Stock-based Compensation

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-based Compensation

10. Stock-based Compensation

In March 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Equity Incentive Plan, the 2021 Partner Studio Incentive Plan and the Employee Stock Purchase Plan, all of which became effective on the business day immediately prior to the effective date of the IPO Registration Statement:

2021 Equity Incentive Plan

The 2021 Equity Incentive Plan (the “2021 Plan”) provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and any parent and subsidiary companies’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units (RSUs), stock appreciation rights (SARs), performance units, and performance shares to the Company’s employees, directors, and consultants and the Company’s parent and subsidiary companies’ employees and consultants. A total of 39,000,000 shares of the Company’s Class A common stock were reserved for issuance pursuant to the 2021 Plan. The number of shares available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2021, equal to the least of (a) 39,000,000 shares, (b) five percent (5%) of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding fiscal year, or (c) such other amount as the Company’s board of directors may determine. Immediately prior to the effectiveness of the 2021 Plan, the 2011 Plan was terminated, and no further awards will be granted thereunder. All outstanding awards will continue to be governed by their existing terms.

2021 Partner Studio Incentive Plan

The 2021 Partner Studio Incentive Plan (the “2021 Partner Plan”) provides for the grant of nonstatutory stock options, restricted stock, restricted stock units (RSUs), stock appreciation rights (SARs), performance units, and performance shares to individuals or entities engaged by the Company or a parent or subsidiary of the Company to render bona fide services to the party engaging such individual or entity. A total of 390,000 shares of the Company’s Class A common stock are reserved for issuance pursuant to the 2021 Partner Plan.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (the “ESPP”) permits participants to purchase shares of the Company’s Class A common stock through contributions (in the form of payroll deductions or otherwise to the extent permitted by the administrator) of up to 15% of their eligible compensation. Amounts contributed and accumulated by the participant will be used to purchase shares of the Company’ Class A common stock at the end of each 6-month purchase period with the purchase price of the shares being 85% of the lower of the fair market value of the Company’s Class A common stock on the first day of an offering period or on the exercise date. A participant may purchase a maximum of 590 shares of the Company’s Class A common stock during a purchase period. The ESPP provides for consecutive, overlapping 24-month offering periods, subject to certain rollover mechanism as defined in the ESPP. Participants may end their participation at any time during an offering and will be paid their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment with the Company.

A total of 7,800,000 shares of the Company’s Class A common stock are available for sale under the ESPP. The number of shares of the Company’s Class A common stock that will be available for sale under the ESPP also includes an annual increase on the first day of each fiscal year beginning with fiscal year 2022, equal to the least of: (a) 7,800,000 shares, (b) one percent (1%) of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding fiscal year, or (c) such other amount as the Company’s board of directors may determine.

The initial offering period will be from April 15, 2021 through November 19, 2023. As of March 31, 2021, the Company had not yet launched the ESPP and was under no obligation to do so.

2011 Equity Incentive Plan

The Company’s 2011 Equity Incentive Plan (the “2011 Plan”) provides for the granting of stock options to employees, consultants, and advisors of the Company. Options granted under the 2011 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options may be granted only to Company employees, including directors who are also employees. Nonqualified stock options may be granted to Company employees, consultants, and advisors. The 2011 Plan also provides for grants of restricted stock awards (the “RSAs”) and restricted stock units. As of March 31, 2021, the Company reserved 125,316,000 shares of Class A common stock for issuance under the 2011 Plan. Shares remaining available for issuance under the 2011 Plan were 3,754,596 as of March 31, 2021. Options under the 2011 Plan may be granted for periods of up to 10 years and generally vest over four years. As noted above, immediately prior to the effectiveness of the 2021 Plan, the 2011 Plan was terminated, and no further awards will be granted thereunder. All outstanding awards will continue to be governed by their existing terms. The Company recognized stock-based compensation expense for the periods indicated as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Cost of revenue	$	109	$	29
Sales and marketing		1,819		452
Research and development		6,465		1,527
General and administrative		21,566		1,454
Total	$	29,959	$	3,462

For the three months ended March 31, 2021, total stock-based compensation expense included $0.3 million associated with awards that may be settled with one of the Company’s subsidiaries.

In January 2021, a new director was elected to serve on the Company’s board of directors and received options to purchase a total of 206,000 shares of the Company’s common stock under the 2011 Plan. With respect to 21,000 shares, 1/12th of the shares will vest, subject to such director’s continued role as a service provider to the Company, on April 21, 2021, and thereafter, 1/12th of the shares vesting every three months; provided that 100% of any unvested shares covered by the option will vest immediately prior to the closing of an Acquisition or Other Combination (each as defined in the 2011 Plan). The options to purchase 185,000 shares were fully vested on the date of grant and such options were exercised in full in January 2021.

Early Exercise of Stock Options—Subject to the Board’s approval, the 2011 Plan allows for the early exercise of options granted. Under the terms of the 2011 Plan, option holders, upon early exercise, must sign a restricted stock purchase agreement that gives the Company the right to repurchase any unvested shares, at the original exercise price, in the event the optionees’ employment terminates for any reason. The right to exercise options before they are vested does not change existing vesting schedules in any way and the early exercised options may not be sold or transferred before they are vested. The repurchase right lapses over time as the shares vest at the same rate as the original option vesting schedule. The cash amounts received in exchange for these early exercised shares are recorded as a liability on the accompanying balance sheets and reclassified into common stock and additional paid-in-capital as the shares vest. The Company’s right to repurchase these shares lapses by 1/4th of the shares on the one-year anniversary of the vesting start date and ratably each month over the next 36-months. The Company has 458,499 and zero shares of Class A common stock subject to repurchase as of March 31, 2021 and 2020, respectively. The liability for the shares of Class A common stock subject to repurchase as of March 31, 2021 was $2.7 million, which was included in the accrued liabilities in the Company’s condensed consolidated balance sheets.

During 2020 and 2019, the Company provided financing to certain employees in the form of promissory notes to early exercise stock options. These promissory notes are partially collateralized by shares and in-substance are nonrecourse. For accounting purposes, exercised options via nonrecourse promissory notes are not substantive and are continued to be treated as options. In February 2021, promissory notes issued to executive officers in the amount of $20.9 million were settled through either share repurchase, in the amount of $17.2 million, or cash payment, in the amount of $3.7 million. In connection with the repurchase of shares, the Company accelerated vesting of 60,968 shares of Class A common stock for one of the Company’s officers. The acceleration of vesting was accounted as an option modification with an immaterial impact to the stock-based compensation expense. As of March 31, 2021 and 2020, the Company had 3,874,999 and 5,709,999 shares of Class A common stock options, respectively, that were exercised via nonrecourse promissory notes, of which 1,740,313 and 4,935,000 shares, were unvested and subject to repurchase, respectively. The principal balances of nonrecourse promissory notes outstanding amounted to $19.7 million and $21.2 million as of March 31, 2021 and 2020, respectively.