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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2022
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | 11. Stock-Based Compensation Equity Incentive Plans In May 2017, our Board of Directors adopted, and our stockholders approved, the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective as of the date of the final prospectus for our initial public offering. The 2017 Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, restricted stock awards, RSUs, stock appreciation rights, performance-based stock awards, and other forms of equity compensation to employees, including officers, non-employee directors, and consultants. We initially reserved 6,421,442 shares of Class A common stock for issuance under the 2017 Plan, which included 421,442 shares that remained available for issuance under our 2007 Stock Option Plan (the “2007 Plan”) at the time the 2017 Plan became effective. The number of shares reserved under the 2017 Plan increases for any shares subject to outstanding awards originally granted under the 2007 Plan that expire or are forfeited prior to exercise. As a result of the adoption of the 2017 Plan, no further grants may be made under the 2007 Plan. As of September 30, 2022, there were 7,195,049 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 2,851,988 were available to be issued. Stock-Based Compensation Expense We account for stock-based compensation expense related to stock-based awards based on the estimated fair value of the award on the grant date. We calculate the fair value of stock options containing only a service condition using the Black-Scholes option pricing model. The fair value of restricted stock units (“RSUs”) is based on the closing market price of our common stock on the Nasdaq Global Market on the date of grant. For service-based awards such as RSUs, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. For awards that contain market conditions, compensation expense is measured using a Monte Carlo simulation and recognized using the accelerated attribution method over the derived service period based on the expected market performance as of the grant date. We account for forfeitures as they occur rather than estimating expected forfeitures. Stock Options We estimate the fair value of stock options containing only a service condition using the Black-Scholes option pricing model, which requires the use of subjective assumptions, including the expected term of the option, the current price of the underlying stock, the expected stock price volatility, expected dividend yield, and the risk-free interest rate for the expected term of the option. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to derive an estimate, we use the simplified method to estimate the expected term for our stock options. Under the simplified method, the expected term of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. Expected volatility is based on the historical volatility of our publicly traded stock over the estimated expected term of the stock options. We assume zero dividend yield because we have historically not paid dividends and do not anticipate paying dividends in the near future. In June 2022, our Board of Directors granted a stock option to purchase 700,000 shares of our Class A common stock to our Chief Executive Officer (the “2022 CEO Grant”) under the 2017 Plan with an exercise price of $50.63 per share. The 2022 CEO Grant is eligible to vest based on the achievement of various stock price appreciation targets of our Class A common stock. Specifically, the 2022 CEO Grant vests in four installments of 25% each if the average closing price per share for a 365 day calendar period equals each of $175, $200, $225, and $250, respectively (the “Vesting Price Threshold”), prior to June 7, 2030. The option also vests if the Company engages in a Corporate Transaction, as defined in the Plan, in which the Company’s Class A common stock is valued at or above the Vesting Price Threshold. The fair value of the 2022 CEO Grant was determined using a Monte Carlo simulation. The fair value of the award at the grant date was $18.8 million and is being amortized over derived service periods ranging from 3.4 to 4.1 years. No stock options were issued during the three months ended September 30, 2022 and 2021. The only stock option awarded during the nine months ended September 30, 2022 and 2021 was the 2022 CEO Grant. The following table summarizes the assumptions used to estimate the fair value of the 2022 CEO stock option grant:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Risk-free interest rate | * |  | * |  | 3.01% |  | *
Expected term (in years) | * |  | * |  | ** |  | *
Expected volatility | * |  | * |  | 70% |  | *
Expected dividend yield | * |  | * |  | —% |  | *
* Not applicable because no stock options were granted during the period. ** Each Vesting Price Threshold for the 2022 CEO grant has a unique expected term ranging from 3.4 to 4.1 years. The following table summarizes stock option activity for the nine months ended September 30, 2022:
| Number of Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021 | 2,953,356 |  |  | $ | 15.16 |  |  | 4.0 |  | $ | 147,812 |
Granted | 700,000 |  |  | 50.63 |  |  |  |  |
Exercised | (902,392) |  |  | 27.93 |  |  |  |  | 31,790 |
Expired | (6,800) |  |  | 3.65 |  |  |  |  |
Forfeited | (10,280) |  |  | 12.28 |  |  |  |  |
Outstanding at September 30, 2022 | 2,733,884 |  |  | $ | 20.07 |  |  | 5.3 |  | $ | 63,622 |
Exercisable at September 30, 2022 | 2,033,684 |  |  | $ | 9.55 |  |  | 3.8 |  | $ | 63,618 |
The total fair value of stock options that vested during the nine months ended September 30, 2022 and 2021 was $0.9 million and $10.7 million, respectively. As of September 30, 2022, the total compensation cost related to unvested stock options not yet recognized, which relates exclusively to the 2022 CEO Grant, was $17.2 million and will be recognized over a weighted average period of 3.4 years. Restricted Stock Units The following table summarizes RSU activity for the nine months ended September 30, 2022:
| Number of Shares |  | Weighted Average Grant Date Fair Value
Non-vested and outstanding at December 31, 2021 | 1,209,529 |  |  | $ | 70.99 |
Granted | 534,213 |  |  | 52.93 |
Vested | (166,836) |  |  | 74.30 |
Forfeited | (157,732) |  |  | 73.54 |
Non-vested and outstanding at September 30, 2022 | 1,419,174 |  |  | $ | 63.52 |
As of September 30, 2022, total unrecognized compensation cost related to unvested RSUs was approximately $68.2 million, which will be recognized over a weighted average period of 1.7 years. The following table summarizes the components of our stock-based compensation expense by instrument type for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
RSUs | $ | 9,845 |  |  | $ | 4,997 |  |  | $ | 25,378 |  |  | $ | 13,405 |
Stock options | 1,272 |  |  | 47 |  |  | 1,517 |  |  | 3,820 |
Common stock awards to the Board of Directors | 219 |  |  | 156 |  |  | 532 |  |  | 467 |
Total stock-based compensation expense | $ | 11,336 |  |  | $ | 5,200 |  |  | $ | 27,427 |  |  | $ | 17,692 |
Stock-based compensation expense for RSUs, stock options, and issuances of common stock to the Board of Directors is included in the following line items in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of revenue |  |  |  |  |  |  |
Subscriptions | $ | 284 |  |  | $ | 381 |  |  | $ | 712 |  |  | $ | 973 |
Professional services | 1,401 |  |  | 777 |  |  | 3,788 |  |  | 2,283 |
Operating expenses |  |  |  |  |  |  |
Sales and marketing | 2,667 |  |  | 1,448 |  |  | 6,721 |  |  | 3,753 |
Research and development | 3,454 |  |  | 1,263 |  |  | 8,831 |  |  | 3,347 |
General and administrative | 3,530 |  |  | 1,331 |  |  | 7,375 |  |  | 7,336 |
Total stock-based compensation expense | $ | 11,336 |  |  | $ | 5,200 |  |  | $ | 27,427 |  |  | $ | 17,692 |

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