Common Stock and Stockholders' Equity

3 Months Ended

Mar. 31, 2020

Common Stock and Stockholders'Equity

Common Stock and Stockholders' Equity

Note 13. Common Stock and Stockholders’ Equity

Capitalization

Effective May 31, 2018, the authorized number of shares of the Company’s common stock was increased from 100,000,000 to 150,000,000 shares.

Stock Plan and Stock Options

The Company’s 2015 Incentive Award Plan and 2017 Inducement Plan (the “Plan”) provides for the issuance of incentive and non-statutory options and other equity-based awards to its employees and non-employees. Options issued under the Plan are exercisable for periods not to exceed ten years, and vest and contain such other terms and conditions as specified in the applicable award document. Options to buy common stock are issued under the Plan, with exercise prices equal to the closing price of shares of the Company’s common stock on the New York Stock Exchange on the date of award. The Company had 8,161,962 shares available for grant at March 31, 2020.

Activity under the Plan is as follows (in thousands, except share and per share amounts and years):

				Weighted-
		Weighted-		Average
	Number of	Average		Remaining	Aggregate
	Shares	Exercise		Contractual	Intrinsic
	Outstanding	Price		Life in Years	Value
Balance at December 31, 2019	5,206,981	$	24.47	7.03	$	308,538
Stock option grants	7,441	$	106.25	0	$	0
Stock options exercised	(671,279)	$	22.10	0	$	(65,192)
Stock options forfeited	(126,577)	$	34.48	0	$	0
Balance at March 31, 2020	4,416,566	$	24.67	6.77	$	575,408
Vested or expected to vest at March 31, 2020	4,414,765	$	24.67	6.77	$	575,408
Exercisable at March 31, 2020	3,055,075	$	19.80	6.41	$	413,071

The total grant-date fair value of stock options granted during the quarters ended March 31, 2020 and 2019 was $0.3 million and $1.2 million, respectively.

Stock-Based Compensation

All stock-based awards to employees are measured based on the grant-date fair value of the awards and are generally recognized on a straight line basis in the Company’s consolidated statement of operations over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period for each stock option and a three-year vesting period for each restricted stock unit (“RSU”). The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

The assumptions used in the Black-Scholes option-pricing model are determined as follows:

Volatility. Since the Company does not have a trading history prior to July 2015 for its common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within its industry that it considers to be comparable to its business combined with the Company’s stock volatility over a period equivalent to the expected term of the stock option grants.

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with terms similar to the expected term on the options.

Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. When establishing the expected term assumption, the Company utilizes historical data.

Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, it used an expected dividend yield of zero.

Forfeiture rate. The Company recognizes forfeitures as they occur.

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

	Quarters Ended March 31,
	2020		2019
Volatility		46.1% – 47.9%		47.5% – 47.6%
Expected life (in years)		4.3		5.4
Risk-free interest rate		0.87% - 1.64%		2.50% - 2.55%
Dividend yield		–		–
Weighted-average fair value of underlying stock options	$	42.06	$	27.87

For the quarter ended March 31, 2020 and 2019, the Company recorded compensation expense related to stock options granted of $3.9 million and $5.5 million, respectively.

As of March 31, 2020, the Company had $20.0 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 1.8 years.

Restricted Stock Units

In May 2017, the Company commenced issuing RSUs pursuant to the Plan to certain employees and Board members under the 2017 Employment Inducement Incentive Award Plan.

The fair value of the RSUs is determined on the date of grant. The Company will record compensation expense in the consolidated statement of operations on a straight-line basis over the vesting period for RSUs. The vesting period for employees and members of the Board of Directors ranges from one to four years.

Activity under the RSUs is as follows:

		Weighted-Average
		Grant Date
	Shares	Fair Value Per Share
Balance at December 31, 2019	1,483,558	$	54.13
Granted	321,311	$	122.96
Vested and issued	(455,956)	$	51.79
Forfeited	(54,476)	$	48.78
Balance at March 31, 2020	1,294,437	$	58.82
Vested and unissued at March 31, 2020	13,755	$	50.90
Non-vested at March 31, 2020	1,280,682	$	58.91

The total grant-date fair value of RSUs granted during the quarter ended March 31, 2020 and 2019 were $39.5 million and $48.0 million, respectively.

For the quarter ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense related to the RSUs of $9.4 million and $5.0 million respectively.

As of March 31, 2020, the Company had $82.8 million in unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted-average period of approximately 2.0 years.

Performance Stock Units

The Company began issuing grants Performance Stock Units (“PSUs”) to employees under the Plan in 2018. Stock-based compensation costs associated with our PSUs are initially determined using the fair market value of the Company's common stock on the date the awards are approved by the Compensation Committee of the Board of Directors (service inception date). The vesting of these PSU is subject to certain performance conditions and a service requirement ranging from 1-3 years. Until the performance conditions are met, stock compensation costs associated with these PSU reflect the estimated performance attainment on the reporting date. The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions and can range from 50% to 200% of the initial grant. Stock compensation expense for PSUs is recognized on an accelerated tranche by tranche basis for performance-based awards. Forfeitures are accounted for at the time the occur consistent with Company policy.

Activity under the PSU is as follows:

		Weighted-Average
		Grant Date
	Shares	Fair Value Per Share
Balance at December 31, 2019	512,482	$	62.51
Granted	111,199	$	117.81
Vested and issued	(186,455)	$	62.02
Balance at March 31, 2020	437,226	$	76.78
Vested and unissued at March 31, 2020	0	$	0
Non-vested at March 31, 2020	437,226	$	76.78

The total grant-date fair value of PSUs granted during the quarter ended March 31, 2020 and 2019 were $13.1 million and $28.4 million, respectively.

For the quarter ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense related to the PSU of $4.6 million and $2.6 million, respectively.

As of March 31, 2020, the Company had $25.4 million in unrecognized compensation cost related to non-vested PSU, which is expected to be recognized over a weighted-average period of approximately 1.8 years.

Employee Stock Purchase Plan

In July 2015, the Company adopted the 2015 Employee Stock Purchase Plan, or ESPP, in connection with its initial public offering. A total of 832,492 shares of common stock were reserved for issuance under this plan as of March 31, 2020. The Company’s ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or on the date of purchase.

During the quarter March 31, 2020, the Company had not issued any shares under the ESPP. During 2019, the Company issued 64,497 shares under the ESPP. As of March 31, 2020, 555,267 shares remained available for issuance.

For the quarter ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense related to the ESPP of $0.4 million and $0.3 million, respectively.

As of March 31, 2020, the Company had $0.2 million in unrecognized compensation cost related to the ESPP, which is expected to be recognized over a weighted-average period of approximately 0.1 years.

Total compensation costs charged as an expense for stock-based awards, including stock options, RSU’s and ESPP, recognized in the components of operating expenses are as follows (in thousands):

	Quarter Ended
	March 31,
	2020		2019
Administrative and marketing	$	1,259	$	821
Sales		2,919		2,130
Technology and development		2,104		1,898
General and administrative		12,033		8,674
Total stock-based compensation expense	$	18,315	$	13,523