UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended | ||||||||
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from ___________ to ___________ | ||||||||
Commission File Number 001-40956
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
(415 ) 813-1710
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | ||||
Smaller reporting company | |||||
Emerging growth company | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of April 28, 2022, 139,654,592 shares of the registrant’s common stock were outstanding.
Table of Contents
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| 3 | ||||||||
Summary of risk factors
Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report titled “Risk Factors.” The following is a summary of the principal risks we face, any of which could adversely affect our business, operating results, financial condition, or prospects:
•We have a history of losses, and we may not be able to generate sufficient revenue to achieve or maintain profitability in the future. We incurred net losses of $25.6 million and $18.0 million during the three months ended March 31, 2022 and 2021, respectively, and, as of March 31, 2022, we had an accumulated deficit of $484.2 million.
•We have a limited history in an emerging and dynamic market, which makes it difficult to evaluate our future results of operations.
• Our results of operations may fluctuate significantly from period to period due to a wide range of factors, which makes our future results difficult to predict.
• Our rapid growth may not be sustainable and depends on our ability to attract new learners, instructors, and organizations and retain existing ones.
• Our platform relies on a limited number of instructors who create a significant portion of the most popular content on our platform, and the loss of these instructor relationships could adversely affect our business, financial condition, and results of operations.
• If we fail to maintain and expand our relationships with Udemy Business (“UB” or “Enterprise”) customers, our ability to grow our business and revenue will suffer.
• We operate in a highly competitive market, and we may not be able to compete successfully against current and future competitors.
• The market for online learning solutions is relatively new and may not grow as we expect, which may harm our business, financial condition, and results of operations.
• Adherence to our values and our focus on long-term sustainability may negatively impact our short or medium term financial performance.
• The COVID-19 pandemic could affect our business, financial condition, and results of operations in volatile and unpredictable ways.
• Any failure to successfully execute and integrate future acquisitions could materially adversely affect our business, financial condition, and results of operations.
• Changes in laws or regulations relating to privacy, data protection, or cybersecurity, including those relating to the protection or transfer of data relating to individuals, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations could adversely affect our business.
• We may be unable to adequately obtain, maintain, protect, and enforce our intellectual property and proprietary information, which could adversely affect our business, financial condition, and results of operations.
• We could face liability, or our reputation might be harmed, as a result of courses posted to our platform.
• Intellectual property litigation, including litigation related to content available on our platform, could result in significant costs and adversely affect our business, financial condition, results of operations, and reputation.
• We are an emerging growth company, and any decision to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
• The trading price of our common stock may be volatile, and you could lose all or part of your investment.
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Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:
•our expectations regarding our financial and operating performance, including our expectations regarding our revenue, costs, monthly average buyers, number of UB customers, UB Annual Recurring Revenue, UB Net Dollar Retention Rate, segment revenue, segment gross profit, adjusted EBITDA, and adjusted EBITDA margin;
•our ability to successfully execute our business and growth strategy;
•our ability to attract and retain learners, instructors, and enterprise customers;
•the timing and success of new features, integrations, capabilities, and other platform enhancements by us, or by our competitors to their offerings, or any other changes in the competitive landscape of our markets and industry;
•anticipated trends, developments, and challenges in our industry, business, and the markets in which we operate;
•the size of our addressable markets, market share, and market trends, including our ability to grow our business internationally;
•the effects of the COVID-19 pandemic on our business, the market for online learning solutions, and the global economy generally;
•the sufficiency of our cash, cash equivalents, and investments to meet our liquidity needs;
•our ability to develop and protect our brand and reputation;
•our expectations and management of future growth;
•our expectations concerning relationships with third parties;
•our ability to attract, retain, and motivate our skilled personnel, including members of our senior management team;
•our expectations regarding the effects of existing and developing laws and regulations, including with respect to taxation and privacy, data protection, and cybersecurity;
•our ability to maintain the security and availability of our platform;
•our ability to successfully defend litigation brought against us;
•our ability to successfully identify, execute, and integrate any potential acquisitions;
•our expectations regarding our income and other tax liabilities;
•our ability to effectively manage our exposure to fluctuations in foreign currency exchange rates;
•our ability to obtain, maintain, protect, and enforce our intellectual property and proprietary information; and
•the increased expenses associated with being a public company.
Actual events or results may differ from those expressed in forward-looking statements. As such, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, prospects, strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Form 10-Q. Moreover, we operate in a highly competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
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The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.
