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Equity incentive plans | 12 Months Ended
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Dec. 31, 2021
Share-based Payment Arrangement [Abstract] |
Equity incentive plans | Equity incentive plans In 2010, the Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan provided for incentive stock options (“ISOs”), non-statutory stock options (“NSOs”, collectively with ISOs, “Stock Options”), SARs, restricted stock, and RSUs to be granted to eligible employees, directors, and consultants. The Company’s Board of Directors most recently approved an amended and restated 2010 Equity Incentive Plan as of September 28, 2021, which authorized the issuance of 850,000 additional shares for a total of 44,340,706. The 2010 Plan was terminated in October 2021 in connection with the IPO but continues to govern the terms and conditions of the outstanding awards granted pursuant to the 2010 Plan. No further equity awards will be granted under the 2010 Plan. The Company adopted the 2021 Equity Incentive Plan (the "2021 Plan") in September 2021, which became effective on October 28, 2021 (collectively with the 2010 Plan, the "Equity Incentive Plans"). The 2021 Plan provides for the granting of ISOs, NSOs, SARs, restricted stock, RSUs, and performance awards to eligible employees, directors, and consultants. All of the aforementioned equity incentive plans were approved by the Company’s stockholders. The Company initially reserved 13,800,000 shares for issuance under the 2021 Plan. The amount available for issuance is subject to an annual increase on the first day of each calendar year, beginning on January 1, 2023, in an amount equal to 5% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding calendar year or a lesser amount determined by the Company’s Board of Directors or compensation committee. The amount available for issuance shall also include Returning Shares, which are any shares subject to awards granted under the 2010 Plan that, on or after October 29, 2021, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest. Stock options—The Company may grant stock options at exercise prices not less than the fair market value at the date of grant. These options generally expire 10 years from the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each award, which is generally even over four years. The following is a summary of activity for stock options under the Equity Incentive Plans (amounts in thousands, except share and per share amounts):
| Options Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Balance - December 31, 2020 | 18,532,979 |  |  | $ | 5.12 |  |  | 8.46 |  | $ | 123,166 |
Granted | 5,529,439 |  |  | 21.97 |  |  |  |  |
Exercised | (2,923,761) |  |  | 3.75 |  |  |  |  |
Canceled | (1,196,398) |  |  | 10.02 |  |  |  |  |
Balance - December 31, 2021 | 19,942,259 |  |  | $ | 9.70 |  |  | 8.14 |  | $ | 226,350 |
Vested & Expected to Vest as of December 31, 2021 | 19,942,259 |  |  | $ | 9.70 |  |  | 8.14 |  | $ | 226,350 |
Exerciseable as of December 31, 2021 | 8,002,666 |  |  | $ | 4.77 |  |  | 7.41 |  | $ | 118,769 |
The weighted average grant date fair values of stock options granted during the fiscal years ended December 31, 2021, 2020, and 2019 w as $16.01, $5.48 and $1.66 per share, respectively. Total aggregate intrinsic value of options exercised during the fiscal years ended December 31, 2021, 2020, and 2019 was $59.7 million, $34.8 million, and $11.0 million, respectively. As of December 31, 2021, total unrecognized stock-based compensation expense related to unvested stock options was $95.8 million, which will be recognized over a weighted average period o f 2.5 years. The Company estimates the fair value of stock-based compensation for stock options by utilizing the Black-Scholes option-pricing model, which is dependent upon several variables, such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, and expected dividend yield rate over the expected option term. These amounts are estimates and, thus, may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The calculation of grant date fair value of stock options was based on the following weighted average assumptions:
| Fiscal Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Risk-free interest rate | 1.0% |  | 0.5% |  | 2.2%
Expected volatility | 60.5% |  | 57.3% |  | 48.1%
Expected life (in years) | 6.0 |  | 5.9 |  | 6.0
Expected dividend yield | —% |  | —% |  | —%
Stock appreciation rights—The Company may grant SARs at exercise prices not less than the fair market value at the date of grant. The SARs are liability-classified awards that generally expire 10 years from the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each award, which is generally even over four years. Refer to Note 2 “Summary of Significant Accounting Policies—Stock-Based Compensation” for more information. The following is a summary of activity for SARs under the Equity Incentive Plans (amounts in thousands, except share and per share amounts):
