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Stockholders’ Equity | 12 Months Ended
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Dec. 31, 2023
Stockholders' Equity Note [Abstract] |
Stockholders' Equity | Stockholders’ Equity Common Stock The Company’s Amended and Restated Certificate of Incorporation, as amended and restated in May 2019, authorizes the issuance of 1.0 billion shares of Class A common stock and 94.1 million shares of Class B common stock, each at a par value per share of $0.00002. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to 10 votes per share. On July 12, 2021, all outstanding shares of Class B common stock automatically converted into the same number of shares of Class A common stock (the “Conversion”) pursuant to the terms of the Company’s amended and restated certificate of incorporation (the “Certificate”). Upon the Conversion, outstanding options denominated in shares of Class B common stock issued under any of the Company’s equity incentive plans remained unchanged, except that such options now represent the right to receive shares of Class A common stock on exercise. In accordance with the Certificate, the shares of Class B common stock that converted to Class A common stock were retired and will not be reissued by the Company. Accordingly, the Company filed a certificate with the Secretary of State of the State of Delaware effecting the retirement of the shares of Class B common stock that were issued but no longer outstanding following the Conversion. Upon the effectiveness of the certificate, the Company’s total number of authorized shares of capital stock was reduced by the retirement of 94.1 million shares of Class B common stock. Equity Incentive Plans The Company maintains four equity incentive plans: the 2019 Equity Incentive Plan (the “2019 Plan”), 2011 Equity Incentive Plan (“2011 Plan”), Employee Stock Purchase Plan and the Signal Sciences Corp. 2014 Stock Option and Grant Plan, as amended (the “Signal Plan”). The 2019 Plan became effective in May 2019 and replaced the 2011 Plan. The Company’s 2019 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock awards, performance-based stock awards (“PSUs”), and other forms of equity compensation, which are collectively referred to as stock awards to its employees, directors, and consultants. The Signal Plan includes 251,754 registered shares which can be exercised to purchase shares of Fastly’s common stock. As of December 31, 2023 and 2022, there were 8.9 million and 9.6 million Class A common stock available for issuance under the 2019 Plan, respectively. As of December 31, 2023 and 2022, 133.0 million and 124.3 million shares of Class A common stock were issued and outstanding, respectively. As of both December 31, 2023 and 2022, no shares of Class B common stock were issued and outstanding. Stock Options Options granted under the 2011 Plan and 2019 Plan are exercisable for Class A common stock and generally expire within 10 years from the date of grant and generally vest over four years, at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter based on continued service. Due to the Conversion on July 12, 2021, options granted under the 2011 Plan are now exercisable for Class A common stock. Forfeitures are recognized as they occur. The following table summarizes stock option activity during the year ended December 31, 2023:
|  | Number of Shares |  | Weighted-Average Exercise Price |  | Weighted-Average Remaining Contractual Term |  | Aggregate Intrinsic Value
|  | (in thousands) |  |  |  | (in years) |  | (in thousands)
Outstanding at December 31, 2022 |  | 2,443 |  |  | $ | 6.01 |  |  | 4.7 |  | $ | 7,674 |
Granted |  | 602 |  |  | 16.47 |  |  |  |  |
Exercised |  | (291) |  |  | 7.45 |  |  |  |  |
Forfeited |  | (44) |  |  | 8.41 |  |  |  |  |
Outstanding at December 31, 2023 |  | 2,710 |  |  | $ | 8.14 |  |  | 5.1 |  | $ | 26,383 |
Vested and exercisable at December 31, 2023 |  | 2,142 |  |  | $ | 5.94 |  |  | 3.8 |  | $ | 25,620 |
The total pre-tax intrinsic value of options exercised during the years ended December 31, 2023, 2022, and 2021 was $3.1 million, $8.9 million, and $64.9 million, respectively. The total grant date fair value of employee options vested for the years ended December 31, 2023, 2022, 2021 was $2.1 million, $5.6 million, and $6.9 million, respectively. The weighted-average grant date fair value for options granted to employees during the year ended December 31, 2023 was $10.97. The Company did not grant any options for the years ended December 31, 2022 and 2021. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. Each of the Black-Scholes inputs is subjective and generally requires significant judgments to determine. The Company estimated the fair value of stock option awards during the year ended December 31, 2023 on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
| Year ended December 31,
|  | 2023
Fair value of common stock |  | $16.47
Expected term (in years) |  | 5.96
Risk-free interest rate |  | 4.67%
Expected volatility |  | 71.2%
Dividend yield |  | —%
During the years ended December 31, 2023 and 2022, and 2021, the Company recognized stock-based compensation expense from stock options of approximately $2.1 million, $6.1 million, and $24.9 million, respectively. As of December 31, 2023, total unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $6.2 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 3.6 years. Early Exercise of Stock Options Certain stock options granted by the Company are exercisable at the date of grant, with unvested shares subject to repurchase by the Company in the event of voluntary or involuntary termination of employment of the stockholder. Such exercises are recorded as a liability on the accompanying consolidated balance sheets and reclassified into equity as the options vest. During the year ended December 31, 2021, the Company modified the terms of 47,882 unvested options subject to repurchase, with an exercise value of approximately $0.2 million, to become fully vested upon change in service status. As of December 31, 2021, a total of 90,977 shares of Class B Common Stock were subject to repurchase by the Company at the lower of (i) the fair market value of such shares on the date of repurchase, or (ii) the original