Annual report pursuant to Section 13 and 15(d)

Stockholders??? Equity (Deficit)

v3.22.1
Stockholders’ Equity (Deficit)
 12 Months Ended
Dec. 31, 2021
Equity [Abstract]  
Stockholders’ Equity (Deficit) Stockholders’ Equity (Deficit)
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.
Equity-Based Compensation Expense
Equity-based compensation expense, consisting of service-based expense related to the equity incentive plan, the employee stock purchase plan and restricted stock units as well as expense from secondary sales of commons shares, was classified as follows in the accompanying consolidated statements of operations for each of the periods presented (in thousands):
Year Ended December 31,
2021 2020 2019
Cost of revenue $ 526  $ 282  $ 35 
Sales and marketing 1,962  544  323 
Research and development 3,545  1,442  273 
General and administrative 8,058  9,345  764 
Total $ 14,091  $ 11,613  $ 1,395 
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 IPO, the Company adopted the 2021 Equity Incentive Plan (the “2021 EIP”). 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 9,000,000 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. These plans are collectively referred to herein as the “EIP”.
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 two- 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 3,689,243 as of December 31, 2021.
Equity-based compensation expense related to the EIP was $10.6 million, $4.4 million and $1.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Unrecognized equity-based compensation expense as of December 31, 2021 and December 31, 2020 was $34.5 million and $27.0 million, respectively. Equity-based compensation expense is recognized on a straight-line basis over the remaining weighted-average vesting periods. As of December 31, 2021 and December 31, 2020 the weighted-average vesting periods approximated 2.96 and 3.16 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, 2021:
Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value
(in thousands)
Outstanding as of December 31, 2020 9,868,915  $ 3.62  8.13 $ 101,070 
Exercisable as of December 31, 2020 4,401,361  $ 1.10  6.78 $ 56,117 
2021 Activity
Granted 2,439,759  $ 15.66 
Exercised (3,501,964) $ 1.19 
Forfeited and expired (1,232,574) $ 3.76 
Outstanding as of December 31, 2021 7,574,136  $ 8.60  8.35 $ 52,257 
Exercisable as of December 31, 2021 2,719,252  $ 3.44  7.03 $ 31,929 
The aggregate intrinsic value of options exercised for the years ended December 31, 2021, 2020 and 2019 was $47.6 million, $11.1 million and $0.6 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.
Equity-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 yield 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 equity-based compensation for options granted in the periods below were as follows:
Year Ended December 31,
2021 2020 2019
Risk free interest rate
0.97% - 1.06%
0.38% - 0.53%
2.07% - 2.59%
Expected term
5.83 - 6.25 Years
5.50 - 6.25 Years
5.50 - 6.25 Years
Expected volatility
42.43% - 43.01%
42.00  % 37.00  %
Dividend yield 0.00  % 0.00  % 0.00  %
Estimated fair value of granted options by grant date based on the Black-Scholes model:
Number of Options Fair Value
March 2019 1,102,625 $ 0.8428 
April 2019 824,000 $ 1.1304 
July 2019 412,000 $ 1.5193 
September 2019 1,351,242
$1.6574 - 1.8930
March 2020 502,016 $ 6.5353 
July 2020 414,149
$8.3377 - 8.4404
October 2020 346,250 $ 9.3857 
December 2020 2,371,893
$6.7118 - 10.1240
April 2021 249,067 $ 9.8159 
July 2021 1,610,102 $ 9.1387 
September 2021 580,590 $ 8.6490 
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, 2021, 1,300,000 shares were reserved for issuance and no shares 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 will end on August 15, 2022 and consists of one purchase period, which is the last day of the offering period.
During the year ended December 31, 2021, the Company recognized $0.1 million of equity-based compensation expense related to ESPP and withheld $0.3 million in contributions from employees. As of December 31, 2021, total unrecognized compensation costs related to the ESPP was $0.4 million, which will be amortized over the remaining offering period through August 15, 2022.
The following assumptions were used to calculate the fair value of shares to be granted under the ESPP during the period:
Risk free interest rate 0.21  %
Expected term 0.67 years
Expected volatility 36.62  %
Dividend yield 0.00  %
Restricted Stock Units
In connection with the IPO, in November 2021 the Company granted 171,075 restricted stock units (“RSUs”) to employees with a time-based service condition and a four-year vesting schedule with 25% cliff vesting at one year from grant date and the remaining 75% vesting monthly over the remaining three years. The effective grant date of these RSUs was November 12, 2021. The aggregate grant date fair value of these RSUs was $3.2 million and the related equity-based compensation was $0.1 million for the year ended December 31, 2021, which is reported within General and Administrative expenses on the consolidated statements of operations. As of December 31, 2021, these RSUs had an intrinsic value of $2.6 million, none had vested and none had been canceled.
Secondary Sales of Common Stock
Certain of the Company’s investors have acquired outstanding common stock from employees and certain sales of common stock by employees to new investors were facilitated by the Company. For these transactions, and where shares have been acquired at a price in excess of the estimated fair value of the Company’s common stock, the Company has recorded equity-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. Equity-based compensation expense for these transactions totaled $3.4 million, $7.3 million and $0.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Repurchase of Common Shares
In November 2018, the Company repurchased and retired 1,420,128 Common Shares held by employee shareholders at a price of $5.3545 per share (Series C Preferred Share price), resulting in total payments of approximately $7.6 million to these shareholders. In January 2019, $4.0 million of these repurchase payments were made, comprising $1.4 million of common stock fair value, as determined via 409(a) valuation, and $2.6 million of compensation expense in excess of common stock fair value. No other share repurchases took place during the years ended December 31, 2021, 2020 and 2019.
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:
Risk free interest rate 1.16  %
Contractual term 11 years
Expected volatility 55.00  %
Dividend yield 0.00  %
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:
Risk free interest rate 1.97  %
Contractual term 10 years
Expected volatility 40.00  %
Dividend yield 0.00  %
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.