| SARs Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Balance - December 31, 2020 | 95,475 |  |  | $ | 5.64 |  |  | 9.00 |  | $ | 586 |
Granted | 17,755 |  |  | 22.56 |  |  |  |  |
Exercised | (458) |  |  | 3.12 |  |  |  |  |
Canceled | (6,617) |  |  | 6.04 |  |  |  |  |
Balance - December 31, 2021 | 106,155 |  |  | $ | 8.45 |  |  | 8.25 |  | $ | 1,267 |
Vested & Expected to Vest as of December 31, 2021 | 106,155 |  |  | $ | 8.45 |  |  | 8.25 |  | $ | 1,267 |
Exercisable as of December 31, 2021 | 48,560 |  |  | $ | 5.34 |  |  | 7.90 |  | $ | 690 |
The weighted average grant date fair values of SARs granted during the fiscal years ended December 31, 2021, 2020, and 2019 was $22.47, $6.04, and $5.00 per share, respectively. As of December 31, 2021, total compensation cost related to unvested SARs not yet recognized was $0.7 million, which will be recognized over a weighted average period of 2.3 years. The Company estimates the fair value of stock-based compensation for SARs by utilizing the same Black-Scholes option-pricing model as described under the Stock Options subheading above. The calculation of grant date fair value of SARs was based on the following weighted average assumptions:
| Fiscal Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Risk-free interest rate | 1.5% |  | 0.7% |  | 1.9%
Expected volatility | 60.9% |  | 58.3% |  | 54.3%
Expected life (in years) | 6.2 |  | 6.1 |  | 5.4
Expected dividend yield | —% |  | —% |  | —%
Restricted stock units—The Company first issued RSU awards in November 2021. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of grant. The Company recognizes stock-based compensation expense for RSUs with service-based vesting conditions on a straight-line basis over the requisite service period for each award, which typically vest over a three or four-year period. A summary of RSU activity under the 2021 Plan is as follows (in thousands, except per share data):
| RSUs Outstanding |  | Weighted Average Grant Date Fair Value
Unvested - December 31, 2020 | — |  |  | $ | — |
Granted | 2,569,153 |  |  | 27.64
Released | — |  |  | — |
Canceled | (24,102) |  |  | 27.64
Unvested - December 31, 2021 | 2,545,051 |  |  | $ | 27.64 |
As of December 31, 2021, total unrecognized stock-based compensation expense related to unvested RSUs was $68.6 million, which will be recognized over a weighted average period of 3.9 years. Performance-based awards—Under its 2010 Plan, the Company may grant share-based awards whose vesting is contingent on meeting various departmental or company-wide performance goals, such as the achievement of certain sales targets or an IPO event, in lieu of or in addition to a service-based vesting condition (“Performance-Based Awards”). Such awards are generally granted with an exercise price equal to the fair market value of the underlying common stock share on the date of grant and have a contractual term of 10 years. If vesting is dependent on satisfying a performance condition that is probable of being achieved, the Company estimates the expected term as the midpoint between the time at which the performance conditions are probable of being satisfied and the contractual term of the award. If vesting is dependent on satisfying a performance condition that is not probable of being achieved and the service period is not explicitly stated, the Company estimates the expected term as the contractual term. The remaining inputs to the Black-Scholes option pricing model used to determine grant date fair value, including risk-free interest, expected volatility, and expected dividend yield, are calculated using the same method as that used for stock options with service-based vesting conditions. Grants for Performance-Based Awards are made out of the same pool of stock options available for future issuance under the Equity Incentive Plans. Compensation expense for Performance-Based Awards is based on the grant date fair market value. The Company recognizes expense for Performance-Based Awards having either (a) multiple performance-based vesting conditions, or (b) performance and graded service-based vesting conditions, by separately attributing each vesting tranche of the award over the requisite service period applicable to each vesting condition. