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Stockholders' Equity | 9 Months Ended
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Sep. 30, 2023
Equity [Abstract] |
Stockholders' Equity | Stockholders’ Equity Capital Structure Common Stock The Company is authorized to issue 450,000,000 shares of common stock with a par value of $0.001 per share. As of September 30, 2023 and December 31, 2022, the Company had 72,695,935 and 71,047,179 shares of common stock issued and outstanding, respectively. Preferred Stock The Company is authorized to designate and issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share in one or more series without stockholder approval and to fix the rights, preferences, privileges and restrictions thereof. As of September 30, 2023 and December 31, 2022, there were no shares of preferred stock issued and outstanding. Common Stock Reserved for Future Issuance Shares of common stock reserved for future issuance related to outstanding equity awards and employee equity incentive plans as of September 30, 2023 were as follows (in thousands):
|  | September 30, 2023
Stock options outstanding |  | 973
RSUs (including PRSUs) outstanding |  | 4,378
Shares available for future grant under 2014 Plan |  | 15,816
Shares available for future issuance under ESPP |  | 4,076
Total shares of common stock reserved |  | 25,243
Stock Options A summary of the Company’s stock option activity during the nine months ended September 30, 2023 is as follows (in thousands, except per share data):
|  | Number of Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Life (Years) |  | Aggregate Intrinsic Value
Outstanding as of December 31, 2022 |  | 1,481 |  |  | $ | 47.75 |  |  |  |  |
Options granted |  | — |  |  | — |  |  |  |  |
Options exercised |  | (436) |  |  | 19.07 |  |  |  |  |
Options forfeited or expired |  | (72) |  |  | 141.71 |  |  |  |  |
Outstanding as of September 30, 2023 |  | 973 |  |  | $ | 53.66 |  |  | 4.8 |  | $ | 27,290 |
The aggregate intrinsic value amounts are computed based on the difference between the exercise price of the stock options and the fair market value of the Company’s common stock of $64.30 per share as of September 30, 2023 for all in-the-money stock options outstanding. Restricted Stock Units (including Performance-Based Restricted Stock Units) A summary of the Company’s restricted stock unit ("RSU") activity (including Performance-Based Restricted Stock Units "PRSUs") during the nine months ended September 30, 2023 is as follows (in thousands, except per share data):
|  | Number of Shares |  | Weighted Average Grant Date Fair Value Per Share
Outstanding as of December 31, 2022 |  | 3,718 |  |  | $ | 103.55 |
RSUs granted(1) |  | 2,388 |  |  | 68.25 |
RSUs vested and released |  | (1,378) |  |  | 101.30 |
RSUs forfeited or canceled |  | (350) |  |  | 103.11 |
Outstanding as of September 30, 2023 |  | 4,378 |  |  | 85.06 |
(1) Includes 35,921 PRSUs granted during the nine months ended September 30, 2023. PRSUs with Market and Service Conditions In 2022, the Company granted 284,282 PRSUs subject to market and service conditions (“market-based PRSUs”) with a grant date fair value of $30.6 million as part of its annual grant of equity incentive awards to certain executives and in connection with the appointment of Michael Burkland as its new Chief Executive Officer. During the nine months ended September 30, 2023, the Company granted an additional 35,921 market-based PRSUs with a grant date fair value of $3.1 million. The amount that may be earned pursuant to the market-based PRSUs ranges from 0% to 200% of the target number based on the Company’s relative total shareholder return (“RTSR”) performance as compared to the companies in the S&P Software and Services Select Index during three one-year performance periods. One-third of the total market-based PRSUs may be earned and settled in shares following the end of each one-year performance period based on RTSR performance and subject to continued employment through the payment date, but the amount initially paid for the first two one-year performance periods is limited to 100% of the target amount for such years, and any market-based PRSUs resulting from above-target performance in those first two years will be paid following the end of the final one-year performance period, subject to the executive’s continued employment through the payment date. If the Company’s absolute total shareholder return for any performance period is negative, then no more than 100% of the target amount of market-based PRSUs for such period may be earned. If an executive's employment with the Company terminates before the end of the final one-year performance period due to death or disability, 100% (if due to death) or 50% (if due to disability) of the unvested market-based PRSUs may be earned subject to ultimate RTSR performance in each remaining performance period. Upon a qualifying termination of employment in connection with a change in control of the Company, the unvested market-based PRSUs will vest on a double-trigger basis (i) at the target level for the market-based PRSUs granted to certain executives, excluding Michael Burkland, subject to the 2022-2024 performance period, and (ii) for the market-based PRSUs granted to certain executives, including Michael Burkland, subject to the 2023-2025 performance period, (a) at the target level for the uncompleted portions of the performance periods and (b) at the actual level of performance measured through the date of the change in control of the Company, based on the price per share paid in such change