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Stockholder's Equity and Employee Benefit Plans
9 Months Ended
Sep. 30, 2022
Stockholders Equity And Employee Benefit Plans [Abstract]  
Stockholders' Equity and Employee Benefit Plans

9. Stockholders' Equity and Employee Benefit Plans

Common Stock Repurchases

On February 26, 2022, the Company's board of directors authorized a stock repurchase program to repurchase up to $200.0 million of the Company’s common stock in the open market or in privately negotiated transactions (through 10b5-1 trading plans or otherwise). The stock repurchase program does not obligate the Company to acquire any particular amount of common stock and may be suspended at any time at the Company’s discretion, and the stock repurchase program does not have an expiration date. The actual timing, number and value of shares repurchased will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s stock, general business and market conditions, and other investment opportunities.

During the three months ended September 30, 2022, the Company repurchased approximately 1.6 million shares of common stock for approximately $15.0 million. During the nine months ended September 30, 2022, the Company repurchased approximately 6.6 million shares of common stock for approximately $83.5 million.

As of September 30, 2022, the Company’s remaining share repurchase authorization was approximately $116.5 million.

Equity Incentive Plans

The Company sponsors the 2018 Equity Incentive Plan (the “2018 Plan”), which was approved by stockholders on September 5, 2018. The purpose of the 2018 Plan is to promote the long-term growth and profitability of the Company by (i) providing employees with incentives to improve stockholder value and to contribute to the growth and financial success of the Company through their future services, and (ii) enabling the Company to attract, retain

and reward the best‑available persons. The options granted under the 2018 Plan, may be granted at a price not less than the fair market value on the grant date.

The board of directors, or a committee of the board of directors, has granted options with an exercise price at fair value on the grant date. Grants of time-based awards generally vest over a four-year period for new hires and over a three-year period for subsequent grants to existing employees. Options expire as determined by the board of directors, or committee of the board of directors, but not more than ten years after the date of the grant.

As of September 30, 2022, 17,857,376 shares of common stock remain available for grant under the 2018 Plan.

The following is a summary of restricted stock units for the current year period:

 

 

Restricted Stock Units

 

 

Number of
Shares

 

Weighted Average
Grant-Date
Fair Value

 

Weighted Average
Remaining
Contractual Term

(in years)

 

Unvested at December 31, 2021

 

5,996,059

 

$

21.33

 

 

1.1

 

Granted

 

7,735,288

 

$

14.26

 

 

 

Vested

 

(2,994,628

)

$

19.22

 

 

 

Forfeited/cancelled

 

(1,896,968

)

$

19.02

 

 

 

Unvested at September 30, 2022

 

8,839,751

 

$

16.36

 

 

1.2

 

 

The following is a summary of stock option activity for the current year period:

 

 

Stock Options

 

 

Number of
Shares

 

Weighted Average
Exercise Price

 

Aggregate
Intrinsic Value

(in thousands)

 

Weighted Average
Remaining
Contractual Term
(in years)

 

Outstanding at December 31, 2021

 

14,527,520

 

$

17.11

 

$

61,227

 

 

6.3

 

Granted

 

940,000

 

$

7.14

 

 

 

 

 

Exercised

 

(206,132

)

$

13.71

 

 

 

 

 

Forfeited

 

(597,459

)

$

20.09

 

 

 

 

 

Expired

 

(797,944

)

$

18.31

 

 

 

 

 

Outstanding, vested and expected to vest at September 30, 2022

 

13,865,985

 

$

16.29

 

$

2

 

 

4.9

 

Vested and exercisable at September 30, 2022

 

11,152,332

 

$

16.39

 

$

2

 

 

4.7

 

 

The following is a summary of restricted stock awards for the current year period:

 

 

Restricted Stock Awards

 

 

Number of
Shares

 

Weighted Average
Grant-Date
Fair Value

 

Weighted Average
Remaining
Contractual Term

(in years)

 

Unvested at December 31, 2021

 

241,765

 

$

24.17

 

 

2.0

 

Granted

 

1,392,871

 

$

16.72

 

 

 

Vested

 

(272,214

)

$

18.54

 

 

 

Forfeited/cancelled

 

(226,818

)

$

16.93

 

 

 

Unvested at September 30, 2022

 

1,135,604

 

$

17.83

 

 

2.2

 

 

 

On March 13, 2022, the Company granted performance-based restricted stock awards (“Executive RSA Grant”) to its Chief Executive Officer whereby the number of shares that become eligible to vest under the performance-based Executive RSA Grant is based on a market condition of the Company's relative total shareholder return (“TSR”) performance as compared to the TSR of the S&P Software & Services Select Industry Index over the scheduled performance period. The performance period commenced on the grant date and will end on December 31, 2024 (the “Three-Year Performance Period”), with additional performance periods that commenced on the grant date and (i) will end on December 31, 2022 (the “One-Year Performance Period”), and (ii) will end on December 31, 2023 (the “Two-Year Performance Period”). For purposes of measuring TSR, the starting value of the Company's common stock is its average closing price for the 60 trading days immediately following the grant date and the ending values for the One, Two and Three-Year Performance Periods is its average closing price for the 60 trading days immediately preceding the end of each of the performance periods. The potential payouts under the performance-based Executive RSA Grant vary from zero for performance below the threshold performance metric to 200% of the target performance-based Executive RSA Grant for performance above the maximum performance metric.