Investors and others should note that we may announce material information to the public through filings with the Securities and Exchange Commission, our website (udemy.com), press releases, public conference calls, and public webcasts. We encourage our investors and others to review the information disclosed through such channels as such information could be deemed to be material information. Please note that this list may be updated from time to time.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Udemy, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
| March 31, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Deferred contract costs, current | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Capitalized software, net | |||||||||||
| Operating lease right-of-use assets | — | ||||||||||
| Restricted cash, non-current | |||||||||||
| Deferred contract costs, non-current | |||||||||||
| Strategic investments | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders' equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Content costs payable | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Operating lease liabilities, current | — | ||||||||||
| Deferred revenue, current | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liabilities, non-current | — | ||||||||||
| Deferred revenue, non-current | |||||||||||
| Other liabilities, non-current | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
1
Udemy, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenue | $ | $ | |||||||||
| Cost of revenue | |||||||||||
| Gross profit | |||||||||||
| Operating expenses | |||||||||||
| Sales and marketing | |||||||||||
| Research and development | |||||||||||
| General and administrative | |||||||||||
| Total operating expenses | |||||||||||
| Loss from operations | ( | ( | |||||||||
| Other income (expense) | |||||||||||
| Interest income (expense), net | ( | ||||||||||
| Other expense, net | ( | ( | |||||||||
| Total other expense, net | ( | ( | |||||||||
| Net loss before taxes | ( | ( | |||||||||
| Income tax provision | ( | ( | |||||||||
| Net loss attributable to common stockholders | ( | $ | ( | ||||||||
| Net loss per share attributable to common stockholders | |||||||||||
| Basic and diluted | $ | ( | $ | ( | |||||||
| Weighted-average shares used in computing net loss per share attributable to common stockholders | |||||||||||
| Basic and diluted | |||||||||||
See accompanying notes to condensed consolidated financial statements.
2
Udemy, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Foreign currency translation gains | |||||||||||
| Comprehensive loss | $ | ( | $ | ( | |||||||
See accompanying notes to condensed consolidated financial statements.
3
Udemy, Inc
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
(unaudited)
| Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance—December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Balance—March 31, 2022 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
Balance—December 31, 2020 | $ | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of Series A-1 redeemable convertible preferred stock warrants | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Balance—March 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
Udemy, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of deferred sales commissions | |||||||||||
| Stock-based compensation | |||||||||||
| Provision for doubtful accounts | |||||||||||
| Non-cash operating lease expense | — | ||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Deferred contract costs | ( | ( | |||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ( | |||||||||
| Content costs payable | ( | ( | |||||||||
| Operating lease liabilities | ( | — | |||||||||
| Deferred revenue | |||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Capitalized software costs | ( | ( | |||||||||
| Purchases of strategic investments | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Net proceeds from exercise of Series A-1 redeemable convertible preferred stock warrants | |||||||||||
| Net proceeds from exercise of stock options | |||||||||||
| Payment of redeemable convertible preferred stock issuance costs | ( | ||||||||||
| Payment of deferred offering costs | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of foreign exchange rates on cash flows | |||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
Cash, cash equivalents and restricted cash—Beginning of period | |||||||||||
Cash, cash equivalents and restricted cash—End of period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid | $ | $ | |||||||||
5
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||
| Unpaid deferred offering costs | $ | $ | |||||||||
| Stock-based compensation in capitalized costs | $ | $ | |||||||||
| Changes in purchases of property and equipment in accounts payable and accrued expenses | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
6
Udemy, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1.Organization and description of business
Description of business
Udemy, Inc. (“Udemy” or the “Company”) was incorporated in January 2010 under the laws of the state of Delaware. The Company is headquartered in San Francisco, California.
Udemy is a global marketplace platform for teaching and learning, connecting millions of learners to the skills they need to succeed. The Company’s platform allows learners all over the world to access affordable and relevant content from expert instructors. Udemy combines high-quality content, insights and analytics, and technology into a single, unified platform that is purpose-built to meet the specific needs of both individual learners and enterprise customers.
Initial public offering
On October 29, 2021, the Company completed its initial public offering ("IPO") of common stock, in which it sold 14,500,000 shares. The shares were sold at a price to the public of $29.00 per share for net proceeds of $397.4 million, after deducting underwriting discounts and commissions of $23.1 million. Underwriters were granted an option for a period of 30 days to purchase up to 2,175,000 additional shares of common stock. Upon the completion of the IPO, deferred offering costs of $6.8 million were reclassified into additional paid-in capital as a reduction of the net proceeds received from the IPO. Upon the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock automatically converted into 85,403,933 shares of common stock on a one -for-one basis.
On November 24, 2021, the underwriters exercised the right to purchase 650,000 additional shares of common stock from the Company, resulting in additional net proceeds of $17.8 million, after deducting underwriting discounts and commissions of $1.0 million. The remaining option to purchase additional shares expired unexercised at the end of the 30 day period.
2.Summary of significant accounting policies
Basis of consolidation and presentation—The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation, and all other normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the periods presented have been made.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was originally filed with the SEC on March 25, 2022.
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Use of estimates—The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the results of operations during the reporting periods.
Significant estimates and assumptions reflected in the condensed consolidated financial statements include, but are not limited to, allowance for doubtful accounts, useful lives of property and equipment, capitalization of internally developed software and associated useful lives, the carrying value of operating lease right-of-use assets, stock-based compensation, determination of the income tax valuation allowance and the potential outcome of uncertain tax positions, estimated instructor withholding tax obligations, estimated period of consumption for consumer learners’ single course purchases, the period of benefit for deferred commissions, the fair value and associated useful lives of intangible assets and goodwill acquired via business combinations, and the valuation of privately-held strategic investments, including impairments. Management periodically evaluates such estimates and assumptions for continued reasonableness.
