Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.24.0.1
Stock-Based Compensation
12 Months Ended
Dec. 31, 2023
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation

14. Stock-Based Compensation

The 2014 Plan

Under the 2014 Stock Option Plan of Hotshine Holdings, Inc. (the “2014 Plan”), the Company may grant incentive stock options or nonqualified stock options to purchase common shares of the Company to its employees, directors, officers, outside advisors and non-employee consultants.

All stock options granted under the 2014 Plan are equity-classified and have a contractual life of ten years. Under the 2014 Plan, 60% of the shares in a grant contain service-based vesting conditions and vest ratably over a five-year period and 40% of the shares in a grant contain performance-based vesting conditions (“Performance Vesting Options”). The condition for the Performance Vesting Options is a change in control or an initial public offering, where (i) 50% of the Performance Vesting Options vest and become exercisable if the Principal Stockholders receive the Target Proceeds at the Measurement Date and (ii) the remaining 50% of the Performance Vesting Options vest and become exercisable if the Principal Stockholders receive the Maximum Amount at the Measurement Date. Principal Stockholders is defined in the 2014 Plan as (a) Green Equity Investors VI, L.P., (b) Green Equity Investors Side VI, L.P., (c) LGP Associates VI-A, LLC, (d) LGP Associates VI-B LLC, and (e) the affiliates of the foregoing entities. Measurement Date is defined as the date of a change in control or an initial public offering, whichever comes first. The Target Proceeds and Maximum Amount are defined and measured by either multiples of invested capital or an annual compounded pre-tax internal rate of return on investment. In June 2021, the Company modified all outstanding shares of Performance Vesting Options to remove, subject to the successful completion of the IPO, the requirement that the Principal Stockholders receive the Target Proceeds and the Maximum Amount as conditions for the Performance Vesting Options to vest. The exercise prices for stock options granted under the 2014 Plan were not less than the fair market value of the common stock of the Company on the date of grant. For the avoidance of doubt, the IPO constituted a performance measurement date under the applicable option agreements for the Performance Vesting Options and the Performance Vesting Options vested in full in connection with the IPO.

The 2021 Plan

In June 2021, the Board adopted the 2021 Incentive Award Plan (the “2021 Plan”), which was subsequently approved by the Company's stockholders and became effective on June 25, 2021. Under the 2021 Plan, the Company may grant incentive stock options, nonqualified stock options, restricted stock units ("RSUs"), restricted stock, and other stock- or cash-based awards to its employees, directors, officers, and non-employee consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is 29,800,000 new shares of common stock, which includes 256,431 shares of common stock that remained available for issuance under the 2014 Plan at June 25, 2021. In connection with the IPO, stock option and RSU awards were granted with respect to 3,726,305 shares. Any shares of common stock subject to outstanding stock awards granted under the 2014 Plan and, following June 25, 2021, terminate, expire or are otherwise forfeited, reacquired or withheld will become available for issuance under the 2021 Plan.

All stock options granted under the 2021 Plan are equity-classified and have a contractual life of ten years. Under the 2021 Plan, the stock options contain service-based vesting conditions and generally vest ratably over a three- to five-year period (collectively with stock options under the 2014 Plan, the “Time Vesting Options”). The exercise

prices for stock options granted under the 2021 Plan were not less than the fair market value of the common stock of the Company on the date of grant.

RSUs granted under the 2021 Plan are equity-classified and contain service-based conditions and generally vest ratably over one- to five-year periods. Each RSU represents the right to receive one share of the Company’s common stock upon vesting. The fair value is calculated based upon the Company’s closing stock price on the date of grant, and the stock-based compensation expense is recognized over the requisite service period, which is generally the vesting period.

The 2014 Plan and 2021 Plan are administered by the Board or, at the discretion of the Board, by a committee thereof. The exercise prices for stock options, the vesting of awards, and other restrictions are determined at the discretion of the Board, or its committee if so delegated.

The 2021 ESPP

In June 2021, the Board adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in June 2021. The 2021 ESPP authorizes the initial issuance of up to 5,000,000 shares of the Company’s common stock to eligible employees of the Company or, as designated by the Board, employees of a related company. The 2021 ESPP provides for offering periods not to exceed 27 months, and each offering period will include purchase periods. The Company determined that offering periods would commence at approximately the six-month period beginning with an enrollment date and ending with the next exercise date, except that the first offering period commenced on the effective date of the Company's registration statement and ended on November 9, 2021.

