Stock-Based Compensation and Employee Benefit Plan

2002 Stock Plan

The Company's 2002 Stock Plan (the 2002 Plan) was approved in April 2002 and amended in June 2011. In August 2012 and in connection with the adoption of the 2012 Plan, shares authorized for issuance under the 2002 Plan were cancelled, except for those shares reserved for issuance upon exercise of outstanding stock options. Any outstanding stock options granted under the 2002 Plan will remain outstanding, subject to the terms of the 2002 Plan and applicable award agreements, until such shares are issued under those awards (by exercise of stock options) or until the awards terminate or expire by their terms. No additional awards have been or will be granted under the 2002 Plan after the adoption of the 2012 Equity Incentive Plan.

As of June 30, 2018, options to purchase 2.6 million shares of Class B common stock were outstanding under the 2002 Plan and no shares were available for future grant. As of June 30, 2018, the weighted average exercise price of outstanding options was $19.05 per share.

2012 Equity Incentive Plan

The Company's 2012 Equity Incentive Plan (the 2012 Plan) was approved in August 2012. The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights and restricted stock awards (RSUs), all of which may be granted to employees, including officers, and to non-employee directors and consultants except the Company may grant incentive stock options only to employees. Under the 2012 Plan, incentive and nonqualified stock options may be granted at a price not less than fair value and 85% of the fair value of common stock, respectively, and at 110% of fair value to holders of 10% or more of voting stock.

As of June 30, 2018, options to purchase 11.6 million shares of Class B common stock were outstanding under the 2012 Plan and 14.8 million shares were available for future grant. As of June 30, 2018, the weighted average exercise price of outstanding options under the 2012 Plan was $30.95 per share.

As of June 30, 2018, the Company had outstanding RSUs that may be settled for 3,107,101 shares of Class B common stock which were granted pursuant to the Company's 2012 Equity Incentive Plan.

2018 Equity Incentive Plan

The 2018 Equity Incentive Plan (the 2018 Plan) was approved in April, 2018. The 2018 Plan became effective upon the IPO and will serve as the successor to the 2012 Plan. The Company has reserved 13.3 million shares of Class A common stock under the 2018 Plan, and no more than 26.7 million shares of Class A common stock will be issued pursuant to the exercise of incentive stock options.

The 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards and stock bonuses. The 2018 Plan will provide for the grant of awards to employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options will be at least equal to the fair market value of Class A common stock on the date of grant.

Activity

The following table summarizes the components of employee and non-employee stock-based compensation expense (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017

Cost of revenue	$	1,971	$	1,879	$	3,869	$	3,637
Research and development	1,739		1,377		3,376		2,706
Sales and marketing	1,214		1,379		2,166		2,620
General and administrative	2,894		3,383		6,362		5,700
Total stock-based compensation	$	7,818	$	8,018	$	15,773	$	14,663

Stock option and RSU activity is as follows:



			Outstanding Options/RSUs
	Options/ RSUs Available for Grant		Number of Shares		Outstanding Options Weighted Average Exercise Price		Remaining Contractual Life (Years)	Aggregate Intrinsic Value
								(in thousands)
Balances at December 31, 2016	2,768,450		13,171,196		$	23.85	6.11	$	74,717
Added to plan	647,159		—
Granted	(2,698,594	)	2,698,594		$	30.96
Exercised	—		(157,049	)	$	2.76
Cancelled	967,760		(967,760	)	$	7.44
Expired	(647,159	)	—
Balances at December 31, 2017	1,037,616		14,744,981		$	26.42	6.19	$	52,703
Added to plan	13,878,793		—
Granted	(423,854	)	423,854		$	27.95
Exercised	—		(219,724	)	$	3.69
Cancelled	813,078		(813,078	)	$	9.32
Expired	(543,306	)	—
Balances at June 30, 2018	14,762,327		14,136,033		$	28.11	6.16	$	31,403
Vested and expected to vest at June 30, 2018			10,917,867		$	28.08	6.13	$	31,402
Exercisable at June 30, 2018			7,483,523		$	26.77	5.04	$	31,349

Stock Options - During the three months ended June 30, 2018 and 2017, the Company recognized $7.6 million and $7.4 million of employee stock-based compensation expense, respectively. During the six months ended June 30, 2018 and 2017, the Company recognized $15.4 million and $13.9 million of employee stock-based compensation expense, respectively. No stock-based compensation costs were capitalized in the three and six months ended June 30, 2018 and 2017.

During the three months ended June 30, 2018 and 2017, the Company recognized $0.2 million and $0.1 million of non-employee stock-based compensation expense, respectively. During the six months ended June 30, 2018 and 2017, the Company recognized $0.4 million and $0.8 million of non-employee stock-based compensation expense, respectively. No non-employee stock-based compensation costs were capitalized in the three and six months ended June 30, 2018 and 2017.

During the three months ended June 30, 2018 and 2017, the intrinsic value of stock options exercised was $3.9 million and $2.2 million, respectively. During the six months ended June 30, 2018 and 2017, the intrinsic value of stock options exercised was $5.9 million and $2.5 million, respectively.

The Company granted 313,909 and 1,519,861 options during the three months ended June 30, 2018 and 2017, respectively. The Company granted 423,854 and 1,681,673 options during the six months ended June 30, 2018 and 2017, respectively.

As of June 30, 2018 the Company had unrecognized compensation cost related to unvested stock options of $52.6 million. This expense is expected to be recognized over the remaining weighted-average period of 2.12 years. The Company had no excess tax benefits in the three and six months ended June 30, 2018 and 2017.

Restricted Stock Units (RSUs) - RSU award shares shall begin vesting at the end of the lock-up period following the IPO, and the remaining shares will vest on the first and second anniversary date of such date. The estimated fair value of RSU awards is based on the fair value of the Company’s common stock on the date of grant.

The total fair value of RSUs granted during the three months ended June 30, 2018 and 2017 was $0.9 million and $13.4 million, respectively. The total fair value of RSUs granted during the six months ended June 30, 2018 and 2017, was $1.3 million and $14.8 million, respectively.

As of June 30, 2018, the Company had $96.2 million of unrecognized stock-based compensation cost related to unvested RSUs. This expense is expected to be recognized over a weighted average period of 1.4 years.

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



	Number of Awards Outstanding		Weighted Average Grant Date Fair Value

Unvested Balance at December 31, 2016	2,666,446		$	30.95
Granted	552,481		30.96
Vested	(33,896	)	30.96
Forfeited	(44,453	)	30.95
Unvested Balance at December 31, 2017	3,140,578		30.95
Granted	41,246		30.96
Vested	(3,615	)	30.96
Forfeited	(71,108	)	30.94
Unvested Balance at June 30, 2018	3,107,101		$	30.95

2018 Employee Stock Purchase Plan

In April 2018, the Company adopted the 2018 Employee Stock Purchase Plan (ESPP). The ESPP became effective upon the IPO in July 2018 and subsequent to the date of these financial statements. The ESPP is intended to qualify under Section 423 of the Code. 3,333,333 shares of Class A common stock are initially reserved for issuance under the ESPP.

Employee Benefit Plan

The Company maintains a tax-qualified 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age. Under the 401(k) plan, employees may elect to defer up to 60% of eligible compensation, subject to applicable annual Code limits. The Company does not match any contributions made by employees, including executives, but has the discretion to do so. The Company intends for the 401(k) plan to qualify under Section 401(a) and 501(a) of the Internal Revenue Code so that contributions and income earned on contributions are not taxable to employees until withdrawn from the plan.