanding		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
	(In thousands)				(Years)	(In thousands)
Outstanding at December 31, 2016	8,730		$	4.55
Granted	4,500		1.22
Exercised	(425	)	0.51			$	544
Canceled	(4,379	)	6.91
Outstanding at December 31, 2017	8,426		$	1.77
Granted	213		4.43
Exercised	(1,346	)	1.75			5,096
Canceled	(521	)	2.94
Outstanding at December 31, 2018	6,772		$	1.76
Granted	43		14.58
Exercised	(2,616	)	1.22			31,093
Canceled	(102	)	4.07
Outstanding at December 31, 2019	4,097		$	2.18	4.3	$	98,103
Vested and expected to vest at December 31, 2019	4,097		$	2.18	4.3	$	98,103
Exercisable at December 31, 2019	2,887		$	2.44	4.1	$	68,397

(1)

The intrinsic value of options exercised is based upon the value of the Company’s stock at exercise. The intrinsic value of options outstanding, vested and expected to vest, and exercisable as of December 31, 2019 is based on the closing price of the Company’s stock fair value on December 31, 2019 or the earlier of the last trading day prior to December 31, 2019, if December 31, 2019 is a non-trading day. The Company’s stock fair value used in this computation was $26.13 per share.

The following table summarizes information about stock options outstanding at December 31, 2019.

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Remaining Life	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
	(In thousands)	(Years)			(In thousands)
$0.64 —– $1.11	774	5.0	$	0.82	518	$	0.78
$1.29 —– $1.29	1,000	4.7	1.29		563	1.29
$1.31 —– $1.31	1,309	4.3	1.31		975	1.31
$1.37 —– $7.50	867	3.2	4.18		702	4.57
$7.68 —– $14.58	147	3.4	11.45		129	11.02
Total	4,097	4.3	$	2.18	2,887	$	2.44

Restricted Stock Units

The following is a summary of RSU activity.

	Number of Shares Outstanding		Weighted- Average Fair Value per Share at Grant Date		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
	(In thousands)				(Years)	(In thousands)
Outstanding at December 31, 2016	606		$	9.33
Granted	5,418		1.46
Vested	(885	)	3.81			$	932
Canceled	(1,634	)	1.90
Outstanding at December 31, 2017	3,505		$	2.03
Granted	3,152		4.45
Vested	(1,399	)	2.75			6,657
Canceled	(906	)	2.17
Outstanding at December 31, 2018	4,352		$	3.52
Granted	2,112		11.50
Vested	(1,707	)	3.87			27,156
Canceled	(494	)	4.81
Outstanding at December 31, 2019	4,263		$	7.19	1.3	$	111,387
Expected to vest at December 31, 2019	4,263		$	7.19	1.3	$	111,387

(1) The intrinsic value of RSUs vested is based upon the value of the Company’s stock when vested. The intrinsic value of RSUs outstanding and expected to vest as of December 31, 2019 is based on the closing price of the Company’s stock on December 31, 2019 or the earlier of the last trading day prior to December 31, 2019, if December 31, 2019 is a non-trading day. The Company’s stock fair value used in this computation was $26.13 per share.

On April 3, 2017, the Company commenced a Tender Offer (the “Offer”) to exchange out of the money stock options for RSUs. The Offer expired on May 1, 2017. Pursuant to the Offer, the Company accepted elections to exchange options to purchase 2,362,470 shares of common stock and issued replacement awards of RSUs for 733,559 shares of common stock. As the transaction approximated a value-for-value exchange, it did not have a material impact on the Company’s stock-based compensation expense.

Performance Stock Units

The following is a summary of PSU activity.

	Number of Shares Outstanding		Weighted- Average Fair Value per Share at Grant Date		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
	(In thousands)				(Years)	(In thousands)
Outstanding at December 31, 2017	—
Granted	1,477		$	4.65
Vested	—
Canceled	(147	)
Outstanding at December 31, 2018	1,330		$	4.66
Granted	1,052		9.48
Vested	(1,063	)	4.62			$	10,818
Canceled	(364	)	5.16
Outstanding at December 31, 2019	955		$	9.83	0.2	$	24,952

(1) The intrinsic value of PSUs vested is based upon the value of the Company’s stock when vested. The intrinsic value of PSUs outstanding and expected to vest as of December 31, 2019 is based on the closing price of the Company’s stock on December 31, 2019 or the earlier of the last trading day prior to December 31, 2019, if December 31, 2019 is a non-trading day. The Company’s stock fair value used in this computation was $26.13 per share.

Stock-based compensation expense is measured at the grant date based on the fair value of the award. During the first quarter of 2019 the Company issued PSU grants of 1.0 million shares, of which 0.5 million shares include market conditions. Each grantee is granted a target award of PSUs and may earn between 0% and 200% of the target award depending on the Company’s performance against the performance goals. The grant date fair value of PSUs without market conditions is recognized as expense when the performance condition is probable of being achieved, and then on a graded basis over the requisite service period. The grant date fair value of PSUs with market conditions is recognized as expense on a straight-line basis over the requisite service period. The weighted average estimated fair value of the PSUs without market conditions was $8.80 per share, and the weighted average estimated fair value of the PSUs with market conditions, based on the Monte Carlo model, was $10.70 per share.

Employee Stock Purchase Plan

A summary of ESPP activity for the years presented is as follows: (in thousands, except per share data):

	Years Ended December 31,
	2019		2018		2017
Proceeds from common stock issued under ESPP	$	1,692	$	397	$	313
Shares of common stock issued	315		439		478
Weighted-average price per share	$	5.37	$	0.90	$	0.65