Common Stock and Stockholders' Equity

9 Months Ended

Sep. 30, 2022

Equity [Abstract]

Common Stock and Stockholders' Equity

Common Stock and Stockholders’ Equity

Common Stock

As of September 30, 2022 and December 31, 2021, there were 400 million shares of common stock authorized for issuance with a par value of $0.01 per share, and 123.9 million and 121.6 million shares were issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.

Preferred Stock

As of September 30, 2022 and December 31, 2021, there were 10 million shares of preferred stock authorized for issuance with a par value of $0.01 per share and no shares of preferred stock were issued or outstanding.

Employee Equity Plans

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (the “ESPP”), eligible employees are granted options to purchase shares of our common stock through payroll deductions. The ESPP provides for 18-month offering periods, which include three six-month purchase periods. At the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of our common stock at the beginning of the offering period or the fair market value of our common stock at the end of the purchase period. During the nine months ended September 30, 2022 and September 30, 2021, 0.3 million and 0.4 million shares of common stock were purchased under the ESPP, respectively. Pursuant to the terms of the ESPP, the number of shares reserved under the ESPP increased by 1.2 million shares on January 1, 2022. As of September 30, 2022, 6.2 million shares of common stock were available for issuance under the ESPP.

Stock Option and Grant Plans

Our board of directors adopted the 2009 Stock Option and Grant Plan (the “2009 Plan”), in July 2009. The 2009 Plan was terminated in connection with our initial public offering in May 2014, and accordingly, no shares are available for issuance under this plan. The 2009 Plan continues to govern outstanding awards granted thereunder.

Our 2014 Stock Option and Incentive Plan (the “2014 Plan”), serves as the successor to our 2009 Plan. Pursuant to the terms of the 2014 Plan, the number of shares reserved for issuance under the 2014 Plan increased by 6.1 million shares on January 1, 2022. As of September 30, 2022, we had 20.8 million shares of common stock available for future grants under the 2014 Plan.

A summary of restricted stock unit, or “RSU”, activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share information):

	Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested — January 1, 2022	4,402	$	113.97
Granted	4,087	103.40
Vested	(1,478)	105.43
Forfeited or canceled	(958)	112.09
Unvested — September 30, 2022	6,053	$	109.22

The total fair value of RSUs vested during the nine months ended September 30, 2022 and 2021 was $137 million and $249 million, respectively. The fair value of RSUs vested represents market value on the vesting date.

A summary of stock option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share information):

	Stock Options
	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
				(In years)
Outstanding — January 1, 2022	3,457	$	44.71	4.4	$	222,460
Granted	492	116.56
Exercised	(473)	32.79
Forfeited or canceled	(131)	119.36
Outstanding — September 30, 2022	3,345	$	54.04	4.5	$	119,895

The aggregate intrinsic value for options outstanding represents the difference between the closing market price of our common stock on the last trading day of the reporting period and the exercise price of outstanding, in-the-money options.

The total intrinsic value of stock options exercised during the nine months ended September 30, 2022 and 2021 was $34 million and $94 million, respectively. The intrinsic value for options exercised represents the difference between the exercise price and the market value on the date of exercise. The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2022 and 2021 was $43.72 and $52.60, respectively.

As of September 30, 2022, we had a total of $628 million in future expense related to our stock options and RSUs to be recognized over a weighted average period of 2.8 years. As of September 30, 2022, we had a total of $13 million in future expense related to current offering periods under the ESPP. In October 2022, the Company communicated the suspension of the ESPP effective November 7, 2022. As a result, in the three months ending December 31, 2022, the Company expects to recognize all future stock compensation expense related to the ESPP, including approximately $11 million associated with the cancelled offering periods.

Performance Restricted Stock Units

In 2022, the compensation committee of our board of directors granted performance-based restricted stock units, or PRSUs, representing a target of 0.2 million shares of common stock to certain senior executives. The PRSUs vest over a four-year service period. The PRSUs include a performance condition, based on company-wide revenue growth, and a market condition, based on our total Zendesk stockholder return as compared to the total stockholder return of the Russell 3000 Index, each measured over a one-year performance period. The PRSUs will vest in a percentage of the target number of shares depending on the extent the conditions are achieved and subject to the required service. The fair value of those PRSUs subject to the market condition was estimated on the date of grant using a Monte Carlo simulation, which incorporates various assumptions including the expected stock price volatility over the performance period and the stock price at the grant date.

The compensation cost is recognized under the accelerated attribution method. During the three and nine months ended September 30, 2022, we recorded $0.3 million and $3 million of share-based compensation expense related to the PRSUs, respectively. The total future expense related to the PRSUs that are expected to vest as of September 30, 2022 is $6 million.