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified performance goals. If the performance-based vesting condition is considered probable of being achieved, the Company recognizes expense over the remaining service period based on the probable outcome of achievement. If the performance goals are not met, no compensation cost is recognized, and any previously recognized compensation cost is reversed. For awards with both performance and service-based vesting conditions where the performance condition is considered improbable of being achieved, the Company does not recognize expense until the performance condition is satisfied, after which time expense is recognized over the requisite service period. The Company had two Performance-Based Awards outstanding as of December 31, 2021, and December 31, 2020. In 2018, the Company granted an award of 50,000 stock options that will become eligible to vest upon the closing of the Company’s IPO occurring prior to the sixth (6th) anniversary of the date the award was granted and subject to recipient’s continued service to the Company through the IPO closing date. Upon satisfaction of the IPO requirement, the options vest in 48 equal monthly installments thereafter, subject to the recipient continuing to provide service to the Company through each vesting date. In 2020, the Company modified the performance condition of the award to include a change in control event as defined in the Company’s 2010 Plan. Prior to the Company’s IPO on October, 29, 2021, management considered the performance-based vesting conditions improbable of being satisfied. Upon completion of the IPO, the performance condition was satisfied, and the Company recognized an immaterial amount of cumulative stock-based compensation expense. In 2020, the Company granted 350,000 stock options with performance-based vesting conditions, with 50% vesting when the Company achieves $230.0 million in UB Annual Recurring Revenue (“ARR”), and the other 50% vesting when the Company achieves $330.0 million in UB ARR. Management considered that both performance-based vesting conditions were probable of being satisfied during the performance period. As such, the Company began recognizing expense for each tranche of the award using the estimated time period by which the performance conditions are probable of being achieved. The $230.0 million UB ARR performance condition was achieved in the fourth quarter of fiscal year 2021, though the award was not exercisable until the Board of Directors’ compensation committee formally certified satisfaction of the performance condition in February 2022. The following table summarizes the activities of Performance-Based Options under the 2010 Plan (amounts in thousands, except share and per share amounts):
| Performance-Based Options Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Balance - December 31, 2020 | 400,000 |  |  | $ | 10.12 |  |  | 9.60 |  | $ | 660 |
Granted | — |  |  | — |  |  |  |  |
Exercised | — |  |  | — |  |  |  |  |
Canceled | — |  |  | — |  |  |  |  |
Balance - December 31, 2021 | 400,000 |  |  | $ | 10.12 |  |  | 8.60 |  | $ | 3,768 |
Vested & Expected to Vest as of December 31, 2021 | 400,000 |  |  | $ | 10.12 |  |  | 8.60 |  | $ | 3,768 |
Exercisable as of December 31, 2021 | 2,083 |  |  | $ | 3.06 |  |  | 6.58 |  | $ | 34 |
As of December 31, 2021, total compensation cost related to unvested Performance-Based Awards not yet recognized was $0.6 million, which will be recognized over a weighted average period of 0.8 years. Employee Stock Purchase Plan— The 2021 Employee Stock Purchase Plan (the “ESPP”) became effective on October 29, 2021. The Company initially reserved 2,800,000 shares of the Company's common stock under the ESPP. Shares reserved for issuance shall increase on the first day of the fiscal year, beginning in fiscal 2023, in an amount equal to the least of 1% of the outstanding shares of common stock on the last day of the immediately preceding Fiscal Year, three times the initial number of shares reserved under the ESPP, or a lesser amount determined by the Company’s Board of Directors or compensation committee. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of 15% during an offering period. Offering periods are 24-month periods beginning on the first trading day on or after May 20 or November 20 (defined as the enrollment date), except for the first offering period which commenced on October 29, 2021, and will end on November 20, 2023. Each offering period has four purchase periods which last approximately 6 months, or the length of time between exercise dates (defined as the first trading day on or after May 20 and November 20 of each purchase period), except that the first purchase period of any offering period is the time between the enrollment date and first exercise date. At the start of an offering period, eligible employees may elect to contribute up to 15% of their eligible compensation each payroll period during that offering period to purchase shares of common stock in accordance with the ESPP. On each exercise date, eligible employees will purchase the Company’s common stock at a price per share equal to 85% of the lesser of the fair market value of the Company’s common stock on (i) the enrollment date or (ii) the exercise date. For the fiscal year ended December 31, 2021, no shares of common stock were issued under the ESPP, as the first exercise date had not yet occurred. The following table summarizes the weighted-average assumptions used in estimating the fair value of ESPP for the initial offering period using the Black-Scholes option-pricing model:
