|12 Months Ended|
Dec. 31, 2022
|Stockholders’ Equity||Stockholders’ Equity
Amendment and Restatement of Certificate of Incorporation
In connection with the IPO, the Company filed an amended and restated certificate of incorporation, which authorized a total of 500,000,000 shares of common stock, $0.00001 par value per share and 10,000,000 shares of preferred stock, par value $0.00001 per share.
Stock-Based Compensation Expense
Stock-based compensation expense, consisting of service-based expense related to the equity incentive plan, including expense from stock options and restricted stock units, and the employee stock purchase plan, as well as expenses related to secondary sales of shares of Company common stock, was classified as follows in the accompanying consolidated statements of operations for each of the periods presented (in thousands):
Equity Incentive Plan
During 2016, the Company adopted the 2015 Equity Incentive Plan (the “2015 EIP”) under which common stock options could be issued for employee awards and the Company began issuing stock options under this plan in 2016.
In November 2021 in connection with the initial public offering (“IPO”), the Company adopted the 2021 Equity Incentive Plan (the “2021 EIP” and, together with the 2015 EIP, the “EIP”) under which the Company could issue stock options or restricted stock units (“RSUs”) as awards. Upon adoption of the 2021 EIP, the 2015 EIP plan was terminated. All options issued and outstanding or available for issuance under the 2015 EIP were absorbed into the 2021 EIP. Along with the absorbed 2015 EIP options, the Company reserved an additional 9.0 million shares of common stock for future issuance under the 2021 EIP, with scheduled annual increases to the reserve for amounts to be determined by the Board, subject to a maximum amount. In the first quarter of 2022, the board reserved an additional 3.2 million common shares for future issuance under the 2021 EIP. These plans are collectively referred to herein as the “EIP”.
Stock-based compensation expense related to the EIP was $18.1 million, $10.6 million and $4.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Most options have a four-year vesting schedule with a one-year cliff and are classified as incentive stock options (ISOs). Some options have been granted in lieu of bonuses and have expedited - or three-year vesting schedules. All awards vest based on service conditions.
Options with accelerated vesting clauses, should there be a change in Company control, were 2,042,600 as of December 31, 2022.
Unrecognized stock-based compensation expense related to stock options as of December 31, 2022 and December 31, 2021 was $10.2 million and $34.5 million, respectively. Stock-based compensation expense is recognized on a straight-line basis over the remaining weighted-average vesting periods. As of December 31, 2022 and December 31, 2021 the weighted-average vesting periods approximated 1.49 years and 2.96 years, respectively.
The aggregate intrinsic value of options exercised is outlined in the table below. The intrinsic value represents the excess of the estimated fair value of the Company's common stock on the date of exercise over the exercise price of each option.
Stock option activity was as follows for the year ended December 31, 2022:
The aggregate intrinsic value of options exercised for the years ended December 31, 2022, 2021 and 2020 was $5.5 million, $47.6 million and $11.1 million, respectively. The intrinsic value represents the excess of the estimated fair value of the Company's common stock on the date of exercise over the exercise price of each option.
Stock-based compensation expense is measured at the grant date based on the estimated fair value of the award. The fair value of the awards is fixed at grant date and amortized over the remaining service period. The Company uses the Black-Scholes model to estimate the value of its stock options issued under the EIP. Prior to the Company’s IPO, the common stock fair values used in the models were based on the most recent 409(a) valuation as of the option grant date. Management reviews option grants and determines whether further valuation adjustments are appropriate based on recent company performance and/or changes in market conditions. The volatility assumed in the estimate was based on publicly traded companies in the same industry and considers the expected term calculated by the Company. The expected term of the options was derived from a simplified method which estimates the term based on an averaging of the vesting period and contractual term of the option grant. The risk-free rate utilized was the average of the five- and seven-year U.S. Treasury yields as the estimated expected term for options approximates 6 years. The Company has no plans to declare dividends in the foreseeable future.
The assumptions used in the Black-Scholes pricing model for stock-based compensation for options granted in the periods below were as follows:
The Company did not grant any options during the year ended December 31, 2022.
Estimated fair value of granted options by grant date based on the Black-Scholes model:
In November 2022, the Company held a special meeting to approve a one-time repricing of 1,159,479 of its outstanding common stock option awards previously granted to certain service providers under the 2015 Equity Incentive Plan (the “Option Repricing”). The repricing only affected stock options held by “service providers” as defined under the 2015 Plan (“Eligible Participants”) other than (x) any current or former member of the Company’s board of directors, (y) any of the Company’s current or former Chief Executive Officers and (z) former employees or other service providers. Prior to the Option Repricing, these awards had per share exercise prices between $9.04 and $19.60; the Option Repricing reduced the exercise price of these awards to $7.00 per share. All other terms of the awards remained the same. This repricing results in incremental stock-based compensation expense of approximately $1.1 million to be recognized over the weighted average remaining vesting period of 2.5 years. Of this, approximately $0.4 million was recognized in 2022, which is included within the total 2022 EIP expense amount reported above.
