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Equity-Based Compensation | 12 Months Ended
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Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Equity-Based Compensation | Note 14. Equity-Based Compensation In September 2021, the Board of Directors of the Company (the “Board”) adopted the Clearwater Analytics Holdings, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”), pursuant to which employees, consultants and directors of our Company and our affiliates performing services for us, including our executive officers, are eligible to receive awards. The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), bonus stock, dividend equivalents, other stock-based awards, substitute awards, annual incentive awards and performance awards intended to align the interests of participants with those of our shareholders. A total of 57,197,804 shares of common stock are authorized for issuance under the 2021 Plan. In connection with the approval of the 2021 Plan, the 2017 Equity Incentive Plan (the “2017 Plan”) was terminated and all outstanding stock options and RSUs were transferred to the 2021 Plan. Options The following table summarizes the stock option activity for the year ended December 31, 2022, 2021 and 2020 (in thousands, except per share data):
|  | Stock Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life (Years) |  |  | Aggregate Intrinsic Value |
Balance - December 31, 2019 |  |  | 15,841,250 |  |  | $ | 4.88 |  |  |  | 8.55 |  |  | $ | 2,770 |
Granted |  |  | 6,626,178 |  |  |  | 5.12 |  |  |  |  |  |  |
Exercised |  |  | (6,796,126 | ) |  |  | 4.24 |  |  |  |  |  |  | 54,747 |
Forfeited |  |  | (778,130 | ) |  |  | 4.24 |  |  |  |  |  |  |
Balance - December 31, 2020 |  |  | 14,893,172 |  |  | $ | 4.60 |  |  |  | 9.19 |  |  | $ | 116,029 |
Granted |  |  | 10,303,307 |  |  |  | 13.49 |  |  |  |  |  |  |
Exercised |  |  | (1,124,740 | ) |  |  | 4.35 |  |  |  |  |  |  | 16,346 |
Forfeited |  |  | (1,756,568 | ) |  |  | 7.23 |  |  |  |  |  |  |
Balance - December 31, 2021 |  |  | 22,315,171 |  |  | $ | 8.52 |  |  |  | 6.25 |  |  | $ | 322,877 |
Granted |  |  | 43,986 |  |  |  | 18.19 |  |  |  |  |  |  |
Exercised |  |  | (2,950,662 | ) |  |  | 7.45 |  |  |  |  |  | $ | 31,341 |
Forfeited |  |  | (1,653,725 | ) |  |  | 11.16 |  |  |  |  |  |  |
Balance - December 31, 2022 |  |  | 17,754,770 |  |  | $ | 8.47 |  |  |  | 7.06 |  |  | $ | 183,315 |
Options vested - December 31, 2022 |  |  | 9,401,413 |  |  | $ | 6.98 |  |  |  |  |  | $ | 110,894 |
The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 was $7.74 per share, $5.11 per share and $1.60 per share, respectively. The aggregate intrinsic value disclosed in the above table is based on the difference between the exercise price of the stock option and the estimated fair value of the Company's common stock as of the respective period-end dates. As of December 31, 2022, the total unrecognized compensation expense related to unvested options was $41.0 million, which is expected to be recognized over a weighted average period of 2.1 years. In general, options which vest over a four-year period are subject to time-based vesting conditions based on continuous employment over the four-year period: Time-based vesting – 25% of the units awarded are eligible to vest on the first anniversary of employment, and 75% are subsequently eligible to vest on a monthly basis over the remaining three-year period, subject to continued employment. In January 2020, the Company offered to option holders a one-time modification to reduce the exercise price of all equity options with exercise prices greater than $4.40 per unit to $4.40, the ‘fair value’ at the date of modification. In total, 8,778,750 options had their exercise price reduced for 68 option holders who accepted the repricing. The option awards subject to repricing were accounted for as modified awards due to the change in exercise price of option awards as a result of the repricing. The incremental compensation charge resulting from the modification is $1.9 million. For vested option awards, $0.7 million was recognized on the date of modification and for unvested option awards $1.2 million will be recognized over the remaining requisite service period. In October 2020, in conjunction with the recapitalization transaction described in Note 18, the Company accelerated the vesting on 4,150,845 options for 27 employees. The total incremental expense associated with the acceleration was $18.8 million, recognized on the date of modification. The option awards subject to acceleration were accounted for as modified awards due to the change in the vesting period of existing awards. In September 2021, the Company modified the vesting conditions of 12,493,241 unvested stock options, which had been issued prior to the nine months ended September 30, 2021. All unvested options that had a performance condition were modified to remove the performance condition. The options will continue to vest on the same schedule under the original terms of the awards. The modification resulted in incremental share-based compensation expense of $15.2 million, which is being recognized over the remaining term of the modified stock options. RSUs During June 2021, the Company began to grant RSUs to employees. The summary of RSU activity is as follows (in thousands, except per share data):
|  | Units Activity |  |  | Weighted Average Grant Date Fair Value |  |  | Aggregate Intrinsic Value |
Unvested units as of December 31, 2020 |  |  | — |  |  | $ | — |  |  | $ | — |
Granted |  |  | 6,162,095 |  |  |  | 17.84 |  |  |  |
Released |  |  | — |  |  |  | — |  |  |  | — |
Canceled |  |  | (91,427 | ) |  |  | 18.03 |  |  |  | — |
