Stock-Based Compensation

6 Months Ended

Jun. 30, 2019

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

In 2018, our Board of Directors adopted, and our stockholders approved, our 2018 Equity Incentive Plan ("2018 Plan"), which became effective upon the execution of the underwriting agreement related to our IPO, and 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. In addition, the number of shares of our common stock reserved for issuance under our 2018 Plan automatically increases on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2028, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our Board of Directors. There were 14,790,867 shares available for grant under the 2018 Plan at June 30, 2019.

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.

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



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2019		2018		2019		2018
Cost of revenue	$	742	$	114	$	1,394	$	191
Sales and marketing	4,215		675		7,581		1,277
Research and development	2,441		640		4,471		1,167
General and administrative	3,975		1,595		7,246		2,788
Total stock-based compensation expense	$	11,373	$	3,024	$	20,692	$	5,423

At June 30, 2019, the total unrecognized stock-based compensation expense related to outstanding stock options was $35.7 million, which is expected to be recognized over an estimated remaining weighted average period of 2.6 years.

At June 30, 2019, the unrecognized stock-based compensation expense related to unvested awards of restricted stock was $2.5 million, which is expected to be recognized over an estimated remaining period of 1.5 years.

At June 30, 2019, the unrecognized stock-based compensation expense related to unvested restricted stock units was $61.2 million, which is expected to be recognized over an estimated remaining weighted average period of 3.4 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, 2018	19,219	$	7.78	8.0	$	277,114
Granted	—	—
Exercised	(3,242)	3.93
Forfeited/canceled	(1,085)	10.11
Outstanding at June 30, 2019	14,892	8.45		7.7	299,201
Exercisable at June 30, 2019	6,213	5.72		6.9	141,797

At June 30, 2019, there were 14.9 million stock options that were vested and expected to vest.

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)	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2018	890		$	4.25	1,129		$	18.90
Granted	—		—		2,003		29.10
Vested	(198	)	4.25		(1	)	23.00
Forfeited	—		—		(144)		20.84
Unvested balance at June 30, 2019	692		4.25		2,987		25.65

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 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 to our IPO. The number of shares of our common stock reserved for issuance under our 2018 ESPP automatically increases on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2028, by the lesser of (1) 1.5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (2) 8,000,000 shares of our common stock or (3) such lesser number of shares of common stock as determined by our Board of Directors. There were 4,958,092 shares reserved for issuance under the 2018 ESPP at June 30, 2019.

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. A second offering period began on March 1, 2019 and is scheduled to end on March 1, 2021, with four six-month purchase periods.

In the six months ended June 30, 2019, employees purchased 438,804 shares of our common stock at a price of $19.55 per share, resulting in cash proceeds to us of $8.6 million.

At June 30, 2019, there was $5.2 million of employee contributions to the 2018 ESPP included in accrued compensation. The unrecognized stock-based compensation expense related to our 2018 ESPP was $6.7 million, which is expected to be recognized over the remaining weighted average period of 1.3 years.

The fair value of the 2018 ESPP purchase rights for the initial and second offering periods was estimated on the grant date using a Black-Scholes option-pricing model and the following assumptions:



Expected term (in years)	0.5 — 2.1
Expected volatility	31.9% — 44.6%
Risk-free interest rate	2.3% — 2.7%
Expected dividend yield	—