Stockholders' Equity

6 Months Ended

Jun. 30, 2022

Stockholders' Equity

Stockholders' Equity

Note 11. Stockholders’ Equity

Capital stock

As of June 30, 2022, the Company had 20,827,861 shares of Class A common stock, and 19,720,381 shares of Class B common stock, issued and outstanding.

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 June 30, 2022, 2.9 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 shareholder meeting.

Stock-based compensation

Stock-based compensation expense relates to both stock options and restricted stock. Stock-based compensation expense was $0.8 million and $1.5 million for the three months ended June 30, 2022 and 2021, respectively, and $2.2 million and $2.8 million for the six months ended June 30, 2022 and 2021, respectively. At June 30, 2022, there was $2.2 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.9 years. At June 30, 2022, there was $3.7 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.8 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. 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. As of January 1, 2022, the Company determined that it had sufficient trading history to provide a reliable measure of expected volatility. As a result, the Company transitioned from peer group volatility to the Company’s historical volatility as a basis for expected volatility. 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. As of January 1, 2022, the Company determined that it had sufficient historical data to utilize its own forfeiture rate. As a result, the Company transitioned from an estimated forfeiture rate of 1.5% to a historical forfeiture rate of 2.6%. The Company 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.

	Six Months Ended		Year Ended
Black-Scholes Option Valuation Assumptions	June 30, 2022		December 31, 2021
Risk-free interest rate	1.93	%		0.94% – 1.29	%
Dividend yield	—			—
Volatility	40.4	%		37.3% – 40.7	%
Weighted-average expected term (years)	6.0			6.0

The following table summarizes stock option activity for the six months ended June 30, 2022 (shares and intrinsic value in thousands):

				Weighted-
				average
		Weighted-		remaining	Aggregate
	Number of	average		contractual	intrinsic
	shares	exercise price		term	value
Outstanding at December 31, 2021	4,445	$	11.69	4.8	$	—
Granted	105		5.44	6.0		—
Exercised	—		—	—		—
Forfeited	(182)		11.55	—		—
Expired	(8)		10.39	—		—
Outstanding at June 30, 2022	4,360	$	11.55	4.3	$	221
Vested at June 30, 2022	3,785	$	11.69	3.6	$	—
Exercisable at June 30, 2022	3,785	$	11.69	3.6	$	—

The weighted average grant date fair value of options granted for the six months ended June 30, 2022 was $2.26. At June 30, 2022, 0.3 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 following table summarizes restricted share activity for the six months ended June 30, 2022 (shares in thousands):

	Number of	Weighted-average
	shares	grant date fair value
Outstanding at December 31, 2021	614	$	11.79
Granted	285		6.09
Vested	(329)		12.09
Forfeited	(59)		12.00
Outstanding at June 30, 2022	511	$	8.40

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.