Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

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, restricted stock units (“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 December 31, 2022, there were 7,196,149 shares of Class A common stock reserved for issuance under the 2017 Plan, of which 2,839,475 were available to be issued.

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 years to 4.1 years.

The only stock option awarded during the years ended December 31, 2022, 2021, and 2020 was the 2022 CEO Grant. The following table summarizes the assumptions used to estimate the fair value of the 2022 CEO stock option grant:

Year Ended December 31,

2022

2021

2020

Risk-free interest rate

3.01

Expected term (in years)

Expected volatility

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 years to 4.1 years.

The following table summarizes stock option activity for the years ended December 31, 2022, 2021, and 2020:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2019	4,458,611	$	12.30	5.8	$	115,501
Granted	—	—
Exercised	(1,001,411)	6.39			81,181
Expired	(1,380)	11.82
Forfeited	(56,580)	11.33
Outstanding at December 31, 2020	3,399,240	14.06		4.9	503,174
Granted	—	—
Exercised	(423,824)	6.55			43,525
Expired	(4,100)	10.54
Forfeited	(17,960)	11.78
Outstanding at December 31, 2021	2,953,356	15.16		4.0	147,812
Granted	700,000	50.63
Exercised	(937,217)	27.14			32,858
Expired	(7,900)	4.06
Forfeited	(10,280)	12.28
Outstanding at December 31, 2022	2,697,959	$	20.25	5.1	$	45,867

Exercisable at December 31, 2022	1,997,959	$	9.60	3.6	$	45,867

The total fair value of stock options that vested during the years ended December 31, 2022, 2021, and 2020 was $0.9 million, $10.8 million, and $2.8 million, respectively. As of December 31, 2022, the total compensation cost related to unvested stock options not yet recognized, which relates exclusively to the 2022 CEO Grant, was $16.0 million. This amount will be recognized over a weighted average period of 3.19 years.

Restricted Stock Units

The following table summarizes RSU activity for the years ended December 31, 2022, 2021, and 2020:


	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested and outstanding at December 31, 2019	1,022,835	$	31.39
Granted	589,692	60.47
Vested	(270,609)	31.29
Forfeited	(176,915)	32.01
Non-vested and outstanding at December 31, 2020	1,165,003	46.04
Granted	488,462	108.98
Vested	(354,130)	43.39
Forfeited	(89,806)	62.72
Non-vested and outstanding at December 31, 2021	1,209,529	70.99
Granted	606,203	52.63
Vested	(403,648)	58.63
Forfeited	(221,364)	70.30
Non-vested and outstanding at December 31, 2022	1,190,720	$	65.97

As of December 31, 2022, total unrecognized compensation cost related to unvested RSUs was approximately $58.3 million, which will be recognized over a weighted average period of 1.6 years.

The following table summarizes the components of our stock-based compensation expense by instrument type for the years ended December 31, 2022, 2021, and 2020 (in thousands):


	Year Ended December 31,
	2022		2021		2020
RSUs	$	35,290	$	19,382	$	10,745
Stock options	2,790		3,839		4,164
Common stock awards to Board of Directors	750		623		370
Total stock-based compensation expense	$	38,830	$	23,844	$	15,279

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 years ended December 31, 2022, 2021, and 2020 (in thousands):


	Year Ended December 31,
	2022		2021		2020
Cost of revenue
Subscriptions	$	996	$	1,199	$	943
Professional services	5,309		3,131		1,477
Operating expenses
Sales and marketing	9,152		5,426		2,821
Research and development	12,523		5,224		2,718
General and administrative	10,850		8,864		7,320
Total stock-based compensation expense	$	38,830	$	23,844	$	15,279