STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2020

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Our board of directors has adopted and our stockholders have approved our 2018 Equity Incentive Plan ("2018 Plan"). Our 2018 Plan became effective on February 8, 2018, the date our registration statement in connection with our initial public offering ("IPO") was declared effective. We do not expect to grant any additional awards under our 2008 Stock Plan ("2008 Plan"). Any awards granted under the 2008 Plan will remain subject to the terms of our 2008 Plan and applicable award agreements.

Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2018 Plan is the sum of (i) 1,875,000 shares plus (ii) 61,247 shares reserved, and remaining available for issuance, under our 2008 Plan at the time our 2018 Plan became effective and (iii) the number of shares subject to stock options or other stock awards granted under our 2008 Plan that would have otherwise returned to our 2008 Plan (such as upon the expiration or termination of a stock award prior to vesting). As of December 31, 2019, there were 1,345,631 shares of our common stock reserved for issuance under our 2018 Plan. The number of shares of our common stock reserved for issuance under our 2018 Plan will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2028, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. Accordingly, the number of shares of our common stock reserved for issuance under our 2018 Plan increased by 1,327,352 shares on January 1, 2020.

The following table summarizes the allocation of stock-based compensation in the consolidated statements of operations (in thousands):



	Three Months Ended March 31,
	2019		2020
Delivery costs	$	164	$	175
Sales and marketing expense	707		1,269
Research and development expense	203		603
General and administration expense	634		2,078
Total stock-based compensation expense	$	1,708	$	4,125

During each of the three months ended March 31, 2019 and 2020, we capitalized less than $0.1 million of stock-based compensation expense for software development.

Common Stock Options

Options to purchase shares of common stock generally vest over four years and expire 10 years following the date of grant. The following table summarizes changes in common stock options:



	Shares (in thousands)		Weighted-Average Exercise Price		Weighted Average Contractual Life (in years)	Aggregate Intrinsic Value⁽¹⁾ (in thousands)
Options outstanding — December 31, 2019	1,000		$	22.99
Granted	—		—
Exercised	(161	)	19.53			$	9,706
Forfeited	(1	)	21.62
Canceled	(1	)	28.96
Options outstanding — March 31, 2020	837		23.66		6.33	$	10,140
Exercisable — March 31, 2020	659		$	23.25	6.15	$	8,372


(1)	The aggregate intrinsic value represents the total pre-tax intrinsic value based on the $34.96 per share closing price of our common stock as reported on the Nasdaq Global Market on March 31, 2020, that would have been received by option holders had all in-the-money options been exercised on that date.

The total fair value of options vested during the three months ended March 31, 2020 was approximately $0.7 million. As of March 31, 2020, unamortized stock-based compensation expense related to unvested common stock options was $2.1 million, and the weighted-average period over which such stock-based compensation expense will be recognized was 0.9 years.

Restricted Stock Units

We grant restricted stock units ("RSUs") to employees and our non-employee directors. The following table summarizes changes in RSUs, inclusive of performance-based RSUs:



	Shares (in thousands)		Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)	Unamortized Compensation Costs (in thousands)
Unvested — December 31, 2019	1,741		$	18.55
Granted	188		70.26
Vested	(107	)	13.12
Forfeited	(92	)	15.58
Unvested — March 31, 2020	1,730		$	24.67	2.89	$	29,629

During the three months ended March 31, 2020, we granted 188,422 RSUs to employees and non-employee directors, which have annual vesting periods ranging from one to four years.

Subsequent to March 31, 2020, we granted 844,224 RSUs to employees and executives, which have an annual vesting period of four years. The unamortized stock-based compensation expense related to these RSUs is $28.0 million.

Performance-based RSUs

In April 2019, we granted 1,252,500 performance-based restricted stock units (“2019 PSUs”). The 2019 PSUs are composed of four equal tranches, each of which have an independent performance-based vesting condition. The vesting criteria for the four tranches are as follows:


•	a minimum growth rate in adjusted contribution over a trailing 12-month period,


•	a minimum number of advertisers that are billed above a specified amount over a trailing 12-month period,


•	a minimum cumulative adjusted EBITDA target over a trailing 12-month period, and


•	a minimum trailing 30-day average closing price of our common stock.

The vesting conditions of each of the four tranches must be achieved within four years of the grant date. Upon a vesting event, 50% of the related tranche vests immediately, 25% of the related tranche vests six months after achievement date and 25% of the related tranche vests 12 months after the achievement date. Adjusted EBITDA and adjusted contribution are performance metrics defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." In August and November 2019, the Compensation Committee of our Board of Directors certified that the target minimum trailing 30-day average closing price of our common stock and target minimum cumulative adjusted EBITDA target over a trailing 12-month period, respectively, were achieved resulting in the immediate vesting of 50% of the related PSU tranches. Additionally, in February 2020, 25% of the 30-day average closing price of our common stock PSU tranche vested, upon the six month anniversary of the tranche's achievement date.

In April 2020, we granted 476,608 performance-based restricted stock units ("2020 PSUs"), of which 443,276 units have a performance-based vesting condition based on a minimum average Cardlytics Direct revenue per user ("ARPU") target over a trailing 12-month period and 33,332 units have the same performance-based vesting conditions as those that remain unmet under the 2019 PSUs described above. ARPU is a performance metric defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The ARPU vesting condition must be achieved within four years of the grant date. Upon the vesting event, 50% of the award vests immediately, 25% of the award vests six-months after achievement date and 25% of the award vests 12-months after the achievement date. The unamortized stock-based compensation expense related to the 2020 PSUs is $14.4 million.

Employee Stock Purchase Plan

Our 2018 Employee Stock Purchase Plan ("2018 ESPP") enables eligible employees to purchase shares of our common stock at a discount. Purchases are accomplished through participation in discrete offering periods. On each purchase date, participating employees purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock on the first trading day of the offering period or the date of purchase.

As of December 31, 2019, 267,823 shares of common stock were reserved for issuance pursuant to our 2018 ESPP. Additionally, the number of shares of our common stock reserved for issuance under our 2018 ESPP will automatically increase on January 1 of each year, which began on January 1, 2019 and will continue through and including January 1, 2026, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (ii) 500,000 shares of our common stock or (iii) such lesser number of shares of common stock as determined by our board of directors. Accordingly, the number of shares of our common stock reserved for issuance under our 2018 ESPP increased by 265,470 shares on January 1, 2020. Shares subject to purchase rights granted under our 2018 ESPP that terminate without having been issued in full will not reduce the number of shares available for issuance under our 2018 ESPP.