Restricted Stock Units
RSUs granted under the Plan vest and settle upon the satisfaction of a service-based condition. The service based condition for these awards is generally satisfied over or four years. 171,075 RSUs have a four-year vesting schedule with 25% cliff vesting one year from grant date and the remaining 75% vesting monthly over the remaining three years. The remaining RSUs that have been issued have a three-year vesting schedule with 33% vesting one year from grant date and the remaining 67% vesting quarterly over the remaining two years.
Restricted Stock Unit activity was as follows:
The total fair value of awards vested was $1.0 million and zero during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 there was $36.9 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.42 years.
Employee Stock Purchase Plan
In October 2021, the Company adopted the Employee Stock Purchase Plan (“ESPP”) in which eligible employees may contribute up to 50% of their base compensation to purchase shares of common
stock at a price equal to 85% of the lower of (1) the fair market value of a share of the Company’s common stock at the beginning of the offering period and (2) the fair market value of a share of the Company’s common stock on the purchase date. No participant may purchase more than 2,500 shares during any offering period. The ESPP became effective in November 2021 in connection with the IPO. As of December 31, 2022 and December 31, 2021, 1,943,246 and 1,300,000 shares were reserved for issuance, and 165,347 and no shares, respectively, of common stock had been issued under the ESPP. The number of shares available for issuance under the ESPP may be increased on the first day of each fiscal year beginning with the 2022 fiscal year by an amount to be determined by the board of directors.
Except for the initial offering period, the 2021 ESPP provides for six-month offering periods beginning February 16 and August 16 of each year, and the last day of each offering period is the purchase date for that period. The initial offering period began on December 1, 2021 and ended on August 15, 2022 and consists of one purchase period, which is the last day of the offering period. The second offering period began on August 16, 2022 and ended on February 15, 2023.
During the years ended December 31, 2022 and December 31, 2021, respectively, the Company recognized $0.6 million and $0.1 million of stock-based compensation expense related to ESPP. As of December 31, 2022 and December 31, 2021, $0.6 million and $0.3 million in accrued ESPP employee payroll contributions are included within accrued liabilities on the consolidated balance sheets, respectively. As of December 31, 2022, total unrecognized compensation costs related to the ESPP was $0.1 million, which will be amortized over the remaining offering period through February 15, 2023.
The following assumptions were used to calculate the fair value of shares to be granted under the ESPP during the years ended December 31, 2022 and 2021:
Secondary Sales of Common Stock
Prior to the Company’s IPO, certain of the Company’s investors acquired outstanding shares of Company common stock from employees and certain sales of Company common stock by employees to new investors were facilitated by the Company. For these transactions, and where shares of Company common stock were acquired at a price in excess of the estimated fair value of the Company’s common stock, the Company recorded stock-based compensation expense of the difference between the price paid by the investors and the estimated fair value as of the date of the transactions. For the year ended December 31, 2022, there were no secondary stock transactions that resulted in stock-based compensation charges. Stock-based compensation expense for these transactions totaled $3.4 million, and $7.3 million for the years ended December 31, 2021 and 2020, respectively.
Common Share Warrants
All warrants discussed in this section were evaluated by the Company under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and were determined to be recognized under the provisions of this guidance as equity transactions.
In September 2014, the Company issued 45,000 common share warrants, with a $0.20 strike price, to a financial institution in connection with the note payable discussed in Note 11. Using the Black-Scholes model, the Company estimated the fair value of the warrants to be $9,178 at issuance, which was recorded in equity in 2014. These warrants expire on the earlier of (1) October 13, 2025, or (2) three years after the Company’s Initial Public Offering. Should the fair value of the underlying common shares exceed the strike price at either expiration dates, the warrants will automatically be exercised via cashless net settlement.
The following inputs were used in the Black-Scholes valuation for these warrants:
In connection with the note payable issued in September 2016, the Company issued 62,000 common share warrants, with a $0.6825 strike price, to the same financial institution. These warrants have substantially the same terms as the other warrants discussed above. Using the Black-Scholes model, the Company estimated the fair value of the warrants to be $22,192 at issuance, which was recorded in equity in 2016. These warrants expire on March 14, 2026. Should the fair value of the underlying common shares exceed the strike price at the expiration date, the warrants will automatically be exercised via cashless net settlement.
The following inputs were used in the Black-Scholes valuation for these warrants:
The Company refinanced its notes payable in January of 2019, in April 2020 and again in August 2021 (see Note 11). The refinances had no impact on the warrants issued with the notes payable and no additional warrants were issued as part of the refinances.
In November 2021, both sets of common share warrants discussed above were exercised. A net exercise was elected, in which no cash proceeds were received by the Company and in exchange, the financial institution received a total 104,269 common shares, which is reduced from the 107,000 combined total of the initial warrant grants.
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef