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STOCK PLANS AND SHARE BASED COMPENSATION

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

STOCK PLANS AND SHARE BASED COMPENSATION

7. STOCK PLANS AND SHARE BASED COMPENSATION:

The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect of the August 2020 stock split. Refer to Note 10, Earnings Per Share, in this Form 10-K for details.

Stock Plans

As of December 31, 2021, the Company had three stock-based compensation plans (the “Plans”) which are described below.

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan (2007 Plan) was adopted by the board of directors on September 10, 2007, and approved by the stockholders on November 7, 2007, as an amendment and restatement of the 1997 Stock Option Plan (1997 Plan). The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock

awards, restricted stock unit (RSU) awards, stock appreciation rights, performance-based (PSU) awards, long-term performance based (PRSU) awards and other stock awards to employees, directors and consultants. Pursuant to the 2007 Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an optionee’s cessation of employment or service. The 2007 Plan expired in September 2017 with no further grants to be made under this plan; however previous grants under this plan shall remain outstanding until they are exercised, vest, forfeited or expire.

2016 Incentive Award Plan

The 2016 Incentive Award Plan (2016 Plan) was adopted by the board of directors on March 17, 2016 and approved by the stockholders on May 13, 2016. The 2016 Plan provides for the grant of RSU awards, PSU awards and PRSU awards. No other forms of equity-based awards, including stock options and stock appreciation rights, may be granted under the 2016 Plan. As of December 31, 2021, 2.6 million awards have been issued, net of forfeitures or cancellations, and approximately 4.4 million shares of common stock remain available for future grant under the 2016 Plan.

1997 Employee Stock Purchase Plan

Under the 1997 Employee Stock Purchase Plan (Purchase Plan), eligible employees may apply accumulated payroll deductions, which may not exceed 15% of an employee’s compensation, to the purchase of shares of the Company’s common stock at periodic intervals. The purchase price of stock under the Purchase Plan is equal to 85% of the lower of (i) the fair market value of the Company’s common stock on the first day of each offering period, or (ii) the fair market value of the Company’s common stock on the purchase date (as defined in the Purchase Plan). Each offering period consists of one purchase period of approximately six months' duration. An aggregate of 7.5 million shares of common stock were reserved for issuance to employees under the Purchase Plan. As of December 31, 2021, of the shares reserved for issuance, 6.7 million shares had been purchased and 0.8 million shares were reserved for future issuance under the Purchase Plan.

Shares Reserved

As of December 31, 2021, the Company had approximately 5.5 million shares of common stock reserved for future grant under all stock plans.

Stock-Based Compensation

The Company applies the provisions of ASC 718-10, Stock Compensation. Under the provisions of ASC 718-10, the Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of volatility, expected term, risk-free interest rate, dividend yield and forfeitures in determining the fair value of these awards and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize all stock awards granted over the requisite service period of the award.

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the years ended December 31, 2021, 2020 and 2019:


	Year Ended December 31,
(In thousands)	2021		2020		2019
Cost of revenues	$	2,359	$	1,963	$	1,237
Research and development		12,127		10,378		8,423
Sales and marketing		7,630		6,290		5,015
General and administrative		15,493		12,281		8,672
Total stock-based compensation expense	$	37,609	$	30,912	$	23,347

The following table summarizes total compensation expense related to unvested awards not yet recognized, net of expected forfeitures, and the weighted average period over which it is expected to be recognized as of December 31, 2021:


	Unrecognized Compensation		Weighted Average
	Expense for Unvested		Remaining Recognition
	Awards		Period
	(In thousands)		(In years)
Long-term performance-based awards	$	7,474	1.19
Restricted stock units		35,707	2.26
Purchase plan		174	0.08
Total unrecognized compensation expense	$	43,355

Stock-based compensation expense in the year ended December 31, 2021, was approximately $37.6 million, comprising approximately $19.9 million related to restricted stock units, $15.7 million related to performance-based awards and $2.0 million related to the Company’s Purchase Plan.

Stock-based compensation expense in the year ended December 31, 2020, was approximately $30.9 million, comprising approximately $18.7 million related to restricted stock units, $10.2 million related to performance-based awards and $2.0 million related to the Company’s Purchase Plan.

Stock-based compensation expense in the year ended December 31, 2019, was approximately $23.3 million, comprising approximately $17.5 million related to restricted stock units, $4.1 million related to performance-based awards and $1.7 million related to the Company’s Purchase Plan.

The Company did not grant stock options in the years ended December 31, 2021, 2020 and 2019, and therefore no fair-value assumptions are reported.

The fair value of employees’ stock purchase rights under the Purchase Plan was estimated using the Black-Scholes model with the following weighted-average assumptions used during the three years ended December 31, 2021, 2020 and 2019:


	Year Ended December 31,
	2021			2020			2019
Risk-free interest rates		0.07	%		0.90	%		2.28	%
Expected volatility rates		41	%		47	%		37	%
Expected dividend yield		0.57	%		0.78	%		0.91	%
Expected term of purchase rights (in years)		0.50			0.50			0.50
Weighted-average estimated fair value of purchase rights	$	23.92		$	15.73		$	19.39

A summary of stock options outstanding as of December 31, 2021, and activity during three years then ended, is presented below:


				Weighted-
		Weighted-		Average
		Average		Remaining	Aggregate
	Shares	Exercise		Contractual Term	Intrinsic Value
	(In thousands)	Price		(In years)	(In thousands)
Outstanding at January 1, 2019	670	$	16.21
Granted	—		—
Exercised	(335)	$	12.98
Forfeited or expired	—		—
Outstanding at December 31, 2019	335	$	19.44
Granted	—		—
Exercised	(243)	$	18.99
Forfeited or expired	—		—
Outstanding at December 31, 2020	92	$	20.63
Granted	—		—
Exercised	(80)	$	20.50
Forfeited or expired	—		—
Outstanding at December 31, 2021	12	$	21.44	0.35	$	857
Vested and Exercisable at December 31, 2021	12			0.35	$	857

The total intrinsic value of options exercised during the year ended December 31, 2021, 2020 and 2019, was $4.9 million, $9.1 million and $8.3 million, respectively.