Actual results may ultimately differ from management’s estimates and such differences could be material to the financial position and results of operations.
Coronavirus disease 2019 (“COVID-19”)—In March 2020, the World Health Organization declared the outbreak of the coronavirus disease named COVID-19 a pandemic. The COVID-19 pandemic has created and may continue to create significant uncertainty in global financial markets. This uncertainty may positively or adversely impact certain aspects of the business, including but not limited to customer demand and spending, the ability to raise capital, impairment of assets, and cash collections. While the Company has not experienced a material negative impact to its business, results of operations, financial position, and liquidity, the future duration, impact, and disruption of the COVID-19 outbreak to the Company’s operations is uncertain.
Summary of significant accounting policies—Except as described below, there were no significant changes to the Company’s significant accounting policies disclosed in Note 2 “Summary of significant accounting policies” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was originally filed with the SEC on March 25, 2022.
As of March 31, | As of December 31, | ||||||||||
| Reconciliation of cash, cash equivalents and restricted cash | 2022 | 2021 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash, non-current | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
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| Balance at Beginning of Period | Charged to Expenses | Charges Utilized/Written-off | Balance at End of Period | ||||||||||||||||||||
| Allowance for doubtful accounts | |||||||||||||||||||||||
| Three Months Ended March 31, 2022 | $ | $ | $ | ( | $ | ||||||||||||||||||
| Three Months Ended March 31, 2021 | $ | $ | $ | ( | $ | ||||||||||||||||||
Fair value of financial instruments—The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value are either observable or unobservable. Observable inputs reflect assumptions that market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based on their own market assumptions.
The Company utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2—Inputs are observable, unadjusted quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data; and
Level 3—Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The carrying amounts of cash, cash equivalents, restricted cash, and accounts receivable, as well as accounts payable, approximate fair value due to the relatively short-term maturities and are classified as short-term assets and liabilities, respectively, in the accompanying consolidated balance sheets.
The fair value measurements of assets that are measured at fair value on a recurring basis are as follows (in thousands):
| Fair Value Hierarchy | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| March 31, 2022 | |||||||||||||||||
| Strategic investments | $ | $ | $ | ||||||||||||||
Total as of March 31, 2022 | $ | $ | $ | ||||||||||||||
The Company did no t hold any strategic investments as of March 31, 2021.
9
The fair value measurements of liabilities that are measured at fair value on a recurring basis are as follows (in thousands):
| Fair Value Hierarchy | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| March 31, 2022 | |||||||||||||||||
| Cash settled stock appreciation rights | $ | $ | $ | ||||||||||||||
Total as of March 31, 2022 | $ | $ | $ | ||||||||||||||
| March 31, 2021 | |||||||||||||||||
| Cash settled stock appreciation rights | $ | $ | $ | ||||||||||||||
Total as of March 31, 2021 | $ | $ | $ | ||||||||||||||
During the three months ended March 31, 2021, the remaining outstanding 12,595 warrants to purchase Series A-1 redeemable convertible preferred stock were exercised for an immaterial amount of cash proceeds at an exercise price of $0.196 per share. The Company reclassified the $0.2
A summary of the changes in the fair value of Level 3 financial instruments, of which remeasurement of stock appreciation rights are recognized in the condensed consolidated statements of operations, is as follows (in thousands):
| Warrants | Stock Appreciation Rights | Strategic Investments | |||||||||||||||
Balance— December 31, 2021 | $ | $ | $ | ||||||||||||||
| Vesting and remeasurement of stock appreciation rights | — | ( | — | ||||||||||||||
| Purchases of strategic investments | — | — | |||||||||||||||
Balance— March 31, 2022 | $ | $ | $ | ||||||||||||||
Balance— December 31, 2020 | $ | $ | $ | ||||||||||||||
| Exercise of redeemable convertible preferred stock warrants | ( | — | — | ||||||||||||||
| Vesting and remeasurement of stock appreciation rights | — | — | |||||||||||||||
Balance— March 31, 2021 | $ | $ | $ | ||||||||||||||
Operating leases—The Company leases real estate facilities under non-cancelable operating leases with various expiration dates through fiscal year 2026. The Company determines if an arrangement contains a lease at inception based on whether there is an identified tangible asset and whether the Company controls the use of the identified asset throughout the period of use.
The Company adopted Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842) on January 1, 2022.
Operating leases are included in operating lease right-of-use (“ROU”) assets and in operating lease liabilities in the accompanying condensed consolidated balance sheet. Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
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The Company measures its operating lease liabilities at lease inception date based on the present value of total lease payments over the lease term. Total lease payments are discounted to present value using the more readily determinable of (i) the rate implicit in the lease or (ii) the Company’s incremental borrowing rate (which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease). Because the Company’s operating leases generally do not provide an implicit rate, the Company estimates its incremental borrowing rate using information available at the lease commencement date, including but not limited to credit rating, lease term, and the currency in which the arrangement is denominated. The Company’s operating lease ROU assets are equal to the corresponding operating lease liability, adjusted for payments made to the lessor at or before the commencement date, initial direct costs incurred, and tenant incentives under the lease.
