Stockholders' Equity and Stock-based Compensation

9 Months Ended

Sep. 30, 2023

Stockholders' Equity and Stock-based Compensation

Equity Incentive Plans

Restated 2012 Equity Incentive Plan

On June 8, 2022 ("Effective Date"), the Company's stockholders approved the Amended and Restated 2012 Equity Incentive Plan (the "Restated 2012 Plan"). Under the Restated 2012 Plan, the Company is authorized to grant to eligible participants incentive stock options, nonstatutory stock options, restricted stock, restricted stock units ("RSUs"), stock appreciation rights, performance units and performance shares. Pursuant to the relevant plan provisions, 3,072 thousand shares were available for grant under the Restated 2012 Plan on the Effective Date. In addition, any outstanding awards or options granted under the previous version of the 2012 Equity Incentive Plan (“Previous 2012 Plan”) will be added back to the shares available for grant under the Restated 2012 Plan if they expire unexercised or are otherwise forfeited after the Effective Date. Any remaining shares available for grant under the Previous 2012 Plan as of the Effective Date were no longer available for future grants under the Restated 2012 Plan.

As of September 30, 2023, 2,033 thousand shares were available for grant under the Restated 2012 Plan.

2021 Employee Stock Purchase Plan

On June 9, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan (the “ESPP”). A total of 600 thousand shares were authorized for issuance to eligible participating employees upon adoption of the ESPP. The ESPP provides for consecutive 6-month offering periods beginning on or about August 16 and February 16 of each year. Eligible employees who elect to participate can contribute from 1% to 15% of their eligible compensation through payroll withholding. During any offering period, contribution rates cannot be changed. However, eligible employees may withdraw from the current offering period. Any contributions made prior to each purchase date in the case of withdrawal or termination of employment will be refunded. On each purchase date, eligible participating employees will purchase the shares at a price per share equal to 85% of the lesser of (i) the fair market value of the Company's stock on the first trading day of the offering period or (ii) the fair market value of the Company's stock on the purchase date (i.e., the last trading day of the offering period).

During the nine months ended September 30, 2023, 60.6 thousand shares were issued in connection with the purchase of common stock by participating employees. As of September 30, 2023, 494.0 thousand shares were available for future purchases.

Stock-based Compensation

The following table shows a summary of the stock-based compensation expense included in the condensed consolidated statements of operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in thousands)				(in thousands)
Cost of revenues	$	1,946	$	1,384	$	5,255	$	3,739
Research and development	5,671		3,236		15,734		10,064
Sales and marketing	3,229		2,495		8,580		6,829
General and administrative	7,676		6,176		20,991		17,224
Total stock-based compensation, net of amounts capitalized (1)	$	18,522	$	13,291	$	50,560	$	37,856

(1)Total stock-based compensation expense capitalized was de minimis during the three and nine months ended September 30, 2023.

As of September 30, 2023, the Company had unrecognized stock-based compensation expenses of $24.1 million, $79.1 million, $2.9 million, and $0.9 million related to options, RSUs, performance-based RSUs, and ESPP purchase rights, respectively, which are expected to be recognized over weighted-average periods of 2.7 years, 2.6 years, 0.6 years, and 0.4 years, respectively.

Performance-based Restricted Stock Units ("PSUs")

On April 27, 2021, the Compensation Committee granted to the Company’s current president and chief executive officer an equity award consisting of certain RSUs and a target number of 10 thousand PSUs. The PSUs are scheduled to vest at the end of the three-year performance period from January 2021 through December 2023. The actual number of the PSUs eligible to vest ranges from 0% to 200% of the target number, depending on the level of achievement of goals related to revenue growth and free cash flow per share growth during the performance period. If the Company's current president and chief executive officer is terminated (a) by reason of death or disability or (b) by the Company for reasons other than cause or good reason within 12 months following a change in control, then 100% of any unvested portions of the award will vest, with any vesting in connection with terminations due to change in control conditioned upon the effectiveness of a release of claims in favor of the Company.

On October 28, 2021, the Compensation Committee approved to certain executive officers of the Company equity awards consisting of certain RSUs and an aggregate target number of 73 thousand PSUs. The target PSUs are scheduled to vest in three equal annual installments over a three-year period from January 2022 through December 2024. Each annual installments at 200% of the annual target will be considered granted when the performance targets for the corresponding performance year are determined and approved. The actual number of the PSUs eligible to vest each year ranges from 0% to 200% of the annual target number, depending on the level of achievement of goals related to revenue growth and adjusted EBITDA margin corresponding to that year. The vesting and release of the first and second installment is capped at 100% of the target number at the end of the first and second year, respectively, with cumulative achievement over 100%, if any, to be vested and released at the end of the third year, together with the vesting of the third installment. If any of the executive officers is terminated by reason of death or disability, 100% of the target number of the unvested PSU will vest immediately, or (a) by the Company for reasons other than cause or (b) by the executive officers for good reason within 12 months following a change in control, any unvested PSUs eligible to vest pursuant to cumulative achievements over 100% for past installments along with any target number of unvested PSUs for any remaining installments will vest immediately.

