Stockholder's Equity (Deficit)

9 Months Ended

Sep. 30, 2021

18. STOCKHOLDERS’ EQUITY (DEFICIT)

Authorized Capital Stock—The Company was authorized to issue 190,000,000 shares of common stock, with a par value of $0.000004 per share as of September 30, 2021 and December 31, 2020.

Warrants—In May 2015, the Company issued warrants to acquire 116,350 shares of Common Stock at a price of approximately $17.19 per share to the placement agent as consideration for backstopping the financing completed in May 2015. These warrants were exercised in full as a cashless transaction during the first quarter of 2021. As a result of this cashless transaction, the resulting number of shares issued was 67,713 shares.

Common Stock Issuances—The Company issued the following shares of common stock:

	Three Months Ended September 30,
	2021						2020
	Shares		Average Price per Share		Total Consideration (in thousands)		Shares			Average Price per Share		Total Consideration (in thousands)
Common stock issued in connection initial public offering		—	$	—	$	—		11,500,000		$	15.00	$	172,500
Acquisitions		62,738	$	52.18		3,274		—			—		—
Redemption of series A-1 preferred stock		—		—		—		1,786,739			15.00		26,801
Exercise of warrant options		—		—		—		2,534,239			0.01		25
Exercise of options		354,918		8.30		2,946		16,850			8.92		150
Restricted shares, net		—		—		—		8,333			24.00		—
Cancellation of shares		—		—		—		(117,785	)		17.15		—
Total		417,656	$	14.89	$	6,220		15,728,376		$	12.82	$	199,476

	Nine Months Ended September 30,
	2021						2020
	Shares		Average Price per Share		Total Consideration (in thousands)		Shares			Average Price per Share		Total Consideration (in thousands)
Common stock issued in connection initial public offering		—	$	—	$	—		11,500,000		$	15.00	$	172,500
Acquisitions		143,800		41.86		6,020		791,139			31.60		25,000
Redemption of series A-1 preferred stock		—		—		—		1,786,739			15.00		26,801
Exercise of warrant options		67,713		17.19		—		2,534,239			0.01		25
Exercise of options		779,068		7.74		6,032		20,350			9.27		189
Restricted shares, net		38,929		31.31		—		8,333			24.00		—
Payment of earn-out liability		539,607		46.33		25,000		—			—		—
Payment of purchase price true up		24,200		44.81		1,084		—			—		—
Cancellation of shares		—		—		—		(117,785	)		17.15		—
Total		1,593,317	$	25.43	$	38,136		16,523,015		$	13.72	$	224,515

Employee Equity Incentive Plans—The Company has two plans under which stock-based awards have been issued: (i) the Montrose Amended & Restated 2017 Stock Incentive Plan (“2017 Plan”) and (ii) the Montrose Amended & Restated 2013 Stock Option Plan (“2013 Plan”) (collectively the “Plans”).

As of September 30, 2021, and September 30, 2020, there was $15.0 million and $10.4 million, respectively, of total unrecognized stock compensation expense related to unvested options and restricted stock granted under the Plans. Such unrecognized expense is expected to be recognized over a weighted-average three year period. The following number of shares were authorized to be issued and available for grant:

	September 30, 2021
	2017 Plan		2013 Plan		Total
Shares authorized to be issued		3,944,750		2,047,269		5,992,019
Shares available for grant		1,593,287		—		1,593,287

	September 30, 2020
	2017 Plan		2013 Plan		Total
Shares authorized to be issued		2,945,443		2,047,269		4,992,712
Shares available for grant		1,233,266		—		1,233,266

Total stock compensation expense for the Plans was as follows:

	Three Months Ended September 30,
	2021								2020
	2017 plan				2013 plan				2017 plan				2013 plan
	Options		Restricted Stock		Options		Total		Options		Restricted Stock		Options			Total
Cost of revenue	$	282	$	—	$	—	$	282	$	276	$	—	$	(5	)	$	271
Selling, general and administrative expense		1,844		237		2		2,083		592		233		53			878
Total	$	2,126	$	237	$	2	$	2,365	$	868	$	233	$	48		$	1,149


	Nine Months Ended September 30,
	2021								2020
	2017 plan				2013 plan				2017 plan				2013 plan
	Options		Restricted Stock		Options		Total		Options		Restricted Stock		Options			Total
Cost of revenue	$	1,178	$	—	$	10	$	1,188	$	973	$	—	$	126		$	1,099
Selling, general and administrative expense		4,638		749		11		5,399		1,178		973		189			2,340
Total	$	5,816	$	749	$	21	$	6,587	$	2,151	$	973	$	315		$	3,439

