Stock-based Compensation | Note 11 - Stock-based Compensation Total stock-based compensation cost, net of forfeitures, was as follows: (In thousands) Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Cost of revenue $ 1,138 $ 948 Selling and marketing expense 3,527 ( 1,322 ) General and administrative expense 14,817 9,807 Product development expense 9,102 8,124 Total stock-based compensation expense $ 28,584 $ 17,557 Plans Prior to the IPO, Bumble Holdings had three active plans under which awards had been granted to various employees of the Company, including key management personnel, based on their management grade. In connection with the Sponsor Acquisition, Bumble Holdings and Buzz Management Aggregator L.P., an interest holder in Bumble Holdings, adopted two new incentive plans for the employees’ performance and retention purposes, namely the Employee Incentive Plan (“Non-U.S. Plan”) and the Equity Incentive Plan (“U.S. Plan”). The participants of the Non-U.S. Plan and U.S. Plan are selected employees of the Company and the subsidiaries. Bumble Holdings and Buzz Management Aggregator L.P. also adopted one incentive plan for Whitney Wolfe Herd (the “Founder Plan”). Awards granted under the Founder Plan and U.S. Plan were in the form of Class B Units in Bumble Holdings and Class B Units in Buzz Management Aggregator L.P., respectively (collectively, the “Class B Units”). Under the Non-U.S. Plan, participants have received phantom awards of Class B Units in Buzz Management Aggregator L.P. (the “Phantom Class B Units”) that are settled in cash equal to the notional value of the Buzz Management Aggregator Class B Units at the settlement date. The Class B Units under the Founder Plan and U.S. Plan and the Phantom Class B Units under the Non-U.S. Plan comprise: ● Time-Vesting Class B Units and Time-Vesting Phantom Class B Units ( 60 % of the Class B Units and Phantom Class B Units granted) that generally vest over a five-year service period and for which expense is recognized under a graded expense attribution model; and ● Exit-Vesting Class B Units and Exit-Vesting Phantom Class B Units ( 40 % of the Class B Units and Phantom Class B Units granted). Vesting for these awards is based on a liquidity event in which affiliates of Blackstone receive cash proceeds in respect of its Class A units in the Company prior to the termination of the participant. Further, the portion of the Exit-Vesting Class B Units and Exit-Vesting Phantom Class B Units that vest is based on certain Multiple on Invested Capital (“MOIC”) and Internal Rate of Return (“IRR”) hurdles associated with a liquidity event. The MOIC and IRR hurdles impact the fair value of the awards. As the vesting of these units is contingent upon a specified liquidity event, no expense was required to be recorded prior to the occurrence of a liquidity event. Time-Vesting Class B Units and Exit-Vesting Class B Units Expense for the Time-Vesting Class B Units and Exit-Vesting Class B Units was based on the grant date fair value of the Class B Units. The grant date fair value was measured using a Monte Carlo model, which incorporates various assumptions noted in the following table. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the observed equity volatility for comparable companies. The expected time to liquidity event was based on management’s estimate of time to an expected liquidity event. The dividend yield was based on the Company’s expected dividend rate. The risk-free interest rate was based on U.S. Treasury zero-coupon issues. Forfeitures were accounted for as they occurred. The weighted-average assumptions the Company used in the Monte Carlo model for 2020 are as follows: Dividend yield — Expected volatility 58 % Risk-free interest rate 0.86 % Expected time to liquidity event (years) 4.7 Post-IPO Award Reclassification In connection with the Company’s IPO, awards under the Founder Plan, U.S. Plan, and Non-U.S. Plan were reclassified as follows: ● The Time-Vesting and Exit-Vesting Class B Units in Bumble Holdings under the Founder Plan and granted to senior management under the U.S. Plan were reclassified to vested Incentive Units (in the case of Vested Class B Units) and unvested Incentive Units (in the case of unvested Class B Units) in Bumble Holdings. ● The Time-Vesting and Exit-Vesting Class B Units in Bumble Holdings (other than those granted to senior management) were reclassified to Class A common stock (in the case of vested Class B Units) and restricted shares of Class A common stock (in the case of unvested Class B Units) in the Company. ● The Time-Vesting and Exit-Vesting Phantom Class B Units in Bumble Holdings were reclassified into vested RSUs (in the case of vested Class B Phantom Units) and unvested RSUs (in the case of unvested Class B Phantom Units) in the Company. In each of the above reclassifications, the Post-IPO awards retained the same terms and conditions (including applicable vesting requirement). Each Post-IPO award was converted to reflect the $ 43.00 share price contemplated in the Company’s IPO while retaining the same economic value in the Company. At the IPO date, the Company concluded that our public offering represented a qualifying liquidity event that would cause the Exit-Vesting awards’ performance conditions to be probable. As such, the Company has begun to recognize stock-based compensation expense in relation to the Exit-Vesting awards. On July 15, 2022, the Exit-Vesting awards granted to 386 participants were modified to also provide for time-based vesting in 36 equal installments, with the first installment vesting on August 29, 2022 and subsequent installments vesting on each of the next 35 monthly anniversaries of August 29, 2022, subject to the award holder's continued employment through each applicable vesting date and subject to other terms and conditions of the award. Incremental expense associated with the modification of the Exit-Vesting awards was $ 35.8 million, which is expected to be recognized over a period of 3.0 years. If the performance conditions are met prior to their respective time-vesting schedules, vesting of these Exit-Vesting awards and the associated stock-based compensation will be accelerated pursuant to the terms of the award agreements. Incremental expense for the modified Exit-Vesting awards was based on the modification date fair value of modified Exit-Vesting Awards. The modification date fair value was measured using a Monte Carlo model, which incorporates various assumptions noted in the following table. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the observed equity volatility for comparable companies. The expected time to liquidity event was based on management’s estimate of time to an expected liquidity event. The dividend yield was based on the Company’s expected dividend rate. The risk-free interest rate was based on U.S. Treasury zero-coupon issues. Forfeitures are accounted for as they occur. The weighted-average assumptions the Company used in the Monte Carlo model for the modified Exit-Vesting awards are as follows: Dividend yield — Expected volatility 60 % Risk-free interest rate 2.1 % to 3.1 % Expected time to liquidity event (years) 1.0 Compensation cost related to the Exit-Vesting awards for the three months ended March 31, 2023 and 2022 w as $ 3.6 million and $ 0.9 million, respectively. On February 25, 2023, the Board of Directors approved amendments to outstanding Exit-Vesting awards with respect to change in control provisions. See “Item 9B — Other Information” of our 2022 Form 10-K for additional details. The Company reviewed the amendments to the change of control provisions in accordance with ASC 718, Compensation—Stock Compensation, and determined that the modification does not impact the existing expense recognition and financial statement presentation. 2021 Omnibus Plan In connection with the IPO, the Company adopted the 2021 Omnibus Plan, which became effective on the date immediately prior to the effective date of the IPO. The 2021 Omnibus Plan provides the Company with flexibility to use various equity-based incentive awards as compensation tools to motivate and retain the Company’s workforce. The Company initially reserved 30,000,000 shares of Class A common stock for the issuance of awards under the 2021 Omnibus Plan. The number of shares available for issuance under the 2021 Omnibus Plan will be increased automatically on January 1 of each fiscal year, by a number of shares of our Class A common stock equal to the least of (i) 12,000,000 shares of Class A common stock; (ii) 5 % of the total number of shares of Class A common stock outstanding on the last day of the immediately preceding fiscal year, and (iii) a lower number of shares as may be determined by the Board. The Board elected not to approve an increase to the number of shares available for issuance under the 2021 Omnibus Plan for each of 2022 and 2023. The fair value of Time-Vesting awards granted or modified at the time of the IPO was determined using the Black-Scholes option pricing model with the following assumptions: Volatility 55 %- 60 % Expected Life 0.5 - 7.4 years Risk-free rate 0.1 %- 0.8 % Fair value per unit $ 43.00 Dividend yield 0.0 % Discount for lack of marketability (1) 15 % - 25 % The fair value of Exit-Vesting awards granted or modified at the time of the IPO was determined using a Monte Carlo simulation approach in an option pricing framework, where the common stock price of the Company was evolved using a Geometric Brownian Motion over a period from the Valuation Date to the date of Management's expected exit date - a date at which MOIC and IRR realized by the Sponsor can be calculated ("Sponsor Exit"), with the following assumptions: Volatility 55 % Expected Life 1.8 years Risk-free rate 0.1 % Fair value per unit $ 43.00 Dividend yield 0.0 % Discount for lack of marketability (1) 15 % (1) Discount for lack of marketability for Time-Vesting awards and Exit-Vesting awards is only applicable for Incentive Units granted in Bumble Holdings at the time of the IPO. The fair value of Time-Vesting Options granted during