Stock-Based Compensation

The weighted average estimated fair value of option awards granted was $31.70 and $16.91 during the three months ended September 30, 2018 and 2017, respectively.

We utilized the Black-Scholes option valuation model with the following weighted average assumptions:



	Three Months Ended September 30,
	2018		2017
Risk-free interest rate	2.8	%	1.7	%
Expected dividend yield	0.0	%	0.0	%
Expected life (in years)	4.6		4.6
Expected volatility factor	26.6	%	28.1	%

The stock-based compensation expense under all equity plans and its classification in the unaudited consolidated statements of operations for the three months ended September 30, 2018 and 2017 are as follows:



	Three Months Ended September 30,
	2018		2017
	(Dollars in Thousands)
Recorded as expenses:
Cost of services and other	$	465	$	450
Selling and marketing	1,331		885
Research and development	2,295		1,896
General and administrative	4,774		3,183
Total stock-based compensation	$	8,865	$	6,414

A summary of stock option and RSU activity under all equity plans for the three months ended September 30, 2018 is as follows:



	Stock Options							Restricted Stock Units
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in 000’s)		Shares		Weighted Average Grant Date Fair Value
Outstanding at June 30, 2018	1,369,442		$	45.93	7.23	$	64,103	621,700		$	53.64
Granted	262,471		115.37					614,140		115.17
Settled (RSUs)	—							(88,078	)	69.73
Exercised	(90,009	)	41.23					—
Cancelled / Forfeited	(60,815	)	65.87					(53,183	)	64.80
Outstanding at September 30, 2018	1,481,089		$	57.70	7.46	$	83,612	1,094,579		$	86.33
Vested and exercisable at September 30, 2018	781,669		$	42.13	6.19	$	56,144	—
Vested and expected to vest as of September 30, 2018	1,419,308		$	57.03	7.40	$	81,071	1,027,166		$	87.50

The weighted average grant-date fair value of RSUs granted was $115.17 and $63.14 during the three months ended September 30, 2018 and 2017, respectively. The total fair value of shares vested from RSU grants was $9.9 million and $5.3 million during the three months ended September 30, 2018 and 2017, respectively.

At September 30, 2018, the total future unrecognized compensation cost related to stock options was $13.4 million and is expected to be recorded over a weighted average period of 3.1 years. At September 30, 2018, the total future unrecognized compensation cost related to RSUs was $43.2 million and is expected to be recorded over a weighted average period of 3.0 years.

The total intrinsic value of options exercised was $6.1 million and $1.7 million during the three months ended September 30, 2018 and 2017, respectively. We received cash proceeds from option exercises of $4.1 million and $2.4 million during the three months ended September 30, 2018 and 2017, respectively. We withheld withholding taxes on vested RSUs of $3.3 million and $1.7 million during the three months ended September 30, 2018 and 2017, respectively.

At September 30, 2018, common stock reserved for future issuance or settlement under equity compensation plans was 10.0 million shares.

During the three months ended September 30, 2018, we granted performance-based long-term incentive awards (“performance awards”) to certain of our executives, including our named executive officers. The performance period for each performance award is either of the following two-year periods: (i) fiscal year 2019 - fiscal year 2020, or (ii) fiscal year 2020 - fiscal year 2021. Participants receive restricted stock units (“RSUs”) on the grant date associated with achievement of all performance targets. The performance targets for the performance awards are based on meeting annual spend growth, defined as an estimate of the annualized value of our portfolio of term license arrangements, as of a specific date, and the performance goals set out in the executive bonus plan for each fiscal year, such as free cash flow. If the performance targets are met during one of the two performance periods and the participant remains actively employed by us, the RSUs convert to time-based vesting wherein fifty percent of the awards immediately vest, and the remaining fifty percent are subject to additional service vesting over a three-year period. In general, if the performance targets are not met, or if the participant is no longer actively employed by us prior to the performance targets being met, the participant forfeits all of the RSUs.

During the three months ended September 30, 2018, we granted 373,704 RSUs in connection with the performance awards. As of September 30, 2018, all of the RSUs issued in connection with the performance awards are unvested and outstanding.

We record compensation expense for the performance awards based on the fair value of the awards, in an amount proportionate to the service time rendered by the participant, when it is probable that the achievement of the goals will be met. The fair value of the performance awards granted during the quarter ended September 30, 2018 was estimated using the closing price on the date of grant as well as the estimated probable achievement levels of the performance metrics. If the performance-based conditions are not met, no compensation cost is recognized and any recognized compensation cost is reversed. As of September 30, 2018, we concluded that the performance metrics related to the performance awards were not probable of achievement; therefore, no compensation expense was recognized during the quarter ended September 30, 2018.