Stockholders' equity

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

Stockholders' equity

11. 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 shares of undesignated preferred stock with a par value of $0.00001 per share with rights and preferences, including voting rights, designated from time to time by the board of directors.

Common stock— Common stockholders are entitled to one vote per share. Shares of common stock reserved for future issuance consisted of the following:

	September 30,	December 31,
	2023	2022
2010 Equity Incentive Plan:
Stock options outstanding	7,569,747	10,333,771
2021 Equity Incentive Plan:
RSUs outstanding and PSUs(1)	18,270,292	16,178,101
Shares available for future issuance under:
2021 Equity Incentive Plan	3,714,081	2,814,126
2021 Employee Stock Purchase Plan	2,754,604	1,929,578
Total shares of common stock reserved	32,308,724	31,255,576
(1) The number of PSUs reserved for issuance is based on the maximum achievement of the corporate performance metric.

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 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. On January 1, 2023, the shares available for future grants under the 2021 Plan automatically increased by 7,250,689 pursuant to the above evergreen provision of the 2021 Plan.

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 having only service-based vesting conditions under the Equity Incentive Plans:

	Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In Thousands)
Balance - December 31, 2022	10,283,771	$	4.18	6.38	$	66,234
Granted	—	—
Exercised	(2,540,719)	3.40
Canceled	(223,305)	7.60
Balance - September 30, 2023	7,519,747	$	4.35	2.55	$	39,357
Vested & expected to vest as of September 30, 2023	7,519,747	$	4.35	2.55	$	39,357
Exercisable as of September 30, 2023	7,181,202	$	4.20	2.51	$	38,489

There were no stock options granted during the nine months ended September 30, 2023 or 2022. The decrease in weighted average remaining contractual term during the period is due to stock options held by the Company’s former CEO, Mr. Coccari, which will expire if not exercised by the end of the 90-day post-termination exercise window that begins upon completion of his transition agreement in February 2024. Refer to further discussion below under other equity transactions.

As of September 30, 2023, total unrecognized stock-based compensation expense related to unvested stock options was $0.9 million, which will be recognized over a weighted average period of 0.6 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.

The following is a summary of activity for SARs under the Equity Incentive Plans:

	SARs Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In Thousands)
Balance - December 31, 2022	81,770	$	5.44	6.90	$	418
Granted	—	—
Exercised	(67,781)	5.30
Canceled	(9,289)	6.58
Balance - September 30, 2023	4,700	$	5.11	6.23	$	21
Vested & expected to vest as of September 30, 2023	4,700	$	5.11	6.23	$	21
Exercisable as of September 30, 2023	4,389	$	5.00	6.21	$	20

There were no SARs granted during the nine months ended September 30, 2023 or 2022.

As of September 30, 2023, total unrecognized stock-based compensation expense related to unvested SARs was immaterial.

Restricted stock units and performance-based restricted stock units— 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 three or four-year period.

During the first quarter of 2023, the Company granted 645,833 PSUs to certain executives at target. Each PSU conveys a right to receive one share of the Company’s common stock on the date it vests, provided that the number of PSUs that will ultimately vest may vary from 0% to 150% of target based upon the achievement of the corporate performance metric at the end of the performance period. One quarter of the eligible PSUs vest upon certification of the corporate performance metric in the first quarter of 2024, and the remaining 75% will vest equally over the following 12 quarters thereafter, subject to continual service by the grantee. Total stock-based compensation expense to be recognized may fluctuate during the performance period due to changes in forecasted achievement. The corporate performance metric associated with these awards has been considered probable of being achieved since the grant date, and as of September 30, 2023, management estimated a payout rate equal to 79% of the number of target shares granted.

A summary of RSU and PSU activity under the 2021 Plan is as follows:

	RSUs Outstanding	Weighted Average Grant Date Fair Value		PSUs Outstanding	Weighted Average Grant Date Fair Value
Unvested - December 31, 2022	16,178,101	$	17.37	—	$	—
Granted	7,615,860	$	9.62	645,833	$	8.89
Released	(4,481,848)	$	16.58	—	$	—
Canceled	(2,010,553)	$	16.11	—	$	—
Unvested - September 30, 2023	17,301,560	$	14.31	645,833	$	8.89

As of September 30, 2023, total unrecognized stock-based compensation expense related to unvested RSUs was $212.7 million, which will be recognized over a weighted average period of 2.8 years.