The grant-date fair value of the award is $3.4 million, which will be recognized using the accelerated attribution method over the performance period. The grant-date fair value was determined using the Monte Carlo valuation method, which incorporates various assumptions including expected stock price volatility, contractual term, dividend yield, and stock price at grant date. During the three and nine months ended September 30, 2022, the Company recognized $0.5 million and $1.1 million, respectively, of stock-based compensation expense related to this award, which is included in general and administrative expense in the condensed consolidated statement of operations.

Fair Value of Stock Options

The Company used the Black-Scholes-Merton option pricing model to estimate the fair value of stock options granted using the following weighted-average assumptions:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2022

 

2021

 

2022

 

2021

Expected life (in years)

 

2.0

 

5.7

 

2.0

 

5.8

Risk-free interest rate

 

3.4%

 

0.9%

 

3.4%

 

0.8%

Volatility

 

53%

 

50%

 

53%

 

52%

Dividend yield

 

%

 

%

 

%

 

%

Fair value of common stock

 

$7.14

 

$20.05

 

$7.14

 

$21.51

 

2018 Employee Stock Purchase Plan, As Amended

The Company sponsors the 2018 Employee Stock Purchase Plan, as amended (the “ESPP”), which was approved by stockholders on September 5, 2018. The ESPP provides for 24-month offering periods beginning May 22 and November 22 of each year, and each offering period will consist of four six-month purchase periods, subject to a reset provision. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s common stock on the offering date, or (2) the fair market value of its common stock on the purchase date.

Under the reset provision, if the closing stock price on the purchase date falls below the closing stock price on the offering date of an ongoing offering period, the ongoing offering terminates immediately following the purchase of ESPP shares on the purchase date and participants in the terminated offering are automatically enrolled in the new offering period (“ESPP reset”), resulting in a modification charge to be recognized over the new offering period. During the nine months ended September 30, 2022, there was an ESPP reset that resulted in a modification charge of $5.8 million, which is being recognized over the new offering period ending in May 2024.

During the nine months ended September 30, 2022, the Company’s employees purchased 267,715 shares of its common stock under the ESPP with a weighted average purchase price of $10.28 per share and aggregate proceeds to the Company of $2.8 million. During the nine months ended September 30, 2021, the Company’s employees

purchased 245,914 shares of its common stock under the ESPP with a weighted average purchase price of $15.75 per share and aggregate proceeds to the Company of $3.9 million.

As of September 30, 2022, 6,428,467 shares of common stock remain available for issuance under the ESPP.

The Company used the Black-Scholes-Merton option pricing model to estimate the fair value of ESPP purchase rights granted using the following weighted-average assumptions:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2022

 

2021

 

2022

 

2021

Expected life (in years)

 

n/a

 

n/a

 

1.3

 

1.3

Risk-free interest rate

 

n/a

 

n/a

 

2.2%

 

0.1%

Volatility

 

n/a

 

n/a

 

53%

 

53%

Dividend yield

 

n/a

 

n/a

 

%

 

%

Fair value of common stock

 

n/a

 

n/a

 

$12.09

 

$19.12

 

Stock-Based Compensation Expense

Stock-based compensation expense recognized in the condensed consolidated financial statements is as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(in thousands)

 

2022

 

2021

 

2022

 

2021

 

Cost of revenue

 

$

1,580

 

$

1,639

 

$

4,613

 

$

4,701

 

Research and development

 

 

8,770

 

 

10,081

 

 

26,117

 

 

29,891

 

Sales and marketing

 

 

5,874

 

 

5,672

 

 

18,297

 

 

17,864

 

General and administrative

 

 

8,087

 

 

7,202

 

 

24,367

 

 

21,310

 

Restructuring

 

 

 

 

 

 

2,761

 

 

 

Stock-based compensation expense, net of amounts capitalized

 

 

24,311

 

 

24,594

 

 

76,155

 

 

73,766

 

Capitalized stock-based compensation expense

 

 

480

 

 

530

 

 

1,928

 

 

1,666

 

Total stock-based compensation expense

 

$

24,791

 

$

25,124

 

$

78,083

 

$

75,432

 

 

During the first quarter of 2022, the Company modified the terms of approximately 1.2 million stock options and 0.1 million restricted stock units and awards in connection with the March 2022 Restructuring Plan (see Note 15 for additional discussion). The modification resulted in additional stock-based compensation expense of $2.8 million which was fully recognized at the modification date as restructuring costs in the condensed consolidated statement of operations for the nine months ended September 30, 2022.

As of September 30, 2022, unamortized stock-based compensation was as follows:

 

 

Unrecognized
stock-based
compensation

(in thousands)

 

Weighted
average
recognition
period
(in years)

 

Restricted stock units

$

133,221

 

 

2.2

 

Stock options

 

12,510

 

 

1.4

 

Restricted stock awards

 

13,985

 

 

2.3

 

ESPP

 

8,628

 

 

1.6

 

Total unrecognized stock-based compensation

$

168,344

 

 

 

 

 

401(k) Plan

In the United States, the Company offers its employees a defined contribution plan that qualifies as a deferred salary arrangement under Section 401 of the U.S. Internal Revenue Code (“401(k) Plan”). Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings not to exceed the maximum amount allowed by the Internal Revenue Service. The Company currently provides a matching contribution of 25% of deferrals for eligible employees. Compensation expense for the Company's matching contributions was $1.1 million and $4.3 million during the three and nine months ended September 30, 2022, respectively, and $1.2 million and $3.8 million during the three and nine months ended September 30, 2021, respectively.