Stock-Based Compensation

3 Months Ended

Mar. 31, 2023

Share-Based Payment Arrangement [Abstract]

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”, and 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. 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) 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, the Company has 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 October 2021 Merger were granted the right to receive a number of Earn-Out Shares as described in Note 12.

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 following table summarizes stock option awards outstanding as of March 31, 2023, as well as activity during the three months then ended:


(In thousands, except per share amounts)	Number of Options	Weighted Average Exercise Price
Outstanding at December 31, 2022	24,490	$	6.16
Granted	286	0.37
Exercised	(30)	0.40
Forfeited	(689)	7.30
Outstanding at March 31, 2023	24,057	$	6.06

The following table summarizes RSU awards outstanding as of March 31, 2023, as well as activity during the three months then ended:


(In thousands, except per share amounts)	Number of RSUs	Weighted Average Grant Date Fair Value		Aggregate Fair Value
Outstanding at December 31, 2022	9,737	$	2.06
Granted	1,056	$	0.24
Vested	—	$	—
Forfeited	(243)	$	2.24
Outstanding at March 31, 2023	10,550	$	1.87	$	19,732

As of March 31, 2023, the total unrecognized compensation expense related to outstanding stock options and RSU awards was $33.6 million and $12.6 million, respectively, which the Company expects to recognize over a weighted-average period of 2.24 and 2.36 years, respectively.

On April 3, 2023, the Company filed a Schedule TO with the Securities and Exchange Commission in connection with an exchange offer to eligible employees (including named executive officers) of the Company to voluntarily exchange some or all of their outstanding stock options, whether vested or unvested, with an exercise price greater than or equal to $9.06 per share for a lesser number of RSUs with standard three year service-based vesting requirements (the “Exchange Offer”). The Exchange Offer closed on April 28, 2023. In the aggregate, 4,674,682 RSUs were issued in exchange for 10,605,665 stock options that had a weighted average exercise price of $10.22. The new RSUs granted in connection with the Exchange Offer are governed by the 2021 Plan and will result in incremental stock-based compensation expense of $1.0 million over a three year period. None of the above options, RSUs, or expense figures have been adjusted for the impact of the Exchange Offer.

As of March 31, 2023, there were 267,401 shares issued and 5,968,901 shares reserved for future issuance under the ESPP. As of March 31, 2023, the total unrecognized compensation expense related to the ESPP was de minimis, which the Company expects to recognize over a period of 0.42 years.

The total amount of stock-based compensation expense recognized in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 was as follows:


Statement of operations classification	Three Months Ended March 31,
(In thousands)	2023		2022
Cost of revenue (stock options, RSUs and ESPP)	$	250	$	514
Selling, general and administrative (stock options, RSUs and ESPP)	4,453		5,168
Selling, general and administrative (Earn-Out Shares)	405		1,875
Total stock-based compensation expense	$	5,108	$	7,557

Stock-based compensation expense recognized in the statements of operations may differ from the impact of stock-based compensation to additional paid-in capital due to stock-based compensation capitalized as part of software development activities.