in control. The fair value of the market-based PRSUs is determined on their grant date using a Monte Carlo Simulation model based upon assumptions presented below. The Company recognizes the fair value of the market-based PRSUs ratably over their requisite service period. During the first quarter of 2023, the Company certified the performance results for the 2022 measurement period for the market-based PRSUs subject to the 2022-2024 performance period. Under the market-based PRSU agreements, the TSR payout percentage ranges from 0% to 200%, with a 50% payout at the 25th TSR percentile (threshold), 100% payout at the 55th TSR percentile (target), 200% payout at the 90th percentile or greater (maximum) and no payout below the threshold performance level. The Company determined that its actual total shareholder return was -52.64% for 2022, and that its relative total shareholder return ranking was in the 30.2 percentile relative to companies in the S&P Software & Services Select Index, which resulted in a payout percentage of 58.7% of target. PRSUs with Revenue and Service Conditions In 2022, the Company granted 66,167 PRSUs subject to revenue-based performance and service conditions (“revenue-based PRSUs”) with a grant date fair value of $6.6 million. The amount of revenue-based PRSUs that may be earned will be determined based on achievement of two quarterly revenue goals. One third of the revenue-based PRSUs may be earned based on achievement of the first revenue target and, if achieved, will vest in four quarterly installments, with the first installment occurring on the date such achievement is certified, subject to the executive's continuous service through the applicable vesting dates. Two thirds of the revenue-based PRSUs may be earned based on achievement of the second revenue target and, if achieved, will vest in eight quarterly installments, with the first installment occurring on the date such achievement is certified, subject to the executive's continuous service through the applicable vesting dates. The revenue-based PRSUs are otherwise on the Company's standard award terms for its market-based PRSUs. The Company certified that the first revenue target was achieved at September 30, 2023, and thus recognized the related stock-based compensation expense through this period. The Company, however, concluded that, as of September 30, 2023, the second revenue target was not probable of achievement, and thus did not recognize related stock-based compensation expense through this period. The Company will reassess the probability of the achievement of the performance conditions at each reporting period and a cumulative catch-up adjustment will be recorded to stock-based compensation cost for any change in the probability assessment. Stock-Based Compensation Stock-based compensation expense was as follows (in thousands):
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Cost of revenue |  | $ | 9,856 |  |  | $ | 8,329 |  |  | $ | 29,077 |  |  | $ | 24,659 |
Research and development |  | 12,980 |  |  | 10,603 |  |  | 38,375 |  |  | 32,567 |
Sales and marketing |  | 16,404 |  |  | 15,761 |  |  | 50,840 |  |  | 44,148 |
General and administrative |  | 13,371 |  |  | 9,810 |  |  | 38,429 |  |  | 27,308 |
Total stock-based compensation expense |  | $ | 52,611 |  |  | $ | 44,503 |  |  | 156,721 |  |  | 128,682 |
As of September 30, 2023, unrecognized stock-based compensation expense by award type and expected weighted-average recognition periods are summarized in the following table (in thousands, except years).
|  | Stock Option |  | RSU (excluding PRSUs) |  | PRSU |  | ESPP
Unrecognized stock-based compensation expense |  | $ | 5,781 |  |  | $ | 315,047 |  |  | $ | 16,228 |  |  | $ | 557 |
Weighted-average amortization period |  | 1.7 years |  | 2.7 years |  | 1.9 years |  | 0.1 years
The weighted-average assumptions used to value stock options granted during the periods presented were as follows:
Stock Options |  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Expected term (years) |  | — |  |  | — |  |  | — |  |  | 6.0
Volatility |  | — |  |  | — |  |  | — |  |  | 46.0 | %
Risk-free interest rate |  | — |  |  | — |  |  | — |  |  | 1.8 | %
Dividend yield (1) |  | — |  |  | — |  |  | — |  |  | — |
The weighted-average assumptions used to value PRSUs with market conditions granted during the periods presented were as follows:
PRSUs (Market Conditions) |  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Closing price of common stock as of grant date |  | — |  |  | — |  |  | $ | 68.15 |  |  | $110.00
Expected term (years) |  | — |  |  | — |  |  | 2.84 |  | 2.84
Volatility |  | — |  |  | — |  |  | 51.1 | % |  | 48.8 | %
Risk-free interest rate |  | — |  |  | — |  |  | 4.5 | % |  | 1.6 | %
Dividend yield (1) |  | — |  |  | — |  |  | — |  |  | — |
(1)The Company has not paid, and does not anticipate paying, cash dividends on its shares of common stock. Accordingly, the expected dividend yield is zero.

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- Definition The entire disclosure for shareholders' equity and share-based payment arrangement. Includes, but is not limited to, disclosure of policy and terms of share-based payment arrangement, deferred compensation arrangement, and employee stock purchase plan (ESPP). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 505 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//505/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 718 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//718/tableOfContent + Details
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