The 2021 ESPP provides that the number of shares reserved and available for issuance under the 2021 ESPP will automatically increase on January 1 of each calendar year from January 1, 2022 through January 1, 2031 by an amount equal to the lesser of (i) 0.5% of the outstanding number of shares of common stock on the immediately preceding December 31 and (ii) such lesser number of shares of common stock as determined by the Board.

Share-Based Payment Valuation

The grant date fair value of Time Vesting Options granted is determined using the Black-Scholes option-pricing model. The grant date fair value of Performance Vesting Options is determined using a Monte Carlo simulation model and a barrier-adjusted Black-Scholes option-pricing model. The grant date fair value of stock purchase rights granted under the 2021 ESPP is determined using the Black-Scholes option-pricing model.

2021 ESPP Valuation

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of stock purchase rights granted under the 2021 ESPP Plan during the period presented as follows:

 

 

 

Year Ended December 31,

 

 

2023

 

2022

Expected volatility

 

36.30% - 55.99%

 

34.33% - 53.90%

Risk-free interest rate

 

4.53% - 5.38%

 

0.07% - 4.53%

Expected term (in years)

 

0.49 - 0.50

 

0.49 - 0.50

Expected dividend yield

 

None

 

None

 

Time Vesting Options

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant date fair value of Time Vesting Options granted under the 2014 Plan and 2021 Plan during the periods presented as follows:

 

 

 

Year Ended December 31,

 

 

2023

 

2022

 

2021

Expected volatility

 

43.74% - 46.58%

 

35.63% - 36.95%

 

34.13% - 44.89%

Risk-free interest rate

 

3.68% - 4.21%

 

2.96% - 3.65%

 

0.63% - 1.34%

Expected term (in years)

 

6.0 - 6.26

 

6.0 - 6.26

 

5.2 - 6.5

Expected dividend yield

 

None

 

None

 

None

 

Stock Options

A summary of the Company’s stock option activity during the most recent period presented is as follows:

 

 

 

Time Vesting Options

 

 

Performance Vesting Options

 

 

Total Number of Stock Options

 

 

Weighted-Average Exercise Price

 

Outstanding as of December 31, 2022

 

 

15,651,622

 

 

 

9,882,278

 

 

 

25,533,900

 

 

$

2.31

 

Granted

 

 

1,712,812

 

 

 

 

 

 

1,712,812

 

 

$

8.89

 

Exercised

 

 

(5,083,942

)

 

 

(2,169,482

)

 

 

(7,253,424

)

 

$

0.93

 

Forfeited

 

 

(535,598

)

 

 

(7,682

)

 

 

(543,280

)

 

$

9.08

 

Outstanding as of December 31, 2023

 

 

11,744,894

 

 

 

7,705,114

 

 

 

19,450,008

 

 

$

3.21

 

Options vested or expected to vest as of
   December 31, 2023

 

 

11,306,317

 

 

 

7,705,114

 

 

 

19,011,431

 

 

$

7.15

 

Options exercisable as of December 31, 2023

 

 

8,090,645

 

 

 

7,705,114

 

 

 

15,795,759

 

 

$

1.74

 

 

The number and weighted-average grant date fair value of stock options during the most recent period presented is as follows:

 

 

 

Number of Stock Options

 

 

Weighted-Average
Grant Date Fair Value

 

 

 

Time Vesting Options

 

 

Performance Vesting Options

 

 

Time Vesting Options

 

 

Performance Vesting Options

 

Non-vested as of December 31, 2022

 

 

3,704,919

 

 

 

 

 

$

3.90

 

 

 

 

Non-vested as of December 31, 2023

 

 

3,629,454

 

 

 

 

 

$

4.39

 

 

 

 

Granted during the period

 

 

1,712,812

 

 

 

 

 

$

4.35

 

 

 

 

Vested during the period

 

 

1,311,898

 

 

 

 

 

$

3.18

 

 

 

 

Forfeited/canceled during the period

 

 

476,379

 

 

 

 

 

$

4.06

 

 

 

 

 

The total grant date fair value of Time Vesting Options granted during the year ended December 31, 2023 was approximately $7,456. The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $54,975, $63,104 and $99,844, respectively.

The fair value of stock options vested during the years ended December 31, 2023, 2022 and 2021 was $10,611, $19,717 and $328,839, respectively.