As of September 30, 2023, total unrecognized stock-based compensation expense related to unvested PSUs was $3.1 million, which will be recognized over a weighted average period of 1.7 years.

Performance-based stock options— There have been no other changes to the Company’s performance-based stock options compared to those described in Note 14— Stockholders’ equity, included in Part II, Item 8 of the Company’s Annual Report.

As of September 30, 2023, there were 50,000 performance-based stock options outstanding, of which 22,916 were exercisable. As of September 30, 2023, total unrecognized stock-based compensation expense related to unvested performance-based stock options was immaterial.

Employee stock purchase plan— The 2021 Employee Stock Purchase Plan (the “ESPP”) became effective on October 29, 2021. The Company initially reserved 2,800,000 shares of the Company's common stock under the ESPP. Shares reserved for issuance shall increase on the first day of the fiscal year, beginning in fiscal 2023, in an amount equal to the least of 1% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, three times the initial number of shares reserved under the ESPP, or a lesser amount determined by the Company’s Board of Directors or compensation committee. On January 1, 2023, the shares available for future grants under the ESPP automatically increased by 1,450,137 pursuant to the above evergreen provision of the 2021 ESPP.

During the nine months ended September 30, 2023, 625,111 shares of common stock were issued under the ESPP.

On May 20, 2023, the Company’s ESPP purchase price was reset for both the May 2022 and November 2022 offering periods. Under the reset provision, if the closing stock price on the purchase date falls below the closing stock price on the offering date of an ongoing offering period, the ongoing offering terminates immediately following the purchase of ESPP shares on the purchase date. Participants in the terminated offering are then automatically enrolled in the new offering period. The ESPP reset resulted in incremental compensation cost of $5.9 million which, along with the unrecognized expense remaining from the original grant date fair value, will be recognized on a straight-line basis over the new offering period ending in May 2025.

The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to estimate the fair value of employee stock purchase rights granted under the new ESPP offering period:

	Nine Months Ended September 30, 2023
Risk-free interest rate	4.5%
Expected volatility	69.7%
Expected life (in years)	1.6
Expected dividend yield	—%

As of September 30, 2023, total unrecognized compensation cost for the ESPP was $9.2 million, which will be recognized on a straight-line basis over the next 1.6 years.

Other equity transactions— On February 28, 2023, the Company entered into a transition agreement with Mr. Coccari under which he will provide transition advice through February 28, 2024. During the transition period, he will continue to meet the definition of a service provider under the 2021 Plan, and his equity incentive awards will continue to vest in accordance with their original vesting schedules. Because the scope of services to be provided under the transition period represent a substantive reduction in services being provided by the former CEO, the Company recognized $3.1 million in stock-based compensation expense during the three months ended March 31, 2023, that would have otherwise been recognized from April 2023 to February 2024.

On August 24, 2021, the Company issued 61,300 shares of Udemy restricted common stock to a former executive of CorpU at a grant date fair value per share of $34.14. The total compensation cost recognized during both the three months ended September 30, 2023 and 2022 was $0.2 million, and $0.5 million for both the nine months ended September 30, 2023 and 2022. As of September 30, 2023, total compensation cost related to the restricted stock not yet recognized was $0.6 million, which will be recognized on a straight-line basis over the next 0.9 years.

Total stock-based compensation expense included in the condensed consolidated statements of operations was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenue	$	1,788	$	1,611	$	5,130	$	3,440
Sales and marketing	7,646		9,372		23,022		18,516
Research and development	7,045		6,258		19,762		13,303
General and administrative	7,005		7,728		23,806		17,784
Restructuring charges	—		—		1,208		—
Total stock-based compensation expense	$	23,484	$	24,969	$	72,928	$	53,043

The Company capitalized $2.1 million and $1.6 million of stock-based compensation expense as capitalized software during the three months ended September 30, 2023 and 2022, respectively, and $6.8 million and $4.2 million during the nine months ended September 30, 2023 and 2022, respectively.