Montrose Amended & Restated 2017 Stock Incentive Plan

Restricted Stock—The Company issues restricted stock to certain 2017 Plan participants as Director’s compensation. These shares of restricted stock granted in the nine months ended September 30, 2021 and September 30, 2020 vest one year from the date of grant, or, in each case, in full upon a change in control, subject to the participant’s continued service as a Director throughout such date, or upon retirement. Members of the Board of Directors that receive stock-based compensation are treated as employees for accounting purposes. Restricted stock activity was as follows:

	Nine Months Ended September 30,
	2021						2020
	Shares		Average Price per Share		Total (in thousands)		Shares		Average Price per Share		Total (in thousands)
Shares granted		19,066	$	36.99	$	705		33,229	$	31.60	$	1,050

There were no forfeitures of restricted shares during the three and nine months ended September 30, 2021. There were zero and 1,667 forfeitures of restricted shares during the three and nine months ended September 30, 2020.

There were zero and 38,929 shares of restricted stock that became fully vested and were released as unrestricted shares of common stock during the three and nine months ended September 30, 2021, respectively. There were zero and 10,000 shares of restricted stock that became fully vested and were released as unrestricted shares of common stock during the three and nine months ended September 30, 2020, respectively. There was an aggregate of 286,239 and 267,173 restricted shares outstanding as of September 30, 2021 and September 30, 2020, respectively.

Options—Options issued to all optionees under the 2017 Plan vest over four years from the date of issuance (or earlier vesting start date, as determined by the Board of Directors) as follows: one half on the second anniversary of date of grant and the remaining half on the fourth anniversary of the date of grant, with the exception of certain annual grants to certain executive officers, which vest annually over a 3-year and 1-year period. The following summarizes the options activity of the 2017 Plan:

	Options to Purchase Common Stock			Weighted- Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contract Life (in Years)		Aggregate Intrinsic Value of In-The- Money Options (in Thousands)
Outstanding at January 1, 2020		617,852		$	24	$	12		7.82	$	4,693
Granted		851,877			32		12		—		—
Forfeited/ cancelled		(14,375	)		22		—		—		—
Exercised		(925	)		14		—		—		7,918
Outstanding at September 30, 2020		1,454,429			21		12		7.59		7,649

Outstanding at January 1, 2021		1,840,229			23		12		9.09		15,598
Granted		264,470			40		22		—		—
Forfeited/ cancelled		(29,025	)		28		—		—		—
Expired		(1,250	)		18		—		—		—
Exercised		(66,875	)		22		—		—		2,078
Outstanding at September 30, 2021		2,007,549			25		14		8.53		73,724
Exercisable at September 30, 2021		320,861			28		—		7.68		10,755
Options vested and expected to vest		2,007,549			25		—		8.53		73,724

The following weighted-average assumptions were used in the Black-Sholes option-pricing model calculation:

	September 30,		September 30,
	2021		2020
Common stock value (per share)	$	39.83	$	16.36
Expected volatility		58.34		46.14
Risk-free interest rate		0.77		0.41
Expected life (years)	5.5-7.0		7.0
Forfeiture rate	None		None
Dividend rate	None		None

Montrose Amended & Restated 2013 Stock Option Plan—The following summarizes the activity of the 2013 Plan:

	Options to Purchase Common Stock			Weighted- Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contract Life (in Years)		Aggregate Intrinsic Value of In-The- Money Options (in Thousands)
Outstanding at January 1, 2020		1,855,469		$	6	$	1		6.40		46,617
Forfeited/ cancelled		(7,500	)		10		—		—		—
Expired		(11,300	)		6		—		—		—
Exercised		(19,175	)		8		—		—		354
Outstanding at September 30, 2020		1,817,494			6		1		5.63		33,772

Outstanding at January 1, 2021		1,787,869			6		1		5.40		43,867
Expired		(625	)		6		—		—		—
Exercised		(710,568	)		6		—		—		33,480
Outstanding at September 30, 2021		1,076,676			6		2		4.65		59,532
Exercisable at September 30, 2021		1,076,676			6		—		4.65		59,532
Options vested and expected to vest		1,076,676			6		—		4.65		59,532

Total shares outstanding from exercised options were 1,028,268 shares and 221,950 shares as of September 30, 2021 and September 30, 2020, respectively.

Common Stock Reserved for Future Issuances—The Company has reserved certain stock of its authorized but unissued common stock for possible future issuance in connection with the following:

	September 30,
	2021		2020
Warrants		—		116,350
Montrose 2013 Stock Incentive Plan		2,047,269		2,047,269
Montrose 2017 Stock Incentive Plan		3,944,750		2,945,443
Common stock reserved for future issuance		5,992,019		5,109,062