Stock-based Compensation

9 Months Ended

Jun. 29, 2019

Share-based Payment Arrangement, Expensed and Capitalized, Amount [Abstract]

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.

For performance-based awards, we recognize stock-based compensation based on expected achievement of performance criteria. In the third quarter of 2019, we recorded adjustments to previously recognized stock-based compensation for certain performance-based awards as a result of our estimated probability of vesting. This resulted in a reduction of stock-based compensation.

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 nine months ended June 29, 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)	1,793		$	82.98
Vested	(1,478	)	$	54.95
Forfeited or not earned	(346	)	$	64.65
Balance of outstanding restricted stock units June 29, 2019	3,253		$	80.51

_________________

(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 nine months of 2019	376	1,276

_________________

(1)

Substantially all the performance-based RSUs were granted to our executive officers. Approximately 160,000 shares are eligible to vest based upon annual increasing 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 213,000 performance-based RSUs are eligible to be earned 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, and members of our board of directors. 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					Nine months ended
	June 29, 2019		June 30, 2018			June 29, 2019		June 30, 2018
	(in thousands)
Cost of license revenue	$	78	$	(46	)	$	448	$	(30	)
Cost of support and cloud services revenue	1,141		994			3,274		3,297
Cost of professional services revenue	1,345		1,471			5,065		4,846
Sales and marketing	5,870		4,910			25,114		14,827
Research and development	4,761		3,283			14,851		9,626
General and administrative	2,039		6,046			22,856		19,449
Total stock-based compensation expense	$	15,234	$	16,658		$	71,608	$	52,015

Stock-based compensation expense includes $1.5 million and $4.1 million in the third quarter and first nine months of 2019, respectively, and $1.1 million and $3.2 million in the third quarter and first nine months of 2018, respectively, related to the ESPP.