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Stock-based Compensation | 3 Months Ended
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Mar. 31, 2020
Share-based Payment Arrangement [Abstract] |
Stock-based Compensation | Stock-based Compensation Equity Incentive Plans In 2010, the Company's Board of Directors adopted and stockholders approved the 2010 Equity Incentive Plan (2010 Plan). The 2010 Plan is a broad-based retention program and is intended to attract and retain talented employees, directors, and non-employee consultants. The 2010 Plan provides for the granting of stock options, restricted stock, RSUs, and stock appreciation rights to employees, directors, and consultants. Incentive stock options may be granted only to employees. All other awards under the 2010 Plan, including non-qualified stock options, may be granted to employees, directors, and consultants. Except for qualifying assumptions and substitutions of options, the exercise price of an incentive stock option and non-qualified stock option shall not be less than 100% of the fair market value of such shares on the date of grant. Prior to the Company's IPO, stock-based awards forfeited, canceled, or repurchased generally were returned to the pool of shares of common stock available for issuance under the 2010 Plan. In connection with the IPO, the 2010 Plan was terminated effective immediately prior to the effectiveness of the 2019 Equity Incentive Plan (2019 Plan) and the Company ceased granting any additional awards under the 2010 Plan. All outstanding awards under the 2010 Plan at the time of the termination of the 2010 Plan remain subject to the terms of the 2010 Plan, and any shares underlying stock options that expire or terminate or are forfeited or repurchased by the Company under the 2010 Plan will be automatically transferred to the 2019 Plan. In 2019, the Company's Board of Directors adopted and stockholders approved the 2019 Plan, which became effective one business day prior to the effective date of the Company's registration statement on Form S-1 for the IPO. The 2019 Plan provides for the granting of stock options, restricted stock, RSUs, stock appreciation rights, performance shares, performance stock units, and performance awards for the Company's Class A common stock to the Company's employees, directors, and consultants. Except as otherwise indicated below, the maximum number of shares of Class A common stock that may be issued under the 2019 Plan will not exceed 66,661,953 shares of the Company's Class A common stock, which is the sum of (1) 29,335,000 new shares, plus (2) an additional number of shares of Class A common stock not to exceed 37,326,953, consisting of the total number of shares of Class A or Class B common stock subject to outstanding awards granted under the 2010 Plan that, on or after the 2019 Plan became effective, are canceled, expire, or otherwise terminate prior to exercise or settlement; are repurchased by the Company because of the failure to vest; or are forfeited, tendered to, or withheld by the Company (or not issued) to satisfy a tax withholding obligation or the payment of an exercise price, if any, as such shares become available from time to time. Stock-based awards under the 2019 Plan that expire or are forfeited, canceled, or repurchased generally are returned to the pool of shares of Class A common stock available for issuance under the 2019 Plan. In addition, the number of shares of the Company's Class A common stock reserved for issuance under the 2019 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2021 through January 1, 2029, in an amount equal to the least of (i) 29,335,000 shares, (ii) 5% of the total number of shares of Class A and Class B common stock outstanding on December 31 of the fiscal year before the date of each automatic increase, or (iii) a lesser number of shares determined by the compensation committee of the Company's Board of Directors prior to the applicable January 1. As of March 31, 2020, 3,915,422 shares of Class A common stock underlying RSUs were granted under the 2019 Plan and the number of shares of Class A common stock available for issuance under the 2019 Plan was 26,936,370. Stock Options Under the 2010 Plan and 2019 Plan, at exercise, stock option awards entitle the holder to receive one share of Class B or Class A common stock, in the case of the 2010 Plan, or one share of Class A common stock, in the case of the 2019 Plan. Stock options granted under the 2010 Plan and the 2019 Plan generally vest over a four-year period subject to remaining continuously employed and expire no more than 10 years from the date of grant. The following table summarizes the stock options activity under the 2010 Plan and 2019 Plan for the three months ended March 31, 2020:
| Stock Options Outstanding |  |  |  |  |  |
| (in thousands, except year and per share data) |  |  |  |  |  |
| Shares Subject to Options Outstanding |  | Weighted- Average Exercise Price per Option |  | Weighted- Average Remaining Contractual Terms (in years) |  | Aggregate Intrinsic Value