the three months ended March 31, 2023 was determined using the Black-Scholes option pricing model with the following assumptions: Volatility 80 % Expected Life 7 Risk-free rate 3.67 % - 3.86 % Fair value per unit $ 14.70 - $ 18.19 Dividend yield 0.0 % Incentive Units in Bumble Holdings: The following table summarizes information around Incentive Units in Bumble Holdings. These include grants of Class B Units that were reclassified into Incentive Units as described above, as well as Incentive Units issued to new recipients. The Incentive Units received as a result of the Reclassification of Class B Units retain the vesting attributes (including original service period vesting start date) of the Class B Units. The Company did not recognize any incremental fair value due to the reclassification of awards as the fair value per award was the same immediately prior to and after the Reclassification. The newly granted Incentive Units contain the same vesting attributes as Incentive Units granted as a result of the Reclassification. In July 2022, the Exit-Vesting RSUs were modified to also provide for time-based vesting in 36 equal installments, with the first installment vesting on August 29, 2022, and subsequent installments vesting on each of the next 35 monthly anniversaries of August 29, 2022, subject to the award holder’s continued employment through each applicable vesting date and subject to other terms and conditions of the award (as noted above in the section headed “Post-IPO Award Reclassification”). Time-Vesting Incentive Units Exit-Vesting Incentive Units Number of Weighted- Number of Weighted- Unvested as of December 31, 2022 3,857,248 $ 14.33 3,724,214 $ 13.81 Granted — — — — Vested ( 839,936 ) 13.91 ( 360,416 ) 13.81 Forfeited — — — — Unvested as of March 31, 2023 3,017,312 $ 14.44 3,363,798 $ 13.81 As of March 31, 2023 , total unrecognized compensation cost related to the Time-Vesting Incentive Units is $ 8.6 million, which is expected to be recognized over a weighted-average period of 2.1 years. Total unrecognized compensation cost related to the Exit-Vesting Incentive Units is $ 17.4 million, which is expected to be recognized over a weighted average period of 2.3 years. Restricted Shares of Class A Common Stock in Bumble Inc.: The following table summarizes information around restricted shares in the Company. The restricted shares granted as a result of the reclassification of Class B Units retain the vesting attributes (including original service period vesting start date) of the Class B Units. The Company did not recognize any incremental fair value due to the reclassification of awards as the fair value per award was the same immediately prior to and after the Reclassification. In July 2022, the Exit-Vesting restricted stock were modified to also provide for time-based vesting in 36 equal installments, with the first installment vesting on August 29, 2022, and subsequent installments vesting on each of the next 35 monthly anniversaries of August 29, 2022, subject to the award holder’s continued employment through each applicable vesting date and subject to other terms and conditions of the award (as noted above in the section headed “Post-IPO Award Reclassification”). Time-Vesting Exit-Vesting Number of Weighted- Number of Weighted- Unvested as of December 31, 2022 58,247 $ 7.02 55,744 $ 17.26 Granted — — — — Vested ( 18,746 ) 6.73 ( 5,369 ) 17.25 Forfeited ( 832 ) 6.73 ( 997 ) 17.01 Unvested as of March 31, 2023 38,669 $ 7.17 49,378 $ 17.26 As of March 31, 2023, total unrecogniz ed compensation cost related to the Time-Vesting restricted shares is $ 0.1 million, which is expected to be recognized over a weighted-average period of 1.9 years. Total unrecognized compensation cost related to the Exit-Vesting restricted shares is $ 0.4 million, which is expected to be recognized over a weighted average period of 2.3 years. RSUs in Bumble Inc.: The following table summarizes information around RSUs in the Company. These include grants of Phantom Class B Units that were reclassified into RSUs in conjunction with the IPO, as well as Promised RSUs issued to new recipients. The RSUs granted as a result of the reclassification of Phantom Class B Units retain the vesting attributes (including original service period vesting start date) of the Phantom Class B Units. As the Phantom Class B Units were legally settled in cash and the RSUs will be settled with equity, this represents a liability-to-equity modification. The Company reclassified any outstanding liabilities to equity and recognized expense in accordance with the appropriate pattern using the modification date fair value. Time-Vesting RSUs that were granted as a result of the Reclassification generally vest in equal annual installments over a five-year period, whereas Time-Vesting RSUs that were granted at the time of the Company’s IPO generally vest in equal annual installments over a four-year period. Time-Vesting RSUs that have been granted since the Company’s IPO will generally vest 25% on the first anniversary of the