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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
Overview
The Company has two equity-based compensation plans, the Science 37 Holdings, Inc. 2021 Incentive Award Plan (“2021 Plan”) and the 2022 Employment Inducement Incentive Award Plan (“2022 Plan”, together with the 2021 Plan, the “Plans”). From the 2021 Plan, stock-based compensation awards can be granted to employees, consultants, and non-executive directors. From the 2022 Plan, inducement stock-based awards can be granted to newly hired employees in accordance with Nasdaq Listing Rules. Prior to the consummation of the Merger in the fourth quarter of 2021, the Company granted stock options to employees under the Science 37, Inc. 2015 Stock Option Plan (the “2015 Plan”). No further awards have been or will be made under the 2015 Plan following the effectiveness of the 2021 Plan. The 2021 Plan allows for the grant of awards in the form of: (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units (“RSUs”); (vi) dividend equivalents; and (vii) other stock and cash-based awards. The 2022 Plan allows for the grant of awards in the form of: (i) non-qualified stock options; (ii) stock appreciation rights; (iii) restricted stock; (iv) restricted stock units (“RSUs”); (v) dividend equivalents; and (vi) other stock and cash-based awards. The Compensation Committee of the Board is responsible for the administration of both plans. In addition, in connection with the closing of the Merger, the Company adopted an Employee Stock Purchase Plan (the “ESPP”).
The terms of stock-based instruments granted are determined at the time of grant and are typically subject to such conditions as continued employment and the passage of time. The Company has granted 1) stock options, which typically vest at 25% per year and become exercisable after one year of service after the date of issuance, with equal and successive
vesting for the next 36 months, as long as the employee provides service to the Company, as defined and 2) RSUs, which are contingent upon continued service and vest over time in annual or bi-annual installments over the vesting period, which is typically 1 to 3 years. In addition, employees, consultants, and directors owning stock options immediately prior to the Merger were granted the right to receive a number of Earn-Out Shares as described in Note 17.
Prior to the Merger, due to the absence of an active market for Legacy Science 37’s common stock, the fair value of the common stock for purposes of determining the common stock price for stock option grants was determined by Science 37’s Board of Directors, the members of which have extensive business, financial and investment experience. The Company’s Board of Directors set the exercise price of stock options at least equal to the fair value of the Company’s common stock on the date of grant. The Company’s Board of Directors exercised judgment while considering numerous objective and subjective factors in order to determine the fair market value on each date of grant in accordance with the guidance in the American Institute of Certified Public Accountants Technical Practice Aid entitled, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the AICPA Practice Aid, including the receipt of a valuation prepared by an independent third party with extensive experience valuing common stock of privately held companies.
The shares of common stock underlying any awards that are forfeited, canceled, reacquired by the Company prior to vesting, or otherwise terminated other than by exercise are added back to the shares of common stock available for issuance. The units available for issuance may be authorized but unissued or reacquired by the Company. No award may be granted under the Plans upon the earlier of the tenth anniversary of the date the plan is adopted by the Board, the date on which all units available for issuance under the Plans shall have been issued as vested units, or the termination of all outstanding awards under the Plans in connection with a change in control.
As of December 31, 2022, the maximum number of shares reserved for issuance under the Company’s stock-based compensation plans was 47,826,613, of which 5,262,166 shares were available for future grants.
Stock Options
As of December 31, 2022 and 2021, the Company had issued 30,930,263 and 30,424,325 options to purchase shares of common stock of which 6,440,039 and 4,999,036 had been exercised and 24,490,224 and 25,425,289 remained outstanding, respectively.
The following table summarizes the stock option activity for the years ended December 31, 2022 and 2021:
(Aggregate intrinsic value in thousands)
Number of
Units
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of January 1, 202113,594,702 $0.38 8.35
Granted16,891,718 7.88 0
Exercised(3,606,121)0.40 0
Forfeited(1,455,010)1.39 0
Outstanding as of January 1, 202225,425,289 $5.30 8.91
Granted4,369,239 10.45 0
Exercised(1,441,003)0.58 0
Forfeited(3,863,301)7.60 0
Outstanding at December 31, 2022
24,490,224 $6.16 6.43$646,417 
Exercisable at December 31, 2022
10,682,240 $3.81 6.01$458,705 
The total intrinsic value of options exercised was approximately $0.1 million and $43.5 million in 2022 and 2021, respectively. As of December 31, 2022 and 2021, total unrecognized compensation cost related to unvested stock options was approximately $38.8 million and $60.0 million, respectively, which is expected to be recognized over a weighted average period of 2.41 and 3.14 years, based on the original date of service of each specific grant holder.
