Stock-based Compensation

3 Months Ended

Mar. 31, 2023

Share Based Compensation Allocation And Classification In Financial Statements [Abstract]

4. Stock-based Compensation

Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, directors, officers and consultants. We award RSUs as our principal equity incentive awards.

The following table shows RSU activity for the six months ended March 31, 2023:


(in thousands, except grant date fair value data)	Number of RSUs			Weighted-Average Grant Date Fair Value Per RSU
Balance of outstanding RSUs, October 1, 2022		2,754		$	105.07
Granted(1)		1,202		$	127.59
Vested		(1,184	)	$	104.78
Forfeited or not earned		(94	)	$	112.24
Balance of outstanding RSUs, March 31, 2023		2,678		$	115.07

(1)

RSUs granted includes 38 thousand shares from prior period rTSR awards that were earned upon achievement of the performance criteria and vested in November 2022, and 61 thousand shares from prior period performance-based awards that were earned upon achievement of the performance criteria and vested in November 2022.

The following table presents the number of RSU awards granted by award type:


(in thousands)	Six months ended March 31, 2023
Performance-based RSUs(1)		69
Service-based RSUs(2)		965
Relative Total Shareholder Return RSUs(3)		69

(1)

The performance-based RSUs are primarily made up of RSUs granted to our executives and are eligible to vest based upon annual performance measures over a three-year period. To the extent earned, those performance-based RSUs will vest in three substantially equal installments on November 15, 2023, November 15, 2024, and November 15, 2025, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved for each performance period. Up to a maximum of two times the number of RSUs granted can be earned.

(2)

The service-based RSUs were granted to employees, including our executive officers. The majority of service-based RSUs will vest in three substantially equal annual installments on or about the anniversary of the date of grant.

(3)

The rTSR RSUs were granted to our executives and are eligible to vest based on the performance of PTC stock relative to the stock performance of an index of PTC peer companies established as of the grant date, as determined at the end of the measurement period ending on September 30, 2025. The RSUs earned will vest on November 15, 2025. Up to a maximum of two times the number of rTSR RSUs granted may vest. If the PTC stock price as of September 30, 2022 is higher than the PTC stock price as of September 30, 2025, but still meets or exceeds the peer group indexed return, a maximum of 100% of the rTSR RSUs granted may vest.

The weighted-average fair value of the rTSR RSUs on the grant date was $179.60 per RSU. The fair value of the rTSR RSUs was determined using a Monte Carlo simulation model.

The significant assumptions used in the Monte Carlo simulation model were as follows:


Average volatility of peer group	41.54	%
Risk free interest rate	4.12	%
Dividend yield	—	%

Total value on vest date of RSUs vested are as follows:


(in thousands)	Three months ended				Six months ended
Value of stock option and stock-based award activity	March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
Total value of RSU awards at vest	$	12,507	$	5,838	$	156,301	$	140,168

Compensation expense recorded for our stock-based awards is classified in our Consolidated Statements of Operations as follows:


(in thousands)	Three months ended				Six months ended
	March 31, 2023		March 31, 2022		March 31, 2023		March 31, 2022
Cost of license revenue	$	51	$	37	$	88	$	75
Cost of support and cloud services revenue		3,195		2,161		5,985		5,639
Cost of professional services revenue		2,500		2,066		3,748		4,522
Sales and marketing		12,845		11,446		25,041		24,527
Research and development		15,580		9,504		27,038		19,680
General and administrative		18,075		12,707		31,850		29,420
Total stock-based compensation expense	$	52,246	$	37,921	$	93,750	$	83,863

Stock-based compensation expense includes $1.6 million and $3.5 million in the second quarter and first six months of 2023, respectively, and $1.3 million and $3.2 million in the second quarter and first six months of 2022, respectively, related to our employee stock purchase plan.

As of March 31, 2023, we had liability-classified awards related to stock-based compensation of $19.3 million.