Stock-based Compensation

Stock-based compensation expense related to ESPP purchase rights and RSUs is summarized as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Stock-based compensation expense by type of awards
RSUs	$	9,883		$	6,093		$	15,206		$	15,330
ESPP purchase rights	1,903			1,520			3,349			2,563
Total stock-based compensation expense	11,786			7,613			18,555			17,893
Income tax benefit	(1,831		)	(2,531		)	(2,670		)	(5,404		)
Stock-based compensation expense, net of tax	$	9,955		$	5,082		$	15,885		$	12,489

Valuation Assumptions for ESPP Purchase Rights and Stock Options

We use the Black-Scholes-Merton (“BSM”) option pricing model to value stock-based compensation for all equity awards, except market-based awards, which are valued using the Monte Carlo valuation model. We value RSUs at the closing market price on the date of grant.

The estimated weighted average fair value per share and underlying assumptions of ESPP purchase rights issued were as follows:



ESPP Purchase Rights:	Six Months Ended June 30,
	2018		2017
Weighted average fair value per share	$	9.03	$	12.03
Expected volatility	59% - 107%		24% - 28%
Risk-free interest rate	1.6% - 2.2%		0.7% - 1.2%
Expected term (in years)	0.5 - 2.0		0.5 - 2.0

No stock options were granted during the six months ended June 30, 2018 and 2017. As of June 30, 2018, 150,000 shares underlying stock options are outstanding and exercisable. They are time-based options with an aggregate intrinsic value of $2.6 million, a weighted average exercise price of $15.43 per share, and remaining contractual term of 9 months. Aggregate intrinsic value for stock options represents the difference between the closing price per share of our common stock on the last trading day of the period and the option exercise price, multiplied by the number of in-the-money stock options outstanding, vested and expected to vest, and exercisable as of June 30, 2018.

Non-vested RSUs

Non-vested RSUs were awarded to employees under our equity incentive plans. Non-vested RSUs do not have the voting rights of common stock and the shares underlying non-vested RSUs are not considered issued and outstanding. Non-vested RSUs generally vest over a service period of one to four years. The compensation expense incurred for these service-based awards is based on the closing market price of our stock on the date of grant and is amortized on a graded vesting basis over the requisite service period.

Non-vested RSU activity during the six months ended June 30, 2018 are summarized below (shares in thousands):



	Time-based				Performance-based				Market-based			Total
	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value		Shares	Weighted average grant date fair value		Shares		Weighted average grant date fair value
Non-vested at January 1, 2018	1,048		$	35.76	1,209		$	42.18	23	$	35.15	2,280		$	39.16
Granted	491		28.03		478		28.26		—	—		969		28.14
Vested	(106	)	32.44		(20	)	44.83		—	—		(126	)	34.42
Forfeited	(67	)	35.67		(579	)	45.35		—	—		(646	)	44.34
Non-vested at June 30, 2018	1,366		33.24		1,088		34.32		23	35.15		2,477		33.73

Vested RSUs

The grant date fair value of RSUs vested during the six months ended June 30, 2018 was $4.3 million. The aggregate intrinsic value of RSUs vested and expected to vest as of June 30, 2018 was $68.8 million and the remaining weighted average vesting period was 1 year. Aggregate intrinsic value for RSUs vested and expected to vest represents the closing market price per share of our common stock on the last trading day of the period, multiplied by the number of RSUs vested and expected to vest as of June 30, 2018. RSUs expected to vest represent time-based RSUs unvested and outstanding as of June 30, 2018, and performance-based RSUs for which the requisite service period has not been rendered, but are expected to vest based on the achievement of performance conditions. Performance-based RSUs that vested based on certain financial results achieved are expensed in the period that the performance and related service criteria were met.

Valuation Assumptions for Performance-based and Market-based RSUs

Performance-based stock options, market-based RSUs, and market-based stock options were not granted during the six months ended June 30, 2018. We use the BSM option pricing model to value performance-based RSUs. The weighted average grant date fair value per share of performance-based RSUs granted and the assumptions used to estimate grant date fair value are as follows:



	Short-term		Long-term
Six Months Ended June 30, 2018
Grant date fair value per share	$	28.26	$	—
Service period (years)	1.0		N/A
Six Months Ended June 30, 2017
Grant date fair value per share	$	47.23	$	45.96
Service period (years)	1.0		2.0 - 3.0

Our performance-based RSUs generally vest when specified performance criteria are met based on bookings, revenue, cash provided by operating activities, non-GAAP operating income, non-GAAP earnings per share, revenue growth compared to market comparables, non-GAAP earnings per share growth compared to cash flow from operating activities growth, or other targets during the service period; otherwise, they are forfeited. Non-GAAP operating income is operating income determined in accordance with GAAP, adjusted to remove the impact of certain expenses. Non-GAAP earnings per share is net income determined in accordance with GAAP, adjusted to remove the impact of certain expenses, and the related tax effects, divided by the weighted average number of common shares and dilutive potential common shares outstanding during the period.

The grant date fair value per share determined in accordance with the BSM valuation model is being amortized over the service period of the performance-based awards. The probability of achieving the performance criteria was determined based on review of the actual results achieved thus far by each business unit compared with the operating plan during the service period as well as the overall expectations of the business unit. Stock-based compensation expense was adjusted based on the updated fair value resulting from this probability assessment. As actual results are achieved during the service period, the probability assessment is updated and stock-based compensation expense is adjusted accordingly.

Market-based awards that were granted in prior periods vest when our average closing stock price exceeds defined multiples of the closing stock price for 90 consecutive trading days. If these multiples were not achieved by the expiration date, the awards are forfeited. The grant date fair value is amortized over the average derived service period of the awards. The average derived service period and total fair value were determined using a Monte Carlo valuation model based on our assumptions, which include a risk-free interest rate and implied volatility.