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 initial public offering (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 com pensation 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 during the periods presented: Stock Options Outstanding (in thousands, except year and per share data) Shares Subject Weighted- Weighted- Aggregate Balances as of December 31, 2020 18,186 $ 3.92 7.0 $ 1,310,650 Options granted 100 $ 137.17 Options exercised (4,455) $ 4.83 $ 503,243 Options canceled/forfeited/expired (228) $ 2.67 Balances as of December 31, 2021 13,603 $ 12.47 6.0 $ 1,726,440 Options granted 5,733 $ 97.71 Options exercised (2,484) $ 4.08 $ 180,990 Options canceled/forfeited/expired (966) $ 74.88 Balances as of December 31, 2022 15,886 $ 34.21 6.3 $ 451,782 Options granted 1,290 $ 51.21 Options exercised (2,989) $ 4.96 $ 171,225 Options canceled/forfeited/expired (1,664) $ 62.62 Balances as of December 31, 2023 12,523 $ 21.03 5.7 $ 787,633 Vested and expected to vest as of December 31, 2023 12,521 $ 21.03 5.7 $ 787,469 Exercisable as of December 31, 2023 7,534 $ 4.15 3.8 $ 601,503 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 401,212 and 2,728,545 options that were unvested as of December 31, 2023 and 2022, respectively. The total grant date fair value for vested options in the years ended December 31, 2023, 2022, and 2021 was $15.5 million, $12.5 million, and $14.0 million, respectively. As of December 31, 2023, there was $195.8 million of unrecognized stock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of 4.3 years. During the year ended December 31, 2022, the Company granted to certain executive officers and other key employees 10-year stock options with market conditions that vest and become exercisable only if the Company achieves certain stock price milestones and the employee continues to provide service to the Company through the applicable vesting dates (the Performance Options). The Performance Options were granted under the 2019 Plan and consist of 10-year options to purchase an aggregate of 5,575,000 shares of the Company’s Class A common stock. In April 2023, the Company's Compensation Committee and Board of Directors approved amendments to the Performance Options, effective as of May 1, 2023. These amendments reduced the exercise price per share of the Performance Options to the fair market value per share of the Company's Class A common stock on the effective date of the amendment, and modified the structure of the Performance Options to contain a total of nine separate tranches with added stock price milestones. These amendments resulted in an additional stock-based compensation expense of approximately $25.8 million to be recognized over a weighted-average requisite service period. During the year ended December 31, 2023, the Company granted Performance Options to purchase an aggregate of 1,290,000 shares of the Company’s Class A common stock to newly-hired, key employees. In January 2024, the Company achieved the stock price milestone for the first tranche of 224,250 Performance Options. Following the achievement of the milestone, the first tranche shares are subject to six quarterly vesting on a ratable basis. Approximately 37,000 tranche shares vested in February 2024. The weighted-average assumptions used to determine the fair value of the Performance Options during the years ended December 31, 2023 and December 31, 2022 were as follows: Year ended December 31, 2023 2022 Expected term (in years) 10.00 9.83 Expected volatility 63.7 % 59.5 % Risk-free interest rate 3.9 % 3.0 % Dividend yield — — The weighted-average grant date fair value of the Performance Options was $52.13 and $55.80 per share for the years ended December 31, 2023 and December 31, 2022, respectively. The Company recognizes stock-based compensation expense for the Performance Options based on the grant date fair value and using a graded attribution method over the weighted-average requisite service period. The total stock-based compensation expense for the Performance Options for the years ended December 31, 2023 and December 31, 2022 were $33.5 million and $39.5 million, respectively. As of December 31, 2023, there was $187.9 million of unrecognized stock-based compensation expense related to the Performance Options that is expected to be recognized over a weighted-average period of 4.4 years. In connection with the acquisition of Area 1 Security, Inc. (Area 1), each unvested option to purchase shares of Area 1’s common stock held by Area 1 employees who have joined the Company were assumed and converted into stock option awards to purchase the Company's Class A common stock (the Assumed Area 1 Stock Options). The Assumed Area 1 Stock Options are subject to