Note 10. Stockholders’ equity

Capital stock

As of March 31, 2018, the Company had 20,283,906 shares of Class A common stock (including shares subject to forfeiture), and 20,800,998 shares of Class B common stock (including shares subject to forfeiture), issued and outstanding.

Subsequent the quarter ended March 31, 2018, certain shares of our capital stock were forfeited pursuant to contractual requirements. For more information, see Note 13, “Subsequent events” of Notes to Unaudited Condensed Consolidated Financial Statements.

On June 20, 2017, the Company announced that its Board of Directors authorized the repurchase of up to $25.0 million of the Company’s Class A common stock, par value $0.0001 per share (“Class A common stock”). Under the Company’s stock repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases at prevailing prices, subject to stock price, business and market conditions and other factors. During the three months ended March 31, 2018, the Company repurchased 3,225 shares of Class A common stock under the repurchase program for an aggregate purchase price of $0.0 million. As of March 31, 2018, the Company repurchased 1.8 million shares of Class A common stock under the repurchase program for an aggregate purchase price of $21.9 million, and was recorded as treasury stock on the unaudited condensed consolidated balance sheet. As of March 31, 2018, the Company had $3.1 million of remaining authorization for future repurchases under the existing stock repurchase program, which will expire on July 17, 2018.

Warrants

At March 31, 2018, 12.1 million Warrants, exercisable into 6.0 million shares of our Class A common stock, were issued and outstanding. Each Warrant entitles the holder to purchase one-half of one share of our Class A common stock at a price of $6.00 per half share. Warrants may be exercised only through the date of expiration and are only exercisable for a whole number of shares of common stock (i.e. only an even number of Warrants may be exercised at any given time by a registered holder). As a result, a holder must exercise at least two Warrants at an effective exercise price of $12.00 per share. Following the completion of the quarter ended March 31, 2018, all 12.1 million Warrants expired on April 4, 2018. For more information, see Note 13, “Subsequent events” of Notes to Unaudited Condensed Consolidated Financial Statements.

There were 3,408 Warrants exercised during the three months ended March 31, 2018. In connection with such exercises 1,704 shares of Class A common stock were issued and the Company received $0.0 million in cash proceeds.

Equity incentive plans

Effective May 16, 2016, the stockholders of all classes of capital stock of the Company approved at the annual stockholder meeting the Hemisphere Media Group, Inc. Amended and Restated 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”) to increase the number of shares of Class A common stock that may be delivered under the 2013 Equity Incentive Plan to an aggregate of 7.2 million shares of our Class A common stock. At March 31, 2018, 2.7 million shares remained available for issuance of stock options or other stock-based awards under our 2013 Equity Incentive Plan (including shares of restricted Class A common stock surrendered to the Company in payment of taxes required to be withheld in respect of vested shares of restricted Class A common stock, which are available for re-issuance). The expiration date of the 2013 Equity Incentive Plan, on and after which date no awards may be granted, is April 4, 2023. The Company’s board of directors, or a committee thereof, administers the 2013 Equity Incentive Plan and has the sole and plenary authority to, among other things: (i) designate participants; (ii) determine the type, size, and terms and conditions of awards to be granted; and (iii) determine the method by which an award may be settled, exercised, canceled, forfeited or suspended.

The Company’s time-based restricted stock awards and option awards generally vest in three equal annual installments beginning on the first anniversary of the grant date, subject to the grantee’s continued employment or service with the Company. The Company’s event-based restricted stock awards and option awards generally vest upon the Company’s Class A common stock attaining a $15.00 closing price per share, as quoted on the NASDAQ Global Market, on at least 10 trading days, subject to the grantee’s continued employment or service with the Company. Other event-based restricted stock awards granted to certain members of our Board vest on the day preceding the Company’s annual stockholder meeting.

Stock-based compensation

Stock-based compensation expense related to stock options and restricted stock was $1.0 million and $1.1 million for the three months ended March 31, 2018 and 2017, respectively. At March 31, 2018, there was $1.6 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.3 years. At March 31, 2018, there was $1.9 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.4 years.

Stock options

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option pricing model for time-based options and the Monte Carlo simulation model for event-based options. The expected term of options granted is derived using the simplified method under ASC 718-10-S99-1/SEC Topic 14.D for “plain vanilla” options and the Monte Carlo simulation for event-based options. Expected volatility is based on the historical volatility of the Company’s competitors given its lack of trading history. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has estimated forfeitures of 1.5%, as the awards are granted to management for which the Company expects lower turnover, and has assumed no dividend yield, as dividends have never been paid to stock or option holders and will not be paid for the foreseeable future.

Black-Scholes Option Valuation Assumptions	Three Months Ended March 31, 2018		Year Ended December 31, 2017
Risk-free interest rate	2.65	%	2.18	%
Dividend yield	—		—
Volatility	39.0	%	25.8	%
Weighted-average expected term (years)	6.0		6.0

The following table summarizes stock option activity for the three months ended March 31, 2018 (shares and intrinsic value in thousands):

	Number of shares	Weighted-average exercise price		Weighted-average remaining contractual term	Aggregate intrinsic value
Outstanding at December 31, 2017	2,898	$	11.62	6.5	$	1,738
Granted	10	11.70		6.0	—
Exercised	—	—		—	—
Forfeited	—	—		—	—
Expired	—	—		—	—

Outstanding at March 31, 2018	2,908	$	11.62	6.3	$	1,339

Vested at March 31, 2018	1,937	$	11.73	5.6	$	1,024

Exercisable at March 31, 2018	1,937	$	11.73	5.6	$	1,024

The weighted average grant date fair value of options granted for the three months ended March 31, 2018 was $4.89. At March 31, 2018, 0.3 million options granted are unvested, event-based options.

Restricted stock

Certain employees and directors have been awarded restricted stock under the 2013 Equity Incentive Plan. The time-based restricted stock grants vest primarily over a period of three years. The fair value and expected term of event-based restricted stock grants is estimated at the grant date using the Monte Carlo simulation model.

The following table summarizes restricted share activity for the three months ended March 31, 2018 (shares in thousands):

	Number of shares	Weighted-average grant date fair value
Outstanding at December 31, 2017	504	$	10.23
Granted	—	—
Vested	—	—
Forfeited	—	—

Outstanding at March 31, 2018	504	$	10.23

At March 31, 2018, 0.2 million shares of restricted stock issued were unvested, event-based shares.