Balances as of December 31, 2019 | 21,191 |  |  | $ | 2.30 |  |  | 7.4 |  | $ | 312,720 |
Options granted | 1,700 |  |  | $ | 17.93 |  |  |  |  |
Options exercised | (1,518) |  |  | $ | 1.78 |  |  |  |  | $ | 26,551 |
Options canceled/forfeited/expired | (104) |  |  | $ | 2.45 |  |  |  |  |
Balances as of March 31, 2020 | 21,269 |  |  | $ | 3.59 |  |  | 7.5 |  | $ | 422,728 |
Vested and expected to vest as of March 31, 2020 | 21,269 |  |  | $ | 3.59 |  |  | 7.5 |  | $ | 422,728 |
Exercisable as of March 31, 2020 | 19,566 |  |  | $ | 2.34 |  |  | 7.3 |  | $ | 413,239 |
The weighted-average assumptions used to determine the fair value of stock options granted during the periods presented were as follows:
| Three Months ended March 31, |  |
| 2020 |  | 2019
Expected term (in years) | 6.1 |  | 6.3
Expected volatility | 40.0 | % |  | 40.3 | %
Risk-free interest rate | 1.5 | % |  | 2.6 | %
Dividend yield | — |  |  | — |
The weighted-average grant date fair value of options granted during the three months ended March 31, 2020 and 2019 was $7.28 and $3.76 per share, respectively. The aggregate intrinsic value is the difference between the exercise price of the option and the estimated fair value of the underlying common stock. Options exercisable include 14,277,302 and 15,477,903 options that were unvested as of March 31, 2020 and December 31, 2019, respectively. The total grant date fair value for vested options in the three months ended March 31, 2020 and 2019 was $1.9 million and $1.0 million, respectively. As of March 31, 2020 and December 31, 2019, there was $13.8 million and $15.8 million, respectively, of unrecognized stock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of 1.3 years and 2.7 years, respectively. Early Exercises of Stock Options The 2010 Plan allows for the early exercise of stock options for certain individuals as determined by the Company’s Board of Directors. Shares of common stock issued upon early exercises of unvested options are not deemed, for accounting purposes, to be issued until those shares vest according to their respective vesting schedules and accordingly, the consideration received for early exercises is initially recorded as a liability and reclassified to common stock and additional paid-in capital as the underlying awards vest. Stock options that are early exercised are subject to a repurchase option that allows the Company to repurchase any unvested shares within six months of an individual’s termination for any reason, including death and disability (or in the case of shares issued upon exercise of an option after termination, within six months of the date of exercise). As of March 31, 2020 and December 31, 2019, the Company had $12.0 million and $13.3 million, respectively, recorded in liability for early exercise of unvested stock options, and the related number of unvested shares subject to repurchase was 5,373,457 and 5,945,083, respectively. Restricted Stock and Restricted Stock Units RSUs granted under the 2010 Plan generally vest upon the satisfaction of both a service-based vesting condition and a performance vesting condition, as defined below, occurring before these RSUs expire. RSUs granted under the 2019 Plan generally vest upon the satisfaction of a service-based vesting condition. The service-based vesting condition for employees under both the 2010 Plan and the 2019 Plan is typically satisfied over a four-year period. The performance vesting condition under the 2010 Plan was deemed satisfied upon the effective date of the Company's registration statement on Form S-1 filed with the SEC in connection with the IPO. In connection with the acquisition of S2, the Company issued 948,000 shares of Class A common stock to former S2 shareholders, some of which have joined the Company as employees. Of these issued shares, 841,000 shares are restricted stock that is subject to vesting, with 77.8% of this restricted stock vesting in two years from the acquisition date and the remainder of this restricted stock vesting in three years from the acquisition date, in each case subject to remaining continuously employed. The total grant date fair value for vested shares in the three months ended March 31, 2020 and 2019, was $1.8 million and zero, respectively. The total stock-based compensation expense for shares of unvested restricted stock for the three months ended March 31, 2020 and 2019 was $1.4 million and zero, respectively. As of March 31, 2020 and 2019, the total unrecognized stock-based compensation expense related to unvested restricted stock was $13.0 million and zero, respectively. For further details on the S2 acquisition, refer to Note 13 to these condensed consolidated financial statements. Restricted stock and RSU activity for the three months ended March 31, 2020 was as follows:
| Restricted Stock and RSUs |  | Weighted-Average Grant Date Fair Value
| (in thousands, except per share data) |  |
Unvested and outstanding as of December 31, 2019 | 6,508 |  |  | $ | 11.08 |
Granted - RSUs | 1,103 |  |  | $ | 17.93 |