the terms and conditions set forth in the Area 1 stock incentive plan and consist of options to purchase an aggregate of 156,770 shares of the Company’s Class A common stock. The Assumed Area 1 Stock Options are generally subject to annual vesting on a ratable basis over the three years from the Area 1 acquisition date, in each case subject to remaining continuously employed by the Company or any of its subsidiaries. The weighted-average assumptions used to determine the fair value of the Assumed Area 1 Stock Options during the year ended December 31, 2022 were as follows: Year ended December 31, 2022 Expected term (in years) 2.3 Expected volatility 66.7 % Risk-free interest rate 2.5 % Dividend yield — The total stock-based compensation expense for the Assumed Area 1 Stock Options for the year ended December 31, 2023 was not material. As of December 31, 2023, there was $5.0 million of unrecognized stock-based compensation expense related to the Assumed Area 1 Stock Options that is expected to be recognized over a weighted-average period of 1.6 years. For further details on the Area 1 acquisition, refer to Note 13 to these consolidated financial statements. The weighted-average assumptions used to determine the fair value of stock options granted during the year ended December 31, 2021, were as follows: Year ended December 31, 2021 Expected term (in years) 6.0 Expected volatility 59.6% Risk-free interest rate 1.3% Dividend yield — The weighted-average grant date fair value of options granted during the year ended December 31, 2021, was $90.50 per share. 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. RSU activity under the 2019 Plan and the 2010 Plan for the year ended December 31, 2023 was as follows: Restricted Stock and RSUs* Weighted-Average (in thousands, except per share data) Unvested and outstanding as of December 31, 2020 8,650 $ 21.41 Granted - RSUs 2,203 $ 108.87 Granted - Restricted stock 48 $ 167.69 Vested - RSUs (2,734) $ 21.17 Vested - Restricted stock (9) $ — Forfeited (681) $ 29.78 Unvested as of December 31, 2021 7,456 $ 47.36 Vested and not yet released — $ — Outstanding as of December 31, 2021 7,456 $ 47.36 Granted - RSUs 6,367 $ 67.13 Granted - Restricted stock 52 $ 100.29 Vested - RSUs (2,848) $ 38.49 Vested - Restricted stock (668) $ 19.96 Forfeited (779) $ 64.83 Unvested as of December 31, 2022 9,580 $ 61.64 Vested and not yet released — $ — Outstanding as of December 31, 2022 9,580 $ 61.14 Granted - RSUs 6,428 $ 62.24 Vested - RSUs (3,689) $ 56.75 Forfeited - RSUs (1,161) $ 65.87 Unvested as of December 31, 2023 * 10,894 $ 65.93 Vested and not yet released * — $ — Outstanding as of December 31, 2023 * 10,894 $ 65.93 *Restricted stock did not have a material impact on the Company’s consolidated financial statements for the fiscal years ended December 31, 2023 or 2022. Effective January 1, 2023, this table discloses RSU activity only. The total grant date fair value for vested RSUs were $209.4 million, $109.6 million, and $57.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. The total stock-based compensation expense for RSUs were $219.6 million, $137.4 million, and $71.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, the total unrecognized stock-based compensation expense related to RSUs was $635.7 million that is expected to be recognized over a weighted-average period of 2.9 years. 2019 Employee Stock Purchase Plan In September 2019, the Company's Board of Directors adopted and stockholders approved the 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 in November and May of each year 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. During the years ended December 31, 2023 and 2022, respectively, 447,042 and 302,795 shares of Class A common stock were purchased under the ESPP. As of December 31, 2023, the total unrecognized stock-based compensation expense related to the ESPP was $3.2 million and is expected to be recognized over a weighted-average period of 0.4 years. The weighted-average assumptions used to determine the fair value of the ESPP during the periods presented were as follows: Year ended December 31, 2023 2022 2021 Expected term (in years) 0.5 0.5 0.5 Risk-free interest rate 5.2 % 3.3 % 0.1 % Expected volatility 68.9 % 100.6 % 58.9 % Dividend yield — — — Stock-based Compensation Expense The following table sets forth the total stock-based compensation expense included in the Company’s consolidated statements of operations: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue $ 7,967 $ 6,251 $ 2,583 Sales and marketing 73,682 50,317 27,277 Research and development 132,417 103,276 44,196 General and administrative 59,923 42,933 16,081 Total stock-based compensation expense $ 273,989 $ 202,777 $ 90,137 |