Stock-based Compensation

Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, directors, officers and consultants. We award RSUs as the principal equity incentive awards, including performance-based awards that are earned based on achievement of performance criteria established by the Compensation Committee of our Board of Directors. Each RSU represents the contingent right to receive one share of our common stock.

We measure the cost of employee services received in exchange for RSU awards based on the fair value of the RSU awards on the date of grant. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. We account for forfeitures as they occur, rather than estimate expected forfeitures.

Our employee stock purchase plan (ESPP), initiated in the fourth quarter of 2016, allows eligible employees to contribute up to 10% of their base salary, up to a maximum of $25,000 per year and subject to other plan limitations, toward the purchase of our common stock at a discounted price. The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of our common stock on the first and last trading days of each offering period. The ESPP is qualified under Section 423 of the Internal Revenue Code. We estimate the fair value of each purchase right under the ESPP on the date of grant using the Black-Scholes option valuation model and use the straight-line attribution approach to record the expense over the six-month offering period.



Restricted stock unit activity for the six months ended March 30, 2019	Shares		Weighted Average Grant Date Fair Value (Per Share)
	(in thousands)
Balance of outstanding restricted stock units October 1, 2018	3,284		$	65.93
Granted (1)	1,061		$	82.09
Vested	(1,108	)	$	54.42
Forfeited or not earned	(322	)	$	63.98
Balance of outstanding restricted stock units March 31, 2019	2,915		$	76.48

_________________

(1) Restricted stock granted includes 141,000 shares from prior period TSR awards that were earned upon achievement of the performance criteria and vested in November 2018.



	Restricted Stock Units
Grant Period	Performance-based RSUs (1)	Service-based RSUs (2)
	(Number of Units in thousands)
First six months of 2019	347	573

_________________

(1)

Substantially all the performance-based RSUs were granted to our executive officers. Approximately 147,000 shares are eligible to vest based upon annual performance measures over a three-year period. RSUs not earned for a period may be earned in the third period. To the extent earned, those performance-based RSUs will vest in three substantially equal installments on November 15, 2019, November 15, 2020 and November 15, 2021, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved for each performance period. An additional 200,000 performance-based RSUs are eligible to vest based upon a 2019 performance measure, which RSUs will be forfeited to the extent the performance measure is not achieved. These RSUs will vest, to the extent earned, in three substantially equal installments on November 15, 2019, 2020 and 2021.


(2)	The service-based RSUs were granted to employees, including our executive officers. Substantially all service-based RSUs will vest in three substantially equal annual installments on or about the anniversary of the date of grant.

Compensation expense recorded for our stock-based awards was classified in our Consolidated Statements of Operations as follows:



	Three months ended				Six months ended
	March 30, 2019		March 31, 2018		March 30, 2019		March 31, 2018
	(in thousands)
Cost of license revenue	$	48	$	106	$	370	$	16
Cost of support and cloud services revenue	1,158		992		2,133		2,303
Cost of professional services revenue	1,906		1,669		3,720		3,375
Sales and marketing	9,522		5,038		19,244		9,917
Research and development	5,190		3,383		10,090		6,343
General and administrative	9,143		5,838		20,817		13,403
Total stock-based compensation expense	$	26,967	$	17,026	$	56,374	$	35,357

Stock-based compensation expense includes $1.4 million and $2.7 million in the second quarter and first six months of 2019, respectively and $1.0 million and $2.1 million in the second quarter and first six months of 2018, respectively, related to the ESPP.