Common Stock and Share-based Compensation | 7. Common Stock and Share-based Compensation The Company’s certificate of incorporation, as of December 31, 2018 and 2017, authorized the Company to issue up to 95,000,000 and 400,000,000 shares of common stock, respectively, and 5,000,000 and 10,000,000 shares of preferred stock, each at $0.00001 par value per share, respectively. As of December 31, 2018, no preferred stock was outstanding. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends out of funds legally available. No dividends have been declared to date. Immediately prior to the closing of the Company’s IPO, all outstanding shares of its convertible preferred stock automatically converted into 20,816,754 shares of common stock. As such, no shares of convertible preferred stock were outstanding as of December 31, 2018 and 2017. 2015 Equity Incentive Plan and 2004 Equity Incentive Plan Under the Company’s 2015 Equity Incentive Plan and 2004 Equity Incentive Plan, shares of common stock were reserved for the issuance of incentive stock options (“ISO”); nonstatutory stock options (“NSO”); or the sales of restricted common stock to employees, officers, directors, and consultants of the Company. The exercise price of an option is determined by the board of directors when the option is granted and may not be less than 85% of the fair market value of the shares on the date of grant, provided that the exercise price of an ISO is not less than 100% of the fair market value of the shares on the date of grant and the exercise price of any option granted to a 10% stockholder is not less than 110% of the fair market value of the shares on the date of grant. ISOs granted under the Plan generally vest 25% after the completion of 12 months of service and the balance in equal monthly installments over the next 36 months of service and expire 10 years from the grant date. NSOs vest as per the specific agreement and expire 10 years from the date of grant. The Plan allows for early exercise of options prior to full vesting as determined by the board of directors and set forth in the stock option agreements governing such options. Exercises of unvested options are subject to repurchase by the Company at not less than the original exercise price upon termination of employment. 2017 Equity Incentive Plan In November 2017, the Company adopted the 2017 Equity Incentive Plan, or 2017 Plan, and all shares reserved for grant under the 2015 Equity Incentive Plan and 2004 Equity Incentive Plan were cancelled. The 2017 Plan had 3,294,919 common shares reserved, plus any shares subject to outstanding stock options or other stock awards that were granted under the 2015 Equity Incentive Plan and 2004 Equity Incentive Plan that were forfeited, terminate, expire or are otherwise not issued. In addition, the shares reserved under the 2017 Plan will automatically increase on the first day of each calendar year until January 1, 2027, by an amount equal to 5% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of the automatic increase, or a lesser number of shares determined by the board of directors prior to the date of such automatic increase. The 2017 Plan provides for the grant of common stock awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units, performance units and performance shares to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited or expired are returned to the 2017 Plan and are available for grant in conjunction with the issuance of new equity awards. Stock options may be granted at an exercise price per share not less than 100% of the fair market value at the date of grant. If a stock option is granted to a 10% stockholder, then the exercise price per share must not be less than 110% of the fair market value per share of common stock on the grant date. Options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years. As of December 31, 2018, 2,367,378 shares are available for grant. Stock options Activity of stock options granted under the Company’s equity incentive plans is set forth below: Weighted- Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Value Shares Price Term (Years) (in thousands) Balance—January 1, 2016 4,827,785 $ 2.38 7.2 $ 9,759 Granted 570,939 $ 4.32 Exercised (2,459,180 ) $ 1.85 Canceled (32,948 ) $ 3.11 Balance—December 31, 2016 2,906,596 $ 3.20 8.1 $ 4,941 Granted 1,320,382 $ 7.08 Exercised (388,621 ) $ 3.28 Canceled (104,813 ) $ 4.53 Balance—December 31, 2017 3,733,544 $ 4.53 7.9 $ 25,386 Granted 1,000 $ 13.89 Exercised (825,150 ) $ 3.38 Canceled (611,991 ) $ 6.23 Balance—December 31, 2018 2,297,403 $ 4.49 6.9 $ 9,858 Vested and exercisable—December 31, 2018 1,547,754 $ 3.74 6.5 $ 7,803 Vested and exercisable—December 31, 2017 1,648,917 $ 2.89 6.7 $ 13,924 Outstanding options and exercisable options information by range of exercise prices as of December 31, 2018 was as follows: Outstanding Options Exercisable Options Weighted Average