The Company received cash of approximately $0.6 million and $1.4 million in 2022 and 2021, respectively, from options exercised.
Other information about the Company’s stock options for the years ending December 31, 2022 and 2021 was as follows:
(In thousands)20222021
Total grant date fair value of stock options vested$14,718 $776 
The stock options granted during the years ended December 31, 2022 and 2021 had a weighted-average fair value of $6.89 and $3.71 per share, respectively at the grant date. The following table summarizes the assumptions used in valuing the stock options for the years ended December 31, 2022 and 2021:
20222021
Expected term
0.13 - 6.25 years
5.50 - 6.25 years
Risk-free interest rate
0.8% – 4.1%
0.6% – 1.4%
Expected volatility
69.8% – 98.7%
46.3% – 47.7%
Dividend yield0%0%
The expected term of the stock options represents the average period the stock options are expected to remain outstanding. The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Therefore, the expected term of options granted is derived from the average midpoint between the weighted-average vesting and the contractual term, also known as the simplified method. The risk-free interest rate was the rate at the date of grant for a zero-coupon U.S. Treasury bond with a term that approximated the expected term of the stock option.
As the Company does not have sufficient historical data to calculate the historical volatility of its stock, the expected volatility is derived from the historical volatility of a selected peer group for a period that is equal to the expected term.
The Company does not have a history of paying regular dividends and does not expect to pay regular cash dividends for the foreseeable future.
Restricted Stock Units
In May 2022, the Company began granting RSUs to certain officers and employees, and to the Board of Directors. The following table summarizes the RSU award activity for the year ended December 31, 2022:

(Aggregate fair value in thousands)Number of
RSUs		Weighted Average
Grant Date Fair Value		Aggregate Fair Value
Outstanding at December 31, 2021— $— 
Granted10,152,824 $2.08 
Vested— $— 
Forfeited(415,518)$2.70 
Outstanding at December 31, 20229,737,306 $2.06 $20,021 
As of December 31, 2022, total unrecognized compensation cost related to unvested RSUs was approximately $15.1 million, which is expected to be recognized over a weighted average period of 2.53 years.
As of December 31, 2022, there are 9,737,306 RSUs outstanding with an intrinsic value of approximately $3.7 million.
Employee Stock Purchase Plan
The ESPP is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the stock as of the beginning or end of the six-month offering periods. Employees may not purchase more than 5,000 shares annually under the plan.
The first six-month ESPP offering period began on September 1, 2022. As of December 31, 2022, there were no shares issued and 6,236,302 shares reserved for future issuance under the ESPP. The fair value of the shares under the ESPP is calculated on the first day of the offering period (the grant date) using the Black-Scholes valuation model and the following assumptions:

2022
Expected term0.50 years
Risk-free interest rate3.3%
Expected volatility90.2%
The fair value of the shares under the ESPP is amortized straight-line over the six-month offering period.
As of December 31, 2022, there are 250,325 ESPP shares outstanding with a de minimis intrinsic value.
Earn-Out Shares
As outlined in Note 17, the contingent obligation to issue Earn-Out Shares to former Science 37 option holders falls within the scope of ASC 718, Compensation - Stock Compensation, because the option holders are required to continue providing service until the occurrence of the Triggering Event(s). Refer to Note 17 for additional information regarding the Earn-Out Shares.
Stock-based Compensation Expense
Total stock-based compensation expense was classified in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021 as follows:
(In thousands)20222021
Cost of revenue (stock options, RSUs and ESPP)$1,743 $846 
Selling, general and administrative (stock options, RSUs and ESPP)16,896 5,481 
Selling, general and administrative (earn-out shares)5,923 2,080 
Total stock-based compensation expense$24,562 $8,407 
For the year ended December 31, 2022, stock-based compensation expense recognized in the statements of operations differs from the impact of stock-based compensation to additional paid in capital due to $1.4 million of stock-based compensation capitalized as part of software development activities.
There was no income tax benefit recognized in the consolidated statements of income for Stock-based compensation arrangements for the years ended December 31, 2022 and 2021, respectively.
Modification to Outstanding Equity Awards
During the year ended December 31, 2022, 1,737,263 stock option and 570,159 RSU awards were modified related to five terminated employees who continued as consultants providing part-time (non-substantive) services. The stock options and RSU’s for these terminated employees continue to vest if consulting services are rendered through the consulting termination dates which range from nine to twelve months. Since the consulting services are non-substantive, the change in vesting conditions resulted in a Type III modification of the stock related awards. As a result, the Company reversed $1.9 million of stock-based compensation expense related to these modifications due to a net decrease in the fair value of these awards on the date of the modifications.