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Stock-based Compensation
 3 Months Ended
Mar. 31, 2022
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, restricted stock units (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.
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. The 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, 2022:
Stock Options Outstanding
(in thousands, except year and per share data)
Shares Subject to Options OutstandingWeighted- Average Exercise Price per OptionWeighted- Average Remaining Contractual Terms (in years)Aggregate Intrinsic Value
Balances as of December 31, 202113,603 $12.47 6.0$1,726,440 
Options granted — $— 
Options exercised (857)$3.49 $87,101 
Options canceled/forfeited/expired (3)$2.77 
Balances as of March 31, 202212,743 $15.13 5.75$1,437,112 
Vested and expected to vest as of March 31, 202212,739 $4.91 5.75$1,436,612 
Exercisable as of March 31, 202211,793 $2.62 5.56$1,380,741 
The Company did not grant any stock options during the three months ended March 31, 2022 and March 31, 2021.
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 5,303,657 and 6,229,524 options that were unvested as of March 31, 2022 and December 31, 2021, respectively.
The total grant date fair value for vested options in the three months ended March 31, 2022 and 2021 was $2.5 million and $5.8 million, respectively.
As of March 31, 2022 and December 31, 2021, there was $17.5 million and $20.1 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 2.1 years and 2.3 years, respectively.
In December 2021, the Compensation Committee of the Board of Directors of the Company (the Compensation Committee) granted to the Company’s Chief Executive Officer and President and Chief Operating Officer (each, a Co-Founder), a 10-year performance-based stock option that vests and becomes exercisable only if the Company achieves certain stock price milestones and the Co-Founder continues to remain in a primary leadership position with the Company (the Performance Awards). The Performance Awards will be submitted for approval of the Company’s stockholders other than the Co-Founders, other executive officers of the Company, certain other employees of the Company, and certain of their respective family members and affiliates (the Disinterested Stockholders) at the Company's 2022 annual meeting of its stockholders. If a majority of the voting power held by the Disinterested Stockholders do not approve the Performance Awards by December 22, 2022, the Performance Awards will be immediately and automatically forfeited. Each Performance Award was granted under the 2019 Plan and consists of a 10-year option to purchase an aggregate of 3,960,000 shares of the Company’s Class A common stock. The exercise price per share subject to the Performance Awards is $136.81, which was the closing sales price of the Company’s Class A common stock on December 22, 2021, the date of grant by the Compensation Committee. Solely for accounting purposes, the grant date of the Performance Awards will be the date of approval by the majority of the voting power held by the Disinterested Stockholders. As of March 31, 2022, the Performance Awards have not been approved by the Disinterested Stockholders, and accordingly, are not considered granted in accordance with ASC 718 solely for accounting purposes.
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 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), any unvested shares of such individual for a repurchase price equal to the amount previously paid by the individual for such unvested shares. As of March 31, 2022 and December 31, 2021, the Company had $3.9 million and $4.7 million, respectively, recorded in liability for early exercise of unvested stock options, and the related number of unvested shares subject to repurchase was 1,783,279 and 2,128,660, 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, subject to remaining continuously employed. 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 Vectrix, the Company issued approximately 71,000 shares of Class A common stock to former Vectrix employees who have joined the Company and previous holders of Vectrix equity interests. Of these issued shares, approximately 52,000 shares are restricted stock that is subject to vesting on a ratable basis over the four years from the acquisition date, in each case subject to remaining continuously employed. None of these restricted shares vested during the three months ended March 31, 2022. The total stock-based compensation expense for shares of unvested restricted stock for the three months ended March 31, 2022 was not material. As of March 31, 2022, the total unrecognized stock-based compensation expense related to unvested restricted stock was $4.9 million. For further details on the Vectrix acquisition, refer to Note 13 to these condensed consolidated financial statements.
In connection with the acquisition of Zaraz Inc. (Zaraz), the Company issued approximately 48,000 shares of Class A common stock to former Zaraz employees who have joined the Company and previous holders of Zaraz equity interests. Of these issued shares, approximately 39,000 are shares of restricted stock that is subject to vesting on a ratable basis over the three years from the acquisition date, in each case subject to remaining continuously employed. The total stock-based compensation expense for such shares of unvested restricted stock for the three months ended March 31, 2022 was not material. As of March 31, 2022, the total unrecognized stock-based
compensation expense related to unvested restricted stock was $5.5 million. For further details on the Zaraz acquisition, refer to Note 13 to these consolidated financial statements.
In connection with the acquisition of S2 Systems Corporation (S2), the Company issued approximately 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, approximately 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, 2022 and March 31, 2021 was $11.2 million and zero, respectively. The total stock-based compensation expense for shares of unvested restricted stock for the three months ended March 31, 2022 and 2021 was $0.8 million and $1.4 million, respectively. As of March 31, 2022 and 2021, the total unrecognized stock-based compensation expense related to unvested restricted stock was $2.4 million and $7.4 million, respectively. For further details on the S2 acquisition, refer to Note 13 to these condensed consolidated financial statements.
RSU and restricted stock activity for the three months ended March 31, 2022 was as follows:
Restricted Stock and RSUsWeighted-Average
Grant
Date Fair Value
(in thousands, except per share data)
Unvested and outstanding as of December 31, 20217,456 $47.36 
Granted - RSUs863 $102.25 
Granted - Restricted stock52 $100.29 
Vested - RSUs(709)$31.63 
Vested - Restricted stock(655)$100.29 
Forfeited (173)$48.17 
Unvested as of March 31, 20226,834 $55.45 
Vested and not yet released— $— 
Outstanding as of March 31, 20226,834 $55.45 
The total grant date fair value for vested RSUs for the three months ended March 31, 2022 and 2021 was $22.4 million and $9.9 million, respectively. The total stock-based compensation expense for RSUs for the three months ended March 31, 2022 and 2021 was $35.2 million and $13.6 million, respectively. As of March 31, 2022 and December 31, 2021, the total unrecognized stock-based compensation expense related to unvested RSUs was $342.3 million and $176.2 million, respectively, that is expected to be recognized over a weighted-average period of 3.3 years and 3.5 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 ESPP generally provides for six-month offering periods beginning on the first day of trading on or after November 15 and May 15 of each year and terminating on the last trading day on or before May 15 and November 15, approximately six months later, with identical 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.
No shares of Class A common stock were purchased under the ESPP during the three months ended March 31, 2022 and March 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, the total unrecognized stock-based compensation expense related to the ESPP was $0.8 million and $2.6 million, respectively, that is expected to be recognized over a weighted average period of 0.1 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,
20222021
Expected term (in years)0.50.5
Risk-free interest rate0.1 %0.1 %
Expected volatility44.0 %59.7 %
Dividend yield— %— %
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,
20222021
(in thousands)
Cost of revenue$1,078 $414 
Sales and marketing8,919 5,645 
Research and development18,829 8,364 
General and administrative5,139 3,615 
Total stock-based compensation expense$33,965 $18,038