The Company does not assume renewals or early terminations unless it is reasonably certain to exercise these options at commencement. The Company does not allocate consideration between lease and non-lease components. Variable lease payments, such as those for common area maintenance or property taxes, are not included in the measurement of operating lease liabilities and are expensed as incurred. In addition, the Company does not recognize operating ROU assets or operating lease liabilities for leases with a term of 12 months or less for all asset classes. Operating lease expense is recognized on a straight-line basis over the lease term.
Lease accounting prior to the adoption of Topic 842
Recently Adopted Accounting Pronouncements—In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the standard with an effective date of January 1, 2021 using the prospective transition adoption approach. Capitalized implementation costs are recorded in prepaid expenses and other current assets and other assets in the condensed consolidated balance sheet. The adoption of this ASU did not have a material impact on the condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires a lessee to record an asset representing the lessees’ right to use the underlying asset and a liability to make lease payments. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification.
The Company adopted Topic 842 on January 1, 2022, using the modified retrospective approach. The Company elected the package of practical expedients, the use of hindsight in determining the lease term, and the practical expedient to not recognize an operating ROU asset or operating lease liability for leases with a term of 12 months or less. Upon adoption, the Company recognized $17.6 million in operating ROU assets and $20.0 million in operating lease liabilities in its condensed consolidated balance sheets. The difference between the amounts of operating ROU assets and operating lease liabilities consisted of deferred rent and prepaid rent that were derecognized upon transition. There was no adoption date impact to accumulated deficit, and adoption of the new standard did not have a material impact on the Company’s condensed consolidated statements of operations or cash flows.
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In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which aims to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The Company elected to early adopt this standard on a prospective basis on January 1, 2022. There has been no impact of adoption to date, as the Company has not entered into any business combinations since adoption.
The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
New accounting pronouncements not yet adopted—In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The FASB issued ASU 2019-10 in November 2019, which deferred the effective date for nonpublic entities, including EGCs, that had not yet adopted the original ASU. Under the amended guidance, the standard will be effective for the Company’s fiscal year beginning after December 15, 2022, and early adoption is still permitted. The Company is currently assessing the potential impact of the new standard on the Company’s condensed consolidated financial statements.
In December 31, 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of income taxes and reducing the cost and complexity in accounting for income taxes. The ASU is effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently assessing the potential impact of the new standard on the Company’s condensed consolidated financial statements.
3. Revenue recognition
Deferred revenue— Revenue recognized for the three months ended March 31, 2022 from amounts included in deferred revenue as of December 31, 2021 was $111.4 million. Revenue recognized for the three months ended March 31, 2021 from amounts included in deferred revenue as of December 31, 2020 was $85.3 million.
The below table presents a summary of deferred revenue balances by reportable segment (in thousands):
| March 31, | December 31, | December 31, | |||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Deferred revenue: | |||||||||||||||||
| Enterprise | $ | $ | $ | ||||||||||||||
| Consumer | |||||||||||||||||
| Total deferred revenue | $ | $ | $ | ||||||||||||||
Remaining performance obligations—Remaining performance obligations represent the aggregate amount of the transaction price in contracts for performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations relate to unearned revenue from Consumer single course purchase arrangements and unearned and unbilled revenue from multi-year Enterprise subscription contracts with future installment payments at the end of any given period. As of March 31, 2022, the aggregate transaction price for remaining performance obligations was $368.5 million, of which 72 % is expected to be recognized during over the next twelve months and the remainder thereafter.
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Deferred contract costs—The following table represents a rollforward of the Company’s deferred contract costs (in thousands):
| Balance at Beginning of Period | Additions | Amortization Expense | Balance at End of Period | ||||||||||||||||||||
| Three Months Ended March 31, 2022 | ( | ||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ( | ||||||||||||||||||||||
4.Consolidated balance sheet components
| March 31, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Prepaid expenses | $ | $ | |||||||||
| Capitalized cloud computing costs, current | |||||||||||
| Short term deposits | |||||||||||
| Other current assets | |||||||||||
| Prepaid expenses and other current assets | $ | $ | |||||||||
| March 31, | December 31, | |||||||||||||
| 2022 | 2021 | |||||||||||||
| Computers and equipment | $ | $ | ||||||||||||
| Furniture and fixtures | ||||||||||||||
| Purchased software | ||||||||||||||
| Leasehold improvements | ||||||||||||||
| Construction in progress | ||||||||||||||
| Total property and equipment | ||||||||||||||
| Less accumulated depreciation and amortization | ( | ( | ||||||||||||
| Property and equipment, net | $ | $ | ||||||||||||
Depreciation expense was $1.2 million and $1.1 million for the three months ended March 31, 2022 and 2021, respectively.
| March 31, | December 31, | |||||||||||||
| 2022 | 2021 | |||||||||||||
| Capitalized software | $ | $ | ||||||||||||
| Less accumulated amortization | ( | ( | ||||||||||||
| Capitalized software, net | $ | $ | ||||||||||||
Amortization expense of capitalized software was $2.7 million and $2.0 million for the three months ended March 31, 2022 and 2021, respectively.
