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Stockholders' equity | 9 Months Ended
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Sep. 30, 2022
Share-Based Payment Arrangement [Abstract] |
Stockholders' equity | 14. Stockholders' equity Preferred stock— In connection with the IPO, the Company’s amended and restated certificate of incorporation became effective, which authorized the issuance of 50,000,000 shares of undesignated preferred stock with a par value of $0.00001 per share with rights and preferences, including voting rights, designated from time to time by the board of directors. Common stock— Common stockholders are entitled to one vote per share. The Company had the following common stock reserved for future issuance as of September 30, 2022, and December 31, 2021, respectively:
| September 30, |  | December 31,
| 2022 |  | 2021
Stock options to purchase common stock (1) | 10,728,915 |  |  | 20,342,259 |
Shares available for future issuance under: |  |  |
2021 Equity Incentive Plan | 5,287,548 |  |  | 11,417,359 |
2021 Employee Stock Purchase Plan | 2,273,246 |  |  | 2,800,000 |
Total shares of common stock reserved | 18,289,709 |  |  | 34,559,618 |
(1) Excludes 82,791 and 106,155 cash-settled SARs outstanding as of September 30, 2022, and December 31, 2021, respectively.
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 restricted stock units (“RSUs”) to be granted to eligible employees, directors, and consultants. 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”) and was approved by the Company’s stockholders. The 2021 Plan provides for the granting of ISOs, NSOs, SARs, restricted stock, RSUs, and performance awards to eligible employees, directors, and consultants. 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. Equity Exchange— On July 11, 2022, the Company launched an equity exchange program (the “Equity Exchange”) in which eligible employees and executives were able to exchange certain outstanding stock options and SARs, whether vested or unvested, with a per share exercise price equal to or greater than $11.13, for RSUs on a one-for-one basis. Upon expiration of the offer to exchange on August 6, 2022, 6,958,544 stock options and SARs (collectively, the “Exchanged Awards”) were canceled and immediately exchanged for an equivalent number of new RSUs, representing a participation rate by eligible awards of approximately 97%. The incremental stock-based compensation expense associated with the Equity Exchange was calculated as the excess of the fair value of each new RSU awarded, as measured on the date exchanged, over the fair value of the corresponding Exchanged Awards, as measured immediately prior to the exchange closing on August 6, 2022. The fair value of the new RSUs was estimated using the fair value of the Company’s common stock on the exchange date. The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the Exchanged Awards as of August 6, 2022:
Risk-free interest rate | 3.0%
Expected volatility | 68.6%
Expected life (in years) | 4.9
Expected dividend yield | —%
The Company will recognize the $45.7 million of incremental stock-based compensation expense associated with the modification, as well as the remaining unrecognized expense associated with the Exchanged Awards at the time of the exchange, on a straight-line basis over the requisite service period for the new RSUs, adjusted as needed for those new RSUs issued for certain Exchanged Awards whose per share exercise prices were lower than the Company’s stock price at the exchange date. The requisite service periods for the new RSUs are determined by the per share exercise price of the corresponding Exchanged Awards, ranging from two to three years. 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:
| Options Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value (In Thousands)
Balance - December 31, 2021 | 19,942,259 |  |  | $ | 9.70 |  |  | 8.14 |  | $ | 226,350 |
Granted | — |  |  | — |  |  |  |  |
Exercised | (1,273,968) |  |  | 4.44 |  |  |  |  |
Canceled in connection with the Equity Exchange | (6,762,489) |  |  | 18.62 |  |  |  |  |
Canceled | (1,226,887) |  |  | 13.49 |  |  |  |  |
Balance - September 30, 2022 | 10,678,915 |  |  | $ | 4.25 |  |  | 6.63 |  | $ | 84,557 |
Vested & expected to vest as of September 30, 2022 | 10,678,915 |  |  | $ | 4.25 |  |  | 6.63 |  | $ | 84,557 |
Exercisable as of September 30, 2022 | 8,388,865 |  |  | $ | 3.95 |  |  | 6.49 |  | $ | 68,602 |
There were no stock options granted during the nine months ended September 30, 2022. Total aggregate intrinsic value of options exercised during the nine months ended September 30, 2022 and 2021, was $11.0 million and $46.7 million, respectively. As of September 30, 2022, total unrecognized stock-based compensation expense related to unvested stock options was $7.7 million, which will be recognized over a weighted average period of 1.0 year. 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. The following is a summary of activity for SARs under the Equity Incentive Plans:
| SARs Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value (In Thousands)
Balance - December 31, 2021 | 106,155 |  |  | $ | 8.45 |  |  | 8.25 |  | $ | 1,267 |
Granted | — |  |  | — |  |  |  |  |
Exercised | (743) |  |  | 3.63 |  |  |  |  |
Canceled in connection with the Equity Exchange | (21,055) |  |  | 19.19 |  |  |  |  |
Canceled | (1,566) |  |  | 18.95 |  |  |  |  |
Balance - September 30, 2022 | 82,791 |  |  | $ | 5.57 |  |  | 7.06 |  | $ | 546 |
Vested & expected to vest as of September 30, 2022 | 82,791 |  |  | $ | 5.57 |  |  | 7.06 |  | $ | 546 |
Exercisable as of September 30, 2022 | 61,845 |  |  | $ | 5.36 |  |  | 6.98 |  | $ | 423 |
There were no SARs granted during the nine months ended September 30, 2022. As of September 30, 2022, total compensation cost related to unvested SARs not yet recognized was $0.2 million, which will be recognized over a weighted average period of 1.2 years. Restricted stock units— 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:
| RSUs Outstanding |  | Weighted Average Grant Date Fair Value
Unvested - December 31, 2021 | 2,545,051 |  | $ | 27.64 |
Granted | 8,183,583 |  | $ | 13.40 |
Awarded in connection with the Equity Exchange (1) | 7,133,544 |  |  | $ | 19.06 |
Released | (294,779) |  | $ | 18.29 |
Canceled | (847,920) |  | $ | 19.15 |
Unvested - September 30, 2022 | 16,719,479 |  | $ | 17.60 |
(1) Inclusive of 175,000 Performance-Based Awards that were separately modified, as discussed below.
