Quarterly report pursuant to Section 13 or 15(d)

Equity Incentive Plans and Stock-Based Compensation

v3.22.2.2
Equity Incentive Plans and Stock-Based Compensation
 9 Months Ended
Sep. 30, 2022
Share-Based Payment Arrangement [Abstract]  
Equity Incentive Plans and Stock-Based Compensation Equity Incentive Plans and Stock-Based Compensation
In 2014, the Company adopted its 2014 equity incentive plan (the “2014 Plan”), which provided for the granting of stock options, restricted stock awards and stock appreciation rights to employees, directors, and consultants of the Company.
Awards granted under the 2014 Plan generally expire 10 years from the date of grant, or earlier if services are terminated. The exercise price of stock options grants shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively, as determined by Legacy Velo3D’s board of directors. Awards generally vest based on continuous service over four years. Awards forfeited, cancelled, or repurchased generally are returned to the pool of shares of common stock available for issuance under the 2021 Plan (as defined below).
In 2021, the Company adopted its 2021 Equity Incentive Plan (the “2021 EIP”), which provides for the granting of stock options, restricted stock units (“RSUs”) and stock appreciation rights to employees, directors, and consultants of the Company. The Company initially reserved 42,766,043 shares of its common stock for issuance
under the 2021 EIP. In March 2022, pursuant to the evergreen provisions of the 2021 EIP, the Company registered an additional 9,161,624 shares of common stock for issuance under the 2021 EIP.
As of September 30, 2022, the Company has an allocated reserve of 51,927,667 shares of its common stock for issuance under the 2021 EIP.
In addition, in 2021, the Company adopted its 2021 Employee Stock Purchase Plan (“2021 ESPP”). The Company initially reserved 3,663,277 shares of its common stock for issuance under the 2021 ESPP. In March 2022, pursuant to the evergreen provisions of the 2021 ESPP, the Company registered an additional 1,832,324 shares of common stock for issuance under the 2021 ESPP.
As of September 30, 2022, the Company has an allocated reserve of 5,495,601 shares of its common stock for issuance under the 2021 ESPP. As of September 30, 2022, the Company had not begun any offering periods for the 2021 ESPP.
Awards granted under both the 2021 EIP generally expire 10 years from the date of grant, or earlier if services are terminated. The exercise price of stock options grants shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively, as determined by the Company’s Board of Directors. Awards generally vest based on continuous service over 4 years. Awards forfeited, cancelled, or repurchased generally are returned to the pool of shares of common stock available for issuance under the 2021 Plan.
Stock options
Activity under the Company’s stock option plans is set forth below:
Options Weighted-Average Exercise Price Weighted-Average Remaining
Contractual Term
in years
(In thousands) (Per share data) (Years)
Outstanding as of December 31, 2020
21,471  $ 0.33  9.3
Granted 1,024  $ 6.69 
Exercised (200) $ 1.56 
Forfeited or expired (951) $ 0.61 
Outstanding as of September 30, 2021
21,344  $ 0.61  8.5
Options vested and expected to vest as of September 30, 2021
 21,344  $ 0.61 
Vested and exercisable as of September 30, 2021
 7,776  $ 0.58 
Outstanding as of December 31, 2021
21,191  $ 0.58  8.2
Granted —  $ — 
Exercised (2,795) $ 0.42 
Forfeited or expired (665) $ 2.49 
Outstanding as of September 30, 2022
17,731  $ 0.54  7.5
Options vested and expected to vest as of September 30, 2022
 17,731  $ 0.54 
Vested and exercisable as of September 30, 2022
 10,145  $ 0.65 
The aggregate intrinsic value of options outstanding was $62.2 million and $153.2 million, respectively, as of September 30, 2022 and December 31, 2021. Intrinsic value of options exercised for the nine months ended September 30, 2022 and 2021 was $10.5 million and $0.5 million, respectively. The weighted-average grant date
fair value of options granted in the nine months ended September 30, 2021 was $3.58 per share. The total grant date fair value of options vested was $1.5 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, total unrecognized compensation cost related to options was $1.5 million related to 7.6 million unvested options and is expected to be recognized over a weighted-average period of 1.6 years.
For the nine months ended September 30, 2021, the Company used the Black-Scholes option pricing model to determine the fair value of stock options. The fair value of each stock option grant is estimated on the date of the grant. The fair value of the Legacy Velo3D common stock underlying the stock options had historically been determined by the Legacy Velo3D board of directors, as there was no public market for Legacy Velo3D’s common stock prior to Merger closing. Therefore, the Legacy Velo3D board of directors had determined the fair value of the common stock at the time of the stock option grant by considering a number of objective and subjective factors including independent third-party valuation reports, valuations of comparable companies, sales of convertible preferred stock and common stock to unrelated third parties, operating and financial performance, lack of liquidity of capital stock and general and industry-specific economic outlook, among other factors.
For the nine months ended September 30, 2022, there were no options granted. The weighted-average assumptions in the Black-Scholes option-pricing model used to determine the fair value of stock options granted were as follows:
Nine Months Ended
September 30,
2021
Expected volatility 59  %
Risk-free interest rate
0.9% -1.0%
Dividend yield —  %
Expected term (in years) 5.72
Expected volatility: As Legacy Velo3D was not publicly traded at the time the awards were granted, the expected volatility for the Company’s stock options was determined by using a review of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected term of the awards.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the awards.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The Company uses the simplified method available under U.S. GAAP to determine the expected term due to having insufficient history upon which to base an assumption about the term.
Restricted Stock Units
The fair value of RSUs under the Company’s 2021 EIP is estimated using the value of the Company’s common stock on the date of grant.
The following table summarizes outstanding and expected to vest RSUs as of September 30, 2022 and their activity during the nine months ended September 30, 2022:
Number of Shares Weighted-Average Grant Date Fair Value Aggregate Intrinsic Value
(In thousands) (Per share data) (In thousands)
Balance as of December 31, 2021
 4,041  $ 7.26  $ 31,563 
Granted 2,912  3.81  11,500 
Released (385) 5.52  1,991 
Cancelled (370) 6.42  1,503 
Balance as of September 30, 2022
6,198  $ 5.80  $ 24,422 
Expected to vest as of September 30, 2022
 6,198  $ 5.80  $ 24,422 
The aggregate intrinsic value of outstanding RSUs is calculated based on the closing price of the Company’s common stock as of the date outstanding. As of September 30, 2022, there was $30.3 million of unrecognized compensation cost related to 6.2 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 3.1 years.
Earnout Shares - Employees
The Earnout Shares issuable to holders of employee stock options are accounted as stock-based compensation expense as they are subject to forfeiture based on the satisfaction of certain employment conditions. The estimated fair values of the Earnout Shares associated with vested stock options are recognized as an expense and determined by the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the five-year earnout period. The portion of the Earnout Shares associated with unvested stock options are recognized as an expense and considers the vesting continuing employment requirements.
Stock-based Compensation Expense
The following sets forth the total stock-based compensation expense by type of award included in the statements of operations:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In thousands)
Restricted stock units $ 2,831  $ —  $ 7,787  $ — 
Stock options 415  676  1,473  1,751 
Earnout shares - employees 1,911  —  5,830  — 
$ 5,157  $ 676  $ 15,090  $ 1,751 
The following sets forth the total stock-based compensation expense for the stock options included in the statements of operations:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In thousands)
Research and development $ 2,407  $ 211  $ 7,485  $ 598 
Selling and marketing 1,144  105  3,399  280 
General and administrative 1,606  360  4,206  873 
$ 5,157  $ 676  $ 15,090  $ 1,751