On October 27, 2022, the Compensation Committee approved to certain executive officers of the Company equity awards consisting of certain RSUs and an aggregate target number of 86 thousand PSUs. The target PSUs are scheduled to vest in three equal annual installments over a three-year period from January 2023 through December 2025. Each annual installments at 200% of the annual target will be considered granted when the performance targets for the corresponding performance year are determined and approved. The actual number of the PSUs eligible to vest each year ranges from 0% to 200% of the annual target number, depending on the level of achievement of goals related to revenue growth and adjusted EBITDA margin corresponding to that year. The vesting and release of the first and second installment is capped at 100% of the target number at the end of the first and second year, respectively, with cumulative achievement over 100%, if any, to be vested and released at the end of the third year, together with the vesting of the third installment. If any of the executive officers is terminated by reason of death or disability, 100% of the target number of the unvested PSU will vest immediately, or (a) by the Company for reasons other than cause or (b) by the executive officers for good reason within 12 months following a change in control, any unvested PSUs eligible to vest pursuant to cumulative achievements over 100% for past installments along with any target number of unvested PSUs for any remaining installments will vest immediately.

On February 6, 2023 and July 27, 2023, the Compensation Committee approved to certain executive officers of the Company equity awards consisting of certain RSUs and an aggregate target number of 6 thousand and 9 thousand PSUs, respectively. The target PSUs are scheduled to vest in three equal annual installments over a three-year period from January 2023 through December 2025. Each annual installments at 200% of the annual target will be considered granted when the performance targets for the corresponding performance year are determined and approved. The actual number of the PSUs eligible to vest each year ranges from 0% to 200% of the annual target number, depending on the level of achievement of goals related to revenue growth and adjusted EBITDA margin corresponding to that year. The vesting and release of the first and second installment is capped at 100% of the target number at the end of the first and second year, respectively, with cumulative achievement over 100%, if any, to be vested and released at the end of the third year, together with the vesting of the third installment. If any of the executive officers is terminated by reason of death or disability, 100% of the target number of the unvested PSU will vest immediately, or (a) by the Company for reasons other than cause or (b) by the executive officers for good reason within 12 months following a change in control, any unvested PSUs eligible to vest pursuant to cumulative achievements over 100% for past installments along with any target number of unvested PSUs for any remaining installments will vest immediately.

The Company recognized stock-based compensation expenses related to all PSUs of $2.7 million and $1.0 million during the three months ended September 30, 2023 and 2022, respectively, and $5.2 million and $2.9 million during the nine months ended September 30, 2023 and 2022 respectively.

Stock Option Activity

A summary of the Company’s stock option activity is as follows:


	Outstanding Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands)			(Years)	(in thousands)
Balance as of December 31, 2022	1,807	$	87.59	6.5	$	58,024
Granted	289	$	124.50
Exercised	(400)	$	70.89
Canceled	(99)	$	124.73
Balance as of September 30, 2023	1,597	$	96.15	6.6	$	90,043
Vested and expected to vest as of September 30, 2023	1,400	$	91.74	6.3	$	85,134
Exercisable as of September 30, 2023	831	$	68.48	4.6	$	69,829

Restricted Stock Unit Activity

A summary of the Company’s RSU activity is as follows:


	Outstanding RSUs		Weighted Average Grant Date Fair Value Per Share
	(in thousands)
Balance as of December 31, 2022	1,183	(1)	$	124.42
Granted	285	(2)	$	131.44
Vested	(296)	(3)	$	114.97
Forfeited	(157)	(4)	$	127.63
Balance as of September 30, 2023	1,015	(5)	$	128.50
Outstanding and expected to vest as of September 30, 2023	796		$	126.67

(1)Included 175 thousand PSUs granted to certain executive officers in 2022 and 2021.

(2)Included 10 thousand PSUs granted to certain executive officers in the nine months ended September 30, 2023.

(3)Included 24 thousand PSUs granted to certain executive officers in 2021.

(4)Included 22 thousand PSUs granted to certain executive officers in 2022 and 2021.

(5)Included 138 thousand PSUs granted to certain executive officers in 2023, 2022 and 2021.

Share Repurchase Program

The Company's share repurchase program was authorized by the board of directors as follows:


Announcement Date	Authorized Dollar Value
	(in millions)
February 12, 2018	$	100.0
October 30, 2018	100.0
October 30, 2019	100.0
May 7, 2020	100.0
February 10, 2021	100.0
November 3, 2021	200.0
May 4, 2022	200.0
February 9, 2023	100.0
Total as of September 30, 2023	$	1,000.0

Shares may be repurchased from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1 under the Exchange Act. All share repurchases have been made using cash resources. Repurchased shares are retired and reclassified as authorized and unissued shares of common stock. On retirement of the repurchased shares, common stock is reduced by an amount equal to the number of shares being retired multiplied by the par value. The excess amount that is retired over its par value is first allocated as a reduction to additional paid-in capital based on the initial public offering price of the stock, with the remaining excess to accumulated deficit.

During the nine months ended September 30, 2023 and 2022, the Company repurchased 1,203 thousand shares and 1,613 thousand shares of its common stock for approximately $147.7 million and $212.8 million, respectively. As of September 30, 2023, approximately $106.8 million remained available for share repurchases pursuant to the Company's share repurchase program.

On August 16, 2022, the President signed into law the Inflation Reduction Act of 2022 which contained provisions effective January 1, 2023, including a 1% excise tax on stock repurchases net of issue, which was immaterial to the Company's financial results and cash flows for the three months and nine months ended September 30, 2023 and the Company's financial position as of September 30, 2023.