Stockholders' Equity

12 Months Ended

Dec. 31, 2019

Stockholders' Equity Note [Abstract]

Common Stock

Our Amended and Restated Certificate of Incorporation, as amended and restated in May 2019, authorizes the issuance of 1,000,000,000 shares of Class A common stock and 94,129,050 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. As of December 31, 2019 and December 31, 2018, 33,863,021 and 25,026,001 shares of Class B common stock were issued and outstanding, respectively. As of December 31, 2019, 60,954,694 shares of Class A common stock were issued and outstanding. There were no shares of Class A common stock issued and outstanding as of December 31, 2018.

Preferred Stock

Our Amended and Restated Certificate of Incorporation, as amended and restated in May 2019, authorizes the issuance of 10,000,000 shares of Preferred Stock, at a par value per share of $0.00002, with rights and preferences, including voting rights, designated from time to time by the Board of Directors (the "Board"). As of December 31, 2019, there were no shares of preferred stock issued or outstanding.

Equity Incentive Plans

In March 2011, our stockholders approved the Fastly, Inc. 2011 Equity Incentive Plan ("2011 Plan"). The 2011 Plan was amended in February 2013, May 2014, July 2015, December 2016, April 2017, and June 2018. The 2011 Plan allows for the issuance of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards ("RSUs") to employees, directors, and consultants of the Company. There were 23,578,923 shares of Class B common stock reserved for issuance under the 2011 Plan as of December 31, 2019. There were 21,689,410 shares of common stock reserved for issuance under the 2011 Plan as of December 31, 2018. Options granted under the 2011 Plan 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. Options granted under our 2011 Plan are exercisable for shares of our Class B common stock. As of December 31, 2019, there were no shares of Class B common stock available for issuance pursuant to future grants under the 2011 Plan. As of December 31, 2018, there were 609,804 shares of common stock available for issuance pursuant to future grants under the 2011 Plan.

In May 2019, the Board adopted our 2019 Equity Incentive Plan (the "2019 Plan"), and our stockholders approved the 2019 Plan. The 2019 Plan allows for the issuance of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards, and other forms of equity compensation, which are collectively referred to as stock awards. Additionally, the 2019 Plan provides for the grant of performance cash awards. Incentive stock options may be granted only to employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants. Options granted under the 2019 Plan 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. Options are exercisable for shares of our Common Stock. RSUs granted under the 2019 Plan generally vest over four years, at the rate of 25% on the first anniversary of the vest date and ratably on a quarterly basis over the remaining 36-month period thereafter based on continued service. There were 14,400,000 shares of Class A common stock reserved for issuance under the 2019 Plan as of December 31, 2019. There were 12,367,582 shares of Class A common stock available for issuance under the 2019 Plan as of December 31, 2019. No further shares will be issued under the 2011 Plan following the effectiveness of the 2019 Plan.

In May 2019, the Board approved the Employee Stock Purchase Plan ("ESPP"), which was approved by our stockholders in May 2019. The ESPP allows eligible employees to purchase shares of our Class A common stock through payroll deductions of up to 15% of their eligible compensation, subject to a maximum of $25,000 per calendar year. Shares reserved for issuance under the ESPP include 2,500,000 shares of Class A common stock. 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 our Class A common stock on the first trading day of the offering period or on the last day of the offering period.

Stock Option Activity

The following table summarizes stock option activity during the year ended December 31, 2019:



	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)				(in years)	(in thousands)
Outstanding at January 1, 2017	8,467		$	1.54	8.5	$	7,480
Granted	3,008		2.90
Exercised	(414	)	1.48
Cancelled/forfeited	(691	)	1.88
Outstanding at December 31, 2017	10,370		1.92		8.0	$	16,901
Granted	3,984		5.32
Exercised	(1,264	)	2.10
Cancelled/forfeited	(880	)	2.64
Outstanding at December 31, 2018	12,210		2.96		7.8	$	64,590
Granted	2,516		10.87
Exercised	(2,650	)	2.45
Cancelled/forfeited	(807	)	5.10
Outstanding at December 31, 2019	11,269		$	4.68	7.3	$	173,471
Vested and exercisable at December 31, 2019	6,994		$	2.68	6.5	$	121,610

The total pre-tax intrinsic value of options exercised during the years ended December 31, 2019, 2018, and 2017 was $32.6 million, $3.0 million, and $0.7 million, respectively.

