Stockholders' Equity | 16. STOCKHOLDERS’ EQUITY Authorized Capital Stock— The Company was authorized to issue 190,000,000 shares of common stock, with a par value of $ 0.000004 per share as of March 31, 2023 and December 31, 2022. Common Stock Issuances — The Co mpany issued the following shares of common stock: Three Months Ended March 31, 2023 2022 Shares Average Price per Share Total Shares Average Price per Share Total Exercise of options 124,455 $ 21.61 $ 2,690 30,607 $ 14.03 $ 429 Restricted shares, net (1) 90,116 36.81 — 25,289 66.58 — Total 214,571 $ 27.99 $ 2,690 55,896 $ 37.81 $ 429 (1) Represents the non-cash release of common shares due to the vesting of restricted stock. Employee Equity Incentive Plans —The Company has two plans under which stock-based awards have been issued: (i) the Montrose Amended & Restated 2017 Stock Incentive Plan (“2017 Plan”) and (ii) the Montrose Amended & Restated 2013 Stock Option Plan (“2013 Plan”) (collectively the “Plans”). As of March 31, 2023, and March 31, 2022, there was $ 146.6 million and $ 173.1 million, respectively, of total unrecognized stock compensation expense related to unvested options, restricted stock and stock appreciation rights granted under the Plans. Such unrecognized expense is expected to be recognized over a weighted-average four year period. The following number of shares were authorized to be issued and available for grant: March 31, 2023 2017 Plan 2013 Plan Total Shares authorized to be issued 6,329,913 2,037,019 8,366,932 Shares available for grant (1) 893,522 — 893,522 March 31, 2022 2017 Plan 2013 Plan Total Shares authorized to be issued 8,272,487 1,904,644 10,177,131 Shares available for grant (1) 577,139 — 577,139 (1) In January 2023 and January 2022 the Board of Directors ratified the addition of 1,189,801 and 1,185,112 shares of common stock, respectively, to the number of shares available for issuance under the 2017 Plan pursuant to the annual increase provision of such plan. Unless the Board of Directors determines otherwise, additional annual increases will be effective on each January 1, through January 1, 2027. The 2017 Plan permits the company to settle awards, if and when vested, in cash at its discretion. Pursuant to the terms of the 2017 Plan, the number of shares authorized for issuance thereunder will only be reduced with respect to shares of common stock actually issued upon exercise or settlement of an award. Shares of common stock subject to awards that have been canceled, expired, forfeited or otherwise not issued under an award and shares of common stock subject to awards settled in cash do not count as shares of common stock issued under the 2017 Plan. Shares available for grant exclude awards of stock appreciation rights approved in December 2021 that are subject to vesting based on the achievement of certain market conditions, which have not yet been, and may not be, a chieved. See footnote 1 to the table in Common Stock Reserved for Future Issuance below for additional information on stock appreciation rights. Total stock compensation expense for the Plans was as follows: Three Months Ended March 31, 2023 2022 2017 plan 2013 2017 plan 2013 Options Restricted SARs Options Total Options Restricted SARs Options Total Cost of revenue $ 349 $ 543 $ — $ — $ 892 $ 294 $ — $ — $ — $ 294 Selling, general and 1,724 8,154 2,265 — 12,143 1,979 5,792 2,360 — 10,131 Total $ 2,073 $ 8,697 $ 2,265 $ — $ 13,035 $ 2,273 $ 5,792 $ 2,360 $ — $ 10,425 Montrose Amended & Restated 2017 Stock Incentive Plan Restricted Stock Awards and Restricted Stock Units— The Company issues restricted stock awards ("RSAs") to certain 2017 Plan participants as Director’s compensation. There were 17,346 and 10,920 RSAs granted during the three months ended March 31, 2023 and March 31, 2022, respectively. These RSAs vest one year from the date of grant, or, in each case, in full upon a change in control, subject to the participant’s continued service as a Director throughout such date, or upon retirement. Members of the Board of Directors that receive stock-based compensation are treated as employees for accounting purposes. In the first quarter of 2023, the Board of Directors approved the grant of 200,423 restricted stock units (“RSUs”) to certain senior non-executive employees of the Company, in lieu of options. These RSUs represent the right to receive one share of the Company’s common stock upon vesting. These RSUs vest annually over a 4-year period from the date of grant, subject to continued service through each such date. In the first quarter of 2023 and 2022, the Board of Directors approved the grant of RSUs under certain supplemental incentive plans ("SI Plans"). There were 246,417 and 95,404 RSUs issued under these SI Plans during the three months ended March 31, 2023 and March 31, 2022, respectively. The majority of the RSUs issued in the first quarter of 2023 vested 1/3 on the date of grant, and will vest 1/3 on the one-year anniversary of the grant, and 1/3 on the two-year anniversary of the grant, subject to continued service through each such date. The remaining RSUs vest a nnually over a 4-year period fro m the date of grant, subject to continued service through each such date. RSAs and RSUs activity was as follows: Three Months Ended March 31, 2023 2022 Shares Average Price per Share Fair Value Shares Average Price per Share Fair Value Awards granted 464,186 $ 32.62 $ 15,140 106,324 $ 46.82 $ 4,978 There were an aggregate of 90,116 and 25,289 shares underlying RSAs and RSUs that became fully vested and were released as unrestricted shares of common stock