Item 1. Condensed Consolidated Financial Statements

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)

		As of				As of
		September 30, 2021				December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents		$	576,916			$	437,353
Short-term investments, net			221,685				186,685
Accounts receivable, net of allowance for credit losses of $7,245 and $7,253 as of September 30, 2021 and December 31, 2020, respectively			1,624,759				1,584,109
Prepaid expenses and other current assets			92,557				102,170
TOTAL CURRENT ASSETS			2,515,917				2,310,317
Property and equipment, net			137,416				115,863
Operating lease assets			242,436				248,143
Deferred income taxes			46,405				50,168
Other assets, non-current			46,581				29,154
TOTAL ASSETS		$	2,988,755			$	2,753,645
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable		$	1,304,971			$	1,348,480
Accrued expenses and other current liabilities			77,323				88,335
Operating lease liabilities			45,603				37,868
TOTAL CURRENT LIABILITIES			1,427,897				1,474,683
Operating lease liabilities, non-current			247,923				254,562
Other liabilities, non-current			10,121				11,255
TOTAL LIABILITIES			1,685,941				1,740,500
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of September 30, 2021 and December 31, 2020			—				—
Common stock, par value $0.000001 Class A, 1,000,000 shares authorized; 436,033 and 423,383 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively Class B, 95,000 shares authorized; 44,556 and 50,018 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively			—				—
Additional paid-in capital			698,724				538,778
Retained earnings			604,090				474,367
TOTAL STOCKHOLDERS’ EQUITY			1,302,814				1,013,145
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,988,755			$	2,753,645

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
Revenue		$	301,091			$	216,113			$	800,869			$	516,128
Operating expenses:
Platform operations			53,400				44,826				154,709				127,167
Sales and marketing			59,278				44,637				176,797				116,002
Technology and development			55,847				41,079				163,301				117,931
General and administrative			52,120				42,789				155,884				117,252
Total operating expenses			220,645				173,331				650,691				478,352
Income from operations			80,446				42,782				150,178				37,776
Other expense (income):
Interest expense (income), net			317				235				556				(740	)
Foreign currency exchange loss (gain), net			1,153				(12	)			1,004				1,574
Total other expense, net			1,470				223				1,560				834
Income before income taxes			78,976				42,559				148,618				36,942
Provision for (benefit from) income taxes			19,592				1,312				18,895				(53,473	)
Net income		$	59,384			$	41,247			$	129,723			$	90,415
Earnings per share:
Basic		$	0.12			$	0.09			$	0.27			$	0.20
Diluted		$	0.12			$	0.08			$	0.26			$	0.19
Weighted average shares outstanding:
Basic			478,101				465,819				475,496				460,747
Diluted			498,912				492,207				497,942				487,309

