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Stock-Based Compensation | 3 Months Ended
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Mar. 31, 2022
Share-based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based CompensationDuring three months ended March 31, 2022 we recorded stock-based compensation related to our 2021 Incentive Award Plan and our ESPP, and during the three months ended March 31, 2021, we recorded stock-based compensation related to our Class B Units. As more fully described in Note 1, we completed our Transactions in July 2021, and all Class B Units fully vested as of the transaction date, and the original operating agreement was terminated and replaced by a new operating agreement consistent with the Company’s Up-C structure. This new operating agreement does not contain the put and call options that existed under the previous operating agreement, and the Common Units are treated as common equity under the new operating agreement and do not generate stock-based compensation expense. Included within cost of revenue, sales and marketing, and general and administrative expenses are total stock-based compensation expenses as follows:
| Three Months Ended March 31,
| 2022 |  | 2021
Cost of revenue | $ | 532 |  |  | $ | 114,348 |
Sales and marketing | 565 |  |  | 14,070 |
General and administrative | 1,491 |  |  | 472,657 |
Total stock based-compensation expense | $ | 2,588 |  |  | $ | 601,075 |
Total stock-based compensation expense for the three months ended March 31, 2022 includes expenses related to our 2021 Incentive Award Plan and our ESPP, while the total stock-based compensation expense for the three months ended March 31, 2021 includes the vesting of Class B units, the change in fair value of Class B liability awards and profits distributions to Class B unitholders as follows:
| Three Months Ended March 31,
| 2022 |  | 2021
2021 Incentive Award Plan | $ | 2,430 |  |  | $ | — |
Employee Stock Purchase Plan | 158 |  |  | — |
Vested Class B units and change in fair value of Class B liability awards | — |  |  | 595,424 |
Profits distributions to Class B unitholders | — |  |  | 5,651 |
Total stock-based compensation expense | $ | 2,588 |  |  | $ | 601,075 |
2021 Incentive Award Plan On September 27, 2021, we granted certain employees restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) under our 2021 Incentive Award Plan. Both RSUs and SARs are time based and vest ratably over four years, as specified in the individual grant notices. The RSUs granted in September 2021 entitle the recipients to dividend equivalents which are subject to the same vesting terms and accumulate during the vesting period. Upon vesting, the RSU holder will be issued the Company’s Class A Common Stock. The SARs will be settled in the Company’s Class A Common Stock upon exercise. The shares to be issued upon exercise will have a total market value equal to the SAR value calculated as (x) number of shares underlying SAR, multiplied by (y) any excess of the Company’s share value on the date of exercise over the exercise price set in each individual grant notice. The fair value of the RSU is the same as the Company’s share price on the date of grant. The fair value of the SARs was determined using a Black-Scholes model. The activities of the RSUs and SARs and the related weighted average grant-date fair value of the respective share classes are summarized as follows, including granted, exercised and forfeited from January 1, 2022 to March 31, 2022.
|  |  | RSUs |  | SARs
|  |  | Units |  | Weighted-Average Grant Date Fair Value |  | Units |  | Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2022 |  |  | 2,334,490 |  |  | $ | 8.30 |  |  | 1,935,131 |  |  | $ | 4.05 |
Granted |  |  | — |  |  | — |  |  | — |  |  | — |
Exercised or vested |  |  | — |  |  | — |  |  | — |  |  | — |
Forfeited |  |  | (4,625) |  |  | 8.30 |  |  | (4,723) |  |  | 4.05 |
Expired |  |  | — |  |  | — |  |  | — |  |  | — |
Outstanding at March 31, 2022 |  |  | 2,329,865 |  |  | $ | 8.30 |  |  | 1,930,408 |  |  | $ | 4.05 |
The stock compensation expense related to the RSU and SAR grants was $2,430 for the three months ended March 31, 2022. As of March 31, 2022, none of the SARs were exercisable and they have a remaining contractual term of 9.5 years. Employee Stock Purchase Plan As a result of the Transactions, the Company adopted the ESPP. Under the ESPP, the Company authorizes the grant of the right to purchase shares of Class A Common Stock by employees who qualify under the ESPP. The Company has reserved for issuance a total of 6,409,000 shares of Class A Common Stock. The ESPP became effective on January 1, 2022 and the initial offering period began on January 1, 2022 and ends on June 30, 2022. The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of the Company’s Class A Common Stock on specified dates during such offerings. Under the ESPP, the Company has determined the offering period to occur in six month intervals, with the purchase date occurring at the end of the offering period. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s Class A Common Stock on the first trading day of the offering period, or (2) the fair market value of the Company’s Class A Common Stock on the purchase date, as defined in the ESPP. The fair value of the ESPP is determined using the Monte Carlo model as of the beginning of each offering period and is expensed ratably over the six month offering period. The Company recognized $158 of stock-based compensation expense related to the ESPP during the three months ended March 31, 2022. As of March 31, 2022, $314 has been withheld on behalf of employees for the June 30, 2022 purchase date. Class B Units We recognized stock-based compensation expenses of $601,075 for the three months ended March 31, 2021. These amounts include profits distributions to Class B unitholders of $5,651. The amount of stock-based compensation expense related to the Class B Units included in each of the line items in the accompanying condensed consolidated statement of operations is as follows:
| Three Months Ended March 31,
| 2022 |  | 2021
Cost of revenue | $ | — |  |  | $ | 114,348 |
Sales and marketing | — |  |  | 14,070 |
General and administrative | — |  |  | 472,657 |
Total stock based-compensation expense | $ | — |  |  | $ | 601,075 |
The weighted-average grant-date fair value of Class B Units granted was $2,195.16 per unit during the three months ended March 31, 2021. Because the Class B Units were not publicly traded, we estimated the fair value of its Class B Units in each reporting period. The fair values of Class B Units were estimated by the board of managers based on our equity value. The board of managers considered, among other things, contemporaneous valuations of our equity value prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For the three months ended March 31, 2021, the fair value of the Class B Units was estimated using a probability-weighted expected return method. This method considered two scenarios: one based on a market approach according to a proposed acquisition of the Company and allocated through a liquidation waterfall, and the other based on the Company continuing as a private entity according to a discounted cash flow analysis, and allocated using an option pricing model. The results of these two methods were weighted to derive the fair value of the Class B Units as of March 31, 2021. The discounted cash flow method estimates the equity value of the Company by projecting the Company’s net cash flows into the future and discounting these net cash flows to present value by applying a discount rate. Key inputs for this valuation include the Company’s projected cash flows and discount rate. Changes to these inputs could have a material impact on the accompanying condensed consolidated financial statements. The option pricing model allocates the equity value to each class of common units by preparing a breakpoint analysis to determine which securities would receive value at each threshold of a hypothetical liquidation. Then applying a Black-Scholes option pricing analysis to determine the incremental value of each respective breakpoint and allocating that value to each participating security based on its pro-rata ownership in the breakpoint. Key inputs for this valuation include the equity value of the Company, risk-free rate, allocation thresholds, and stock volatility. The Company considered several objective and subjective factors to determine the best estimate of the fair value of the Class B Units, including: ▪the Company’s historical and expected operating and financial performance; ▪current business conditions; ▪indications of value from external investors and their proposed value for the business; ▪the Company’s stage of development and business strategy; ▪macroeconomic conditions; ▪the Company’s weighted average cost of capital; ▪risk-free rates of return; ▪the volatility of comparable publicly traded peer companies; and ▪the lack of an active public market for the Company’s equity units. See also Note 2 – Summary of Significant Accounting Policies – Stock Based Compensation.

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