Granted - Restricted stock | 841 |  |  | $ | 17.06 |
Vested - RSUs | (494) |  |  | $ | 9.66 |
Forfeited | (142) |  |  | $ | 10.28 |
Unvested as of March 31, 2020 | 7,816 |  |  | $ | 11.85 |
Vested and not yet released | 7 |  |  | $ | 8.75 |
Outstanding as of March 31, 2020 | 7,823 |  |  | $ | 11.85 |
The total grant date fair value for vested RSUs for the three months ended March 31, 2020 and 2019 was $4.8 million and zero, respectively. The total stock-based compensation expense for RSUs for the three months ended March 31, 2020 and 2019 was $8.8 million and zero, respectively. As of March 31, 2020 and December 31, 2019, the total unrecognized stock-based compensation expense related to RSUs was $59.9 million and $53.1 million, respectively, that is expected to be recognized over a weighted-average period of 2.8 years and 2.5 years, respectively. 2019 Employee Stock Purchase Plan In September 2019, the Company's Board of Directors adopted and stockholders approved the 2019 Employee Stock Purchase Plan (ESPP), which became effective one business day prior to the effective date of the Company's registration statement on Form S-1 filed with the SEC in connection with the IPO. A total of 5,870,000 shares of Class A common stock were initially reserved for sale under the ESPP. The number of shares of Class A common stock reserved for issuance includes an annual increase on the first day of each fiscal year, beginning on January 1, 2021, by the least of (1) 5,870,000 shares of Class A common stock, (2) 1% of the total number of shares of Class A and Class B common stock outstanding on December 31 of the fiscal year before the date of each automatic increase; or (3) such lesser amount as the compensation committee of the Company's Board of Directors may determine prior to the applicable January 1. Generally, all regular employees, including executive officers, employed by the Company or by any of its designated subsidiaries, except for those holding 5% or more of the total combined voting power or value of all classes of common stock, may participate in the ESPP and may contribute, normally through payroll deductions, up to 10% of their eligible compensation for the purchase of Class A common stock under the ESPP. Unless otherwise determined by the compensation committee of the Board of Directors, Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is the lesser of (1) 85% of the fair market value of a share of the Company's Class A common stock on the first date of an offering period, or (2) 85% of the fair market value of a share of the Company's Class A common stock on the date of purchase. The initial offering period began on September 13, 2019 and will end on May 15, 2020, with the purchase date of May 15, 2020. In addition, a second offering period began on November 15, 2019 and will also end on May 15, 2020, with a purchase date of May 15, 2020. The ESPP generally provides for six-month offering periods beginning November 15 and May 15 of each year, with identical six-month purchase periods. Current employees cannot sell the shares of Class A common stock purchased under the ESPP until the day after the one-year anniversary of the purchase date of such shares, except for the withholding or sale of shares by the Company to meet any applicable tax withholding obligations. No employee may purchase (i) during each purchase period more than 1,500 shares of Class A common stock and (ii) shares under the ESPP at a rate in excess of $25,000 worth of the Company's Class A common stock based on the fair market value per share of the Company's Class A common stock at the beginning of an offering for each calendar year such purchase right is outstanding. As of March 31, 2020, no shares of Class A common stock have been purchased under the ESPP. As of March 31, 2020 and December 31, 2019, the total unrecognized stock-based compensation expense related to the ESPP was $0.3 million and $1.0 million, respectively, that is expected to be recognized over a weighted average period of 0.1 years and 0.4 years, respectively. The weighted-average assumptions used to determine the fair value of the ESPP during the periods presented were as follows:
| Three Months ended March 31, |  |
| 2020 |  | 2019
Expected term (in years) | 0.6 |  | N/A
Risk-free interest rate | 1.8 | % |  | N/A
Expected volatility | 35.5 | % |  | N/A
Dividend yield | — |  |  | N/A
Stock-based Compensation Expense The following table sets forth the total stock-based compensation expense included in the Company’s condensed consolidated statements of operations:
| Three Months Ended March 31, |  |  |  |  |  |  |  |
| 2020 |  | 2019 |  |  |  |  |  |
| (in thousands) |  |  |  |  |  |  |  |
Cost of revenue | $ | 267 |  |  | $ | 32 |  |  |  |  |  |  |
Sales and marketing | 3,163 |  |  | 279 |  |  |  |  |  |  |
Research and development | 6,090 |  |  | 417 |  |  |  |  |  |  |
General and administrative | 3,377 |  |  | 329 |  |  |  |  |  |  |
Total stock-based compensation expense | $ | 12,897 |  |  | $ | 1,057 |  |  |  |  |  |  |

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