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

		Class A and B								Additional								Total
		Common Stock								Paid-In				Retained				Stockholders’
		Shares				Amount				Capital				Earnings				Equity
Balance as of December 31, 2019			454,755			$	—			$	380,079			$	232,438			$	612,517
Impact upon adoption of ASC 326			—				—				—				(388	)			(388	)
Exercise of common stock options			5,393				—				19,478				—				19,478
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			197				—				(4,893	)			—				(4,893	)
Stock-based compensation			—				—				23,263				—				23,263
Net income			—				—				—				24,057				24,057
Balance as of March 31, 2020			460,346				—				417,927				256,107				674,034
Exercise of common stock options			4,306				—				22,491				—				22,491
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			613				—				(2,836	)			—				(2,836	)
Stock-based compensation			—				—				24,516				—				24,516
Issuance of common stock under employee stock purchase plan			2,026				—				15,035				—				15,035
Net income			—				—				—				25,111				25,111
Balance as of June 30, 2020			467,291				—				477,133				281,218				758,351
Exercise of common stock options			2,245				—				12,118				—				12,118
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			(84	)			—				(6,455	)			—				(6,455	)
Stock-based compensation			—				—				27,366				—				27,366
Net income			—				—				—				41,247				41,247
Balance as of September 30, 2020			469,452			$	—			$	510,162			$	322,465			$	832,627
Balance as of December 31, 2020			473,401			$	—			$	538,778			$	474,367			$	1,013,145
Exercise of common stock options			1,794				—				12,621				—				12,621
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			110				—				(17,080	)			—				(17,080	)
Stock-based compensation			—				—				52,985				—				52,985
Net income			—				—				—				22,642				22,642
Balance as of March 31, 2021			475,305				—				587,304				497,009				1,084,313
Exercise of common stock options			1,401				—				13,718				—				13,718
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			409				—				(12,155	)			—				(12,155	)
Stock-based compensation			—				—				46,015				—				46,015
Issuance of common stock under employee stock purchase plan			1,334				—				22,758				—				22,758
Net income			—				—				—				47,697				47,697
Balance as of June 30, 2021			478,449				—				657,640				544,706				1,202,346
Exercise of common stock options			1,808				—				13,220				—				13,220
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			307				—				(9,038	)			—				(9,038	)
Stock-based compensation			—				—				35,086				—				35,086
Issuance of common stock related to acquisition			25				—				1,816				—				1,816
Net income			—				—				—				59,384				59,384
Balance as of September 30, 2021			480,589			$	—			$	698,724			$	604,090			$	1,302,814

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

		Nine Months Ended September 30,
		2021				2020
OPERATING ACTIVITIES:
Net income		$	129,723			$	90,415
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,969				20,777
Stock-based compensation			132,010				73,751
Allowance for credit losses on accounts receivable			520				2,722
Noncash lease expense			29,914				24,052
Deferred income taxes			5,044				(20,978	)
Other			6,730				1,242
Changes in operating assets and liabilities:
Accounts receivable			(48,637	)			21,063
Prepaid expenses and other assets			20,627				(23,919	)
Accounts payable			(44,105	)			47,728
Accrued expenses and other liabilities			(14,790	)			11,047
Operating lease liabilities			(31,886	)			(10,388	)
Net cash provided by operating activities			215,119				237,512
INVESTING ACTIVITIES:
Purchases of investments			(233,427	)			(127,254	)
Sales of investments			4,539				—
Maturities of investments			192,077				128,315
Purchases of property and equipment			(43,920	)			(57,721	)
Capitalized software development costs			(3,684	)			(4,246	)
Business acquisition			(13,261	)			—
Net cash used in investing activities			(97,676	)			(60,906	)
FINANCING ACTIVITIES:
Proceeds from line of credit			—				143,000
Repayment on line of credit			—				(71,000	)
Payment of debt financing costs			(1,924	)			—
Proceeds from exercise of stock options			39,559				54,038
Proceeds from employee stock purchase plan			22,758				15,035
Taxes paid related to net settlement of restricted stock awards			(38,273	)			(14,184	)
Net cash provided by financing activities			22,120				126,889
Increase in cash and cash equivalents			139,563				303,495
Cash and cash equivalents—Beginning of period			437,353				130,876
Cash and cash equivalents—End of period		$	576,916			$	434,371
SUPPLEMENTAL CASH FLOW INFORMATION:
Capitalized assets financed by accounts payable		$	8,934			$	12,842
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows		$	39,006			$	17,702
Right-of-use assets obtained in exchange for operating lease liabilities		$	23,293			$	52,238
Asset retirement obligation		$	1,609			$	1,601
Stock-based compensation included in capitalized software development costs		$	2,076			$	1,394

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Nature of Operations

The Trade Desk, Inc. (the “Company”) was formed in November 2009 as a Delaware corporation. The Company is headquartered in Ventura, California and has offices in various cities in North America, Europe, Asia and Australia. The Company is a technology company that empowers buyers of advertising by providing a self-service cloud-based platform on which ad buyers can create, manage, and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices, and connected TV.

Note 2—Basis of Presentation and Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2020 was derived from audited financial statements but does not include all disclosures required by GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020, and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual consolidated financial statements for the year ended December 31, 2020, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021.