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As of March 31, 2022, expected amortization expense for capitalized software over the remaining asset lives is as follows (in thousands):
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Total expected amortization | $ | ||||
5. Leases
The Company adopted Topic 842 as of January 1, 2022 using the modified retrospective approach.
The Company leases real estate facilities under non-cancelable operating leases with various expiration dates through fiscal year 2026.
During the three months ended March 31, 2022, the Company recorded operating lease costs of $1.7 million and variable lease costs of $0.2 million. During the three months ended March 31, 2022, the Company recorded an immaterial amount for short term lease expense and sublease income, and did not enter into any new leases.
The following table sets forth a summary of and other information pertaining to the Company’s operating leases for the three months ended March 31, 2022 (dollar amounts in thousands):
| Three Months Ended March 31, | |||||
| 2022 | |||||
| Cash paid for amounts included in the measurement of operating lease liabilities, net of lease incentives | $ | ||||
| Weighted average remaining term (years) | |||||
| Weighted average discount rate | % | ||||
Future minimum lease payments under noncancellable operating leases with initial lease terms in excess of one year as of March 31, 2022, were as follows (in thousands):
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Gross lease payments | |||||
| Less imputed interest | ( | ||||
| Present value of operating lease liabilities | $ | ||||
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Future minimum lease payments as measured under Topic 840 for noncancellable operating leases as of December 31, 2021, were as follows (in thousands):
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Total lease commitments | $ | ||||
6.Strategic investments
In the fiscal year ended December 31, 2021, the Company made a strategic investment of $10.0 million in cash for preferred shares of privately held online education platform technology company. On February 28, 2022, the Company completed the second tranche purchase of this investment, which resulted in an incremental cash investment of $5.0 million, for a total value of $15.0 million. The estimation of fair value for this investment requires the use of significant unobservable inputs, and as a result, the Company classifies this investment as Level 3 within the fair value hierarchy.
The carrying value of this investment is adjusted based on price changes from observable transactions of identical or similar securities of the same issuer (referred to as the measurement alternative) or for impairment. Any changes in carrying value are recorded within other expense, net in the condensed consolidated statements of operations. As of March 31, 2022, there have been no observable transactions that would cause the Company to adjust the carrying amount of the investment, resulting in no realized or unrealized gains or losses for the three months ended March 31, 2022.
The Company evaluates this investment for impairment at each reporting period based on a qualitative assessment that considers various potential impairment indicators. This evaluation consists of several factors including, but not limited to, an assessment of a significant adverse change in the economic environment, significant adverse changes in the general market condition of the geographies and industries in which the investee operates, and other publicly available information that affects the value of the investment. No adverse factors were noted in the assessment performed as of March 31, 2022, resulting in no impairment losses during the three months ended March 31, 2022.
The Company did not own any strategic investments during the three months ended March 31, 2021.
7. Business combinations
On August 24, 2021, the Company completed its acquisition of CorpU, an online learning platform and content catalog focused on blended executive training. The acquisition is intended to deepen the Company’s UB offerings through CorpU’s cohort-based learning in scalable, virtual environments. The transaction has been accounted for as a business combination.
The purchase price was $28.6 million, of which $27.1 million was paid at closing with the remaining balance recorded in the accrued expenses and other current liabilities caption of the accompanying condensed consolidated balance sheets. The remaining balance is expected to be paid in August 2022 after adjustment for any indemnification losses incurred by the Company for which it is entitled to recover.
The Company issued 61,300 shares of restricted common stock to a former executive of CorpU, which is not included in the calculation of the acquisition purchase price and is accounted for as post-acquisition stock-based compensation over a three-year term.
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The total purchase consideration of the CorpU acquisition was allocated to the tangible and intangible assets acquired, and liabilities assumed, based upon their respective fair values as of the date of the acquisition. Management determined the preliminary fair values based on a number of factors, including a valuation from an independent third-party valuation firm. The excess of the purchase price over the net assets acquired was recorded as goodwill. Goodwill is attributable to the assembled workforce and anticipated synergies arising from the acquisition, and has been allocated to the Enterprise reporting segment for the purposes of annual impairment testing. The goodwill recorded in the acquisition is not expected to be deductible for income tax purposes.
