Stock-Based Compensation

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

2020 Equity Incentive Plans

2020 Equity Incentive Plan

In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”), which provides for the grant of stock options, stock appreciation rights, restricted stock awards and units (“RSAs” and “RSUs”), and other stock or cash-based awards to the Company’s employees, directors and consultants. The Board approved cancelling and converting all outstanding equity-awards granted under the pre-combination Velodyne’s stock plans into equity-based awards under the 2020 Plan effective upon the consummation of the Business Combination, based on exchange ratios established in the Merger Agreement with the same general terms and conditions corresponding to the original awards. The shares under the pre-combination Velodyne’s stock plans have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.

The Company had an initial authorized reserve of 27,733,888 shares of its common stock for issuance under the 2020 Plan. Beginning on January 1, 2021, an additional number of shares will be reserved annually on the first day of each fiscal year for a period of no more than ten years in an amount equal to the least of (a) 5% of the total number of common shares actually issued and outstanding on the last day of the preceding fiscal year, (b) 10,000,000 common shares, or (c) a number of common shares determined by the Board. This limit is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The number of shares reserved was 46,606,012 and the remaining shares available for issuance under the 2020 Equity Plan was 26,755,012 as of March 31, 2022.

The Company uses primarily the sell-to-cover method as the tax withholding method for stock awards upon settlement, pursuant to which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the awards to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.

2020 Employee Stock Purchase Plan

On September 29, 2020, the Company's stockholders approved the 2020 Employee Stock Purchase Plan (the “ESPP”). The Company had an initial authorized reserve of 3,492,097 shares of common stock for issuance under the ESPP. Beginning on January 1, 2021, an additional number of shares will be reserved annually on the first day of each fiscal year for a period of no more than 20 years in an amount equal to the least of (i) 1% of the outstanding shares of the Company’s common stock on such date, (ii) 2,500,000 shares of the Company’s common stock or (iii) a lesser amount determined by the Compensation Committee or the Board. As of March 31, 2022, 220,382 shares have been issued and 7,046,140 shares remained available for future issuance under the ESPP.

The ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the stock at the beginning or the end of the applicable purchase period, in an amount not to exceed 15% of their compensation, subject to individual purchase limits of 3,000 shares in any purchase period or $25,000 worth of stock, determined at the fair market value of the shares at the first day of an offering period, in any calendar year. Each offering period has a duration of twelve months beginning on either June 1 or December 1 and consists of two consecutive six-month purchase periods. The ESPP contains a reset provision whereby if the price of the Company’s common stock on the first day of a new offering period is less than the price on the first day of any preceding offering period, all participants in a preceding offering period with a higher first day price will be automatically withdrawn from such offering periods and re-enrolled in the new offering period. The reset feature, when triggered, will be accounted for as a modification to the original offering period, resulting in incremental expense to be recognized over the new offering period.

2020 Phantom Stock Incentive Plan

In March 2021, the Board adopted the 2020 Phantom Stock Incentive Plan (the “2020 Phantom Stock Plan”), which provides for the granting of up to 7,635,000 phantom stock units to certain employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting. Phantom stock unit activity for the year ended March 31, 2022 was not significant.

Stock Incentive Awards

As of March 31, 2022, the Company has equity incentive awards outstanding, which include stock options, RSUs, RSAs and phantom stock units under its stock incentive plans. Stock options expire in 10 years from the date of grant and typically vest 25 percent upon the one-year anniversary date from the initial vesting date, with the remainder vesting quarterly over the following three years. The RSUs and RSAs typically vest 25 percent upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years. Certain RSUs also contain performance conditions related to the Company’s product development and business performance for the performance periods specified in the RSU agreements. In May 2020, the Company granted market-based performance RSUs (“PRSUs”) that contain service, liquidity event condition and market conditions to vest in the underlying common stock. The PRSUs vest upon the three-year anniversary date from initial vesting date and the number of shares that vests is ultimately dependent on the value of the Company’s stock at the vesting date.

The RSUs and RSAs issued prior to September 29, 2020 are also subject to a liquidity event vesting condition, which is (i) an initial public offering, or (ii) a Company sale event, both of which must be satisfied on or before the 7-year anniversary of the date of the grant in order for the RSUs to be vested and settled for shares of common stock. As a result of the Business Combination, on October 30, 2020 and May 18, 2021, the Board waived the liquidity event vesting condition applicable to approximately 11.8 million and 4.2 million outstanding shares of pre-combination Velodyne's RSUs and RSAs, respectively, held by approximately 330 current and former employees and directors.

A summary of stock option activities during 2022 is as follows:


	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
			(Years)	(In thousands)
Option:







Options outstanding as of December 31, 2021	9,791	$7.04
Exercised	—
Expired	—
Options outstanding as of March 31, 2022	9,791	$7.04	2.19	$	—
Options exercisable as of March 31, 2022	9,791	$7.04	2.19	$	—
Options vested and expected to vest as of March 31, 2022	9,791	$7.04	2.19	$	—

A summary of RSA and RSU activities during 2022 is as follows (in thousands except share and per share amount):


	Shares	Weighted Average Grant Date Fair Value per Share	Fair Value of RSU/RSA Released
RSA:






RSAs outstanding as of December 31, 2021	211,298	$6.63
Granted	124,330	$3.64

RSAs outstanding as of March 31, 2022	335,628	$5.52

RSU:









RSUs outstanding as of December 31, 2021	5,126,896	$10.51
Granted	643,568	$3.77
Released	(461,984)	$12.17	$1,609
Forfeited	(620,128)	$10.94
RSUs outstanding as of March 31, 2022	4,688,352	$9.36

PRSU:


PRSUs outstanding as of December 31, 2021	330,505	$6.72
Released	(330,505)	$6.72	$1,292
PRSUs outstanding as of March 31, 2022	—

Stock-Based Compensation Expense

Stock-based compensation consists of expense related primarily to the Company’s RSUs and RSAs and, to a lesser extent, stock options, ESPP purchase rights and market-based PRSUs. The Company measures stock-based compensation expenses based on grant date fair value of the stock awards. The Company recognizes stock-based compensation expenses for stock options and service-condition awards that are expected to vest on a straight-line basis over the requisite service period. For performance-based awards, expense is recognized when it is probable the performance goal will be achieved. The Company recognizes forfeitures as they occur.

The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations (in thousands):


	Three Months Ended March 31,
	2022		2021
Cost of revenue	$	521	$	536
Research and development	2,356		4,910
Sales and marketing	871		1,986
General and administrative	1,187		4,098
Total stock-based compensation expense	$	4,935	$	11,530

As of March 31, 2022, unrecognized compensation cost related to RSUs, RSAs and ESPP was $37.8 million, $1.7 million and $0.9 million, respectively, which is expected to be recognized over a weighted average period of 2.82 years, 3.68 years and 0.36 years, respectively.

Phantom stock units are recorded as a liability at their current market value and are included in other current liabilities. These grants remain subject to vesting 25% upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years. Based on the trading price of the Company's common stock, the amount of liability recorded related to phantom stock units was not significant at March 31, 2022.