date of grant, or other vesting commencement date, and the remaining 75% of the award vests in equal installments on each monthly anniversary thereafter such that the award will be fully vested on the fourth anniversary of the date of grant, or other vesting commencement date. Exit-Vesting RSUs that were granted as a result of the Reclassification contain similar vesting requirements to the previously Exit-Vesting Phantom Class B Units. In July 2022, the Exit-Vesting RSUs were modified to also provide for time-based vesting in 36 equal installments, with the first installment vesting on August 29, 2022, and subsequent installments vesting on each of the next 35 monthly anniversaries of August 29, 2022, subject to the award holder’s continued employment through each applicable vesting date and subject to other terms and conditions of the award (as noted above in the section headed “Post-IPO Award Reclassification”). Time-Vesting RSUs Exit-Vesting RSUs Number of Weighted- Number of Weighted- Unvested as of December 31, 2022 4,845,852 $ 32.50 761,473 $ 40.23 Granted 3,151,151 23.10 — — Vested ( 910,819 ) 34.24 ( 63,808 ) 41.31 Forfeited ( 275,398 ) 37.21 ( 195,414 ) 33.30 Unvested as of March 31, 2023 6,810,786 $ 27.73 502,251 $ 42.79 As of March 31, 2023, total unrec ognized compensation cost related to the Time-Vesting RSUs is $ 125.7 million, which is expected to be recognized over a weighted-average period of 3.3 years. Total unrecognized compensation cost related to the Exit-Vesting RSUs is $ 8.3 million, which is expected to be recognized over a weighted average period of 2.3 years. Options Under the 2021 Omnibus Plan, the Company has granted certain stock options with the underlying equity being shares of the Company’s Class A common stock. These stock options are inclusive of both Time-Vesting stock options and Exit-Vesting stock options. Time-Vesting stock options either vest over a four or a five-year period, and weighted-average remaining contractual term has been specified in the table below. Exit-Vesting stock options vest upon satisfaction of a performance condition under which Blackstone and its affiliates receive cash proceeds in respect of certain MOIC and IRR hurdles, subject to the recipient’s continued employment at the time of satisfaction . At the IPO date, the Company concluded that the public offering represented a qualifying liquidity event that would cause the Exit-Vesting options’ performance conditions to be probable of occurring. In July 2022, the Exit-Vesting options were modified to also provide for time-based vesting in 36 equal installments, with the first installment vesting on August 29, 2022, and subsequent installments vesting on each of the next 35 monthly anniversaries of August 29, 2022, subject to the award holder’s continued employment through each applicable vesting date and subject to other terms and conditions of the award (as noted above in the section headed “Post-IPO Award Reclassification”). The following table summarizes the Company’s option activity as it relates to Time-Vesting stock options as of March 31, 2023: March 31, 2023 Number of Weighted- Weighted- Outstanding as of December 31, 2022 2,946,118 $ 35.64 $ 20.34 Granted 1,118,390 21.36 15.96 Exercised — — — Forfeited and expired ( 162,439 ) 42.03 21.21 Outstanding as of March 31, 2023 3,902,069 $ 31.28 $ 19.03 Exercisable as of March 31, 2023 1,025,020 $ 39.20 $ 20.78 The following table summarizes the Company’s option activity as it relates to Exit-Vesting stock options as of March 31, 2023: March 31, 2023 Number of Weighted- Weighted- Outstanding as of December 31, 2022 164,362 $ 43.00 $ 18.66 Granted — — — Exercised — — — Forfeited ( 69,208 ) 43.00 15.30 Outstanding as of March 31, 2023 95,154 $ 43.00 $ 21.10 Exercisable as of March 31, 2023 32,998 $ 43.00 $ 19.02 Total unrecognized compensation cost relate d to the Time-Vesting options is $ 34.8 million, which is expected to be recognized over a weighted-average period of 3.2 years. Total unrecognized compensation cost related to the Exit-Vesting options is $ 0.5 million, which is expected to be recognized over a weighted-average period of 2.3 years. Options have a maximum contractual term of 10 years . The aggregate intrinsic value – assuming all options are expected to vest – and weighted average remaining contractual terms of Time-Vesting and Exit-Vesting options outstanding and options exercisable were as follows as of March 31, 2023. Aggregate intrinsic value Time-Vesting options outstanding — Time Vesting options exercisable — Exit-Vesting options outstanding — Exit-Vesting options exercisable — Weighted-average remaining contractual term (in years) Time-Vesting options outstanding 8.7 Time Vesting options exercisable 7.3 Exit-Vesting options outstanding 6.6 Exit-Vesting options exercisable 4.3 The weighted average exercise price exceeded the market price as of March 31, 2023, an d as such, resulted in the aggregate intrinsic value to be negative for all of the Company’s stock options (referred to as “out-of-the money”). |