The assets acquired and liabilities assumed were recorded at fair value as follows (in thousands):
| Cash and cash equivalents | $ | ||||
| Accounts receivable, net | |||||
| Prepaid expenses and other current assets | |||||
| Property and equipment, net | |||||
| Intangible assets | |||||
| Goodwill | |||||
| Accounts payable and other liabilities | ( | ||||
| Deferred revenue | ( | ||||
| Total acquisition consideration | $ | ||||
8. Intangible assets, net and goodwill
As of March 31, 2022, intangible assets, net acquired as part of the CorpU business combination were as follows (in thousands):
| Estimated Useful Lives | Intangible Assets, Gross | Accumulated Amortization | Intangible Assets, Net | |||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Vendor relationships | ( | |||||||||||||||||||||||||
| Developed technology | ( | |||||||||||||||||||||||||
| Tradename | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
As of December 31, 2021, intangible assets, net acquired as part of the CorpU business combination were as follows (in thousands):
| Estimated Useful Lives | Intangible Assets, Gross | Accumulated Amortization | Intangible Assets, Net | |||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Vendor relationships | ( | |||||||||||||||||||||||||
| Developed technology | ( | |||||||||||||||||||||||||
| Tradename | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
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Amortization expense of intangible assets for the three months ended March 31, 2022 was $1.1 no t have any intangible assets during the three months ended March 31, 2021.
The expected future amortization expense for intangible assets as of March 31, 2022 was as follows (in thousands):
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total expected amortization | $ | ||||
9. Accrued expenses and other current liabilities
| March 31, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Accrued expenses | $ | $ | |||||||||
| Indirect tax reserves | |||||||||||
| Indirect tax payables | |||||||||||
| Deferred rent, current | |||||||||||
| Other current liabilities | |||||||||||
| Accrued expenses and other current liabilities | $ | $ | |||||||||
Indirect tax payables relate to amounts collected from customers on behalf of third-party taxing authorities, primarily on sales in the U.S. and in international jurisdictions. Indirect tax payables also include withholding taxes on payments made to the Company’s instructors before remitting these amounts to the taxing authorities.
Indirect tax reserves primarily relate to instructor withholding tax reserves.
Instructor withholding tax reserves—The Company conducts operations in many tax jurisdictions throughout the United States and the rest of the world. The Company has an obligation to comply with information reporting and tax withholding requirements with regards to certain payments made to its U.S. and non-U.S. instructors. Under United States federal tax rules, in the case where the Company withholds less than the correct amount of tax or fails to report it, it is liable for the correct amount that it was required to withhold, plus interest and potential penalties. The Company may be entitled to relief on certain payments if the Company can obtain documentation (e.g. taxpayer identification forms) from instructors establishing that the instructor payee qualifies for reduced withholding tax rates, or that the instructor payee reported the payments and paid the corresponding taxes owed.
Prior to March 2020, the Company had not obtained appropriate taxpayer identification forms from instructors, nor remitted applicable tax withholding amounts to the U.S. Internal Revenue Service (“IRS”) where required. In accordance with GAAP, the Company recorded a provision for its tax exposure when it was both probable that a liability had been incurred and the amount of the exposure could be reasonably estimated. Given the significant quantity of instructor payments the Company makes in its operations, the Company has applied a statistical sampling approach that is analogous to methods commonly used by the IRS when determining the extent of withholding tax obligations during IRS audits for the historical instructor payments.
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The instructor withholding provision estimate includes several key assumptions including, but not limited to, the tax characterization of the Company’s payments made to instructors, the historical lookback practices and scoping precedents of the IRS, the methods for sourcing of instructor payments to U.S. and non-U.S. jurisdictions, and management’s estimate of the penalty relief on certain instructor payments it will be entitled to.
Beginning in March 2020, the Company began collecting appropriate taxpayer identification forms from its instructors, assessing whether the forms justified a reduced rate of withholding or withholding exemption, and remitting withholding tax payments to the IRS where required. The Company also began reporting payments to its non-U.S. instructors and the IRS annually where required to do so.
As of March 31, 2022, the Company determined that it was probable that it would owe an estimated $15.7 million for withholding taxes related to historical payments to its instructors. The Company has recorded this amount in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.
Changes in the estimated amount the Company has determined it will owe are recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations. Estimated interest is recorded in interest income (expense), net in the accompanying condensed consolidated statement of operations.
Changes to the instructor withholding tax reserve are as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Balance, beginning of period | $ | $ | ||||||||||||
| Amounts charged to (released from) expense | ( | |||||||||||||
| Net payments and settlements | ||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||
The change in the instructor withholding tax reserve during the three months ended March 31, 2022 is based on a revision of certain key assumptions, including the expected relief on certain instructor payments the Company will be entitled to.
In 2020, the Company began approaching the IRS to address the historical withholding amounts for instructors. Final settlement of the matter could differ materially from the estimate recorded in the accompanying condensed consolidated balance sheets, and there exists a reasonable possibility that the Company could incur losses that are significantly more or significantly less than the Company has accrued as of March 31, 2022 and December 31, 2021. The Company estimated a potential range of loss between $12.0 million and $15.7 million as of March 31, 2022.
