Convertible Preferred Stock, Stockholders’ Equity (Deficit) and Equity Incentive Plan | Convertible Preferred Stock, Stockholders’ Equity (Deficit), and Equity Incentive Plan Convertible Preferred Stock Convertible preferred stock consisted of the following as of January 31, 2019 and as of immediately prior to the automatic conversion of convertible preferred stock into common stock: As of January 31, 2019 Designated Shares Issued Aggregate (in thousands, except share data) Series A 67,083,500 61,717,700 $ 9,258 Series B 25,857,784 25,857,784 6,500 Series C 34,363,256 34,363,256 30,000 Series D 30,800,000 30,727,064 114,966 Total convertible preferred stock 158,104,540 152,665,804 $ 160,724 Upon completion of the IPO in April 2019, all shares of convertible preferred stock outstanding, totaling 152,665,804 shares, were automatically converted into an equivalent number of shares of Class B common stock on a one-to-one basis and their carrying value of $159.6 million was reclassified into stockholders’ equity. As of January 31, 2020, there were no shares of convertible preferred stock issued and outstanding. In connection with the IPO, our amended and restated certificate of incorporation became effective, which authorized the issuance of 200,000,000 shares of undesignated preferred stock with a par value of $0.001 with rights and preferences, including voting rights, designated from time to time by our board of directors. Repurchases of Convertible Preferred Stock In fiscal year 2018, we voluntarily repurchased 1,365,800 shares of Series A convertible preferred stock from certain existing investors for a total consideration of $4.6 million. The amount paid in excess of the carrying value of the Series A convertible preferred stock is considered a deemed dividend and is reflected as distributed earnings attributable to participating securities in the calculation of net loss attributable to common stockholders. The shares of Series A convertible preferred stock that we repurchased were retired immediately thereafter. Dual-Class Common Stock Structure In November 2018, we implemented a dual class common stock structure pursuant to which all the then-outstanding shares of our common stock were reclassified as Class B common stock and a new class of Class A common stock was authorized. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to 10 votes per share. The Class A and Class B common stock have the same dividend and liquidation rights. Each share of Class B common stock will automatically convert into one share of Class A common stock upon (a) any transfer of such share, except for certain permitted transfers described in our amended and restated certificate of incorporation and (b) the death of the holder of such share. In addition, each share of Class B common stock will be automatically converted into one share of Class A common stock upon the earliest of (a) the date that is six months following the death or incapacity of Eric S. Yuan (our CEO), (b) the date that is six months following the date that Mr. Yuan is no longer providing services to us or his employment is terminated for cause, (c) the date specified by the holders of a majority of the then-outstanding shares of convertible preferred stock, voting together on an as-converted basis, and the holders of a majority of the then-outstanding shares of Class B common stock, voting as a separate class, and (d) the 15-year anniversary of the closing of our IPO. In connection with the implementation of the dual-class common stock structure, each then-outstanding share of our convertible preferred stock became convertible into one share of Class B common stock, and all outstanding options to purchase shares of common stock became options to purchase an equivalent number of shares of Class B common stock. Upon the effectiveness of the amended and restated certificate of incorporation in November 2018, the number of shares of common stock that is authorized to be issued consisted of 320,000,000 shares of Class A common stock, $0.001 par value per share and 300,000,000 shares of Class B common stock, $0.001 par value per share. Class A and Class B common stock are collectively referred to as “common stock” throughout the notes to the consolidated financial statements, unless otherwise noted. Common Stock Upon the completion of the IPO in April 2019, our amended and restated certificate of incorporation became effective, which also authorized the issuance of 2,000,000,000 shares of Class A common stock, $0.001 par value per share and 300,000,000 shares of Class B common stock, $0.001 par value per share. We have the following shares of common stock reserved for future issuance: As of January 31, 2020 2019 Conversion of convertible preferred stock — 152,665,804 Stock options outstanding 16,833,009 35,064,465 RSUs outstanding 1,964,668 — ESPP purchase rights outstanding 1,323,662 — Remaining shares available for future issuance under the 2011 and 2019 plan 33,604,587 1,848,100 Remaining shares available for future issuance under the ESPP 7,186,070 — Total shares of common stock reserved 60,911,996 189,578,369 Equity Incentive Plans In 2011, we adopted the 2011 Global Share Plan (“2011 