Remaining Weighted Weighted Range of Number of Contractual Term Average Number of Average Exercise Prices Shares (in Years) Exercise Price Shares Exercise Price $ 1.10 to $ 1.90 52,200 1.8 $ 1.50 52,200 $ 1.50 $ 2.00 to $ 3.90 961,800 6.0 $ 2.78 961,800 $ 2.78 $ 4.30 to $ 7.10 1,234,953 7.8 $ 5.76 1,167,626 $ 5.84 $ 8.61 to $ 9.90 47,450 8.7 $ 9.33 33,012 $ 9.65 $ 9.91 to $ 13.89 1,000 9.3 $ 13.89 1,000 $ 13.89 Total 2,297,403 6.9 $ 4.49 2,215,638 $ 4.47 As of December 31, 2018, approximately $2.0 million of unrecognized stock compensation costs related to awards were expected to be recognized over a weighted-average period of 2.8 years. As of December 31, 2017, approximately $4.8 million of unrecognized stock compensation costs related to awards were expected to be recognized over a weighted-average period of 3.1 years. The aggregate intrinsic value of options exercised for the year ended December 31, 2018 was $7.1 million. The aggregate intrinsic value of options exercised during the year ended December 31, 2017 was $1.6 million. The weighted-average grant-date fair value of options granted for the year ended December 31, 2018, was $5.46 per share. The weighted-average grant-date fair value of options granted during the year ended December 31, 2017 was $2.94 per share. The calculated fair value of option grants was estimated using the Black-Scholes model with the following assumptions for which options were granted: Year ended December 31, 2018 2017 2016 Risk-free interest rate 2.87 % 1.89%-2.40% 1.46%-2.43% Expected term 6.1 yrs 6.1 - 10 yrs 6.1 - 10 yrs Expected dividends 0 % 0 % 0 % Volatility 35 % 26% - 30% 30% - 34% Employee Stock Purchase Plan Concurrent with the completion of the IPO in November 2017, the Company adopted the 2017 Employee Stock Purchase Plan, or ESPP. The ESPP authorizes the issuance of 1,317,967 shares of common stock outstanding under purchase rights granted to its employees. In addition, the shares reserved under the ESPP Plan will automatically increase on the first day of each calendar year until January 1, 2027, by the lesser of (i) an amount equal to 2% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of the automatic increase, (ii) 1,000,000 shares of common stock, and (iii) a lesser number of shares determined by the board of directors prior to the date of such automatic increase. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP generally provides for offering periods and purchase periods every six months, and at the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the purchase period or on the last trading day of the offering period. 366,369 shares were issued as of December 31, 2018 under the ESPP. Shares expected to be issued under the ESPP were 203,986 for the offering period as of December 31, 2018. The calculated fair value of the shares under the ESPP was estimated using the Black-Scholes model with the following assumptions: risk-free interest rate in the range of 1.31% and 2.36%, expected term of 0.5 year, expected dividends of 0% and volatility of 22%. For the year ended December 31, 2018 and 2017, unamortized compensation expense related to the ESPP was approximately $0.5 million and $0.5 million, respectively, to be recognized over approximately five months at each year end. Restricted Stock Unit Awards The Company grants restricted stock units (RSU) to employees under the 2017 Plan. RSUs granted typically vest ratably over a four-year period, and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. Compensation expense is recognized on a straight-line basis over the requisite service period of each grant. Each RSU award granted from the 2017 Plan will reduce the number of shares available for issuance under the 2017 Plan by one share. As of December 31, 2018, and 2017, unamortized compensation expense related to RSU was approximately $15.8 million and $0.4 million, to be recognized over 3.0 years and 1.8 years, respectively. Activity of RSU granted under the Company’s equity incentive plans is set forth below: Weighted Average Market Number of Units Value Balance—January 1, 2017 - $ - Granted 35,029 $ 10.56 Released - $ - Canceled - $ - Balance—December 31, 2017 35,029 $ 10.56 Granted 1,657,237 $ 12.76 Released (24,929 ) $ 11.53 Canceled (113,248 ) $ 13.01 Balance—December 31, 2018 1,554,089 $ 12.73 The Company uses the straight-line vesting attribution method to record stock-based compensation expense. Stock-based compensation expense recognized in the consolidated statements of operations and comprehensive loss was as follows (in thousands): Year ended December 31, 2018 2017 2016 Cost of revenue $ 156 $ 47 $ 31 Research and development 3,793 973 489 Sales and marketing 843 197 95 General and administrative 1,728 456 324 Total $ 6,520 $ 1,673 $ 939 No income tax benefit associated with stock-based compensation expense was recognized in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2018, 2017 and 2016. |