exercise price of such shares. The corresponding exercise value of approximately $0.4 million as of December 31, 2021, was recorded in other current liabilities and other liabilities on the related consolidated balance sheets. The Company did not have any early exercise awards for the year ended December 31, 2023 and 2022. Restricted Stock Units (“RSUs”) The Company began granting RSUs under the 2019 Plan during the fiscal year ended December 31, 2019. The fair value of RSUs is based on the grant date fair value and is expensed on a straight-line basis over the applicable vesting period. RSUs granted to new hires typically vest over three or four years, at the rate of 33% or 25%, respectively, on the first anniversary of the vesting start date and ratably on a quarterly basis over the remaining 24-month or 36-month period thereafter, respectively. RSUs granted to existing employees typically vest in equal quarterly installments over a three or four-year service period. All vesting is contingent on continued service. Forfeitures are recognized as they occur. The following table summarizes RSU activity during the years ended December 31, 2023:
|  | Number of Shares |  | Weighted-Average Grant Date Fair Value Per Share
|  | (in thousands) |  |
Nonvested RSUs as of December 31, 2022 |  | 11,990 |  |  | $ | 20.10 |
Granted |  | 7,667 |  |  | 15.80 |
Vested |  | (6,719) |  |  | 18.94 |
Cancelled/forfeited |  | (1,694) |  |  | 22.80 |
Nonvested RSUs as of December 31, 2023 |  | 11,244 |  |  | $ | 17.46 |
During the years ended December 31, 2023, 2022 and 2021, the weighted-average grant date fair value for RSUs granted was $15.80, $14.63 and $54.92 per share, respectively. During the years ended December 31, 2023, 2022 and 2021, the total weighted-average grant date fair value of RSUs vested was $127.3 million, $97.9 million and $67.7 million, respectively. During the years ended December 31, 2023, 2022 and 2021, the Company recognized stock-based compensation expense related to RSUs of $105.2 million, $98.5 million and $78.3 million, respectively. As of December 31, 2023, total unrecognized stock-based compensation cost related to non-vested RSUs was $177.1 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 2.4 years. Stock Subject to Revest (“Revest Shares”) In conjunction with a prior acquisition in fiscal 2020, a restriction was placed on 896,499 shares belonging to the three co-founders of the target which are subject to revesting on a quarterly basis over a 2-year period. The Company did not recognize any stock-based compensation expense related to revest shares for the year ended December 31, 2023. For the year ended December 31, 2022, the Company recognized stock-based compensation expense related to revest shares of $27.6 million. As of December 31, 2023, there is no unrecognized stock-based compensation cost related to revest shares. On January 24, 2022, the Company entered into an agreement with certain holders of restricted stock, who had sold their awards in advance of their vesting conditions, in order to return the proceeds associated with the remaining 224,124 unvested shares as of December 31, 2021. These stockholders are eligible to continue vesting under the original agreements as long as they have continued service as either an employee or consultant. On January 31, 2022, the Company received $10.7 million from these stockholders related to the settlement of the matter, which the Company classified as unrestricted cash on its consolidated balance sheets. This amount will similarly be returned to the holders in accordance with the vesting under the original agreements. Correspondingly, the Company reclassified the award from equity to liability as the award will now be settled for the fixed monetary amount received, rather than a release of the restrictions on shares. The modification did not result in any incremental expense to be recognized. In February 2022, one of the stockholders had a change in employment status and the Company accelerated the remaining stock-based compensation associated with his awards on his last day of service as an employee as his services under the modified arrangement were not substantive. For the year ended December 31, 2022, the Company recognized stock-based compensation expense of $5.6 million associated with the modification of these awards, which is included in the total stock-based compensation expense. For the year ended December 31, 2023, the Company did not recognize any stock-based compensation expense associated with the modification of these awards. Performance-Based Restricted Stock Units ("PSUs") Performance stock awards for executive officers ("executive PSUs”) In February 2021, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted shares of executive PSUs to certain employees of the Company, which are to vest based on the level of achievement of certain Company and individual targets related to the Company’s operating plan for the fiscal year 2021 (“2021 Operating Plan”). In February 2022, the Company concluded that the minimum target performance to be eligible for vesting under the 2021 Operating Plan was not attained, and as such, none of the 2021 executive PSUs were eligible to vest and the awards were cancelled. In February 2022, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of executive PSUs, which are to vest based on the level of achievement of certain Company-wide targets related to the Company’s operating plan for the fiscal year 2022. The Company has accounted for these awards as equity-based awards and will recognize stock-based compensation expense over the employees’ requisite service period based on the expected attainment of the Company-wide targets as of the end of each reporting period. On March 29, 2023, May 4, 2023, and May 30, 2023, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of executive PSUs, which are to vest based on the level of achievement of certain Company-wide targets related to the Company’s operating plan for the fiscal year 2023. The Company has accounted for these awards as equity-based awards and will recognize stock-based compensation expense over the employees’ requisite service period based on the expected attainment of the Company-wide targets as of the end of each reporting period.
