Stockholders' Equity

12 Months Ended

Dec. 31, 2022

Stockholders’ Equity

Preferred Stock

The Board of Directors has the authority, without a further vote of the stockholders, to designate and issue up to 5.0 million shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. The issuance of the Company’s preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Company or other corporate action. Since the Company’s initial public offering, the Board of Directors has not designated any rights, preference or powers of any preferred stock, and no shares of preferred stock have been issued.

Common Stock

Holders of the Company’s common stock are entitled to receive dividends, if any, as may be declared from time to time by the Board of Directors out of legally available funds. No dividends have been declared or paid as of December 31, 2022.

In August 2020, the Company completed an underwritten public offering of 3,220,000 shares of its common stock at $20.00 per share, including a full exercise by the underwriters of their option to purchase an additional 420,000 shares of Common Stock, resulting in net proceeds of $60.1 million, after deducting the underwriting discount and expenses paid by the Company.

Stock Repurchase Program

In July 2022, the Company’s Board of Directors authorized a one-year stock repurchase program for up to $100 million of the Company’s common stock. Under the repurchase program, repurchases can be made from time to time using a variety of

methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements. The specific timing, price and size of the purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations consistent with the Company’s capital allocation strategy. The repurchase program does not obligate the Company to acquire a particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. During the year ended December 31, 2022, no repurchases were made under the program.

Equity Incentive Plans

Stock Options

At the Company’s 2019 annual meeting of stockholders, the stockholders approved the 2019 Equity Incentive Award Plan (the “2019 Plan”). The 2019 Plan supersedes and replaces the 2010 Equity Incentive Award Plan (the “2010 Plan”) and preceding plans. The terms and conditions of the 2010 Plan will continue to govern any outstanding awards granted under the 2010 Plan.

Employees and consultants of the Company, its subsidiaries and affiliates and the Company’s Board of Directors members are eligible to receive awards under the 2019 Plan. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units or other stock or cash-based awards and dividend equivalents to eligible individuals.

At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the 2019 Plan by 1.5 million shares. As of December 31, 2022, there were 6.0 million shares available for issuance under the 2019 Plan.

Stock options granted under the 2019 Plan are granted at a price not less than 100% of the fair market value of the common stock on the date of grant. Stock options issued under the 2019 Plan generally vest 25% on the first anniversary of the vesting commencement date and on a quarterly basis thereafter for a period of an additional three years. The options have a maximum term of ten years.

In February 2021, PSOs exercisable for up to an aggregate of 0.7 million shares of common stock were granted to certain Company executives with a grant date exercise price of $36.74 per share. The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net income for 2021 (collectively, the “2021 Performance Targets”) during the one-year performance period. Under the 2021 Performance Targets, if the non-GAAP net income is below 80% of target or bookings are below 90% of target, no shares would be awarded. From this base, shares are awarded on a 50% weighting for both non-GAAP net income and bookings up to 100% for each 2021 Performance Target using a sliding scale.

In February 2022, the Compensation Committee of the Company’s Board of Directors certified the results against the 2021 Performance Targets and awarded 97% of PSOs subject to the four-year services condition. As such, 25% of the awarded shares of the PSOs were vested on that date, and the remaining 75% of the shares of common stock will vest in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates. Stock-based compensation expense of $3.6 million and $6.3 million was recognized for the years ended December 31, 2022 and 2021, respectively, related to these awards. Also, in February 2022, the Compensation Committee granted PSOs exercisable for up to an aggregate of 0.7 million shares of common stock to certain Company executives with a grant date exercise price of $55.96 per share, using the same plan design as 2021 but with 2022 annual corporate financial targets for bookings and non-GAAP net operating income (collectively, the “2022 Performance Targets”).

In February 2023, the Compensation Committee of the Company’s Board of Directors certified the results against the 2022 Performance Targets and awarded 100% of PSOs subject to the four-year service condition. As such, 25% of the awarded shares of the PSOs were vested on that date, and the remaining 75% of the shares of common stock will vest in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates. Stock-based compensation expense of $10.1 million was recognized for the year ended December 31, 2022 related to these awards.

The following table summarizes the stock option activity under the Company’s equity incentive plans (in thousands, except per share data):


				Weighted-
				Average
		Weighted-		Remaining
		Average		Contractual	Aggregate
	Number of	Exercise Price		Life	Intrinsic
Stock Options	Shares	Per Share		(in years)	Value (1)
Outstanding as of December 31, 2021	6,648	$	17.46
Granted	2,423	56.04
Exercised	(721)	9.28
Canceled	(63)	35.74

Outstanding as of December 31, 2022	8,287	$	29.31	7.5	$	325,828
Vested and expected to vest as of December 31, 2022	8,028	$	28.64	7.4	$	321,015
Options exercisable as of December 31, 2022	4,010	$	14.04	6.1	$	218,143

(1) Amounts represent the difference between the exercise price and the fair market value of common stock at December 31, 2022 of $68.43 per share for all “in-the-money” options outstanding.

During the years ended December 31, 2022, 2021 and 2020, total intrinsic value of stock options exercised was $31.0 million, $59.6 million and $6.7 million, respectively. Cash received from employee stock option exercises in 2022, 2021 and 2020 was $6.7 million, $11.2 million and $0.9 million, respectively.

Employee Stock Purchase Plans

The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their eligible compensation subject to certain Internal Revenue Code limitations. In addition, participants may purchase up to 2,000 shares of common stock in each offering period.

