Stock-based Compensation

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

12. Stock-based Compensation

2017 Stock Incentive Plan

The Company’s 2017 Stock Incentive Plan (the “2017 Plan”) provides for the Company to sell or issue common stock or restricted common stock, or to grant qualified incentive stock options, nonqualified stock options, stock appreciation rights ("SARs"), performance-based restricted stock units (“PSUs”), restricted stock units ("RSUs") or other stock-based awards to the Company’s employees, officers, directors, advisors and outside consultants. The total number of shares authorized for issuance under the 2017 Plan was 16,589 shares as of September 30, 2023, of which 2,019 shares remained available for future grant.

Inducement Award

During the three months ended September 30, 2023, the Company awarded two inducement grants (the "Inducements"), consisting of restricted stock units to persons who were not previously an employee or director of the Company as an inducement to such person’s entry into employment with the Company and in accordance with the requirements of the Nasdaq Stock Market Rule 5635(c)(4). The Inducements granted outside of the 2017 Plan totaled 3,750 during the three months ended September 30, 2023.

Stock Options

A summary of stock option activity for the nine months ended September 30, 2023 is as follows:


	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value

Outstanding at January 1, 2023		6,537		$	7.55		4.42	$	134
Granted		46			1.03
Exercised		(1	)		2.23
Forfeited		(647	)		6.59
Outstanding at September 30, 2023		5,935		$	7.61		3.80	$	—
Options exercisable at September 30, 2023		5,069		$	8.25		2.99	$	—
Vested or expected to vest at September 30, 2023		5,899		$	7.63		3.77	$	—

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Risk-free interest rate	4.4%	3.7%	3.5%–4.4%	1.7%–3.7%
Expected term (in years)	6.1	6.1	6.1	5.6–6.1
Expected volatility	45.8%	41.5%	44.3%–45.8%	38.5%–41.5%
Expected dividend yield	0.0%	0.0%	0.0%	0.0%

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2023 and 2022 was $0.44 and $1.62 per share, respectively. Cash proceeds received upon the exercise of options were $2 and $304 during the nine months ended September 30, 2023 and 2022, respectively. The intrinsic value of stock options exercised during the nine months ended September 30, 2023 and 2022 was $1 and $342, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

Restricted Stock Units

A summary of RSU activity for the nine months ended September 30, 2023 is as follows:


	Number of Shares			Weighted- Average Grant Date Fair Value		Aggregate Fair Value
Unvested balance at January 1, 2023		5,505		$	4.49
Granted		10,273			1.01
Vested		(3,161	)		4.00	$	6,772
Forfeited		(256	)		5.02
Unvested balance at September 30, 2023		12,361		$	1.67

The Company withheld 1,633 and 456 shares of common stock in settlement of employee tax withholding obligations due upon the vesting of RSUs and PSUs during the nine months ended September 30, 2023 and 2022, respectively.

Performance-Based Stock Units

During the nine months ended September 30, 2022, the Company granted PSUs to certain employees that vest over a three-year period based on the achievement of performance goals and continued performance of services. All PSUs granted prior to the nine months ended September 30, 2022, and a portion of PSUs granted during the nine months ended September 30, 2022, consist solely of market-based vesting conditions, determined by the Company’s level of achievement of pre-established parameters relating to the performance of the Company’s stock price as set by the board of directors. Vesting for these market-based PSUs may occur at any time during the three-year period. The remaining portion of PSUs granted during the three months ended September 30, 2022 consisted of performance-based vesting conditions determined by the Company's achievement of performance targets with respect to a certain customer agreement. Vesting of these performance-based PSUs occurred during the nine months ended September 30, 2023 pursuant to Jerry Guo's retirement as discussed below. No PSUs were granted during the nine months ended September 30, 2023.

A summary of PSU activity for the nine months ended September 30, 2023 is as follows:


	Number of Shares			Weighted- Average Grant Date Fair Value		Aggregate Fair Value
Unvested balance at January 1, 2023		1,262		$	4.15
Granted		—			—
Vested		(1,238	)		3.48	$	2,102
Forfeited		—			—
Unvested balance at September 30, 2023		24		$	7.89

Compensation expense is based on the estimated value of the awards on the grant date, and is recognized over the period from the grant date through the expected vest dates of each vesting condition, both of which were estimated based on a Monte Carlo simulation model applying the following key assumptions:


		Nine months ended
		September 30, 2022
Risk-free interest rate		2.8%
Volatility		79.1%
Dividend yield		0.0%
Cost of equity		13.2%

Stock Appreciation Rights

Over time, the Company has granted SARs that allow the holder the right, upon exercise, to receive in cash the amount of the difference between the fair value of the Company’s common stock at the date of exercise and the price of the underlying common stock at the date of grant of each SAR. The SARs vested over a four-year period from the date of grant and expire ten years from the date of grant.

There was no SAR liability as of September 30, 2023 or December 31, 2022, as the exercise price of all outstanding SARs exceeded the fair value of the Company's common stock as of each applicable date. There were no grants, exercises or forfeitures during the nine-month period ending September 30, 2023.

Stock-Based Compensation Expense

Stock-based compensation expense related to stock options, RSUs, SARs and PSUs for the three and nine months ended September 30, 2023 and 2022 was classified in the condensed consolidated statements of operations and comprehensive loss as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenue	$	25	$	31	$	61	$	92
Research and development expenses		690		824		1,942		2,113
Selling, general and administrative expenses		1,858		2,816		6,499		6,973
Total stock-based compensation	$	2,573	$	3,671	$	8,502	$	9,178

The Company recognized stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022 in the condensed consolidated balance sheet as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Change in fair value of SAR liability	$	—	$	—	$	—	$	(159	)
Recognized as additional paid-in capital		2,573		3,671		8,502		9,337
Total stock-based compensation	$	2,573	$	3,671	$	8,502	$	9,178

As of September 30, 2023, there was $18,661 of unrecognized compensation cost related to outstanding stock options, RSUs, SARs and PSUs, which is expected to be recognized over a weighted-average period of 2.83 years.

Retirement of Jerry Guo

On March 14, 2023, Jerry Guo, the Company’s co-founder, President and Chief Executive Officer, announced his retirement from his executive roles effective March 17, 2023. A separation agreement was entered into by Mr. Guo and the Company’s board of directors on March 13, 2023. Pursuant to this agreement, Mr. Guo was entitled to certain termination benefits, including the acceleration of vesting of all unvested stock-based awards upon his termination. This resulted in the accelerated vesting and release of 551 RSUs and 883 PSUs during the nine months ended September 30, 2023. Incremental stock-based compensation recognized in selling, general and administrative expense on the condensed consolidated statement of comprehensive loss for the nine months ended September 30, 2023 was $1,737.

Casa Systems Inc 10-Q