Cardlytics, Inc.CDLX
Cardlytics, Inc. Stock Compensation Disclosure
STOCK-BASED COMPENSATION
In January 2018, our board of directors and stockholders approved an increase in the total number of shares of common stock issuable under our 2008 Stock Plan ("2008 Plan") to 4,020,000 shares. Our board of directors has adopted and our stockholders have approved our 2018 Equity Incentive Plan ("2018 Plan"). Our 2018 Plan became effective on February 8, 2018, the date our registration statement in connection with our IPO was declared effective. We do not expect to grant any additional awards under the 2008 Plan. Any awards granted under the 2008 Plan will remain subject to the terms of our 2008 Plan and applicable award agreements.
Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2018 Plan was the sum of (i) 1,875,000 shares plus (ii) 61,247 shares reserved, and remaining available for issuance, under our 2008 Plan at the time our 2018 Plan became effective and (iii) the number of shares subject to stock options or other stock awards granted under our 2008 Plan that would have otherwise returned to our 2008 Plan (such as upon the expiration or termination of a stock award prior to vesting). As of December 31, 2020, there were 1,222,316 shares of our common stock reserved for issuance under our 2018 Plan. The number of shares of our common stock reserved for issuance under our 2018 Plan will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2028, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. Accordingly, the number of shares of our common stock reserved for issuance under our 2018 Plan increased by 1,393,040 shares on January 1, 2021.
The 2018 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards and other forms of equity compensation, which are collectively referred to as stock awards. Additionally, the 2018 Plan provides for the grant of performance cash awards.
The following table summarizes the allocation of stock-based compensation on the consolidated statements of operations (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2018 | 2019 | 2020 | |||||||||||||||
| Delivery costs | $ | 633 | $ | 711 | $ | 1,181 | |||||||||||
| Sales and marketing expense | 9,358 | 4,248 | 9,857 | ||||||||||||||
| Research and development expense | 4,087 | 1,619 | 4,713 | ||||||||||||||
| General and administration expense | 12,712 | 9,273 | 16,645 | ||||||||||||||
| Total stock-based compensation expense | $ | 26,790 | $ | 15,851 | $ | 32,396 | |||||||||||
During 2018, 2019 and 2020, we capitalized less than $0.1 million, less than $0.1 million and $0.5 million, respectively, of stock-based compensation expense for software development.
Common Stock Options
The term of each option to purchase shares of our common stock pursuant to the Stock Plan is set by our board of directors or a committee thereof. Option awards are generally granted with an exercise price not less than the fair value per share of our common stock at the grant date. Option awards generally vest over four years and expire 10 years following the date of grant.
A summary of common stock option activity is as follows (in thousands, except per share amounts):
| Shares | Weighted-Average Exercise Price Per Share | Weighted Average Contractual Life (in years) | Aggregate Intrinsic Value(1) (in thousands) | ||||||||||||||||||||
| Outstanding - December 31, 2017 | 2,514 | $ | 18.42 | ||||||||||||||||||||
| Granted | 29 | 24.24 | |||||||||||||||||||||
| Exercised | (357) | 6.25 | |||||||||||||||||||||
| Forfeited | (197) | 24.10 | |||||||||||||||||||||
| Cancelled | (215) | 16.60 | |||||||||||||||||||||
| Outstanding - December 31, 2018 | 1,774 | $ | 20.55 | ||||||||||||||||||||
| Granted | 39 | 20.64 | |||||||||||||||||||||
| Exercised | (716) | 16.84 | |||||||||||||||||||||
| Forfeited | (31) | 23.95 | |||||||||||||||||||||
| Cancelled | (66) | 22.37 | |||||||||||||||||||||
| Outstanding - December 31, 2019 | 1,000 | $ | 22.99 | ||||||||||||||||||||
| Granted | — | — | |||||||||||||||||||||
| Exercised | (467) | 21.78 | $ | 29,523 | |||||||||||||||||||
| Forfeited | (19) | 27.83 | |||||||||||||||||||||
| Cancelled | (1) | 21.89 | |||||||||||||||||||||
| Outstanding - December 31, 2020 | 513 | $ | 23.91 | 5.67 | $ | 61,009 | |||||||||||||||||
| Exercisable - December 31, 2020 | 480 | $ | 23.72 | 5.62 | $ | 57,126 | |||||||||||||||||
(1)For options exercised during the year, the aggregate intrinsic value represents the total pre-tax intrinsic value received by option holders based on the closing price of our common stock as reported on the Nasdaq Global Market on the exercise date. For options outstanding and exercisable at December 31, 2020, the aggregate intrinsic value represents the total pre-tax intrinsic value based on the $142.77 closing price of our common stock as reported on the Nasdaq Global Market on December 31, 2020 that would have been received by option holders had all in-the-money options been exercised on that date.