The weighted-average fair value of time vesting options granted in 2023, 2022 and 2021, estimated on the dates of grant using the Black-Scholes option pricing model, was $4.35, $4.85 and $5.12, respectively.

As of December 31, 2023 and 2022, the weighted-average remaining contractual life of outstanding stock options was approximately 3.67 years and 4.16 years.

As of December 31, 2023 and 2022, the weighted-average remaining contractual life of currently exercisable stock options was approximately 2.86 years and 3.94 years.

Restricted Stock Units

The following table summarizes our RSU activity during the periods presented as follows:

 

 

 

Restricted Stock Units

 

 

Weighted-Average Grant Date Fair Value

 

Unvested as of December 31, 2022

 

 

2,075,859

 

 

$

13.55

 

Granted

 

 

2,717,815

 

 

 

8.34

 

Vested

 

 

(694,100

)

 

 

13.60

 

Forfeited

 

 

(381,069

)

 

 

11.14

 

Unvested as of December 31, 2023

 

 

3,718,505

 

 

$

9.98

 

The total fair value of RSUs that vested during the year ended December 31, 2023 was $5,830.

As of December 31, 2023 and 2022, the weighted-average remaining contractual life of outstanding RSUs was approximately 8.97 years and 9.01 years, respectively.

Stock-Based Compensation Expense

The Company estimated a forfeiture rate of 8.82% for awards with service-based vesting conditions based on historical experience and future expectations of the vesting of these share-based payments. The Company used this rate as an assumption in calculating stock-based compensation expense for Time Vesting Options, RSUs, and stock purchase rights granted under the 2021 ESPP.

Total stock-based compensation expense, by caption, recorded in the consolidated statements of operations and comprehensive income (loss) for the periods presented is as follows:

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Cost of labor and chemicals

 

$

8,879

 

 

$

8,349

 

 

$

36,500

 

General and administrative

 

 

15,122

 

 

 

13,956

 

 

 

180,079

 

Total stock-based compensation expense

 

$

24,001

 

 

$

22,305

 

 

$

216,579

 

Income tax benefit for stock-based compensation expense

 

$

(4,380

)

 

$

(3,932

)

 

$

(50,932

)

 

Total stock-based compensation expense, by award type, recorded in the consolidated statements of operations and comprehensive income (loss) for the periods presented is as follows:

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Time Vesting Options

 

$

6,812

 

 

$

6,922

 

 

$

5,662

 

Performance Vesting Options

 

 

 

 

 

 

 

 

201,985

 

RSUs

 

 

16,230

 

 

 

13,984

 

 

 

6,585

 

2021 ESPP

 

 

959

 

 

 

1,399

 

 

 

2,347

 

Total stock-based compensation expense

 

$

24,001

 

 

$

22,305

 

 

$

216,579

 

 

As of December 31, 2023, total unrecognized compensation expense related to unvested Time Vesting Options was $6,914, which is expected to be recognized over a weighted-average period of 2.36 years.

As of December 31, 2023, there was no unrecognized compensation expense related to unvested Performance Vesting Options as the completion of the IPO satisfied the performance condition and as a result, all outstanding Performance Vesting Options vested.

As of December 31, 2023, total unrecognized compensation expense related to unvested RSUs was $17,475, which is expected to be recognized over a weighted-average period of 2.28 years.

As of December 31, 2023, total unrecognized compensation expense related to unvested stock purchase rights under the 2021 ESPP was $385, which is expected to be recognized over a weighted-average period of 0.37 years.

Modification of Stock Options

In February 2021, the Company modified a total of 7,874,304 shares of Performance Vesting Options for 12 grantees to provide for an additional service-based vesting condition related to the acceleration of vesting in

connection with a grantees’ death. The Company did not recognize current incremental stock-based compensation expense in connection with the modification during the years ended December 31, 2023 and 2022 because the grants vest upon the earlier of a performance condition or a service condition, neither of which are probable of occurring until the condition is met. The modification resulted in an incremental increase to unrecognized compensation expense related to unvested Performance Vesting Options of $75,217, which was recognized in June 2021 in connection with the completion of the IPO.

In June 2021, the Company modified all outstanding shares of Performance Vesting Options to remove, subject to the successful completion of the IPO, the requirement that the Principal Stockholders receive the Target Proceeds and the Maximum Amount as conditions for the Performance Vesting Options to vest. This modification resulted in incremental stock-based compensation expense of $117,708, which was recognized in June 2021 in connection with the completion of the IPO.