Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v3.22.2.2
Stock-Based Compensation
 9 Months Ended
Sep. 30, 2022
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
Equity Incentive Plan

In 2016, Legacy Grove adopted the 2016 Equity Incentive Plan (the “2016 Plan”). The Plan provides for the granting of stock-based awards to employees, directors and consultants under terms and provisions established by the Board of Directors. In April 2022, the Company’s Board of Directors authorized an increase in the number of shares available for issuance under the 2016 Plan by 3,500,000. In addition, all equity awards of Legacy Grove that were issued under the 2016 Plan were converted into comparable equity awards that are settled or exercisable for shares of the Company’s Class B common stock. As a result, each of Legacy Grove’s equity awards were converted into an option to purchase shares of the Company’s Class B common stock based on an exchange ratio of approximately 1.1760. As of the effective date of the 2022 Plan, no further stock awards have been or will be granted under the 2016 Plan.

In June 2022, the stockholders of the Company approved the Grove Collaborative Holdings, Inc. 2022 Stock Incentive Plan (the “2022 Plan”). The Plan provides for the granting of stock-based awards to eligible participants, specifically officers, other employees, non-employee directors, consultants, independent contractors under terms and provisions established by the Board of Directors.

The 2022 Plan authorizes the issuance of Class A common stock of up to 24,555,528. The number of shares available shall increase annually on the first day of each calendar year, beginning with calendar year ending December 31, 2023 and continuing until (and including) calendar year December 31 2032, with annual increases equal to lesser of (i) 5% of the number of shares of Class A and Class B common stock issued and outstanding on December 31 of the immediately preceding fiscal year, and (ii) an amount determined by the Board.
Stock option activity under the 2016 Plan is as follows (in thousands, except share and per share amounts):
Options Outstanding
Number of Options Weighted–Average Exercise Price Weighted-Average Remaining Contractual Life (years) Aggregate Intrinsic Value
Balance – December 31, 2021 23,708,957  $ 3.05  7.99 $ 125,429 
Recapitalization 4,173,563  (0.46)
Balance – December 31, 2021 27,882,520  2.59  7.99 125,429 
Exercised (216,856) 1.61 
Cancelled/forfeited (3,496,828) 3.30 
Balance – September 30, 2022 24,168,836  2.50  6.67 12,319 
Options vested and exercisable – September 30, 2022 16,796,373  $ 2.50  5.98 $ 11,863 
The weighted-average grant date fair value of options granted during the nine months ended September 30, 2021 was $3.71 per share. No options were granted during the nine months ended September 30, 2022. The total grant date fair value of options that vested during the nine months ended September 30, 2022 and 2021 was $10.2 million and $9.4 million, respectively. The aggregate intrinsic value of options exercised during the nine months ended September 30, 2022 and 2021 was $1.0 million and $2.6 million, respectively. The aggregate intrinsic value is the difference between the current fair value of the underlying common stock and the exercise price for in-the-money stock options.
Early Exercise of Employee Options
The Company allows certain employees to exercise options granted under the Plan prior to vesting in exchange for shares of restricted common stock. The unvested shares, upon termination of employment, are subject to repurchase by the Company at the original purchase price. The proceeds are recorded in other current liabilities in the consolidated balance sheets at the time of the early exercise of stock options and reclassified to common stock and additional paid-in capital as the Company’s repurchase right lapses (i.e., as the underlying stock options vest). No and
11,025 shares of common stock were issued due to early exercise of unvested stock options during the nine months ended September 30, 2022 and 2021. As of September 30, 2022 and December 31, 2021, the aggregate price of the restricted common stock subject to repurchase was zero and $0.2 million, respectively. A summary of the restricted common stock is as follows:
Number of Options Weighted–Average Exercise Price
Outstanding and unvested as of December 31, 2021 69,513  $ 2.25 
Recapitalization 12,237  (0.33)
Outstanding and unvested as of December 31, 2021 81,750  1.92 
Vested (65,211) 1.92 
Repurchase of early exercise (16,539) 1.92 
Outstanding and unvested as of September 30, 2022 —  $ — 

