In March 2018, our stockholders approved the Board of Directors’ grant of 101.3 million stock option awards, as adjusted to give effect to the five-for-one stock split effected in the form of a stock dividend in August 2020, to our CEO (the “2018 CEO Performance Award”). The 2018 CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational milestones (performance conditions) and market conditions, assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board of Directors that both (i) the market capitalization milestone for such tranche, which begins at $100.0 billion for the first tranche and increases by increments of $50.0 billion thereafter (based on both a six calendar month trailing average and a 30 calendar day trailing average, counting only trading days), has been achieved, and (ii) any one of the following eight operational milestones focused on total revenue or any one of the eight operational milestones focused on Adjusted EBITDA have been achieved for the four consecutive fiscal quarters on an annualized basis and subsequently reported by us in our consolidated financial statements filed with our Forms 10-Q and/or 10-K. Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation. Upon vesting and exercise, including the payment of the exercise price of $70.01 per share, our CEO must hold shares that he acquires for five years post-exercise, other than a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational milestones as of September 30, 2021 is provided below. Although an operational milestone is deemed achieved in the last quarter of the relevant annualized period, it may be certified only after the financial statements supporting its achievement have been filed with our Forms 10-Q and/or 10-K.


Total Annualized Revenue			Annualized Adjusted EBITDA
Milestone (in billions)		Achievement Status	Milestone (in billions)		Achievement Status
$	20.0	Achieved	$	1.5	Achieved
$	35.0	Achieved	$	3.0	Achieved
$	55.0	Probable	$	4.5	Achieved
$	75.0	-	$	6.0	Achieved
$	100.0	-	$	8.0	Achieved (1)
$	125.0	-	$	10.0	Probable
$	150.0	-	$	12.0	Probable
$	175.0	-	$	14.0	-

(1)

Achieved in the third quarter of 2021 and expected to be certified following the filing of this Quarterly Report on Form 10-Q.

Stock-based compensation under the 2018 CEO Performance Award represents a non-cash expense and is recorded as a Selling, general, and administrative operating expense in our consolidated statement of operations. In each quarter since the grant of the 2018 CEO Performance Award, we have recognized expense, generally on a pro-rated basis, for only the number of tranches (up to the maximum of 12 tranches) that corresponds to the number of operational milestones that have been achieved or have been determined probable of being achieved in the future, in accordance with the following principles.

On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed amount of expense for such tranche and (ii) the future time when the market capitalization milestone for such tranche was expected to be achieved, or its “expected market capitalization milestone achievement time.” Separately, based on a subjective assessment of our future financial performance, each quarter we determine whether it is probable that we will achieve each operational milestone that has not previously been achieved or deemed probable of achievement and if so, the future time when we expect to achieve that operational milestone, or its “expected operational milestone achievement time.” When we first determine that an operational milestone has become probable of being achieved, we allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected full achievement time.” The “expected full achievement time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market capitalization milestone achievement time (if the related market capitalization milestone had not yet been achieved). We immediately recognize a catch-up expense for all accumulated expense for the quarters from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved. Each quarter thereafter, we recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected full achievement time, except that upon the achievement of both a market capitalization milestone and operational milestone with respect to a tranche, all remaining expense for that tranche is immediately recognized.

As a result, we have experienced, and may experience in the future, significant catch-up expenses in quarters when one or more operational milestones are first determined to be probable of being achieved. Historically, the expected market capitalization achievement times were generally later than the related expected operational milestone achievement times. Therefore, when market capitalization milestones are achieved earlier than originally forecasted, for example due to periods of rapid stock price appreciation, this has resulted, and may result in the future, in higher catch-up expenses and the remaining expenses being recognized over shorter periods of time at a higher per-quarter rate. All market capitalization milestones were achieved as of the second quarter of 2021.

During the first quarter of 2021, the operational milestone of annualized revenue of $55.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $116 million. During the second quarter of 2021, the operational milestone of annualized Adjusted EBITDA of $10.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $124 million. During the third quarter of 2021, the operational milestone of annualized Adjusted EBITDA of $12.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $124 million.

As of September 30, 2021, we had $55 million of total unrecognized stock-based compensation expense for the operational milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 0.4 years. As of September 30, 2021, we had unrecognized stock-based compensation expense of $255 million for the operational milestones that were considered not probable of achievement. For the three and nine months ended September 30, 2021, we recorded stock-based compensation expense of $190 million and $665 million, respectively, related to the 2018 CEO Performance Award, and $338 million and $571 million, respectively, for the same periods in 2020.

The following table summarizes our stock-based compensation expense by line item in the consolidated statements of operations (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenues	$	99	$	62	$	310	$	147
Research and development		105		76		334		214
Selling, general and administrative		271		405		919		740
Total	$	475	$	543	$	1,563	$	1,101