Unvested units as of December 31, 2021 |  |  | 6,070,668 |  |  | $ | 17.84 |  |  | $ | 138,958 |
Granted |  |  | 4,745,363 |  |  |  | 18.86 |  |  |  | — |
Released |  |  | (588,854 | ) |  |  | 17.54 |  |  |  | — |
Canceled |  |  | (699,829 | ) |  |  | 18.47 |  |  |  | — |
Unvested units as of December 31, 2022 |  |  | 9,527,348 |  |  | $ | 18.32 |  |  | $ | 178,638 |
The aggregate intrinsic value disclosed in the above table is based on the closing stock price on the NYSE on December 31, 2022 and 2021. As of December 31, 2022, there was $100.8 million of unrecognized equity-based compensation expense related to RSUs, which is expected to be recognized over a weighted average period of 3.1 years. In general, RSUs are either subject to time-based vesting conditions, or both time-based vesting conditions and performance-based vesting, in each case based on continuous employment of the employee. Time-based vesting – units awarded are eligible to vest in substantially equal annual installments on each anniversary from the grant date over a four year period. Performance-based vesting – units awarded are eligible to vest in equal three annual installments upon the achievement of annual targets tied to annual revenue growth. All terms of performance conditions are established on grant date. Determination of Fair Value The Company estimated the fair value of each stock option awarded on the date of grant using the Black-Scholes option-pricing model utilizing the assumptions noted below: Fair Value of Units/Stock – prior to the IPO, the fair value of the common stock underlying the equity-based awards was determined by the Company’s Board of Directors, with input from management and third-party valuations. Subsequent to the IPO, the fair value of the common stock underlying equity-awards was determined using the closing stock price on the NYSE on the date of the award being granted. Expected Term – the expected term represents the period that the awards are expected to be outstanding. The Company issues “plain vanilla,” awards and the Company determines the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the equity-based awards. Expected Volatility – the stock price volatility based on the volatility of a set of publicly traded comparable companies with a look back period consistent with the expected life. Risk-Free Interest Rate – the risk-free interest rate is calculated using the average of the published interest rates of U.S. Treasury zero-coupon issues with maturities that approximate the expected term of the equity-based awards. Dividend Rate – the dividend yield assumption is zero. Although the Company made a special one-time dividend in conjunction with the recapitalization transaction, the Company has no history of making regular dividends, nor plans to make future dividend payments. The following assumptions were used to calculate the fair value of stock options granted to employees on the date of grant using the Black-Scholes option-pricing model:
|  | Year Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Weighted-average grant date fair value per option |  | $ | 7.74 |  |  | $ | 5.11 |  |  | $ | 1.60 |
Fair value of units/ stock |  | $17.72 - $18.68 |  |  | $12.40 - $23.89 |  |  | $4.40 - $12.40 |
Expected term (in years) |  | 5.5 |  |  | 6.00 - 6.25 |  |  | 6.25 |
Expected volatility |  |  | 44 | % |  | 40 - 42% |  |  |  | 30 | %
Risk-free interest rates |  | 1.8 - 2.0% |  |  | 0.6 - 1.3% |  |  | 0.4 - 1.7% |
In addition to the Black-Scholes assumptions discussed immediately above, forfeitures may also have a significant impact on the related equity-based compensation. The forfeiture of options and RSUs is recognized as forfeitures occur. In the period subsequent to the IPO, the Company estimated the fair value of each RSU awarded using the closing price of the Company’s shares on the NYSE on the date of the award being granted. Employee Stock Purchase Plan In September 2021, the Board adopted the Clearwater Analytics Holdings, Inc. 2021 Employee Stock Purchase Plan (“ESPP”). As of January 1, 2022, a total of 5,837,791 shares of Class A common stock were available for issuance under the ESPP. The offering periods are scheduled to start on June 1 and December 1 of each year. Eligible employees may purchase the Company's common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee's payroll deductions under the ESPP are limited to 10% of the employee's compensation and an employee may not purchase more than $25,000 of stock during any calendar year in which the employee’s option to purchase stock under the ESPP is outstanding at any time. On May 31, 2022, a total of 200,220 shares were issued to employees for the offering period ended May 31, 2022. On November 30, 2022, a total of 148,698 shares were issued to employees for the offering period ended November 30, 2022. As of December 31, 2022, total unrecognized equity-based compensation costs related to ESPP were $0.9 million, which is expected to be recognized over the remaining current offering period ending May 31, 2023. ESPP payroll contributions accrued at December 31, 2022 totaled $0.5 million and are included within accrued expenses in the consolidated balance sheets. Employee payroll contributions used to purchase shares under the ESPP will be reclassified to stockholders' equity at the end of the offering period. The fair value of the purchase right for the ESPP is estimated on the date of grant using the Black-Scholes model with the following assumptions for the year ended December 31, 2021:
|  | Year Ended December 31, 2022 |  | Year Ended December 31, 2021
Expected volatility |  | 34.9 - 57.1% |  | 34.9%
Risk-free interest rate |  | 0.1 - 4.6% |  | 0.1%
Expected term (years) |  | 0.5 |  | 0.5

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