On June 16, 2021, the Company effected a ten-for-one stock split (the “Stock Split”) of the Company’s common stock in the form of a stock dividend. Each stockholder of record on June 9, 2021, received nine additional shares of common stock for each then-held share. Trading began on a stock split-adjusted basis on June 17, 2021. The number of shares subject to outstanding equity awards and the exercise prices of the outstanding stock option awards were also adjusted to reflect the effect of the Stock Split. All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.

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 disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.

As of September 30, 2021, the impact of the Coronavirus pandemic (“COVID-19”) on the Company’s business continued to evolve. As a result, many of the Company’s estimates and assumptions, including the allowance for credit losses, consider macro-economic factors in the market, which require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

For the three and nine months ended September 30, 2021, the Company’s assessment of credit losses considered business and market disruptions caused by COVID-19 and estimates of defaults by industry. The Company reviews the allowance for credit losses and financial implications of COVID-19 on expected credit losses on a quarterly basis. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

Business Combinations

The results of a business combination are included in the Company’s condensed consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business are generally recorded at their estimated fair values on the acquisition date, which may require management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. The Company engages valuation specialists to assist in determining the fair values of these acquired assets and liabilities. Any excess consideration over the fair value of these acquired assets and liabilities assumed is recognized as goodwill.

In July 2021, the Company acquired all of the equity interests of a technology company for a GAAP purchase price of $17.8 million, subject to purchase price adjustments. The purchase consideration was primarily attributable to non-deductible goodwill of $11.4 million, with the remainder allocated to acquired technology and other assets.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate or by another reference rate expected to be discontinued. The amendments are effective for all entities through December 31, 2022 and can be adopted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The adoption of the amendment did not have a material impact on the Company’s condensed consolidated financial statements.

Note 3—Earnings Per Share

The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings per share (“EPS”) attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.

The computation of basic and diluted EPS after giving retroactive effect to the Stock Split is as follows (in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
Numerator:
Net income		$	59,384			$	41,247			$	129,723			$	90,415
Denominator:
Weighted-average shares outstanding—basic			478,101				465,819				475,496				460,747
Effect of dilutive securities:
Options to purchase common stock			17,623				22,230				18,772				22,819
Employee stock purchase plan shares			278				454				533				815
Restricted stock			2,910				3,704				3,141				2,928
Weighted-average shares outstanding—diluted			498,912				492,207				497,942				487,309
Basic EPS		$	0.12			$	0.09			$	0.27			$	0.20
Diluted EPS		$	0.12			$	0.08			$	0.26			$	0.19
Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted EPS			1,439				1,880				1,439				1,880

Note 4—Cash, Cash Equivalents and Short-Term Investments

Cash, cash equivalents and short-term investments in marketable securities were as follows (in thousands):

		As of September 30, 2021
		Cash and
		Cash				Short-Term
		Equivalents				Investments				Total
Cash		$	141,689			$	—			$	141,689
Level 1:
Money market funds			403,952				—				403,952
Level 2:
Commercial paper			31,275				84,253				115,528
Corporate debt securities			—				94,080				94,080
U.S. government and agency securities			—				43,352				43,352
Total		$	576,916			$	221,685			$	798,601

		As of December 31, 2020
		Cash and
		Cash				Short-Term
		Equivalents				Investments				Total
Cash		$	132,372			$	—			$	132,372
Level 1:
Money market funds			259,434				—				259,434
Level 2:
Commercial paper			45,547				63,372				108,919
Corporate debt securities			—				79,342				79,342
U.S. government and agency securities			—				43,971				43,971
Total		$	437,353			$	186,685			$	624,038

The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three and nine months ended September 30, 2021 and 2020, were immaterial.

