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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 | Stock-based Compensation Stock-based Compensation Expense We recorded stock-based compensation expense in the following categories in the accompanying unaudited condensed consolidated statements of operations and balance sheets (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Cost of revenue |  | $ | 597 |  |  | $ | 764 |  |  | $ | 2,205 |  |  | $ | 1,585 |
Sales and marketing |  | 2,972 |  |  | 6,356 |  |  | 9,633 |  |  | 11,706 |
Technology and development |  | 3,857 |  |  | 14,446 |  |  | 12,303 |  |  | 32,591 |
General and administrative |  | 12,352 |  |  | 16,499 |  |  | 40,349 |  |  | 41,079 |
Total stock-based compensation expense |  | 19,778 |  |  | 38,065 |  |  | 64,490 |  |  | 86,961 |
Amount capitalized to internal-use software |  | 549 |  |  | 9 |  |  | 1,779 |  |  | 35 |
Total stock-based compensation expense |  | $ | 20,327 |  |  | $ | 38,074 |  |  | $ | 66,269 |  |  | $ | 86,996 |
The change in compensation expense is due to certain award modifications in connection with our IPO in 2021 as described in “Modification of Stock-Based Compensation Awards” below. Stock Options Stock option activity for the nine months ended September 30, 2022 is as follows (in thousands, except weighted-average exercise price and remaining contract life):
| Number of Options |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Life (in Years) |  | Aggregate Intrinsic Value
Outstanding at December 31, 2021 | 15,274 |  |  | $ | 10.47 |  |  | 8.0 |  | $ | 97,094 |
Granted | 2,766 |  |  | 14.15 |  |  |  |  |
Exercised | (305) |  |  | 1.61 |  |  |  |  |
Cancelled/forfeited | (33) |  |  | 6.36 |  |  |  |  |
Outstanding at September 30, 2022 | 17,702 |  |  | $ | 11.21 |  |  | 7.6 |  | $ | 4,377 |
Vested and expected to vest at September 30, 2022 | 17,698 |  |  | $ | 11.21 |  |  | 7.6 |  | $ | 4,375 |
Exercisable at September 30, 2022 | 9,553 |  |  | $ | 9.76 |  |  | 7.1 |  | $ | 4,311 |
There was a realized tax benefit of $2.4 million for tax deductions from stock options exercised during the nine months ended September 30, 2022, and $2.3 million and $7.7 million for tax deductions from stock options exercised during the three and nine months ended September 30, 2021, respectively. At September 30, 2022, total unrecognized stock-based compensation expense is $40.9 million, which is expected to be recognized over a weighted-average period of 2.4 years. The weighted-average assumptions that were used to calculate the grant-date fair value of our stock option grants using the Black-Scholes option pricing model were as follows:
|  | Nine Months Ended September 30,
|  | 2021
Expected life (years) |  | 5.4
Risk-free interest rate |  | 1.0 | %
Expected volatility |  | 45.6 | %
Expected dividend yield |  | —
In June 2021, we granted 970,970 options to our executive officers that were contingent on the effectiveness of the registration statement of our IPO, which occurred on June 29, 2021, or IPO Options. Because the number of options and exercise price of the IPO Options were based on the IPO price to the public, the grant date for accounting purposes was not established until the effective date of our IPO. As the IPO was a performance condition, no stock-based compensation expense was recognized until our IPO registration statement was declared effective. The related stock-based compensation expense for the three and nine months ended September 30, 2022 was $1.2 million and $4.1 million, respectively, and the remaining stock-based compensation of $4.2 million will be recognized over a weighted-average requisite service period of approximately 2.9 years. Restricted Stock Units Restricted stock unit, or RSU, activity for the nine months ended September 30, 2022 is as follows (in thousands, except weighted-average grant-date fair value):
| Number of Units |  | Weighted- Average Grant- Date Fair Value
Unvested at December 31, 2021 | 3,577 |  |  | $ | 21.52 |
Granted | 6,982 |  |  | 13.39 |
Vested | (1,010) |  |  | 21.05 |
Cancelled/forfeited | (900) |  |  | 14.50 |
Unvested at September 30, 2022 | 8,649 |  |  | $ | 15.75 |
RSUs are measured based on the fair market value of the underlying stock on the date of grant and recognized as expense over the employee’s requisite service period. At September 30, 2022, total remaining stock-based compensation expense for unvested RSU awards is $103.6 million, which is expected to be recognized over a weighted-average period of 3.2 years. In June 2021, we granted 388,389 RSUs with a value of $10.9 million to our executive officers that were contingent on the effectiveness of the registration statement filed in connection with our IPO, or IPO RSUs. As the IPO was a performance condition, no stock-based compensation expense was recognized until our IPO registration statement was declared effective by the SEC. Stock-based compensation expense for the three and nine months ended September 30, 2022 was $1.1 million and $3.9 million, respectively, and the remaining stock-based compensation of $3.9 million is expected to be recognized over a weighted-average period of 2.9 years. In 2021, we granted 1,338,028 liquidity event RSUs, or LERSUs, to various employees, which only vest upon the achievement of up to four-years of service and upon the consummation of a change-in-control, or CIC event, which included an IPO. If the recipient’s employment terminates for any reason other than for cause, the recipient shall retain any service-vested LERSUs until 6.5 years from the date of grant or the earlier settlement of the service-vested LERSUs upon the consummation of a CIC event. For the LERSUs, recognition of expense does not occur until the consummation of a CIC event and expense is recognized thereafter for any remaining service period, as such events are not considered probable of occurring prior to the CIC event for stock-based compensation purposes. Upon the effective date of our IPO registration statement on June 29, 2021, we commenced recognition of stock-based compensation