The total fair value of options vested during 2018, 2019 and 2020 was approximately $6.0 million, $4.8 million and $2.3 million respectively. As of December 31, 2020, $0.3 million of unrecognized compensation expense related to unvested options will be recognized over a weighted-average period of 0.3 years. All stock option awards outstanding as of December 31, 2020 are expected to vest.
Restricted Stock Units
We grant restricted stock units ("RSUs") to employees and our non-employee directors. The following table summarizes changes in RSUs, inclusive of performance-based RSUs:
| Shares (in thousands) | Weighted-Average Grant Date Fair Value Per Share | Weighted-Average Remaining Contractual Term (in years) | Unamortized Compensation Costs (in thousands) | ||||||||||||||||||||
| Unvested - December 31, 2017 | — | $ | — | ||||||||||||||||||||
| Granted | 1,309 | 20.58 | |||||||||||||||||||||
| Vested | (850) | 21.93 | |||||||||||||||||||||
| Forfeited/canceled | (78) | 17.97 | |||||||||||||||||||||
| Unvested - December 31, 2018 | 381 | $ | 18.11 | ||||||||||||||||||||
| Granted | 1,978 | 17.78 | |||||||||||||||||||||
| Vested | (486) | 14.97 | |||||||||||||||||||||
| Forfeited/canceled | (132) | 18.92 | |||||||||||||||||||||
| Unvested - December 31, 2019 | 1,741 | $ | 18.55 | ||||||||||||||||||||
| Granted | 1,758 | 43.07 | |||||||||||||||||||||
| Vested | (779) | 28.56 | |||||||||||||||||||||
| Forfeited | (286) | 23.34 | |||||||||||||||||||||
| Unvested - December 31,2020 | 2,434 | $ | 32.49 | 2.80 | $ | 61,630 | |||||||||||||||||
Service-based Restricted Stock Units
During 2018, we granted 434,377 RSUs to our employees and non-employee directors, which have annual vesting periods ranging from one to four years. As of December 31, 2018, there was approximately $4.5 million of unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 2.4 years.
During 2019, we granted 725,832 RSUs to employees and our non-employee directors, which have annual vesting periods ranging from one to four years. As of December 31, 2019, there was approximately $20.4 million of unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 3.1 years.
During 2020, we granted 1,233,617 RSUs to employees, executives, and our non-employee directors, which have annual vesting periods ranging from one to four years. During 2020, we granted 47,690 immediately vesting RSUs to employees in lieu of cash-based incentive compensation. As of December 31, 2020, there was approximately $61.6 million of unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 2.8 years. The aggregate intrinsic value based on the $142.77 closing price of our common stock as reported on the Nasdaq Global Market on December 31, 2020 of unvested RSUs is $347.5 million as of December 31, 2020.
Subsequent to December 31, 2020, we granted 52,322 RSUs to employees, which have annual vesting periods ranging from one to four years. The unamortized stock-based compensation expense related to these RSUs is approximately $6.4 million.
Performance-based Restricted Stock Units
During 2018, we granted two separate tranches of performance-based RSUs ("2018 PSUs"), each to receive 437,500 shares of common stock, to executives. The vesting of the 875,000 2018 PSUs was contingent upon the completion of our IPO and includes other performance-based conditions. The performance condition in the first tranche was to be satisfied when we attained 70.0 million of FI monthly active users ("FI MAUs") within three years of the grant date. The performance condition in the second tranche was to be satisfied when we attained 85.0 million of average FI MAUs within five years of the grant date. FI MAUs is a performance metric defined within "Management's Discussion and Analysis of Financial Condition and Results of Operations." We recognize stock compensation for these 2018 PSUs based upon the expected timing of the achievement of these FI MAU targets. During 2018, 25,000 of the 2018 PSUs were forfeited prior to the FI MAU targets being reached. During 2018, both average FI MAU targets were reached, resulting in the vesting of both tranches of the 2018 PSUs and the issuance of 850,000 shares of our common stock to fully settle the 2018 PSUs. During 2018, we recognized $18.6 million of stock-based compensation expense related to these awards.