As of September 30, 2022, total unrecognized stock-based compensation expense related to unvested RSUs was $233.6 million, which will be recognized over a weighted average period of 2.9 years. Performance-based awards— Under the Equity Incentive Plans, 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 one Performance-Based Award outstanding as of September 30, 2022, and two Performance-Based Awards outstanding as of December 31, 2021. In 2018, the Company granted an award of 50,000 stock options that was 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. Upon the completion 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. 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, and the Board of Directors’ compensation committee formally certified satisfaction of the performance condition in February 2022. The first, vested tranche of the award participated in the Equity Exchange program, as described in the section above, resulting in the cancellation of 175,000 performance-based stock options and the subsequent issuance of an equal number of RSUs. The $330.0 million UB ARR performance condition was achieved and certified by the Board of Directors’ compensation committee in the third quarter of fiscal year 2022. In the same quarter, after the certification occurred, the second tranche was separately modified under equivalent terms and accounting treatment to those described in the Equity Exchange section above, resulting in the cancellation of 175,000 performance-based stock options and the concurrent issuance of an equal number of RSUs. Modification of the second tranche resulted in incremental stock-based compensation expense of $0.9 million, which will be recognized on a straight-line basis over the requisite service period. Each tranche of the new RSUs fully vest in November 2022. The following table summarizes the activities of Performance-Based Awards under the Equity Incentive Plans:
| Performance-Based Awards Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value (In Thousands)
Balance - December 31, 2021 | 400,000 |  |  | $ | 10.12 |  |  | 8.60 |  | $ | 3,768 |
Granted | — |  |  |  |  |  |  |
Exercised | — |  |  |  |  |  |  |
Canceled (1) | (350,000) |  |  | 11.13 |  |  |  |  |
Balance - September 30, 2022 | 50,000 |  |  | $ | 3.06 |  |  | 5.83 |  | $ | 452 |
Vested & expected to vest as of September 30, 2022 | 50,000 |  |  | $ | 3.06 |  |  | 5.83 |  | $ | 452 |
Exercisable as of September 30, 2022 | 10,416 |  |  | $ | 3.06 |  |  | 5.83 |  | $ | 94 |
(1) 175,000 shares were canceled as part of the Equity Exchange, and 175,000 shares were canceled as part of the modification discussed above.
As of September 30, 2022, total compensation cost related to unvested Performance-Based Awards not yet recognized was $0.1 million, which will be recognized over a weighted average period of 2.6 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. In the event that the fair market value per share of the Company’s common stock at the end of a six-month purchase period is lower than the fair market value per share at the first day of the related offering period, a reset occurs that automatically cancels the current offering period and enrolls participants in a new offering period. During the nine months ended September 30, 2022, 525,037 shares of common stock were issued under the ESPP. On May 20, 2022, the Company’s ESPP purchase price was reset. Under the reset provision, if the closing stock price on the purchase date falls below the closing stock price on the offering date of an ongoing offering period, the ongoing offering terminates immediately following the purchase of ESPP shares on the purchase date. Participants in the terminated offering are then automatically enrolled in the new offering period. The ESPP reset resulted in an incremental compensation cost of $3.4 million which will be recognized on a straight-line basis over the new offering period ending in May 2024. As of September 30, 2022, total unrecognized compensation cost for the ESPP was $7.3 million, which will be recognized over a weighted average period of 1.6 years. Other equity transactions— During the first quarter of 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 nine months ended September 30, 2021, in its condensed 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. 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 three and nine months ended September 30, 2022 was $0.2 million and $0.5 million, respectively, and an immaterial amount for the three and nine months ended September 30, 2021. As of September 30, 2022, total compensation cost related to the restricted stock not yet recognized was $1.3 million, which will be recognized over a weighted average period of 1.9 years. Total stock-based compensation expense included in the condensed consolidated statements of operations was as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of revenue | $ | 1,611 |  |  | $ | 350 |  |  | $ | 3,440 |  |  | $ | 888 |
Sales and marketing | 9,372 |  |  | 2,149 |  |  | 18,516 |  |  | 5,784 |
Research and development | 6,258 |  |  | 1,304 |  |  | 13,303 |  |  | 4,445 |
General and administrative | 7,728 |  |  | 3,417 |  |  | 17,784 |  |  | 12,587 |
Total stock-based compensation expense | $ | 24,969 |  |  | $ | 7,220 |  |  | $ | 53,043 |  |  | $ | 23,704 |
The Company capitalized $1.6 million and $0.5 million of stock-based compensation expense as capitalized software during the three months ended September 30, 2022 and 2021, respectively, and $4.2 million and $1.5 million during the nine months ended September 30, 2022 and 2021, respectively.

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- Definition The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -URI https://asc.fasb.org/topic&trid=2208762 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 13 -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 14 -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496171-112644 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 14 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496171-112644 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.3-04) -URI https://asc.fasb.org/extlink&oid=120397183&loc=d3e187085-122770 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 18 -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496189-112644 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (g) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 18 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496189-112644 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (h) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 14 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496171-112644 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 18 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496189-112644 Reference 13: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 16 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496180-112644 Reference 14: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (i) -URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644 Reference 15: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(e)(1)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 Reference 16: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 6 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=126731327&loc=SL126733271-114008 + Details
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