The offering periods under the ESPP are two six-month offering periods from August 15th through February 14th and February 15th through August 14th of each year. The price of common stock purchased under the ESPP is 85% of the lower of the fair market value of the common stock on the commencement date and the end date of each six-month offering period. At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 1.3 million shares. The total shares authorized for issuance under the ESPP increased from 11.1 million shares to 12.4 million shares. As of December 31, 2022, there were 4.7 million shares available for issuance under the ESPP. During the year ended December 31, 2022, 0.2 million shares were purchased under the ESPP. As of December 31, 2022, unrecognized stock-based compensation expense of $0.4 million related to the ESPP is expected to be recognized over a remaining service period of 0.1 years.

The NQ ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 25% of their eligible compensation. Eligible employees have the right to (a) purchase the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of the Company’s common stock on the last day of such offering period and (b) receive an equal number of shares of the Company’s common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date. Beginning in the second quarter of 2022, the NQ ESPP provides quarterly offering periods from May 8th through August 7th, August 8th through November 7th, November 8th through February 7th and February 8th through May 7th of each year. A transition period began on May 15th and ended on August 7th. At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the NQ ESPP by 0.8 million shares. The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 6.3 million shares, with a maximum of 0.3 million shares allocated per purchase period. As of December 31, 2022, there were 3.0 million shares available for issuance under the NQ ESPP, including the stockholder-approved 0.8 million share increase. During the year ended December 31, 2022, 0.6 million shares were purchased and issued. As of December 31, 2022, unrecognized stock-based compensation expense of $9.3 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.8 years.

Stock-Based Compensation

The following table summarizes stock-based compensation expense (in thousands):


	Years Ended December 31,
	2022		2021		2020
Cost of revenue:
Products	$	1,666	$	790	$	575
Services	1,034		668		450
Sales and marketing	12,001		6,728		4,273
Research and development	12,165		6,769		4,736
General and administrative	17,960		9,275		3,926
	$	44,826	$	24,230	$	13,960
Income tax benefits recognized	$	11,501	$	16,929	$	—

The following table summarizes the weighted-average grant date fair values of the Company’s stock-based awards granted in the periods indicated:


	Years Ended December 31,
	2022		2021		2020
Stock options	$	31.86	$	26.55	$	8.55

ESPP	$	18.51	$	12.93	$	5.52
NQ ESPP	$	52.91	$	55.50	$	19.40

The Company values employee stock purchase rights under the NQ ESPP at the closing market price of the Company’s common stock on the date of grant.

The Company estimates the fair value of stock options and employee stock purchase right under the ESPP at the grant date using the Black-Scholes option-pricing model. This model requires the use of the following assumptions:

(i)Expected volatility of the Company’s common stock – The Company computes its expected volatility assumption based on a blended volatility (50% historical volatility and 50% implied volatility from traded options on the Company’s common stock). The selection of a blended volatility assumption was based upon the Company’s assessment that a blended volatility is more representative of the Company’s future stock price trend as it weighs the historical volatility with the future implied volatility.

(ii)Expected life of the option award – Represents the weighted-average period that the stock options are expected to remain outstanding. The Company’s computation of expected life utilizes the simplified method in accordance with Staff Accounting Bulletin No. 110 due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The mid-point between the vesting date and the expiration date is used as the expected term under this method.

(iii)Expected dividend yield – The assumption is zero based on the Company’s history of not paying dividends and no future expectations of dividend payouts.

(iv)Risk-free interest rate – Based on the U.S. Treasury yield curve in effect at the time of grant with maturities approximating the grant’s expected life.

The following table summarizes the weighted-average assumptions used in estimating the grant-date fair value of stock options and of each employee’s purchase right under the ESPP in the periods indicated:


	Years Ended December 31,
Stock Options	2022		2021		2020
Expected volatility	58	%	56	%	53	%
Expected life (years)	6.1		6.0		6.1

Risk-free interest rate	3.15	%	1.11	%	0.48	%


	Years Ended December 31,
ESPP	2022		2021		2020
Expected volatility	62	%	63	%	70	%
Expected life (years)	0.5		0.5		0.4

Risk-free interest rate	2.16	%	0.05	%	0.12	%

In addition, the Company applies an estimated forfeiture rate to awards granted and records stock-based compensation expense only for those awards that are expected to vest. Forfeiture rates are estimated at the time of grant based on the Company’s historical experience. Further, to the extent the Company’s actual forfeiture rate is different from management’s estimate, stock-based compensation is adjusted accordingly.

As of December 31, 2022, unrecognized stock-based compensation expense by award type, net of estimated forfeitures, and their expected weighted-average recognition periods are summarized in the following table (in thousands).


	Stock Option		ESPPs
Unrecognized stock-based compensation expense	$	73,095	$	9,781
Weighted-average amortization period (in years)	2.3		0.8

The Company expects to recognize stock-based compensation expense of $37.2 million in 2023, $22.0 million in 2024, $16.0 million in 2025 and $7.7 million in 2026.

Shares Reserved for Future Issuance

As of December 31, 2022, the Company had common shares reserved for future issuance as follows (in thousands):




Stock options outstanding						8,287
Shares available for future grant under 2019 Plan						5,986
Shares available for future issuance under ESPP						4,712
Shares available for future issuance under NQ ESPP						3,043
						22,028