10. Commitments and contingencies
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Indemnification—The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, including certain business partners, investors, contractors, and the Company’s officers, directors, and certain employees. The Company has agreed to indemnify and defend the indemnified party’s claims and related losses suffered or incurred by the indemnified party resulting from actual or threatened third-party claims because of the Company’s activities or, in some cases, non-compliance with certain representations and warranties made by the Company. In general, the Company does not record any liability for these indemnities in the accompanying condensed consolidated balance sheets as the amounts cannot be reasonably estimated and are not considered probable. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. To date, losses recorded in the Company’s condensed consolidated statements of operations in connection with the indemnification provisions have not been material.
Litigation—From time to time, in the ordinary course of business, the Company is subject to legal proceedings, claims, investigations, and other proceedings, including claims of alleged infringement of third-party patents and other intellectual property rights, and commercial, employment, and other matters. In accordance with generally accepted accounting principles, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least annually and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. The outcome of such litigation is not expected to have a material effect on the financial position, results of operation and cash flows of the Company. The Company has recorded an immaterial amount related to all outstanding litigation matters as of March 31, 2022.
11. Income taxes
The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into consideration in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment to the provision.
The income tax provision for the three months ended March 31, 2022 and 2021 resulted in an effective tax rate of (1.3 )% and (5.3 )%, respectively. During the three months ended March 31, 2022, as compared to the same period in the prior year, the effective tax rate decreased primarily due to changes in foreign tax expense and foreign withholding taxes. The difference between the 21% statutory federal tax rate and the effective tax rate was primarily a result of income earned in jurisdictions with higher statutory tax rates, foreign withholding taxes, and tax credits offset by change in valuation allowance.
As of March 31, 2022 and December 31, 2021, the Company has provided a valuation allowance against U.S. federal and state deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If management's assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which management makes the determination.
The Company recognizes interest and penalties associated with uncertain tax benefits as part of the income tax provision. To date, the Company has not recognized any interest and penalties in its condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties.
The Company is subject to taxation in the U.S. and various foreign jurisdictions. Due to NOL carryforwards and tax credit carryforwards, the statutes of limitations remain open for tax years from inception of the Company through 2021. There are currently no income tax audits underway by U.S. federal, state, or foreign tax authorities.
12. Employee retirement plan
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13. Related party transactions
Naspers Ltd. (“Naspers”) is affiliated with OLX Group B.V., where a member of the Company’s Board of Directors serves as an executive officer, and Prosus N.V., where another member of the Company’s Board of Directors serves as an executive officer. Naspers, and another entity affiliated with Naspers, are also customers of the Company’s Enterprise subscription offering. The Company recorded $0.4 million and $0.3 million of revenue from services provided to these customers during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company had an accounts receivable balance with these customers of $0.1 0.1
Insight Partners, where a member of the Company’s Board of directors is a Managing Director, is affiliated with certain vendors that the Company has contracted to provide technology and software solutions. During the three months ended March 31, 2022 and 2021, respectively, the Company recorded $0.2 million and no general and administrative expenses with these vendors, respectively. As of March 31, 2022 and December 31, 2021, the Company had an accounts payable balance with these vendors of zero and $0.1 million, respectively.
A member of the Company’s Board of Directors is a co-founder and current executive officer for a customer of the Company’s Enterprise subscription offering. The Company recorded an immaterial amount of revenue from services provided to this customer during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company had an accounts receivable balance with this customer of $0.2 million and zero , respectively.
14. Stockholders’ equity
Preferred stock—In connection with the IPO, the Company’s amended and restated certificate of incorporation became effective, which authorized the issuance of 50,000,000 0.00001
Common stock— Common stockholders are entitled to one vote per share. The Company had the following common stock reserved for future issuance as of March 31, 2022, and December 31, 2021, respectively:
| March 31, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
Stock options to purchase common stock (1) | |||||||||||
| Shares available for future issuance under: | |||||||||||
| 2021 Equity Incentive Plan | |||||||||||
| 2021 Employee Stock Purchase Plan | |||||||||||
| Total shares of common stock reserved | |||||||||||
(1) Excludes | |||||||||||
Equity incentive plans— In 2010, the Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan provided for incentive stock options (“ISOs”), non-statutory stock options (“NSOs”, collectively with ISOs, “stock options”), SARs, restricted stock, and restricted stock units (“RSUs”) to be granted to eligible employees, directors, and consultants. The 2010 Plan was terminated in October 2021 in connection with the
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IPO but continues to govern the terms and conditions of the outstanding awards granted pursuant to the 2010 Plan. No further equity awards will be granted under the 2010 Plan.
The Company adopted the 2021 Equity Incentive Plan (the "2021 Plan") in September 2021, which became effective on October 28, 2021 (collectively with the 2010 Plan, the “Equity Incentive Plans”) and was approved by the Company’s stockholders. The 2021 Plan provides for the granting of ISOs, NSOs, SARs, restricted stock, RSUs, and performance awards to eligible employees, directors, and consultants.
