Stockholders' Equity

9 Months Ended

Sep. 30, 2021

Stockholders' Equity

Stockholders' Equity

Note 11. Stockholders’ Equity

Capital stock

As of September 30, 2021, the Company had 20,550,862 shares of Class A common stock, and 19,720,381 shares of Class B common stock, issued and outstanding.

On November 18, 2020, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the 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. The expiration date for the repurchase plan is November 19, 2021. For the nine months ended September 30, 2021, the Company repurchased 129,735 shares of Class A common stock under the repurchase program for an aggregate purchase price of $1.3 million. As of September 30, 2021, the Company repurchased 0.2 million shares of Class A common stock under the repurchase program for an aggregate purchase price of $1.7 million, and the repurchased shares were recorded as treasury stock on the accompanying Condensed Consolidated Balance Sheets. As of September 30, 2021, the Company had $18.3 million remaining for future repurchases under the existing stock repurchase program.

Equity incentive plans

Effective May 25, 2021, 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 “Equity Incentive Plan”) to increase the number of shares of Class A common stock that may be delivered under the Equity Incentive Plan to an aggregate of 10.2 million shares of our Class A common stock. At September 30, 2021, 3.1 million shares remained available for issuance of stock options or other stock-based awards under our 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 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 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 performance-based restricted stock awards and option awards vest based on the achievement of certain non-market-based performance metrics of the Company, subject to the grantee’s continued employment or service with the Company. The 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 $1.7 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively, and $4.5 million and $4.0 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, there was $3.7 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.5 years. As of September 30, 2021, there was $4.8 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.7 years.

Stock options

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes pricing model for time-based options and performance-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.

	Nine Months Ended		Year Ended
Black-Scholes Option Valuation Assumptions	September 30, 2021		December 31, 2020
Risk-free interest rate	0.94% – 1.08	%		0.42% - 0.50	%
Dividend yield	—			—
Volatility	37.3% - 40.6	%		44.2% - 46.1	%
Weighted-average expected term (years)	6.0			6.0

The following table summarizes stock option activity for the nine months ended September 30, 2021 (shares and intrinsic value in thousands):

		Weighted-		Weighted- average
		average		remaining contractual	Aggregate intrinsic
	Number of shares	exercise price		term	value
Outstanding at December 31, 2020	3,935	$	11.69	5.1	$	291
Granted	600		12.02	6.0		—
Exercised	(50)		10.20	—		—
Forfeited	(8)		14.00	—		—
Expired	(40)		14.78	—		—
Outstanding at September 30, 2021	4,437	$	11.67	5.0	$	3,411
Vested at September 30, 2021	3,412	$	11.60	3.9	$	3,047
Exercisable at September 30, 2021	3,412	$	11.60	3.9	$	3,047

The weighted average grant date fair value of options granted for the nine months ended September 30, 2021 was $4.72. At September 30, 2021, 0.5 million options granted and included in the table above are unvested performance-based options.

Restricted stock

Certain employees and directors have been awarded restricted stock under the Equity Incentive Plan. The time-based restricted stock grants vest primarily over a period of three years. Performance-based restricted stock grants vest over a period of three years upon satisfaction of the performance condition. 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 nine months ended September 30, 2021 (shares in thousands):

		Weighted-average
	Number of shares	grant date fair value
Outstanding at December 31, 2020	499	$	11.26
Granted	582		11.95
Vested	(522)		11.30
Forfeited	—		—
Outstanding at September 30, 2021	559	$	11.95

At September 30, 2021, 0.0 million restricted awards granted and included in the table above are unvested performance-based restricted awards.

Non-controlling interest

Effective July 15, 2021, the Company entered into an omnibus modification agreement with Snap Distribution, Inc., a British Virgin Islands company, pursuant to which Snap Distribution, Inc. relinquished the non-controlling 25% interest in Snap Media, at which point Snap Media became a wholly owned subsidiary of the Company. The Company recorded the relinquishment of this non-controlling interest by Snap Distribution, Inc. as a transaction between shareholders with no gain or loss reported, which is reflected as acquisition of non-controlling interest in the accompanying Condensed Consolidated Statement of Changes in Stockholders’ Equity. Additionally, Snap Distribution, Inc. waived the remaining consideration payment of $0.5 million, which would have been payable in the fourth quarter of 2021, and as a result the Company recognized a gain in other income (expense), net in the accompanying Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2021.