for all LERSUs as the CIC performance event and service conditions for vested RSUs were satisfied. Stock-based compensation expense for these LERSUs of $3.6 million and $14.0 million was recognized on a graded vesting basis during the three and nine months ended September 30, 2022, respectively. In March 2021, we granted 30,434 RSUs to various employees where the RSUs will vest depending upon the appreciation of the fair value of our common stock compared to the grant-date fair value of our common stock and upon the consummation of a CIC event, which included an IPO, merger, acquisition, or sale of more than 50% of our assets, or performance RSUs. The performance RSUs vest on a linear basis, starting at 0% with a fair value of our common stock equal to $19.64 per share and ending at 100% upon reaching a fair value of our common stock of $29.46 per share. The performance options were subsequently modified in June 2021, prior to the effective date of our IPO registration statement, as discussed below. Stock-option and RSU activity described above, including total stock-based compensation expense recognized and total remaining stock-based compensation expense, is inclusive of awards modified during the period as discussed below. Modification of Stock-Based Compensation Awards In June 2021, we modified the vesting conditions of certain stock options and RSUs as described below. We modified the vesting conditions of 4,477,218 outstanding performance options of certain executive officers and employees so that the performance options do not fully vest immediately upon an IPO. Instead, subject to and contingent upon the effective date of an IPO, the modified performance options for executive officers will vest monthly over a four-year period from their original vesting commencement dates and the modified performance options of certain employees will vest 25% on the first anniversary from the vesting commencement date, and then vest monthly over the remaining service period, subject to continued employment through the applicable vesting dates. As the modified awards contain a performance condition that is satisfied upon an IPO, we remeasured the fair value of the performance options on the date of modification. This new fair value of $76.6 million will be recognized as stock-based compensation expense using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO registration statement for the modified performance options for which the service vesting condition was satisfied on or prior to the effective date of the IPO registration statement, and all remaining compensation expense will be recognized thereafter over the remaining service period. We recognized stock-based compensation of $4.3 million and $17.0 million during the three and nine months ended September 30, 2022, respectively. We modified the vesting conditions of 3,627,936 outstanding 2019 performance options of an executive officer so that in the event of an IPO, the modified 2019 performance options will vest monthly over a four-year period from the original vesting commencement date in 2019, subject to continued employment of the executive officer, rather than vesting upon the fourth anniversary of the original date of grant based on achieving certain stock price thresholds. Incremental stock-based compensation expense as a result of this modification was $11.4 million. Upon our IPO, we recognized stock-based compensation expense for the modified 2019 performance options for which the service vesting condition was satisfied on or prior to the effective date of the IPO registration statement, and all remaining compensation will be recognized thereafter over the remaining service period using the graded vesting method. We recognized stock-based compensation of $1.0 million and $4.3 million during the three and nine months ended September 30, 2022, respectively. We modified the vesting conditions of 111,902 outstanding performance RSUs of certain employees so that the modified performance RSUs do not vest immediately upon an IPO. Instead, subject to and contingent upon the effective date of an IPO registration statement, the modified performance RSUs vest 25% on the first anniversary from their respective vesting commencement dates, then monthly over the remaining service period, subject to the continued employment through the applicable vesting dates. As the modified RSUs contain a performance condition that is satisfied upon an IPO, we remeasured the fair value of the performance RSUs on the date of modification. This new fair value of approximately $2.9 million will be recognized as stock-based compensation expense using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO registration statement for the performance RSUs for which the service vesting condition was satisfied on or prior to the effective date of the IPO registration statement, and all remaining compensation will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $0.1 million and $0.5 million during the three and nine months ended September 30, 2022, respectively. We modified the vesting conditions of 1,725,942 outstanding LERSUs and 1,706,888 outstanding time-based options of certain executive officers to amend the severance vesting acceleration benefit applicable for the LERSUs and to remove the CIC event vesting acceleration benefit for the time-based options. There was no incremental stock-based compensation associated with the modification of the time-based options. We remeasured the fair value of the LERSUs on the date of modification and this new fair value of approximately $43.3 million will be recognized using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO registration statement for the modified LERSUs that have satisfied the service-vesting condition on or prior to the effective date of our IPO registration statement, and all remaining compensation will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $2.9 million and $11.0 million during the three and nine months ended September 30, 2022, respectively.

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