Stock Option Plans

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

Restricted Stock Units (“RSUs”)

During the three months ended March 31, 2022 (unaudited), the Company granted 819,227 restricted stock units (“RSUs”) under the 2021 Plan which are conditional based on continued employment or service for a specified period. Compensation cost related to RSU grants is recognized on a straight-line basis over the vesting period and is calculated using the closing price per share of the Company's common stock on the grant date. For the three months ended March 31, 2022 (unaudited), the Company recorded compensation expense of $5.0 million related to non-performance based RSUs.

A summary of the Company’s RSUs as of March 31, 2022 (unaudited) is presented in the table below:


	Number of RSUs	Weighted-Average Fair Value
Balance at December 31, 2021	7,241,980	$	8.19
Granted	819,227	1.28
Vested	(496,366)	10.15
Forfeited	(620,551)	6.03
Balance at March 31, 2022	6,944,290	$	7.43

As of March 31, 2022 (unaudited), there was $48.3 million of total unrecognized compensation cost related to RSUs. That cost is expected to be recognized over a weighted-average period of 2.55 years. The total grant date fair value of shares vested during the three months ended March 31, 2022 (unaudited) was $5.0 million.

Performance Based Awards

As of December 31, 2020, the Company had issued 150,000 outstanding performance-based awards (“PSUs”) to Dan Preston, Metromile’s Chief Executive Officer (“CEO”). As of the Closing, the performance-based provision was achieved for the outstanding performance-based awards as the Company completed a change in control event, and the Company recognized the expense related to these PSUs on the Closing date as there were no remaining vesting provisions. As a result, the Company recorded $2.5 million in stock-based compensation expense for the three months ended March 31, 2021 (unaudited).

During 2021, the Company issued 2,216,870 PSUs, net of forfeitures, most of which each have a term of five years subject to continuous services by each holder. One third of PSUs that vest are based on a specific number of policies in force achieved by the Company. One third of the PSUs that vest are based on the Company achieving positive operating cash flow for a period of at least one financial quarter. One third of the PSUs vest based on a market condition of the Company achieving a specific price per share for at least 20 days in a 30-day trading window. Once the performance targets are met, the PSUs that relate to the specific performance target vest immediately. For the three months ended March 31, 2022 (unaudited), the Company had recorded $0.1 million in expense from the PSUs related to the market condition. None of the performance conditions were probable of being satisfied as of March 31, 2022 and, therefore, there is no unrecognized stock compensation related to PSUs. The Company did not grant any PSU's in the three months ended March 31, 2022 (unaudited).

2011 Stock Plan

In 2011, the Company’s Board of Directors adopted the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan provides for the granting of stock options to officers, directors, employees, and consultants of the Company. Options granted under the 2011 Plan may be Incentive Stock Options (“ISO”) or non-statutory Stock Options (“NSO”) as determined by the Board of Directors at the time of the option grant. The remaining unallocated shares reserved under the 2011 Plan were cancelled and no new awards will be granted under the 2011 Plan. Awards outstanding under the 2011 Plan were assumed by the Company upon the closing and continue to be governed by the terms of the 2011 Plan.

2021 Stock Plan

In connection with the Closing, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”), under which 38,018,247 shares of common stock were initially reserved for issuance for ISOs. The 2021 Plan allows for the issuance of ISOs, NSOs, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), and performance awards. The Board of Directors determines the period over which options become exercisable and options generally vest over a four-year period. The 2021 Plan became effective immediately following the closing.

The Company uses the Black-Scholes option pricing model to estimate the fair value of each option grant on the date of grant or modification. The Company amortizes the estimated fair value to stock compensation expense using the straight-line method over the vesting period of the option. The following is a description of the significant assumptions used in the option pricing model:

•Expected term — The expected term is the period of time when granted options are expected to be outstanding. In determining the expected term of options, the Company utilized the midpoint between the vesting date and contractual expiration date.

•Volatility — Because the Company’s stock has limited trading history, the Company calculates volatility by using the historical stock prices of comparable public companies.

•Risk-free interest rate — The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the rate of treasury securities with the same term as the options.

•Forfeiture rate — The weighted average forfeiture rate of unvested options.

•Expected dividends — The Company does not have plans to pay cash dividends in the future. Therefore, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model.

There were no options granted during the three months ended March 31, 2022 (unaudited). The following assumptions were used to estimate the value of options granted during the year ended December 31, 2021:


	Year ended December 31, 2021
Forfeiture rate	26.2	%
Volatility	62.00	%
Expected term (years)	5.33
Risk-free interest rate	0.53	%
Expected dividends	—

Stock Option Activity

The following table summarizes the activity of the Company’s stock option plan as of March 31, 2022 (unaudited):


	Stock Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021	2,374,504	$	3.00	8.25	$	375
Options granted	—	$	—
Options exercised	—	$	—
Options cancelled or expired and returned to plan	(717,331)	$	3.00
Outstanding as of March 31, 2022	1,657,173	$	3.01	7.94	$	—
Vested and exercisable to vest as of March 31, 2022	723,575	$	2.98	7.71	—
Vested and expected as of March 31, 2022	1,440,785	$	3.00	7.90	$	—

The fair value of stock options granted are recognized as compensation expense in the consolidated statements of operations over the related vesting periods. As of March 31, 2022 (unaudited), there was approximately $1.2 million of unrecognized stock-based compensation cost related to stock options granted under the Plan, respectively, which is expected to be recognized over an average period of 1.95 years.

The following table illustrates stock-based compensation expense for employee and non-employee RSUs and options for the three months ended March 31, 2022 and 2021 (unaudited) (in thousands).


	Three Months Ended March 31,
	2022		2021
	(unaudited)
Cost of revenues	$	304	$	41
Research and development	883		226
Sales and marketing	344		17
Other operating expenses	3,727		2,924
Total stock-based compensation	$	5,258	$	3,208