Stock-based Compensation

3 Months Ended

Mar. 31, 2023

Share-Based Payment Arrangement [Abstract]

The Company maintains three equity compensation plans that provide for the issuance of shares of its common stock to the Company’s employees, directors, consultants and other service providers: the 2021 Equity Incentive Plan (the "2021 Plan"), the 2021 Partner Studio Incentive Plan, and the 2021 Employee Stock Purchase Plan.

In March 2023, the Company’s Board of Directors (the "Board"), upon recommendation of the Compensation Committee of the Board (the "Compensation Committee"), granted to each of Adam Foroughi, the Company’s CEO and Chairperson, and Vasily Shikin, the Company’s CTO, 6,902,000 performance-based RSUs (“PSUs”), and delegated authority to Mr. Foroughi to grant up to additional 3,451,000 PSUs to non-executive employees ("Additional Participants") in consultation with the chair of the Compensation Committee under the 2021 Plan. The PSUs are divided into five equal tranches that are eligible to vest based on the achievement of certain stock price targets (see below), measured based on the minimum closing price of the Company’s Class A common stock over a consecutive 30 trading day period during the five-year performance period beginning on the date of grant, subject to the recipient’s continued employment through the applicable vesting date. In the event of a change in control of the Company during the performance period, any unvested PSUs are eligible to vest a pro-rated amount if the per share transaction price in the change in control is between two stock price targets that have not previously been achieved, subject to the recipient’s continued employment through the date immediately prior to the change in control. PSUs for Mr. Foroughi and Mr. Shikin may continue to vest for up to one year after termination of employment if certain conditions are met. As of March 31, 2023, no PSUs had been granted to Additional Participants.

The following table presents the number of PSUs that are eligible to vest based on the achievement of the respective stock price targets for each of Mr. Foroughi, Mr. Shikin and the Additional Participants (in aggregate):


		PSUs Eligible to Vest
Company Stock Price Target		Adam Foroughi	Vasily Shikin	Additional Participants (in aggregate)
$	36.00	1,380,400	1,380,400	690,200
$	46.75	1,380,400	1,380,400	690,200
$	57.50	1,380,400	1,380,400	690,200
$	68.25	1,380,400	1,380,400	690,200
$	79.00	1,380,400	1,380,400	690,200
		6,902,000	6,902,000	3,451,000

The weighted-average grant date fair value of the PSUs for Mr. Foroughi and Mr. Shikin was $7.60 and $6.03 per share, respectively. The Company used a Monte Carlo simulation model to calculate the grant date fair value of the PSUs and the derived service period for each of the five vesting tranches, which is the measure of the expected time to achieve the respective stock price target, as described above. The Monte Carlo simulation model incorporates the likelihood of achieving the stock price targets and requires the input of assumptions including the underlying stock price, expected volatility, expected term, risk-free rate and dividend yield. The Company also applied a discount for lack of marketability to the value of PSUs for employees other than the CEO as the shares issued for these awards are subject to a holding period of approximately one year.

The Company will recognize stock-based compensation expense over the derived service period of each of the five vesting tranches, ranging from 2.1 to 3.1 years, using the accelerated attribution method. If the stock price targets are met sooner than the derived service period, the Company will adjust its stock-based compensation expense to reflect the cumulative expense associated with the vested awards. Subject to continued employment of the recipients, the Company will recognize stock-based compensation expense over the derived service period, regardless of whether the stock price targets are achieved.

In March 2023, the Company also granted 4,070,469 restricted stock units ("RSUs") to certain employees under the 2021 Plan at the weighted average grant date fair value of $13.01 per RSU. These awards vest based on a service condition that becomes satisfied over generally one year.

Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. The following table summarizes total stock-based compensation expense by function (in thousands):


	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	1,316	$	1,052
Sales and marketing	16,683		6,919
Research and development	49,929		20,629
General and administrative	15,038		16,040
Total	$	82,966	$	44,640