|  | Number of Shares |  | Weighted-Average Grant Date Fair Value Per Share
|  | (in thousands) |  |
Nonvested executive PSUs as of December 31, 2022 |  | 267 |  |  | $ | 28.16 |
Granted |  | 762 |  |  | 15.88 |
Vested |  | (84) |  |  | 28.16 |
Cancelled/forfeited |  | (213) |  |  | 24.35 |
Nonvested executive PSUs as of December 31, 2023 |  | 732 |  |  | $ | 16.49 |
For the years ended December 31, 2023, 2022 and 2021, the Company recognized $4.3 million, $1.4 million, and $3.4 million of stock-based compensation expense associated with these awards, respectively. Company-wide Bonus Program (“Bonus Program”) On February 11, 2022, the Compensation Committee approved a company-wide bonus program, including performance targets, to most of the Company’s employees on active payroll in fiscal year 2022. Shares awarded under the program were paid out in February 2023 in fully vested RSUs and based on the final attainment of Company-wide performance targets which were tied to its operating plan for fiscal year 2022. The Company recognized stock-based compensation expense over the employees requisite service period, based on the final attainment of the Company-wide targets. In February 2023, the Company paid out the bonus liability associated with the 2022 Bonus Program in 1.2 million of restricted stock units, and correspondingly recorded a charge to additional paid-in-capital of $16.6 million. On March 29, 2023, the Compensation Committee approved a company-wide bonus program, including performance targets, to most of the Company’s employees on active payroll in fiscal year 2023. Shares awarded under the program will be in fully vested RSUs and will be based on the final attainment of Company-wide performance targets which are tied to its operating plan for fiscal year 2023. The payout of the 2023 Company-wide bonus program will vary linearly between 50%, 100% and 150% based on the achievement of these targets. Employees are required to be employed through the payout date to earn the awards. The Company has accounted for these awards as liability-based awards, since the monetary value of the obligation associated with the award is based predominantly on a fixed monetary amount known at inception, and it has an unconditional obligation that it must or may settle by issuing a variable number of its equity shares. The Company is recognizing the stock-based compensation expense over the employees requisite service period, based on the expected attainment of the Company-wide targets as of the end of each reporting period. During the years ended December 31, 2023, and 2022, the Company recognized $24.7 million and $14.9 million of stock-based compensation expense associated with the Bonus Programs, respectively. The Company did not recognize any stock-based compensation expense associated with the Bonus Program for the year ended December 31, 2021. Market-Based Performance Stock Awards (“MPSUs”) In September 2022 and January 2023, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of MPSUs, which are to vest upon the satisfaction of the Company’s achievement of specified Fastly Class A common stock price targets during the applicable performance period. In addition, the awards are subject to each recipient’s continuous service through each applicable vest dates. The Company measured the fair value of the MPSUs using a Monte Carlo simulation valuation model. The risk-free interest rates used were 3.37% - 3.68%, which were based on five-year US treasury yield, adjusted to a continuous time basis. The expected volatility was a blended volatility rate of 80%, which incorporated both the Company’s observed equity volatility and the relevant guideline company volatility.
