Stock-Based Compensation

6 Months Ended

Jun. 30, 2020

Stock-Based Compensation

Stock-Based Compensation

13.     Stock-Based Compensation

In September 2016, the Company adopted the 2016 Equity Compensation Plan (“2016 Plan”). During the term of the 2016 Plan, the share reserve will automatically increase on the first trading day in January of each calendar year by an amount equal to the lesser of 5% of the total number of outstanding shares of common stock on the last trading day in December of the prior calendar year or such other number set by the Company’s Board of Directors (the “Board”). In accordance with the terms of the 2016 Plan, the share reserve increased by 1,116,065 shares on January 2, 2020. As of June 30, 2020, 1,128,118 shares were available for future grants under the 2016 Plan.

Restricted Common Stock

The following table summarizes the restricted stock award activity under the 2016 Plan for the six months ended June 30, 2020:

		Weighted
		average
	Number	grant-date
	of shares	fair value
Outstanding at December 31, 2019	1,213,581	$	37.69
Granted	428,656		66.65
Vested	(280,995)		45.39
Forfeited	(39,178)		55.72
Outstanding at June 30, 2020	1,322,064	$	44.91

For the three months ended June 30, 2020 and 2019, $4,809 and $3,361 of expense was recognized related to restricted stock awards, respectively. For the six months ended June 30, 2020 and 2019, $8,948 and $6,086 of expense was recognized related to restricted stock awards, respectively. As of June 30, 2020, there was unrecognized compensation expense of $47,428 related to non-vested restricted stock awards under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.9 years.

Performance-Based Equity Awards

On August 6, 2018, the Board approved the grant of a performance-based stock award to a consultant pursuant to the 2016 Plan. The award provided that 50,000 shares of common stock would be issued based on the achievement of certain milestones. The award had a grant-date fair value of $61.85 per share based on the Company’s closing stock price on the grant date. Compensation cost was recognized over the service period based on management’s determination that it was probable that the milestones would be achieved. As of December 31, 2019, all milestones were achieved and there was no unrecognized compensation expense related to the performance-based stock award. During the first quarter of 2020, the Company issued 5,000 shares of common stock related to this award for the achievement of the final milestone. For the three and six months ended June 30, 2019, the Company recorded $399 and $1,314 of expense related to the performance-based stock award.

On May 4, 2020, pursuant to the 2016 Plan, the Board approved grants totaling 10,686 shares of restricted stock to an employee. The grants vest subject to certain performance conditions being achieved during the two-year period ending March 2, 2022. The awards have a grant-date fair value of $56.14 per share based on the Company’s closing stock price on the grant date. Stock compensation costs associated with these grants are recognized over the service period based upon the Company’s assessment of the probability that the performance conditions will be achieved. The Company recognized no stock compensation expense related to these grants for the three and six months ended June 30, 2020 as the achievement of the underlying performance conditions was considered unlikely. As of June 30, 2020, there was $600 of cumulative unrecognized compensation expense related to these performance-based restricted stock awards.

Other Stock Awards

During the first quarter of 2020, the Board approved the grant of stock awards to select employees pursuant to the 2016 Plan. The awards provided for the issuance of 9,386 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $52.29 per share. For the six months ended June 30, 2020, the Company recorded $491 of expense related to these stock awards.

During the six months ended June 30, 2019, the Board approved the grant of stock awards to select employees and a non-employee director pursuant to the 2016 Plan. The awards provide for the issuance of 19,648 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $53.03 per share. For the three and six months ended June 30, 2019, the Company recorded $504 and $1,042 of expense related to these stock awards.

Stock Options

The Company recorded $2,364 and $2,642 of stock-based compensation expense related to employee and non-employee stock options for the three months ended June 30, 2020 and 2019, respectively. The Company recorded $4,871 and $5,316 of stock-based compensation expense related to employee and non-employee stock options for the six months ended June 30, 2020 and 2019, respectively. The Company records forfeitures as they occur.

The estimated fair value of options granted was calculated using a Black-Scholes option-pricing model. The computation of expected life for employees was determined based on the simplified method. The risk-free rate is based on the U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. The Company's common stock had not been publicly traded until its IPO commenced on September 29, 2016; therefore, expected volatility is based on a combination of the historical volatilities of the Company’s common stock and the historical volatilities of selected public companies whose services are comparable to that of the Company. The table below sets forth the weighted average assumptions for employee grants during the six months ended June 30, 2020 and 2019:

	Six Months Ended
	June 30,
Valuation assumptions:	2020		2019
Expected volatility	56.10	%	69.60	%
Expected term (years)	5.25		6.02
Risk-free interest rate	1.22	%	2.50	%
Dividend yield	—		—

The weighted average grant date fair value of employee options granted during the six months ended June 30, 2020 and 2019 was $33.78 and $34.94 per share, respectively.

The following table summarizes stock option activity under the 2016 Plan for the six months ended June 30, 2020:

				Weighted
		Weighted		average
		average		remaining	Aggregate
	Number	exercise		contractual	intrinsic
	of shares	price		term	value
Outstanding at December 31, 2019	2,755,343	$	25.10
Granted	5,000		68.10
Exercised	(223,980)		11.11
Forfeited	(37,700)		48.73
Outstanding at June 30, 2020	2,498,663	$	26.08	6.6	$	73,296
Options vested and expected to vest at June 30, 2020	2,498,663	$	26.08	6.6	$	73,296
Exercisable at June 30, 2020	1,715,578	$	18.48	5.9	$	62,853

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the Company’s closing stock price or estimated fair value on the last trading day of the fiscal quarter for those stock options that had exercise prices lower than the fair value of the Company's common stock. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 was $9,656 and $5,959, respectively.

As of June 30, 2020, there was $19,044 of total unrecognized compensation cost related to nonvested stock options granted under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.3 years.

Cash received from option exercises for the six months ended June 30, 2020 and 2019 was $2,312 and $1,536, respectively.

The Company recorded total stock-based compensation expense for the three and six months ended June 30, 2020 and 2019 in the following expense categories of its consolidated statements of operations:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Cost of revenue - product	$	193	$	313	$	375	$	622
Cost of revenue - service		839		994		1,602		1,978
Research and development		1,071		1,806		2,480		4,088
Sales and marketing		523		1,105		1,051		2,092
General and administrative		4,547		2,688		8,802		4,978
Total stock-based compensation expense	$	7,173	$	6,906	$	14,310	$	13,758