Note 14 - Stock-based Compensation

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

14. Stock-Based Compensation

The Company maintained the 2006 Equity Incentive Plan, an equity incentive plan established in 2006 (the “2006 Plan”). Under the 2006 Plan, the Company granted incentive stock options, non-qualified stock options and restricted stock to eligible recipients which included employees, directors and consultants. On January 1, 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the 2006 Plan following the adoption of the 2016 plan. All ungranted equity reserved for issuance and not subject to outstanding awards under the 2006 Plan were assumed by the 2016 Plan and no additional equity was to be granted under the 2006 Plan. On May 27, 2021, the Company’s board of directors approved the 2021 Equity Incentive Plan (the “2021 Plan”), which was later approved by the Company’s shareholders on June 30, 2021. As of the adoption of the 2021 Plan, all equity awards are granted under the 2021 Plan and no equity is granted under the 2016 Plan. As of June 30, 2022, 20,845,063 shares remained for future issuance under the 2021 Plan. All outstanding stock awards granted under the 2006 Plan and 2016 Plan will remain subject to the terms and conditions of the 2006 Plan and 2016 Plan, respectively, and the provisions of any award agreements made thereunder. To date, the Company has issued only stock options, restricted stock and restricted stock units to employees, directors and consultants. 

The Company records stock-based compensation in cost of revenue, sales and marketing, general and administrative and research and development. Stock-based compensation was included in the following line items:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands)
Cost of revenue	$	703	$	272	$	1,281	$	362
Sales and marketing		3,396		9,791		5,858		10,902
General and administrative		5,281		4,364		9,765		6,355
Research and development		1,024		83		1,774		180
Total stock-based compensation	$	10,404	$	14,510	$	18,678	$	17,799

Stock Options

The compensation costs for stock option awards are accounted for in accordance with ASC 718. Stock options vest over a four-year period and expire on the tenth anniversary of the date of award. Certain of the Company’s stock option awards (the “Officer Awards”) included a provision that required the Company to redeem the vested portion of options at fair value in cash upon a separation of service initiated by the Company or upon death or disability of the holder. The Company determined that the redemption feature required the Officer Awards to be classified in mezzanine equity prior to the Apex Business Combination. For share-based payment arrangements with employees, the amount presented in mezzanine equity at each balance sheet date was based on the redemption provisions of the instrument and adjusted for the proportion of consideration received in the form of employee services. The shares underlying the Officer Awards were puttable to the Company upon certain conditions, such as death or disability of the Officer Awards recipients, which the Company determined was not probable; therefore, the Company reclassified the grant-date intrinsic value to mezzanine equity as the awards vested. The Officer Awards were cancelled in 2021, concurrent with the Apex Business Combination. In exchange for the cancellation of the Officer Awards, the Company agreed to deliver within a year to the holders of the Officer Awards a fixed amount of shares equal to the amount of shares the holders would have received if the Officer Awards were exercised on the date of the Apex Business Combination in a net share settlement scenario. As a result, in July 2022 in exchange for the cancelled Officer Awards the Company issued 3,592,504 shares.

On  March 21, 2022, the Company granted 689,409 options under the 2021 Plan. The Company estimated the grant date fair value of these stock options using a Black-Scholes option-pricing model with the following weighted-average assumptions:

	March 21,
	2022
Expected life (in years)		6.11
Expected volatility		45.18	%
Risk-free rate		2.16	%
Dividend yield		—

To estimate the expected life of stock options, the Company considered the vesting term, contractual expiration period, and market conditions. Expected volatility is based on historical volatility of a group of peer entities. Dividend yields are based upon historical dividend yields. Risk-free interest rates are based on the implied yields currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life. Based on these inputs, the grant-date fair value was determined to be $1.9 million.

As of June 30, 2022 and December 31, 2021, there was $34.2 million and $42.7 million, respectively, in unrecognized compensation costs related to all non-vested awards.

At June 30, 2022, AvePoint had 29,977,130 options outstanding and 16,347,485 options exercisable with intrinsic values of $40.8 million and $35.5 million, respectively. During the three and six months ended June 30, 2022, 442,469 and 1,156,279 options, respectively, were exercised, with a total intrinsic value of $2.0 and $4.7 million, respectively.

Restricted Stock Units

In addition to Stock Options granted under the 2006 Plan, 2016 Plan and 2021 Plan, 4,716,194 Restricted Stock Units ("RSUs") were granted under the 2021 Plan during the six months ended June 30, 2022 with a weighted-average grant date fair-value of $5.80 per RSU. The compensation costs for stock option awards are accounted for in accordance with ASC 718, Compensation-Stock Compensation. RSUs vest over a four-year period and expire on the tenth anniversary of the date of award. The RSUs are measured at the fair market value of the underlying stock at the grant date. For the three and six months ended June 30, 2022, the Company recorded stock-based compensation expense of $5.7 million and $9.4 million, respectively, related to the RSUs granted under the 2021 Plan. As of June 30, 2022, there was $61.2 million in unrecognized compensation costs specific to the non-vested RSUs under the 2021 Plan.

Company Earn-Out RSUs

The compensation costs for Company Earn-Out RSUs are accounted for in accordance with ASC 718. In order to capture the market conditions associated with the Company Earn-Out RSUs, the Company applied an approach that incorporated a Monte Carlo simulation, which involved random iterations that took different future price paths over the Sponsor Earn-Out RSUs’ contractual life based on the appropriate probability distributions. The fair value was determined by taking the average of the fair values under each Monte Carlo simulation trial. Under this approach, the grant-date fair value of the Company Earn-Out RSUs on July 1, 2021 was determined to be $2.5 million. The stock options underlying the Earn-Out RSUs vest over a four-year period and expire on the tenth anniversary of the date of award. If the contingent milestones of the Earn-Out RSUs are not met by the seventh anniversary of the Apex Business Combination, the holders of the underlying stock options will not receive the Earn-Out RSUs. For the three and six months ended June 30, 2022, the Company recorded stock-based compensation expense of $0.2 million and $0.4 million, respectively, related to these Earn-Out RSUs.