Stock-based Compensation

6 Months Ended

Mar. 31, 2022

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, 2022:

(in thousands, except grant date fair value data)	Number of RSUs			Weighted-Average Grant Date Fair Value Per RSU
Balance of outstanding restricted stock units, October 1, 2021		3,216		$	92.83
Granted⁽¹⁾		1,064		$	116.70
Vested		(1,170	)	$	92.97
Forfeited or not earned		(246	)	$	97.77
Balance of outstanding restricted stock units, March 31, 2022		2,864		$	101.21

(1)

Restricted stock units granted includes 37 shares from prior period TSR awards that were earned upon achievement of the performance criteria and vested in November 2021, and 87 shares from prior period Performance-based awards that were earned upon achievement of the performance criteria and vested in November 2021.

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

(in thousands)	Six months ended March 31, 2022
Performance-based RSUs⁽¹⁾		89
Service-based RSUs⁽²⁾		775
Total Shareholder Return RSUs⁽³⁾		76

(1)

The performance-based RSUs were granted to our executives and are eligible to vest based upon annual increasing 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, 2022, November 15, 2023, and November 15, 2024, 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 can be earned (a maximum aggregate of 165 thousand RSUs).

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

(3)

The Total Shareholder Return RSUs (TSR 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, 2024. The RSUs earned will vest on November 15, 2024. Up to a maximum of two times the

number of TSR RSUs eligible to be earned for the period (up to a maximum aggregate of 152 thousand RSUs) may vest. If the return to PTC shareholders is negative for the period but still meets or exceeds the peer group indexed return, a maximum of 100% of the TSR RSUs may vest.

The weighted-average fair value of the TSR RSUs was 136.43 per target RSU on the grant date. The fair value of the TSR 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	34.67	%
Risk free interest rate	0.81	%
Dividend yield	—	%

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, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Cost of license revenue	$	37	$	20	$	75	$	40
Cost of support and cloud services revenue		2,161		2,309		5,639		4,611
Cost of professional services revenue		2,066		2,177		4,522		4,289
Sales and marketing		11,446		13,305		24,527		28,304
Research and development		9,504		7,921		19,680		16,364
General and administrative		12,707		19,008		29,420		37,220
Total stock-based compensation expense	$	37,921	$	44,740	$	83,863	$	90,828

Stock-based compensation expense includes $1.3 million and $3.2 million in the second quarter and first six months of 2022, respectively, and $1.8 million and $3.8 million in the second quarter and first six months of 2021, respectively, related to our employee stock purchase plan.