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. The number of shares of common stock authorized for issuance under the 2010 Plan was 75,008,088 as of December 31, 2018. 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. The number of shares of common stock available for issuance under the 2010 Plan was zero and 13,355,967 as of September 30, 2019 and December 31, 2018, respectively. 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 September 30, 2019, no shares of Class A common stock were granted under the 2019 Plan and the number of shares of Class A common stock available for issuance under the 2019 Plan was 29,386,922. 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 generally vest over a four The following table summarizes the stock options activity under the 2010 Plan: Stock Options Outstanding (in thousands, except year and per share data) Shares Subject Weighted- Weighted- Aggregate Balances as of December 31, 2018 25,087 $ 2.18 8.4 $ 159,945 Options granted 394 $ 9.60 Options exercised (2,589) $ 2.24 $ 21,188 Repurchase of unvested shares — Options canceled/forfeited/expired (1,014) $ 2.46 Balances as of September 30, 2019 21,878 $ 2.30 7.8 $ 355,967 Vested and expected to vest as of September 30, 2019 21,878 $ 2.30 7.8 $ 355,967 Exercisable as of September 30, 2019 21,865 $ 2.30 7.8 $ 355,755 The weighted-average assumptions used to determine the fair value of stock options granted during the periods presented were as follows: Nine months ended September 30, 2019 2018 Expected term (in years) 6.2 6.5 Expected volatility 40.3 % 43.5 % Risk-free interest rate 2.3 % 2.9 % Dividend yield — — The weighted-average grant date fair value of options granted during the nine months ended September 30, 2019 and 2018 was $4.10 and $1.31 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 17,118,432 and 20,697,847 options that were unvested as of September 30, 2019 and December 31, 2018, respectively. The total grant date fair value for vested options in the nine months ended September 30, 2019 and 2018 was $3.5 million and $2.7 million, respectively. As of September 30, 2019 and December 31, 2018, there was $18.4 million and $15.5 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 2.8 years and 3.8 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), at the price equal to the lower of the amount paid by the purchaser and the fair market value at the time of repurchase, except that after the IPO the repurchase price will be the amount paid by the purchaser. As of September 30, 2019 and December 31, 2018, the Company had $14.6 million and $14.3 million, respectively, recorded in liability for early exercise of unvested stock options, and the related number of unvested shares subject to repurchase was 6,563,716 and 6,737,971, respectively. 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 one three four RSU activity for the nine months ended September 30, 2019 was as follows: RSUs Weighted-Average (in thousands, except per share data) Unvested and outstanding as of December 31, 2018 — Granted 6,465 $ 9.74 Vested (317) $ 8.62 Forfeited (280) $ 8.70 Unvested as of September 30, 2019 5,868 $ 9.85 Vested and not yet released 317 $ 8.62 Outstanding as of September 30, 2019 6,185 $ 9.79 The total grant date fair value for vested RSUs for the nine months ended September 30, 2019 and 2018 was $2.7 million and zero, respectively. The total stock-based compensation expense for RSUs for the three months ended September 30, 2019 and 2018 was $15.4 million and zero, respectively, and for the nine months ended September 30, 2019 and 2018, was $15.4 million and zero, respectively. As of September 30, 2019 and December 31, 2018, the total unrecognized stock-based compensation expense related to RSUs was $45.1 million and zero, respectively, that is expected to be recognized over a weighted-average period of 2.0 years and zero 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. The ESPP generally provides for six six As of September 30, 2019, no shares of Class A common stock have been purchased under the ESPP. As of September 30, 2019 and December 31, 2018, the total unrecognized stock-based compensation expense related to the ESPP was $1.5 million and zero, respectively. The weighted-average assumptions used to determine the fair value of the ESPP during the periods presented were as follows: Nine months ended September 30, 2019 2018 Expected term (in years) 0.7 N/A Risk-free interest rate 1.8 % N/A Expected volatility 35.6 % 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 September 30, Nine Months Ended September 30, 2019 2018 2019 2018 (in thousands) Cost of revenue $ 397 $ 37 $ 463 $ 87 Sales and marketing 4,880 290 5,434 678 Research and development 7,801 461 8,624 1,078 General and administrative 9,833 23,648 10,491 24,442 Total stock-based compensation expense $ 22,911 $ 24,436 $ 25,012 $ 26,285 |