The contractual maturities of the Company’s short-term investments are as follows (in thousands):

		September 30, 2021
Due in one year		$	195,238
Due in one to two years			26,447
Total		$	221,685

Note 5—Leases

The components of lease expense recorded in the condensed consolidated statements of income were as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
Operating lease cost		$	12,402			$	10,768			$	38,288			$	30,848
Short-term lease cost			229				228				592				723
Variable lease cost			1,891				1,688				4,848				4,251
Sublease income			(751	)			(936	)			(2,114	)			(2,789	)
Total lease cost		$	13,771			$	11,748			$	41,614			$	33,033

Note 6—Debt

Credit Facility

On June 15, 2021, the Company and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “credit facility”). The credit facility replaced the Company’s prior credit facility, which was scheduled to terminate in May 2022. The credit facility consists of a $450.0 million revolving loan facility, with a $20.0 million sublimit for swingline borrowings and a $15.0 million sublimit for the issuance of letters of credit. Under certain circumstances, the Company has the right to increase the credit facility by an amount not to exceed $300.0 million. The credit facility is collateralized by substantially all of the Company’s assets, including a pledge of certain of its accounts receivable, deposit accounts, intellectual property, investment property, and equipment.

Loans under the credit facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate of either a Base Rate or an adjusted LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as a rate per annum for any day equal to the greatest of (1) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (2) the NYFRB Rate in effect on such day plus half of 1%, and (3) the adjusted LIBOR rate for a one month interest period on such day plus 1%. The applicable margin is between 0.25% to 1.25% for Base Rate Borrowings and between 1.25% and 2.25% for LIBOR Rate Borrowings based on the Company maintaining certain leverage ratios. The fee for undrawn amounts under the credit facility ranges, based on the applicable leverage, from 0.200% to 0.350%. The Company is also required to pay customary letter of credit fees, as necessary.

As of September 30, 2021, the Company did not have an outstanding debt balance under the credit facility. Availability under the credit facility was $443.9 million as of September 30, 2021, which is net of outstanding letters of credit of $6.1 million. The credit facility matures, and all outstanding amounts become due and payable, on June 15, 2026.

The credit facility contains customary conditions to borrowings, events of default and covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates and make payments in respect of subordinated debt. The credit facility also requires the Company to maintain compliance with a maximum ratio of consolidated funded debt to consolidated EBITDA of 3.50 to 1.00. As of September 30, 2021, the Company was in compliance with all covenants.

Note 7—Stock-Based Compensation

Stock-Based Compensation Expense

Stock-based compensation expense recorded in the condensed consolidated statements of income was as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
Platform operations		$	2,518			$	1,639			$	11,624			$	5,459
Sales and marketing			9,099				6,916				37,362				18,549
Technology and development			11,269				7,911				41,337				24,345
General and administrative			11,573				10,386				41,687				25,398
Total		$	34,459			$	26,852			$	132,010			$	73,751

Stock Options

The following summarizes stock option activity:

		Shares Under Option (in thousands)				Weighted- Average Exercise Price
Outstanding as of December 31, 2020			26,481			$	10.73
Granted			1,171				74.52
Exercised			(5,004	)			7.91
Cancelled			(1,186	)			18.20
Outstanding as of September 30, 2021			21,462			$	14.45
Exercisable as of September 30, 2021			13,962			$	7.97

Restricted Stock

The following summarizes restricted stock activity:

		RSU (in thousands)				Weighted- Average Grant Date Fair Value
Unvested as of December 31, 2020			5,698			$	26.10
Granted			2,166				73.70
Vested			(1,494	)			22.41
Forfeited			(575	)			28.72
Unvested as of September 30, 2021			5,795			$	44.58

Employee Stock Purchase Plan (“ESPP”)

Stock-based compensation expense related to the ESPP totaled $4.1 million and $3.7 million for the three months ended September 30, 2021 and 2020, respectively. Stock-based compensation expense related to the ESPP totaled $46.1 million and $17.8 million for the nine months ended September 30, 2021 and 2020, respectively.

Note 8—Income Taxes

In determining the interim income tax provision for the nine months ended September 30, 2021, the Company utilized the annual estimated effective tax rate applied to the actual year-to-date income and added the tax effects of any discrete items in the reporting period in which they occur. In determining the interim benefit from income taxes for the nine months ended September 30, 2020, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting”.