The total grant date fair value of employee options vested for the years ended December 31, 2019, 2018, 2017 was $6.1 million, $3.6 million, and $2.9 million, respectively.

The weighted-average grant date fair value for options granted to employees during the years ended December 31, 2019, 2018, and 2017 was $5.77, $1.78, and $1.56, respectively.

Early Exercise of Stock Options

Certain stock options granted by us are exercisable at the date of grant, with unvested shares subject to repurchase by us 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. As of December 31, 2019, December 31, 2018, and December 31, 2017, a total of 199,895, 244,658, and 137,831 shares of Class B Common Stock were subject to repurchase by us 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 $0.9 million, $1.0 million, and $0.3 million as of December 31, 2019, December 31, 2018, and December 31, 2017, respectively, is recorded in other current liabilities and other liabilities on the accompanying Consolidated Balance Sheets.

The activity of non-vested shares as a result of early exercise of options granted to employees and non-employees, is as follows:



	Year ended December 31,
	2019		2018		2017
	(in thousands)
Beginning balance	245		138		597
Early exercise of options	117		238		2
Vested	(162	)	(120	)	(461	)
Repurchased	—		(11	)	—
Ending balance	200		245		138

Employee Stock Options

We estimate 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. We estimated the fair value of stock option awards during the years ended December 31, 2019, 2018, and 2017 on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	Year ended December 31,
	2019	2018	2017
Fair value of common stock	$8.24 - $22.70	$3.86 - $8.16	$2.98 - $3.58
Expected term (in years)	6.02	6.02	5.96
Risk-free interest rate	1.55% - 2.5%	2.62% - 3.0%	1.9% - 2.1%
Expected volatility	39.1% - 42.7%	40.2% - 41.5%	41% - 45%
Dividend yield	—%	—%	—	%

During the years ended December 31, 2019 and 2018, and 2017, we recognized stock-based compensation expense from stock options of approximately $7.9 million, $4.1 million, and $2.8 million, respectively. There were no vested RSUs as of December 31, 2019, 2018 and 2017.

As of December 31, 2019, total unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $18.2 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 2.8 years.

RSUs

We began granting RSUs under the 2019 Plan during the 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 typically vest over four years, at the rate of 25% on the first anniversary of the vest date and ratably on a quarterly basis over the remaining 36-month period thereafter, based on continued service. The following table summarizes RSU activity during the year ended December 31, 2019:



	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
	(in thousands)
Nonvested RSUs as of December 31, 2018	—		$	—
Granted	1,644		20.07
Cancelled/forfeited	(3	)
Nonvested RSUs as of December 31, 2019	1,641		$	20.07

During the year ended December 31, 2019, we recognized stock-based compensation expense related to RSUs of $2.2 million. There was no stock-based compensation expense recognized related to RSUs during the year ended December 31, 2018 or December 31, 2017.

As of December 31, 2019, total unrecognized stock-based compensation cost related to non-vested RSUs was $30.0 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 3.6 years.

ESPP

The ESPP allows eligible employees to purchase shares of our 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.

We estimate 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 our stock price on the first date of the offering period, the risk-free interest rate, the estimated volatility of our 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.

We 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,
	2019	2018
Fair value of common stock	$6.02 - $6.92	N/A
Expected term (in years)	0.47-0.50	N/A
Risk-free interest rate	1.59% - 2.35%	N/A
Expected volatility	36% - 43%	N/A
Dividend yield	—%	N/A

During the year ended December 31, 2019, we withheld $5.5 million in contributions from employees, respectively, and recognized $2.5 million in stock-based compensation expense related to the ESPP, respectively. During the year ended December 31, 2019, 305,194 shares of our Class A common stock were purchased under the 2019 ESPP. No contributions were withheld, and no stock-based compensation expense was recognized related to the ESPP in the year ended December 31, 2018 or December 31, 2017. No common stock was issued under the ESPP in the year ended December 31, 2018 or December 31, 2017.

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,
	2019		2018		2017
	(in thousands)
Stock-based compensation expense by caption:
Cost of revenue	$	1,410	$	265	$	190
Research and development	2,920		1,332		1,040
Sales and marketing	3,497		1,023		493
General and administrative	4,318		1,459		1,086
Total	$	12,145	$	4,079	$	2,809