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Equity Incentive Plans

12 Months Ended

Sep. 30, 2021

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

12. Equity Incentive Plans

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 was an increase in stock-based compensation in 2021.

The fair value of RSUs granted in 2021, 2020 and 2019 was based on the fair market value of our stock on the date of grant for service- and certain performance- based RSUs and based on a Monte Carlo simulation model for relative total shareholder return (TSR) performance RSUs. The weighted average fair value per share of restricted stock units granted in 2021, 2020 and 2019 was $111.48, $77.57 and $82.77, 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,
	2021		2020		2019
Cost of license revenue	$	100	$	47	$	509
Cost of support and cloud services revenue		9,900		6,910		5,004
Cost of professional services revenue		9,263		7,012		6,426
Sales and marketing		53,712		37,351		32,026
Research and development		34,272		27,005		22,019
General and administrative		70,042		36,824		20,416
Total stock-based compensation expense	$	177,289	$	115,149	$	86,400

Stock-based compensation expense in 2021, 2020 and 2019 includes $7.3 million, $5.8 million, and $6.2 million respectively, related to our employee stock purchase plan (ESPP).

As of September 30, 2021, total unrecognized compensation cost related to unvested restricted stock units expected to vest was approximately $190.3 million and the weighted average remaining recognition period for unvested awards was 17 months.

As of September 30, 2021, 4.1 million shares of common stock were available for grant under the 2000 Plan and 3.2 million shares of common stock were reserved for issuance upon vesting of restricted stock units granted and outstanding.

Our ESPP 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, 2021 (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, 2020		3,509		$	79.13
Granted⁽¹⁾		1,480		$	111.48
Vested		(1,488	)	$	80.64
Forfeited or not earned		(284	)	$	90.99
Balance of outstanding restricted stock units, September 30, 2021		3,217		$	92.46	$	385,311

(1)

RSUs granted includes 33,000 shares from prior period Total Shareholder Return (TSR) awards that were earned upon achievement of the performance criteria and vested in November 2020.

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

(in thousands)	Twelve months ended September 30, 2021
Performance-based RSUs⁽¹⁾		90
Service-based RSUs⁽²⁾		1,267
Total Shareholder Return RSUs⁽³⁾		90

(1)

The performance-based RSUs were 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, 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 two times the number of RSUs can be earned (a maximum aggregate of 179,000 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 companies established as of the grant date, as determined at the end of three measurement periods ending on September 30, 2021, 2022 and 2023, respectively. The RSUs earned for each period will vest on November 15, 2021, 2022, and 2023. 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 179,000 RSUs) may vest. If the return to PTC shareholders is

negative for a period but still meets or exceeds the group indexed return, a maximum of 100% of the eligible TSR RSUs may vest for the measurement period.

As of September 30, 2021, weighted average remaining vesting term for outstanding awards is 1.0 year.

The weighted-average fair value of the TSR RSUs was $124.04 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	41.5	%
Risk-free interest rate	0.21	%
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	2021		2020		2019
Total fair value of restricted stock unit awards vested	$	171,316	$	103,265	$	131,659

In 2021, shares issued upon vesting of restricted stock units were net of 0.5 million shares retained by us to cover employee tax withholdings of $53.1 million. 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 and restricted stock units were net of 0.5 million shares retained by us to cover employee tax withholdings of $44.4 million.