|  | Number of Shares |  | Weighted-Average Grant Date Fair Value Per Share
|  | (in thousands) |  |
Nonvested MPSUs as of December 31, 2022 |  | 2,174 |  |  | $ | 6.80 |
Granted |  | 87 |  |  | 7.25 |
Vested |  | (540) |  |  | 7.84 |
Cancelled/forfeited |  | (250) |  |  | 6.69 |
Nonvested MPSUs as of December 31, 2023 |  | 1,471 |  |  | $ | 6.46 |
Stock-based compensation expense relating to the MPSUs are recognized using the accelerated attribution method over the derived service period. For the year ended December 31, 2023, the Company recognized $5.9 million of stock-based compensation expense associated with these awards. Total unrecognized stock-based compensation expense related to the unvested portion of the MPSUs was $4.7 million as of December 31, 2023. This expense is expected to be amortized over a weighted-average vesting period of 3.9 years. Employee Stock Purchase Program (“ESPP”) The ESPP allows eligible employees to purchase shares of the Company’s Class A common stock through payroll deductions of up to 15% of their eligible compensation. The ESPP provides for six-month offering periods, commencing in May and November of each year. At the end of each offering period employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s Class A common stock on the first trading day of the offering period or on the date of purchase. The Company estimates the fair value of shares to be issued under the ESPP on the first day of the offering period using the Black-Scholes valuation model. The inputs to the Black-Scholes option pricing model are the Company’s stock price on the first date of the offering period, the risk-free interest rate, the estimated volatility of the Company’s stock price over the term of the offering period, the expected term of the offering period and the expected dividend rate. Stock-based compensation expense related to the ESPP is recognized on a straight-line basis over the offering period. Forfeitures are recognized as they occur. The Company estimated the fair value of shares granted under the ESPP on the first date of the offering period using the Black-Scholes option pricing model with the following assumptions:
|  | Year ended December 31,
|  | 2023 |  | 2022 |  | 2021
Fair value of common stock |  | $3.33 – $6.09 |  | $8.40 – $11.85 |  | $41.24 – $44.87
Expected term (in years) |  | 0.49 – 0.50 |  | 0.49 |  | 0.49 – 0.50
Risk-free interest rate |  | 4.65% – 5.43% |  | 1.57% – 4.65% |  | 0.02% – 0.07%
Expected volatility |  | 70% – 88% |  | 88% – 101% |  | 47% – 58%
Dividend yield |  | — | % |  | — | % |  | — | %
During the years ended December 31, 2023, 2022 and 2021, the Company recognized $4.1 million, $3.2 million, and $3.5 million in stock-based compensation expense related to the ESPP, respectively. As of December 31, 2023, total unrecognized stock-based compensation cost related to ESPP was $1.9 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 0.4 years. During the years ended December 31, 2023, 2022 and 2021, an aggregate of 1.0 million and 0.5 million and 0.2 million shares of the Company’s Class A common stock was purchased under the ESPP, respectively. Equity Awards Modification In September 2023, as part of one employee's separation and transition plan, the Company modified this employee’s outstanding equity awards in an amount that would have vested if this individual had remained an employee for an additional period of time. As a result of the modification, the Company recognized stock-based compensation expense of $2.0 million for the year ended December 31, 2023. In September 2022, as part of one employee's separation and transition plan, the Company modified this employee’s outstanding equity awards in an amount that would have vested if this individual had remained an employee for an additional period of time. As a result of the modification, the Company recognized stock-based compensation expense of $3.1 million for the year ended December 31, 2022. Stock-based Compensation Expense The following table summarizes the components of total stock-based compensation expense included in the accompanying consolidated statements of operations:
|  | Year ended December 31,
|  | 2023 |  | 2022 |  | 2021
|  | (in thousands)
Cost of revenue |  | $ | 11,656 |  |  | $ | 12,050 |  |  | $ | 7,227 |
Research and development |  | 47,827 |  |  | 58,435 |  |  | 47,019 |
Sales and marketing |  | 33,703 |  |  | 39,083 |  |  | 31,159 |
General and administrative |  | 43,117 |  |  | 36,228 |  |  | 55,083 |
Total |  | $ | 136,303 |  |  | $ | 145,796 |  |  | $ | 140,488 |
For the years ended December 31, 2023, 2022 and 2021, the Company capitalized $10.1 million, $8.0 million, and $4.4 million of stock-based compensation expense, respectively. For the year ended December 31, 2023, the Company recognized $24.7 million of stock-based compensation expense associated with liability classified awards related to the company-wide Bonus Program. For the year ended December 31, 2022, the Company recognized $25.5 million of stock-based compensation expense associated with liability classified awards related to the company-wide Bonus Program and certain of the Company’s Revest Shares that were modified. The Company did not recognize any stock-based compensation expense associated with liability classified awards for the year ended December 31, 2021.

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