The following table summarizes the stock options outstanding at December 31, 2021:

Options Outstanding

Options Exercisable

Weighted Average

Weighted

Remaining

Average

(Shares in thousands)

Options

Contractual Term

Exercise

Options

Exercise

Range of Exercise Prices

Outstanding

(In years)

Price

Exercisable

Price

$21.44 - $21.44

0.35

21.44

PSU Awards

Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares that are released at the end of the performance year can range from zero to 200% of the target number depending on the Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating earnings and strategic goals.

As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions, expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an assessment of the achievement of the performance targets. The fair value of these PSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

A summary of PSU awards outstanding as of December 31, 2021, and activity during the three years then ended, is presented below:


				Weighted-
		Weighted-		Average
		Average		Remaining	Aggregate
	Shares	Grant Date Fair		Contractual Term	Intrinsic Value
	(In thousands)	Value Per Share		(In years)	(In thousands)
Outstanding at January 1, 2019	52	$	31.44
Granted	185	$	35.06
Vested	(52)	$	31.44
Forfeited or canceled	(64)	$	35.06
Outstanding at December 31, 2019	121	$	35.06
Granted	150	$	46.31
Vested	(121)	$	35.06
Forfeited or canceled	—		—
Outstanding at December 31, 2020	150	$	46.27
Granted	105	$	84.48
Vested	(150)	$	46.27
Forfeited or canceled	(1)	$	85.01
Outstanding at December 31, 2021	104	$	84.47	—	$	9,701
Outstanding and expected to vest at December 31, 2021	104			—	$	9,701

In January 2021, it was determined that approximately 150,000 shares subject to the PSUs granted in 2020 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2021. The grant-date fair value of PSU awards released, which were fully vested, in the years ended December 31, 2021, 2020 and 2019 was approximately $6.9 million, $4.2 million and $1.6 million, respectively.

PRSU Awards (Long-term Performance Based)

The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s performance measured against the PRSU Plan’s established revenue targets. The PRSUs were granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus the Company’s performance goals, and may range from zero to 200% of the target number. Recipients of a PRSU award generally must remain employed by the Company on a continuous basis through the end of the applicable three-year performance period in order to receive shares subject to that award. The performance goals for PRSUs granted in fiscal 2021, 2020 and 2019 were based on the Company’s annual revenue growth over the respective three-year performance period.

Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an assessment of the expected achievement of the performance targets. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

A summary of PRSU awards outstanding as of December 31, 2021, and activity during the three years then ended, is presented below:


				Weighted-Average	Aggregate
		Weighted-Average		Remaining	Intrinsic
	Shares	Grant Date Fair		Contractual Term	Value
	(In thousands)	Value Per Share		(In years)	(In thousands)
Outstanding at January 1, 2019	426	$	27.74
Granted	144	$	34.09
Vested	(140)	$	21.63
Forfeited or canceled	(143)	$	31.50
Outstanding at December 31, 2019	287	$	32.03
Granted	152	$	49.67
Vested	—		—
Forfeited or canceled	(138)	$	29.95
Outstanding at December 31, 2020	301	$	41.90
Granted	103	$	82.92
Vested	(6)	$	29.94
Forfeited or canceled	(15)	$	40.05
Outstanding at December 31, 2021	383	$	53.14	0.92	$	35,537
Outstanding and expected to vest at December 31, 2021	383			0.92	$	35,537

In January 2021 it was determined that approximately 6,000 shares subject to the PRSUs granted in 2018 vested in aggregate; the shares were released to the Company’s executives in the first quarter of 2021. The grant-date fair value of PRSU awards released, which were fully vested, in the years ended December 31, 2021 and 2019 was approximately $0.2 million and $3.0 million, respectively.

RSU Awards

RSUs granted to employees typically vest ratably over a four-year period, and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. Compensation expense is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures.

A summary of RSU awards outstanding as of December 31, 2021, and activity during the three years then ended, is presented below:


				Weighted-Average	Aggregate
		Weighted-Average		Remaining	Intrinsic
	Shares	Grant Date Fair		Contractual Term	Value
	(In thousands)	Value Per Share		(In years)	(In thousands)
Outstanding at January 1, 2019	1,790	$	29.10
Granted	582	$	34.90
Vested	(603)	$	28.10
Forfeited	(50)	$	31.72
Outstanding at December 31, 2019	1,719	$	31.33
Granted	439	$	44.82
Vested	(599)	$	30.25
Forfeited	(41)	$	36.77
Outstanding at December 31, 2020	1,518	$	35.51
Granted	271	$	83.79
Vested	(546)	$	35.03
Forfeited	(99)	$	39.85
Outstanding at December 31, 2021	1,144	$	46.81	1.25	$	106,306
Outstanding and expected to vest at December 31, 2021	1,081			1.20	$	100,433

The grant-date fair value of RSUs vested in the years ended December 31, 2021, 2020 and 2019, was approximately $19.1 million, $18.1 million and $16.9 million, respectively.