| Fiscal Year Ended December 31,
| 2021
Risk-free interest rate | 0.3%
Expected volatility | 61.2%
Expected life (in years) | 1.2
Expected dividend yield | —%
As of December 31, 2021, total unrecognized compensation cost for the ESPP was $6.6 million, which will be recognized over a weighted average period of 1.9 years. Other equity transactions—During the fiscal year ended December 31, 2021, the Company facilitated a tender offer for certain eligible employees to sell 236,086 vested stock options and outstanding shares of common stock to an existing investor at a per share price of $23.75 per share. The Company recorded stock-based compensation of $1.6 million during the fiscal year ended December 31, 2021 in its consolidated statements of operations for the difference between the price paid and the fair value of the Company’s common stock on the date of the transaction. During the fiscal year ended December 31, 2020, the Company facilitated a tender offer for certain eligible employees to sell 891,265 vested stock options and outstanding shares of common stock at a per share price of $11.22 per share. The Company recorded stock-based compensation of $3.5 million during the fiscal year ended December 31, 2020, in its consolidated statements of operations for the difference between the price paid and the fair value of the Company’s common stock on the date of the transaction. During the fiscal year ended December 31, 2019, the Company facilitated a tender offer for certain eligible employees to sell 300,000 vested stock options and outstanding shares of common stock to a new investor at a per share price of $10.00 per share. The Company recorded stock-based compensation of $2.1 million in its consolidated statements of operations for the difference between the price paid and the fair value of the Company’s common stock on the date of the transaction. Additionally, during the fiscal years ended December 31, 2021, 2020 and 2019 the Company waived its right of first refusal and transfer restrictions with respect to certain transfers of outstanding common stock. Where the Company has concluded that such transfers included a deemed compensatory element as a result of both the Company’s role in facilitating the transfers and the buyers of the shares transferred having a pre-existing economic interest in the Company’s equity, the Company recorded stock-based compensation expense for the difference between the price paid and the fair market value on the date of the transaction. The Company recorded $4.0 million, $17.9 million and $1.7 million of stock-based compensation expense in an aggregate amount during the fiscal years ended December 31, 2021, 2020, and 2019, respectively. On August 24, 2021, the Company issued 61,300 shares of Udemy restricted common stock to a former executive of CorpU at a grant date fair value per share of $34.14. The total compensation cost recognized during the fiscal year ended December 31, 2021 was $0.2 million. As of December 31, 2021, total compensation cost related to the restricted stock not yet recognized was $1.8 million, which will be recognized over a weighted average period of 2.6 years. Total stock-based compensation expense included in the consolidated statements of operations was as follows (in thousands):
| Fiscal Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Cost of revenue | $ | 1,623 |  |  | $ | 418 |  |  | $ | 299 |
Sales and marketing | 8,637 |  |  | 7,518 |  |  | 3,001 |
Research and development | 6,816 |  |  | 5,232 |  |  | 2,357 |
General and administrative | 17,604 |  |  | 18,450 |  |  | 3,306 |
Total stock-based compensation expense | $ | 34,680 |  |  | $ | 31,618 |  |  | $ | 8,963 |
The Company capitaliz ed $2.5 million, $0.7 million, and $0.3 million of stock-based compensation expense as capitalized software during the fiscal years ended December 31, 2021, 2020, and 2019, respectively. Due to the adoption of ASU 2018-15 as described in Note 2 (“Summary of significant accounting policies”), the Company capitalized $0.1 million of st ock-based compensation expense as cloud computing costs during the fiscal year ended December 31, 2021.

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