Determination of Fair Value
The fair value of stock option awards granted to employees was estimated at the date of grant using the Black-Scholes option-pricing model, with the following assumptions:
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Fair value of common stock
$6.91
$5.06 – $6.91
Expected term (in years)
5.64 – 6.10
5.00 – 6.28
Volatility
65.74% – 65.96%
62.33% – 75.19%
Risk-free interest rate
0.81% – 0.88%
0.50% – 1.16%
Dividend yield
—
 —
Market-Based Stock Options

In February 2021, the Company granted 1,017,170 stock options with market and liquidity event-related performance-based vesting criteria with an exercise price of $3.77 per share. 100% of awards vest upon valuation of the Company’s stock at a stated price upon occurrence of specified transactions. Fair value was determined using the probability weighted expected term method (“PWERM”), which involves the estimation of future potential outcomes as well as values and probabilities associated with each potential outcome. Two potential scenarios were used in the PWERM that utilized 1) the value of the Company’s common equity, and 2) a Monte Carlo simulation to specifically value the award. The total grant date fair value of the award was determined to be $5.5 million. Since a liquidity event is not deemed probable until such event occurs, no compensation cost related to the performance condition was recognized prior to the Business Combination on June 16, 2022. Subsequently, the Company recorded stock-based compensation expense of $4.6 million for service periods completed prior to the Business Combination. As of September 30, 2022, the market-based vesting criteria had not been met.
Performance-Based Restricted Stock Units
Performance-based restricted stock units activity under the 2016 Plan is as follows:
Number of shares Weighted–Average Grant Date Fair Value Per Share
Unvested – December 31, 2021 1,511,191  $ 8.62 
Recapitalization 265,992  (1.29)
Unvested – December 31, 2021 1,777,183  7.33 
Granted 4,748,063  5.93 
Vested (1,244,537) 5.94 
Cancelled/forfeited (1,227,795) 6.69 
Balance – September 30, 2022 4,052,914  6.15 
Vested but unissued – September 30, 2022 1,244,537  $ 5.94 

RSUs granted under the 2016 Plan contain vesting conditions based on continuous service and the occurrence of a specified liquidity event, which is considered a performance condition. The performance condition is satisfied upon the consummation of (i) an initial underwritten public offering of the Company’s common stock; (ii) a change in control event, or (iii) a merger, consolidation or similar transaction in which the Company’s common stock outstanding immediately preceding such transaction are converted or exchanged into securities that are publicly-traded on an established exchange (the “Liquidity Event”), provided that the Liquidity Event occurs prior to the fifth anniversary of the grant date and the recipient continues to provide service to the Company on such date. The Company satisfied the performance condition on June 16, 2022 with the Closing of the Business Combination. Accordingly, the Company started recognizing stock compensation expense in the three months ended June 30, 2022 using the accelerated attribution method from the grant date. The total cumulative catch up expense related to prior periods recognized for the RSUs was $11.9 million. The vested but unissued RSUs will be issued to the common stockholders in November 2022 upon the termination of the Lock-Up Period, as defined in Section 7.10 of the Company’s Bylaws. There are no other contingencies for the issuance of these RSUs other than passage of time.
Equity Award Modifications

During the nine months ended September 30, 2022, the Company modified options held by former and existing employees to accelerate vesting and to extend the post termination exercise period of the awards from 60 days to 1, 2 or 10 years after termination, as well as accelerated the vesting of certain RSUs. The modifications resulted in modification expenses of $0.5 million and $2.2 million during the three and nine months ended September 30, 2022, respectively.

On September 26, 2022, the Company’s Board of Directors approved a stock option exchange to permit certain employee and non-employee option holders, subject to specified conditions, to exchange some or all of their outstanding options to purchase shares of the Company's common stock for a lesser amount of RSUs to be issued under the 2022 Plan (the “Option Exchange”). The Option Exchange was completed in October 2022, see Note 12, Subsequent Events.

Stock-Based Compensation Expense
For the three months ended September 30, 2022 and 2021, the Company recognized a total of $9.8 million and $3.6 million of stock-based compensation expense, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized a total of $34.3 million and $10.9 million of stock-based compensation expense, respectively. Stock-based compensation expense was predominately recorded in selling, general and administrative expenses in the statements of operations for each period presented. As of September 30, 2022, the total unrecognized compensation expense related to unvested options and RSUs was $33.3 million, which the Company expects to recognize over an estimated weighted average period of 2.2 years.