During 2019, we granted 1,252,500 performance-based RSUs (“2019 PSUs”). The 2019 PSUs are composed of four equal tranches, each of which have an independent performance-based vesting condition. The vesting criteria for the four tranches are as follows:
•a minimum growth rate in adjusted contribution over a trailing 12-month period,
•a minimum number of advertisers that are billed above a specified amount over a trailing 12-month period,
•a minimum cumulative adjusted EBITDA target over a trailing 12-month period, and
•a minimum trailing 30-day average closing price of our common stock.
The vesting conditions of each of the four tranches must be achieved within four years of the grant date. Upon a vesting event, 50% of the related tranche vests immediately, 25% of the related tranche vests six months after the achievement date and 25% of the related tranche vests 12 months after the achievement date. Adjusted EBITDA and adjusted contribution are performance metrics defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." In August and November 2019, the compensation committee of our board of directors certified that the target minimum trailing 30-day average closing price of our common stock and target minimum cumulative adjusted EBITDA over a trailing 12-month period, respectively, were achieved resulting in the immediate vesting of 50% of the related PSU tranches. In February 2020, 25% of the 30-day average closing price of our common stock PSU tranche vested upon the six-month anniversary of the tranche's achievement date and the remaining 25% of the tranche vested in August 2020 upon the twelve-month anniversary of the tranche's achievement date. In May 2020, 25% of the adjusted EBITDA tranche vested upon the six-month anniversary of the tranche's achievement date, and the remaining 25% of the tranche vested in November 2020 upon the twelve-month anniversary of the tranche's achievement date.
In April 2020, we granted 476,608 performance-based restricted stock units ("2020 PSUs"), of which 443,276 units have a performance-based vesting condition based on a minimum average revenue per user ("ARPU") target over a trailing 12-month period and 33,332 units have the same performance-based vesting conditions as those that remain unmet under the 2019 PSUs described above. ARPU is a performance metric defined within Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The ARPU vesting condition must be achieved within four years of the grant date. Upon the vesting event, 50% of the award vests immediately, 25% of the award vests six months after achievement date and 25% of the award vests 12 months after the achievement date.
Restricted Securities Units
During 2016, we granted $1.0 million of restricted securities units to certain executives in lieu of cash bonuses. Upon issuance, the restricted securities units were indexed to the 2016 convertible promissory notes. As a result of the Series G Stock financing in 2017, the restricted securities units became indexed to our Series G’ Stock upon conversion of the 2016 convertible promissory notes. Upon the consummation of our IPO in February 2018, the restricted securities units became indexed to our common stock.
Vesting requirements included both a service-based condition and a performance-based condition. The service-based condition required each recipient to remain employed until the earlier of i) the date 6 months from the restricted securities unit grant date, ii) the date of a qualified liquidity event, or iii) date of termination without cause. The performance-based condition required a sale of the Company or IPO event within a fixed period of time not more than 5 years from the restricted securities units grant date. The restricted securities units were considered liability classified awards, but due to the performance condition relating to sale of the Company or IPO, no compensation cost was recognized until one of these events occurred. These units vested upon the consummation of our IPO in February 2018, resulting in a non-cash expense of $0.5 million, and were settled upon the delivery of 37,406 shares of our common stock in August 2018.
Employee Stock Purchase Plan
Our board of directors adopted and our stockholders have approved our 2018 Employee Stock Purchase Plan ("2018 ESPP"). Our 2018 ESPP became effective on February 8, 2018, the date our registration statement in connection with our IPO was declared effective and enables eligible employees to purchase shares of our common stock at a discount. Purchases will be accomplished through participation in discrete offering periods. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock on the first trading day of the offering period or the date of purchase. During 2018, 2019 and 2020, a total of 177,238, 154,601 and 59,173 shares of common stock were purchased by employees under the 2018 ESPP, respectively.
As of December 31, 2020, 474,120 shares of common stock were reserved for issuance pursuant to our 2018 ESPP. Additionally, the number of shares of our common stock reserved for issuance under our 2018 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2019 and continuing through and including January 1, 2026, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (ii) 500,000 shares of our common stock or (iii) such lesser number of shares of common stock as determined by our board of directors. Accordingly, the number of shares of our common stock reserved for issuance under our 2018 ESPP increased by 278,608 shares on January 1, 2021. Shares subject to purchase rights granted under our 2018 ESPP that terminate without having been issued in full will not reduce the number of shares available for issuance under our 2018 ESPP.About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.