Stock-Based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

We have various stock incentive plans under which we have issued stock-based awards. Stock options granted under our stock incentive plans have a maximum term of ten years, generally vest over a period of three to four years, and the exercise price cannot be less than the fair market value on the date of grant. Restricted stock units ("RSUs") granted under our stock incentive plans generally vest over a period of two to four years.

In the nine months ended September 30, 2018, our board of directors adopted, and our stockholders approved, our 2018 Equity Incentive Plan ("2018 Plan"), which reserves 9.9 million shares of our common stock that may be issued as stock-based awards. The 2018 Plan became effective upon the execution of the underwriting agreement related to our IPO, at which point no further grants were made under our 2016 Stock Incentive Plan ("2016 Plan"). Any shares subject to stock options or other stock awards granted under our 2016 Plan, 2012 Stock Incentive Plan or 2002 Stock Incentive Plan that would have otherwise returned to such plan (such as upon the expiration or termination of a stock award prior to vesting) were added to, and are available for issuance under, our 2018 Plan. There were 10,905,099 shares available for grant under the 2018 Plan at September 30, 2018.

Stock-based compensation expense included in the consolidated statements of operations and comprehensive loss was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017		2018		2017
Cost of revenue	$	692	$	63	$	883	$	167
Sales and marketing	2,707		409		3,984		1,037
Research and development	2,427		510		3,594		1,356
General and administrative	2,957		1,046		5,745		2,943
Total stock-based compensation expense	$	8,783	$	2,028	$	14,206	$	5,503

At September 30, 2018, the total unrecognized stock-based compensation expense related to outstanding stock options was $52.9 million, which is expected to be recognized over an estimated remaining weighted average period of 3.2 years.

At September 30, 2018, the unrecognized stock-based compensation expense related to unvested awards of restricted stock was $3.8 million, which is expected to be recognized over an estimated remaining period of 2.3 years.

At September 30, 2018, the unrecognized stock-based compensation expense related to unvested restricted stock units was $15.9 million, which is expected to be recognized over an estimated remaining period of 2.3 years.

Stock Options

A summary of our stock option activity is presented below:



(in thousands, except for per share data and years)	Number of Shares	Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2017	14,573	$	4.38	8.2	$	77,020
Granted	6,108	15.17
Exercised	(654)	2.16
Forfeited/canceled	(640)	6.81
Outstanding at September 30, 2018	19,387	7.77		8.2	603,127
Exercisable at September 30, 2018	5,855	3.55		6.7	206,850

At September 30, 2018, there were 19.4 million stock options that were vested and expected to vest.

In the nine months ended September 30, 2018, we granted stock options to employees that vest over three to four years and had a weighted average grant date fair value of $6.84 per share. Estimating the fair value of stock options using the Black-Scholes option-pricing model requires assumptions as to the fair value of our underlying common stock, the estimated term of the option, the risk-free interest rate, the expected volatility of the price of our common stock, and the expected dividend yield. The fair value of each stock option was estimated on the grant date based on the following assumptions:



	Nine Months Ended September 30, 2018
Expected term (in years)	6.3
Expected volatility	41.3% — 43.3%
Risk-free interest rate	2.7% — 2.9%
Expected dividend yield	—

Restricted Stock and Restricted Stock Units

A summary of our restricted stock and restricted stock units activity is presented below:



	Restricted Stock			Restricted Stock Units
(in thousands, except for per share data and years)	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2017	1,583	$	4.25	—	$	—
Granted	—	—		1,097	17.82
Vested	(594)	4.25		—	—
Forfeited	—	—		(47)	16.22
Unvested balance at September 30, 2018	989	4.25		1,050	17.89

The grant date fair value was based on the estimated fair value of our common stock on the date of grant. RSUs granted before July 30, 2018 vest upon the satisfaction of both service-based and performance-based vesting conditions. The performance-based condition was satisfied upon the completion of our IPO. RSUs granted after July 30, 2018 vest upon the satisfaction of a service-based vesting condition.

Compensation expense for restricted stock and RSUs is recognized on a straight-line basis over the requisite service period, with the exception of RSUs that include performance-based vesting conditions, which are expensed using the accelerated attribution method.

2018 Employee Stock Purchase Plan

In the nine months ended September 30, 2018, our board of directors adopted, and our stockholders approved, our 2018 Employee Stock Purchase Plan ("2018 ESPP"). Our 2018 ESPP became effective upon the execution of the underwriting agreement related our IPO.

Under our 2018 ESPP, employees may set aside up to 15% of their gross earnings, on an after-tax basis, to purchase our common stock at a discounted price, which is calculated at 85% of the lower of the fair market value of our common stock on the first day of an offering or on the date of purchase. The 2018 ESPP permits offerings up to 27 months in duration, with one or more purchase periods in each offering. The initial offering period began on July 25, 2018 and is scheduled to end on September 1, 2020, with purchase periods ending on March 1, 2019, September 1, 2019, March 1, 2020 and September 1, 2020.

At September 30, 2018, there was $2.3 million of employee contributions to the 2018 ESPP included in accrued compensation, and no shares of our common stock have been purchased. The unrecognized stock-based compensation

expense related to our 2018 ESPP was $9.9 million, which is expected to be recognized over the remaining offering period of 1.9 years.