The Company initially reserved 13,800,000 shares for issuance under the 2021 Plan. The amount available for issuance is subject to an annual increase on the first day of each calendar year, beginning on January 1, 2023, in an amount equal to 5 % of the outstanding shares of the Company’s common stock on the last day of the immediately preceding calendar year or a lesser amount determined by the Company’s Board of Directors or compensation committee. The amount available for issuance shall also include Returning Shares, which are any shares subject to awards granted under the 2010 Plan that, on or after October 29, 2021, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest.
Stock options—The Company may grant stock options at exercise prices not less than the fair market value at the date of grant. These options generally expire 10 years from the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each award, which is generally even over four years .
The following is a summary of activity for stock options under the Equity Incentive Plans (amounts in thousands, except share and per share amounts):
| Options Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
Balance - December 31, 2021 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Canceled | ( | ||||||||||||||||||||||
Balance - March 31, 2022 | $ | $ | |||||||||||||||||||||
Vested & Expected to Vest as of March 31, 2022 | $ | $ | |||||||||||||||||||||
Exercisable as of March 31, 2022 | $ | $ | |||||||||||||||||||||
There were no stock options granted during the three months ended March 31, 2022.
Total aggregate intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was $3.9 million and $23.4 million, respectively.
As of March 31, 2022, total unrecognized stock-based compensation expense related to unvested stock options was $84.9 million, which will be recognized over a weighted average period of 2.3 years.
Stock appreciation rights—The Company may grant SARs at exercise prices not less than the fair market value at the date of grant. The SARs are liability-classified awards that generally expire 10 years from the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each award, which is generally even over four years .
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The following is a summary of activity for SARs under the Equity Incentive Plans (amounts in thousands, except share and per share amounts):
| SARs Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
Balance - December 31, 2021 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | |||||||||||||||||||||||
| Canceled | ( | ||||||||||||||||||||||
Balance - March 31, 2022 | $ | $ | |||||||||||||||||||||
Vested & Expected to Vest as of March 31, 2022 | $ | $ | |||||||||||||||||||||
Exercisable as of March 31, 2022 | $ | $ | |||||||||||||||||||||
There were no SARs granted during the three months ended March 31, 2022.
As of March 31, 2022, total compensation cost related to unvested SARs not yet recognized was $0.3 million, which will be recognized over a weighted average period of 2.1 years.
Restricted stock units—The Company first issued RSU awards in the fiscal year ended December 31, 2021. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of grant. The Company recognizes stock-based compensation expense for RSUs with service-based vesting conditions on a straight-line basis over the requisite service period for each award, which typically vest over a or four-year period.
A summary of RSU activity under the 2021 Plan is as follows:
| RSUs Outstanding | Weighted Average Grant Date Fair Value | ||||||||||
Unvested - December 31, 2021 | $ | ||||||||||
| Granted | $ | ||||||||||
| Released | ( | $ | |||||||||
| Canceled | ( | $ | |||||||||
Unvested - March 31, 2022 | $ | ||||||||||
As of March 31, 2022, total unrecognized stock-based compensation expense related to unvested RSUs was $83.3 million, which will be recognized over a weighted average period of 3.8 years.
Performance-based awards—Under the Equity Incentive Plans, the Company may grant share-based awards whose vesting is contingent on meeting various departmental or company-wide performance goals, such as the achievement of certain sales targets or an IPO event, in lieu of or in addition to a service-based vesting condition (“Performance-Based Awards”). Such awards are generally granted with an exercise price equal to the fair market value of the underlying common stock share on the date of grant and have a contractual term of 10 years. If vesting is dependent on satisfying a performance condition that is probable of being achieved, the Company estimates the expected term as the midpoint between the time at which the performance conditions are probable of being satisfied and the contractual term of the award. If vesting is dependent on satisfying a performance condition that is not probable of being achieved and the service period is not explicitly stated, the Company estimates the expected term as the contractual term. The remaining inputs to the Black-Scholes option pricing model used to determine grant date fair value, including risk-free interest, expected volatility, and expected dividend yield, are calculated using the same method as that used for stock options with service-based vesting conditions. Grants for Performance-Based Awards are made out of the same pool of stock options available for future issuance under the Equity Incentive Plans.
22
Compensation expense for Performance-Based Awards is based on the grant date fair market value. The Company recognizes expense for Performance-Based Awards having either (a) multiple performance-based vesting conditions, or (b) performance and graded service-based vesting conditions, by separately attributing each vesting tranche of the award over the requisite service period applicable to each vesting condition. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified performance goals. If the performance-based vesting condition is considered probable of being achieved, the Company recognizes expense over the remaining service period based on the probable outcome of achievement. If the performance goals are not met, no compensation cost is recognized, and any previously recognized compensation cost is reversed. For awards with both performance and service-based vesting conditions where the performance condition is considered improbable of being achieved, the Company does not recognize expense until the performance condition is satisfied, after which time expense is recognized over the requisite service period.
The Company had two
In 2018, the Company granted an award of 50,000 stock options that was eligible to vest upon the closing of the Company’s IPO occurring prior to the sixth (6th) anniversar