For the three months ended September 30, 2021 and 2020, the income tax provision included benefits associated with stock-based awards in the amounts of $21.9 million and $25.6 million, respectively. For the nine months ended September 30, 2021 and 2020, the provision for (benefit from) income taxes included benefits associated with stock-based awards in the amounts of $58.2 million and $98.7 million, respectively.

For the nine months ended September 30, 2021, and 2020, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to the impact of tax benefits associated with stock-based awards, nondeductible stock-based compensation, state and foreign taxes, and research and development tax credits.

On June 10, 2021, the UK Finance Act 2021 was enacted, increasing the corporate tax rate from 19% to 25%. Accordingly, the Company increased its net UK deferred tax assets by $76.4 million, which was fully offset by a valuation allowance.

There were no material changes to the Company’s unrecognized tax benefits during the nine months ended September 30, 2021, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

Note 9—Geographic Information

The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). The Company generally bills clients for the gross amount of Supplier Features they purchase through its platform and the platform fees, net of allowances (“Gross Billings”). The Company’s accounts receivable are recorded at the amount of Gross Billings for the amounts it is responsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Gross Billings, set forth as a percentage, based on the billing address of the clients or client affiliates, were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2021				2020				2021				2020
U.S.			87	%			86	%			86	%			86	%
International			13	%			14	%			14	%			14	%
Total			100	%			100	%			100	%			100	%

Note 10— Commitments and Contingencies

Guarantees and Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on its balance sheet, statement of income or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at September 30, 2021.

Litigation

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

On June 28, 2021, a class action lawsuit was filed against the Company, the members of the Company’s board of directors, and one of the Company’s executive officers (collectively, the “Defendants”) in the Court of Chancery of the State of Delaware. The complaint alleges generally that the Defendants breached their fiduciary duties to the Company’s stockholders in connection with the negotiation and approval of the amendments to the Company’s certificate of incorporation and related matters voted on at the Special Meeting of Stockholders held on December 22, 2020 (the “Amendments”). Plaintiff seeks a court order rescinding the Amendments, as well as monetary damages. On August 27, 2021, the Defendants moved to dismiss the complaint. On October 8, 2021, the plaintiff filed an opposition to Defendants’ motion to dismiss the complaint. The Company believes that all of the claims asserted in the complaint are without merit and intends to defend against them vigorously. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the Defendants’ defense of the action will be successful.

Employment Contracts

The Company has entered into agreements with severance terms with certain employees and officers, all of whom are employed on an at-will basis, subject to certain severance obligations in the event of certain involuntary terminations. The Company may be required to accelerate the vesting of certain stock-based awards in the event of changes in control, as defined, and involuntary terminations.

Note 11— Subsequent Event

On October 6, 2021, the Company granted a market-based performance award (the “Performance Option”) to the Company’s Chief Executive Officer (the “CEO”) under the Company’s 2016 Incentive Award Plan. If specified target goals for the per share price of the Company’s Class A common stock (ranging from $90.00 to $340.00 per share) and certain other vesting conditions are satisfied, the CEO may purchase up to 16,000,000 shares of Class A common stock, to be earned in eight equal tranches, subject to decrease or increase by up to 20% for each tranche based on the relative total shareholder return (“TSR”) of the Company’s Class A common stock as compared to the TSR of the Nasdaq-100 Index at each vesting tranche. The Performance Option has an exercise price of $68.29 per share and a grant-date fair value of approximately $819.0 million, which is expected to be expensed on a graded-vesting basis over a period of approximately five years but may be accelerated if the vesting criteria is met prior to the estimated performance period. Stock-based compensation expense for the Performance Option will be recorded as a component of general and administrative expense in the Company’s consolidated statement of operations beginning in the fourth quarter of 2021 and, assuming no acceleration of vesting, will be recognized over a weighted-average period of 2.9 years.