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Equity Incentive Plan | 12 Months Ended
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Sep. 30, 2020
Share Based Compensation Allocation And Classification In Financial Statements [Abstract] |
Equity Incentive Plan | 12. Equity Incentive Plan Our 2000 Equity Incentive Plan (2000 Plan) provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units and stock appreciation rights to employees, directors, officers and consultants. We award restricted stock units (RSUs) as the principal equity incentive awards, including certain performance-based awards that are earned based on achieving performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Each restricted stock unit represents the contingent right to receive one share of our common stock. In the fourth quarter of 2020, we modified certain performance-based awards for executives by adjusting the performance criteria for the current and future periods, as well as removing certain provisions for catch up of unearned awards. There was not a material impact in 2020 due to the timing of the modifications, but there is expected to be an increase in stock-based compensation in 2021 and 2022. The fair value of RSUs granted in 2020, 2019 and 2018 was based on the fair market value of our stock on the date of grant for performance- and service-based RSUs and based on Monte Carlo simulation model for total shareholder return (TSR) RSUs. The weighted average fair value per share of restricted stock units granted in 2020, 2019 and 2018 was $77.57, $82.77 and $76.17, respectively. We account for forfeitures as they occur, rather than estimate expected forfeitures. The following table shows total stock-based compensation expense recorded from our stock-based awards as reflected in our Consolidated Statements of Operations:
(in thousands) |  | Year ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Cost of license revenue |  | $ | 47 |  |  | $ | 509 |  |  | $ | 144 |
Cost of support and cloud services revenue |  |  | 6,910 |  |  |  | 5,004 |  |  |  | 4,302 |
Cost of professional services revenue |  |  | 7,012 |  |  |  | 6,426 |  |  |  | 7,079 |
Sales and marketing |  |  | 37,351 |  |  |  | 32,026 |  |  |  | 24,893 |
Research and development |  |  | 27,005 |  |  |  | 22,019 |  |  |  | 13,488 |
General and administrative |  |  | 36,824 |  |  |  | 20,416 |  |  |  | 33,033 |
Total stock-based compensation expense |  | $ | 115,149 |  |  | $ | 86,400 |  |  | $ | 82,939 |
Stock-based compensation expense in 2020, 2019 and 2018 includes $5.8 million, $6.2 million, and $4.3 million respectively, related to our employee stock purchase plan (ESPP). As of September 30, 2020, total unrecognized compensation cost related to unvested restricted stock units expected to vest was approximately $213.5 million and the weighted average remaining recognition period for unvested awards was 19 months. As of September 30, 2020, 5.3 million shares of common stock were available for grant under the 2000 Plan and 3.5 million shares of common stock were reserved for issuance upon the exercise of stock options and vesting of restricted stock units granted and outstanding. Our ESPP, initiated in the fourth quarter of 2016, allows eligible employees to contribute up to 10% of their base salary, up to a maximum of $25,000 per year and subject to any other plan limitations, toward the purchase of our common stock at a discounted price. The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of our common stock on the first and last trading days of each offering period. The ESPP is qualified under Section 423 of the Internal Revenue Code. We estimate the fair value of each purchase right under the ESPP on the date of grant using the Black-Scholes option valuation model and use the straight-line attribution approach to record the expense over the six-month offering period.
Restricted stock unit activity for the year ended September 30, 2020 (in thousands, except grant date fair value data) |  | Shares |  |  | Weighted Average Grant Date Fair Value |  |  | Aggregate Intrinsic Value |
Balance of outstanding restricted stock units, October 1, 2019 |  |  | 3,232 |  |  | $ | 80.52 |  |  |  |  |
Granted |  |  | 2,770 |  |  | $ | 77.57 |  |  |  |  |
Vested |  |  | (1,391 | ) |  | $ | 71.55 |  |  |  |  |
Forfeited or not earned |  |  | (1,102 | ) |  | $ | 89.09 |  |  |  |  |
Balance of outstanding restricted stock units, September 30, 2020 |  |  | 3,509 |  |  | $ | 79.13 |  |  | $ | 290,227 |
(in thousands) |  | Restricted Stock Units |
Grant period |  | Performance- based RSUs(1) |  |  | Service-based RSUs(2) |  |  | Total Shareholder Return RSUs(3) |
Year ended September 30, 2020 |  |  | 501 |  |  |  | 2,168 |  |  |  | 101 |
(1) | The performance-based RSUs were granted to our executive officers and are eligible to vest based upon annual increasing performance measures, measured over a three-year period. To the extent earned, those performance-based RSUs will vest in three substantially equal installments. Approximately 101 thousand RSUs are eligible to vest on November 15, 2020, 2021 and 2022, 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 202 thousand RSUs). An additional 400 thousand RSUs are eligible to vest on November 15, 2021, 2022 and 2023, 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 110% of the number of RSUs can be earned (a maximum aggregate of 440 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 pursuant to the terms described below.
As of September 30, 2020, weighted average remaining vesting term for outstanding awards is 1.3 years. The number of TSR RSUs that vest over the three-year period will be determined 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 three measurement periods ending on September 30, 2020, 2021 and 2022, respectively. The RSUs earned for each period will vest on November 15 following each measurement period, 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 202 thousand RSUs). No vesting will occur in a period unless an annual threshold requirement is achieved. If the return to PTC shareholders is negative but still meets or exceeds the peer group indexed return, a maximum of 100% of the TSR RSUs will vest for the measurement period. TSR RSUs not earned in either of the first two measurement periods are eligible to be earned in the third measurement period. The weighted-average fair value of the TSR RSUs was $106.69 per target RSU on the grant date. The fair value of the TSR RSUs was determined using a Monte Carlo simulation model, a generally accepted statistical technique used to simulate a range of possible future stock prices for PTC and the peer group. The method uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the historical volatility of each entity, and the pairwise correlations of each entity being modeled. The fair value for each simulation is the product of the payout percentage determined by PTC’s TSR rank against the peer group, the projected price of PTC stock, and a discount factor based on the risk-free rate. The significant assumptions used in the Monte Carlo simulation model were as follows:
Average volatility of peer group |  |  | 28.0 | %
Risk-free interest rate |  |  | 1.59 | %
Dividend yield |  |  | — | %
Total fair value of RSUs vested are as follows:
(in thousands) |  | Year ended September 30, |
Value of stock option and stock-based award activity |  | 2020 |  |  | 2019 |  |  | 2018 |
Total fair value of restricted stock unit awards vested |  | $ | 103,265 |  |  | $ | 131,659 |  |  | $ | 127,525 |
In 2020, shares issued upon vesting of restricted stock units were net of 0.5 million shares retained by us to cover employee tax withholdings of $33.7 million. In 2019, shares issued upon vesting of restricted stock units were net of 0.5 million shares retained by us to cover employee tax withholdings of $44.4 million. In 2018, shares issued upon vesting of restricted stock and restricted stock units were net of 0.7 million shares retained by us to cover employee tax withholdings of $45.4 million.

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