Stock-Based Compensation

6 Months Ended

Jun. 30, 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 June 30, 2023, as well as activity during the six 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	511	0.33
Exercised	(82)	0.32
Forfeited	(13,150)	9.55
Outstanding at June 30, 2023	11,769	$	2.15

The following table summarizes RSU awards outstanding as of June 30, 2023, as well as activity during the six 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	9,194	$	0.27
Vested	(386)	$	3.16
Forfeited	(900)	$	2.07
Outstanding at June 30, 2023	17,645	$	1.10	$	19,392

As of June 30, 2023, the total unrecognized compensation expense related to outstanding stock options and RSU awards was $3.1 million and $34.7 million, respectively, which the Company expects to recognize over a weighted-average period of 1.87 and 2.21 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) and consultants 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”). Specifically, one RSU was granted in exchange for two eligible options held by non-executive employees and consultants and two and one-half eligible options held by executive officers. The number of RSUs was rounded down to the nearest whole share on a grant-by-grant basis. The Exchange Offer closed on April 28, 2023. In the aggregate, 4,674,682 RSUs were issued to 142 executive and non-executive employees and consultants 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.

The Exchange Offer resulted in Type I (probable to probable) modifications and will result in incremental stock-based compensation expense of $1.0 million. This incremental expense was measured as the excess of the fair value of each new RSU as of the date of the exchange (grant date) over the fair value of the stock options surrendered in exchange for the RSUs, measured immediately prior to their cancellation. The original option awards had remaining vesting periods ranging from 2.1 to 2.8 years at the exchange date. For Type I modifications that increase an employee’s requisite service period, companies have the option of attributing the remaining unrecognized compensation expense of the original award and the incremental compensation expense resulting from the modification either 1) separately over their individual vesting periods or 2) ratably over the new award’s vesting period. The Company will expense ratably over the new award’s vesting period.

As of June 30, 2023, there were 267,401 shares issued and 5,968,901 shares reserved for future issuance under the ESPP. As of June 30, 2023, the total unrecognized compensation expense related to the ESPP was de minimis, which the Company expects to recognize over a period of 0.17 years.

The total amount of stock-based compensation expense recognized in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 was as follows:


Statement of operations classification	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2023		2022		2023		2022
Cost of revenue (stock options, RSUs and ESPP)	$	132	$	462	$	381	$	976
Selling, general and administrative (stock options, RSUs and ESPP)	3,469		3,791		7,923		8,959
Selling, general and administrative (Earn-Out Shares)	—		1,877		405		3,752
Total stock-based compensation expense	$	3,601	$	6,130	$	8,709	$	13,687

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.