during the three months ended March 31, 2023 and March 31, 2022 , respectively. There were no forfeitures of RSAs or RSUs during the three months ended March 31, 2023 and March 31, 2022. There were an aggregate of 2,528,383 and 2,064,197 shares underlying outstanding RSAs and RSUs awards as of March 31, 2023 and March 31, 2022, respectively. Stock Appreciation Rights— As of M arch 31, 2023, there were 3,000,000 units of stock appreciation rights (“SARs”) outstanding under the 2017 Plan. These SARs represent the right to receive, upon exercise, a payment equal to the excess of (a) the fair market value of one share of the Company’s common stock, over (b) an exercise price of $ 66.79 , payable, at the Company’s election, in cash or shares of common stock. These SARs vest on the 5th anniversary of the date of grant based on achievement of performance hurdles over a five year period, subject to continued service on the vesting date. The performance hurdles are as follows: SARs Stock Price Performance Hurdle Portion of SARs Subject to Performance Hurdle $ 133.58 1/3 $ 166.98 1/3 $ 200.37 1/3 The performance hurdles shall be deemed achieved if the average trading price per share of the Company’s common stock equals or exceeds the applicable stock price performance hurdle set forth above for the trading days falling in a consecutive 20-day period prior to the vesting date. None of the market conditions have been achieved as of March 31, 2023. The SARs expire 10 years after the grant date. The fair value of these SARs at the grant date was $ 46.0 million. The weighted average remaining contract life of these SARs as of March 31, 2023 was 8.71 years. Options —Options issued to all optionees under the 2017 P lan vest over 4-years from the date of issuance (or earlier vesting start date, as determined by the Board of Directors) as follows: one half on the second anniversary of date of grant and the remaining half on the fourth anniversary of the date of grant, with the exception of certain annual grants to certain executive officers, which vest annually over a 3-year and 1-year period. The following summarizes the options activity of the 2017 Plan: Options to Weighted- Weighted Weighted Aggregate Outstanding as of January 1, 2022 2,036,729 $ 26 $ 14 8.30 $ 91,030 Granted 547,884 44 16 — — Forfeited/ cancelled ( 23,082 ) 36 — — — Exercised ( 11,547 ) 27 — — 313 Outstanding as of March 31, 2022 2,549,984 30 14 8.46 59,955 Outstanding as of January 1, 2023 2,579,566 $ 31 $ 15 7.76 $ 37,292 Granted 233,955 32 14 — — Forfeited/ cancelled ( 34,619 ) 35 — — — Exercised ( 101,279 ) 25 — — 2,467 Outstanding as of March 31, 2023 2,677,623 $ 31 $ 15 7.78 $ 21,127 Exercisable at March 31, 2023 1,305,511 29 — 7.19 11,880 The following weighted-average assumptions were used in the Black-Sholes option-pricing model calculation: March 31, March 31, 2023 2022 Common stock value (per share) $ 32.16 $ 44.11 Expected volatility 33.79 % 33.45 % Risk-free interest rate 3.72 % 1.74 % Expected life (years) 7.00 6.33 Forfeiture rate None None Dividend rate None None Montrose Amended & Restated 2013 Stock Option Plan — The following summarizes the activity of the 2013 Plan: Options to Weighted- Weighted Weighted Aggregate Outstanding as of January 1, 2022 897,674 $ 6 $ 2 4.37 $ 57,529 Exercised ( 19,060 ) 6 — — 821 Outstanding as of March 31, 2022 878,614 6 2 4.13 40,860 Outstanding as of January 1, 2023 855,695 $ 6 $ 2 3.31 $ 32,478 Exercised ( 23,176 ) 9 — — 963 Outstanding as of March 31, 2023 832,519 $ 6 $ 2 3.03 $ 24,393 Exercisable at March 31, 2023 832,519 6 — 3.03 24,393 Total shares outstanding from exercised options were 1,434,885 shares and 1,239,697 share s as of March 31, 2023 and March 31, 2022, respectively. Common Stock Reserved for Future Issuances — The Company has reserved certain stock of its authorized but unissued common stock for possible future issuance in connection with the following: March 31, 2023 2022 Montrose 2013 Stock Incentive Plan 832,519 878,614 Montrose 2017 Stock Incentive Plan (1) 8,722,930 7,893,918 Total 9,555,449 8,772,532 (1) In January 2023 and 2022, the Board of Directors ratified the addition of 1,189,801 and 1,185,112 sha res of common stock, respectively, to the number of shares available for issuance under the 2017 Plan pursuant to the annual increase provision of such plan. Unless the Board of Directors determines otherwise, additional annual increases will be effective on each January 1, through January 1, 2027. The 2017 Plan permits the company to settle awards, if and when vested, in cash at its discretion. Pursuant to the terms of the 2017 Plan, the number of shares authorized for issuance thereunder will only be reduced with respect to shares of common stock actually issued upon exercise or settlement of an award. Shares of common stock subject to awards that have been canceled, expired, forfeited or otherwise not issued under an award and shares of common stock subject to awards settled in cash do not count as shares of common stock issued under the 2017 Plan. The Company expects to have sufficient shares available under the 2017 Plan to satisfy the future settlement of outstanding awards. Shares reserved for future issuance include 3,000,000 shares underlying the 3,000,000 performance SARs granted in December 2021 that are subject to vesting based on the achievement of certain market conditions. Assuming achievement at the highest price performance hurdle, approximately 2,000,000 shares of common stock would be issued upon vesting of these performance SARs. To date, none of the market conditions have been achieved. |