Stock-Based Compensation

12 Months Ended

Dec. 31, 2023

Stock-Based Compensation

Stock-Based Compensation

16. Stock-Based Compensation

CPI Card Group Inc. Omnibus Incentive Plan

In October 2015, the Company adopted the CPI Card Group Inc. Omnibus Incentive Plan (as amended and supplemented, the “Omnibus Plan”) pursuant to which cash and equity-based incentives may be granted to participating employees, advisors and directors. As of December 31, 2023, there were 2,200,000 shares issuable under the Omnibus Plan, and there were 111,737 shares of Common Stock available for grant under the Omnibus Plan. Options have 7-year terms and are issued with exercise prices equal to the fair market value of the Company’s common stock on the grant date.

The following is a summary of the activity in outstanding stock options under the Omnibus Plan:

				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual Term	Intrinsic
	Options	Price		(in Years)	Value
Outstanding as of December 31, 2022	780,623	$	18.12	4.65	$	15,902
Granted	139,648		22.23	6.26
Exercised	(8,295)		12.36	—
Expired	(1,409)		23.72	—
Forfeited	(1,129)		20.09	—
Outstanding as of December 31, 2023	909,438	$	18.79	4.06	$	6,482
Options vested and exercisable as of December 31, 2023	749,317	$	18.26	3.62	$	6,326
Options vested and expected to vest as of December 31, 2023	909,438	$	18.79	4.06	$	6,482

The following is a summary of the activity in unvested stock options under the Omnibus Plan:

		Weighted-Average
		Grant-Date
	Number	Fair Value
Unvested as of December 31, 2022	100,059	$	6.02
Granted	139,648		11.21
Vested	(78,457)		15.19
Forfeited	(1,129)		12.09
Unvested as of December 31, 2023	160,121	$	10.92

Unvested stock options of 160,121 as of December 31, 2023 have a seven-year term and are expected to vest ratably over a two-year period on each anniversary of the grant date. The weighted average fair value of options granted during the years ended December 31, 2023 and 2022 was $11.21 and $8.99, respectively. The total fair value of options vested during the years ended December 31, 2023 and 2022 was $1.2 million and $1.0 million, respectively.

The fair value of the stock option awards granted for the years ended December 31, 2023, were determined using a Black-Scholes option-pricing model with the following weighted-average assumptions:

	December 31,
	2023		2022
Expected term in years (1)	2.90		4.25
Volatility (2)	73.16	%	77.58	%
Risk-free interest rate (3)	4.46	%	2.86	%
Dividend yield (4)	—	%	—	%

(1) The Company estimated the expected term based on the average of the weighted-average vesting period and the contractual term of the stock option awards by utilizing the “simplified method,” as the Company does not have sufficient available historical data to estimate the expected term of these stock option awards.

(2) Volatility was based on a weighting of the Company’s historical volatility and its peer group, which is comprised of companies with similar industry, size and financial leverage.

(3) The risk-free interest rate was determined by using the United States Treasury rate for the period consistent with the expected option term described above.

(4) The Company’s expected annual dividend yield was zero based on current practice. 

The following table summarizes the changes in the number of outstanding restricted stock units for the year ended December 31, 2023 under the Omnibus Plan:

				Weighted-Average
				Remaining
		Weighted-Average		Amortization
		Grant-Date		Period
	Shares	Fair Value		(in Years)
Outstanding as of December 31, 2022	98,664	$	25.23
Granted	699,281		21.39
Vested	(80,580)		27.07
Forfeited	(4,005)		26.85
Outstanding as of December 31, 2023	713,360	$	21.25	2.18

The restricted stock unit awards contain conditions associated with continued employment or service. Restricted stock units granted in 2023 are expected to vest ratably over a two or three-year period on each anniversary of the grant date. On the vesting date, shares of Common Stock will be issued to the award recipients. The weighted average fair value of restricted stock units granted during the years ended December 31, 2023 and 2022 was $21.39 and $16.87, respectively. The total fair value of shares vested during the year ended December 31, 2023 and 2022 was $2.2 million and $1.3 million, respectively.

Beginning in the first quarter of 2023, the Company’s employees that participate in the Company’s long-term incentive program received a quarterly grant comprising one-fourth of the annual equity-based incentive component of their total compensation. Executive awards are awarded as a mix of restricted stock units and nonqualified stock options, and other employee awards are comprised solely of restricted stock units. The number of shares awarded will be determined based on the grant-date fair value for nonqualified stock options and on a value tied to the monthly average closing price of the Company’s common stock for restricted stock units.

In June 2023, the Company implemented an additional long-term incentive program under the Omnibus Plan, independent of the quarterly awards described above, designed to retain and incentivize executive officers and certain key employees, excluding the Company’s President and CEO, comprised of restricted stock units. The first tranche was awarded in June 2023, the second tranche was awarded in August 2023, and the third and final tranche was awarded in November 2023. The awards vest ratably over a three-year period, subject to continued employment.

In June 2023, the Company also announced an award comprised of 25% nonqualified stock options and 75% restricted stock units to its CEO as an incentive to remain employed by the Company through February 28, 2024. The first one-third of the awards was granted in June 2023, the second one-third was granted in August 2023, and the remainder was granted in November 2023. All of these awards will vest ratably over a two-year period irrespective of employment status with expense related to these awards to be recognized by the Company through February 28, 2024. As part of the CEO’s incentive package, the requisite service and exercise periods for his awards granted in 2023 prior to June 2023 were also modified with expense related to the modification being recognized in June 2023 through February 2024.

Compensation expense for the Omnibus Plan for the years ended December 31, 2023 and 2022 was $7.5 million and $3.5 million, respectively. As of December 31, 2023, the total unrecognized compensation expense related to unvested options and restricted stock units was $10.2 million, which the Company expects to recognize over an estimated weighted-average period of approximately 2.0 years.