Plan”), under which officers, employees, and consultants may be granted various forms of equity incentive compensation at the discretion of the board of directors, including stock options and restricted stock awards. The awards have varying terms, but generally vest over four In April 2019, we adopted the 2019 Plan, which is a successor to and continuation of our 2011 Plan. Our 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, RSU awards, performance awards, and other forms of awards. The plan administrator determines the term of stock options granted under the 2019 Plan, up to a maximum of 10 years. The maximum number of shares of our Class A common stock that may be issued under our 2019 Plan will not exceed 58,300,889 shares of our Class A common stock, which is the sum of (1) 34,000,000 new shares, plus (2) an additional number of shares not to exceed 24,300,889, consisting of (A) shares that remain available for the issuance of awards under our 2011 Plan as of immediately prior to the time our 2019 Plan becomes effective and (B) shares of Class B common stock subject to outstanding stock options or other stock awards granted under our 2011 Plan that, on or after the 2019 Plan becomes effective, terminate, or expire prior to exercise or settlement; are not issued because the award is settled in cash; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, as such shares become available from time to time. In addition, the number of shares of our Class A common stock reserved for issuance under our 2019 Plan will automatically increase on February 1 of each calendar year, starting on February 1, 2020 through February 1, 2029, in an amount equal to (i) 5% of the total number of shares of our common stock (both Class A and Class B) outstanding on January 31 of the fiscal year before the date of each automatic increase or (ii) a lesser number of shares determined by our board of directors prior to the applicable February 1. Stock Options A summary of stock option activity under our equity incentive plan and related information is as follows: Stock Options Outstanding Weighted- Weighted- Aggregate (in thousands, except share, life and per share data) Balance as of January 31, 2019 35,064,465 $ 1.48 6.8 $ 534,572 Granted 1,576,150 $ 36.86 Exercised (19,003,652) $ 0.49 $ 767,336 Canceled/forfeited/expired (803,954) $ 5.15 Balance as of January 31, 2020 16,833,009 $ 5.73 7.6 $ 1,191,881 Vested and exercisable as of January 31, 2020 7,248,393 $ 1.78 6.8 $ 540,222 The weighted-average grant date fair value of options granted to employees during the fiscal years ended January 31, 2020, 2019, and 2018 was $25.17, $6.28, and $0.67, respectively. The intrinsic value of the options exercised, which represents the difference between the fair market value of our common stock on the date of exercise and the exercise price of each option, was $767.3 million, $60.8 million, and $2.5 million during the fiscal years ended January 31, 2020, 2019, and 2018, respectively. As of January 31, 2020, unrecognized stock-based compensation cost related to outstanding unvested stock options was $76.6 million, which is expected to be recognized over a weighted-average period of 2.8 years. The Black-Scholes assumptions used to value the employee options at the grant dates are as follows: Year Ended January 31, 2020 2019 2018 Expected term (years) 5.0 - 6.1 5.0 - 6.2 5.6 - 6.7 Expected volatility 49.9% - 53.2% 44.6% - 48.2% 47.7% - 52.0% Risk-free interest rate 1.6% - 2.5% 2.6% - 3.1% 1.8% - 2.3% Expected dividend yield — — — These assumptions and estimates were determined as follows: • Fair Value of Common Stock. Prior to our IPO, the fair value was determined by our board of directors, with input from management and valuation reports prepared by third-party valuation specialists. Stock-based compensation for financial reporting purposes is measured based on updated estimates of fair value when appropriate, such as when additional relevant information related to the estimate becomes available in a valuation report issued as of a subsequent date. After our initial public offering, the fair value of each share of underlying common stock was based on the closing price of our Class A common stock as reported on the date of the grant. • Risk-Free Interest Rate. The risk-free interest rate for the expected term of the options was based on the U.S. Treasury yield curve in effect at the time of the grant. • Expected Term. The expected term of options represents the period of time that options are expected to be outstanding. Our historical stock option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient data. For stock options granted to employees, we estimate the expected term by using the simplified method. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the stock options. For stock options granted to nonemployees, the expected term equals the contractual term of the stock option. • Expected Volatility. As we have a short trading history for our common stock, the expected volatility was estimated by taking the average historic price volatility for industry peers, consisting of several public companies in our industry that are similar in size, stage of life cycle, or financial leverage, over a period equivalent to the expected term of the awards. • Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. As a result, an expected dividend yield of zero percent was used. Restricted Stock Units A summary of RSU activity under our equity incentive plan and related information is as follows: RSUs Unvested Weighted-Average Unvested as of January 31, 2019 — $ — Granted 2,048,248 $ 79.22 Vested (31,649) $ 78.23 Canceled/forfeited (51,931) $ 84.00 Unvested as of January 31, 2020 1,964,668 $ 79.11 As of January 31, 2020, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $142.8 million, which is expected to be recognized over a weighted-average period of 3.6 years. 2019 Employee Stock Purchase Plan In April 2019, we adopted the 2019 ESPP, which became effective in connection with the IPO. A total of 9,000,000 shares of our Class A common stock were initially reserved for issuance under the ESPP. The number of shares of our Class A common stock reserved for issuance will automatically increase on February 1 of each calendar year, beginning on February 1, 2020 through February 1, 2029, by the lesser of (1) 1% of the total number of shares of our common stock (both Class A and Class B) outstanding on the last day of the fiscal year before the date of the automatic increase, and (2) 7,500,000 shares; provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, except for those holding 5% or more of the total combined voting power or value of all classes of our stock, may participate in the ESPP and may contribute, normally through payroll deductions, up to 20% of their earnings (as defined in the ESPP) for the purchase of our Class A common stock under the ESPP. Unless otherwise determined by our board of directors, Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share equal to the lesser of (1) 85% of the fair market value of a share of our Class A common stock on the first date of an offering or (2) 85% of the fair market value of a share of our Class A common stock on the date of purchase. No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our Class A common stock based on the fair market value per share of our Class A common stock at the beginning of an offering for each calendar year such purchase right is outstanding or 3,000 shares. The 2019 ESPP provides for, at maximum, 27 months offering periods with four offering dates, generally in June and December of each year. The first offering period began on April 18, 2019. As of January 31, 2020, 490,268 shares of our Class A common stock have been purchased under the ESPP. As of January 31, 2020, unrecognized stock-based compensation expense related to the ESPP was $55.7 million, which is expected to be recognized over a weighted-average period of 1.4 years. We estimated the fair value of ESPP purchase rights using a Black-Scholes option-pricing model with the following assumptions: Year Ended Expected term (years) 0.5 - 2.1 Expected volatility 40.3% - 56.2% Risk-free interest rate 1.5% - 2.5% Expected dividend yield — Early Exercise of Common Stock Options Our board of directors authorized certain stock option holders to exercise unvested stock options to purchase shares of common stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s termination of service, at the original issuance price, until the stock options are fully vested. As of January 31, 2020 and 2019, 466,819 and 1,261,230 shares of Class B common stock, respectively, were subject to repurchase at a weighted-average price of $2.58 and $1.41 per share, respectively. The cash proceeds received for unvested shares of common stock recorded within accrued expenses and other current liabilities in the consolidated balance sheets were $1.2 million and $1.8 million as of January 31, 2020 and 2019, respectively. Third-Party Stock Transactions In May 2017, our CEO sold 2,899,136 shares of our common stock to an existing investor at a per share price of $3.74. In the consolidated statements of operations for fiscal year 2018, due to the fact that the purchase was made by an economic interest holder and is presumptively considered compensatory under GAAP, we recognized stock-based compensation expense related to such stock sale of $8.6 million, the difference between the purchase price and the fair value of our common stock at the time of sale. Shares Reserved for Charitable Donations During the fiscal year ended January 31, 2020, our board of directors approved the issuance of 500,000 shares of Class A common stock for the sole purpose of being transferred to a nonprofit organization to be formed or identified by us at a future time. As of January 31, 2020, no shares have been transferred to a nonprofit organization. As a result, no expense has been recognized to date. Stock-Based Compensation The stock-based compensation expense by line item in the accompanying consolidated statements of operations is summarized as follows: Year Ended January 31, 2020 2019 2018 (in thousands) Cost of revenue $ 7,860 $ 1,119 $ 204 Research and development 11,645 1,369 360 Sales and marketing 41,465 3,540 812 General and administrative 12,139 2,913 8,953 Total stock-based compensation expense $ 73,109 $ 8,941 $ 10,329 |