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Note 9 - Share-based Compensation

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

9. Share-based compensation

On June 8, 2022, the stockholders of the Company approved the Fluent, Inc. 2022 Omnibus Equity Incentive Plan (the "2022 Plan") that authorized for issuance 2,570,421 shares of the Company's common stock. As of September 30, 2024, the Company had 488,254 shares of common stock available for grants pursuant to the 2022 Plan, which includes 262,517 shares of common stock previously available for issuance under the 2018 Stock Incentive Plan.

The primary purpose of the 2022 Plan and prior plans is to attract, retain, reward, and motivate certain individuals by providing them with opportunities to acquire or increase their ownership interests in the Company. In October 2022, the Company issued to certain of its senior officers and employees, RSUs (time-based vesting), long-term incentive grants (performance and time-based vesting RSUs), or performance share units ("PSUs") (achievement of performance targets settled in cash) under the 2022 Plan.

Stock options

In January 2019, the Compensation Committee of the Company's Board of Directors approved the grant of stock options to certain Company executives, which were issued on February 1, 2019, December 20, 2019, March 1, 2020, and March 1, 2021. Subject to continuing service, 50% of the shares subject to these stock options will vest if the Company's stock price remains above 125.00%, 133.33%, 133.33% and 133.33%, respectively, of the exercise price for 20 consecutive trading days, and the remaining 50% of the shares subject to these stock options will vest if the Company's stock price remains above 156.25%, 177.78%, 177.78% and 177.78%, respectively, of the exercise price for 20 consecutive trading days; provided, that no shares will vest prior to the first anniversary of the grant date.

As of September 30, 2024, the first condition for the stock options issued on February 1, 2019, December 20, 2019 and March 1, 2020 had been met, and the second condition for the stock options issued on December 20, 2019 and March 1, 2020 had been met. Any shares that remain unvested as of the fifth anniversary of the grant date will vest in full on such date. The fair value of the stock options granted was estimated at the trading day before the date of grant using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:

Issuance Date		*February 1, 2019*				*December 20, 2019*				*March 1, 2020*				*March 1, 2021*
Fair value lower range		$	16.86			$	9.48			$	8.76			$	26.04
Fair value higher range		$	17.16			$	9.66			$	8.94			$	26.58
Exercise price		$	28.32			$	15.36			$	13.98			$	37.98
Expected term (in years)			1.0 - 1.3				1.0 - 1.6				1.0 - 1.5				1.0 - 1.3
Expected volatility			65	%			70	%			70	%			80	%
Dividend yield			—	%			—	%			—	%			—	%
Risk-free rate			2.61	%			1.85	%			1.05	%			1.18	%

On September 9, 2024, the Compensation Committee of the Company's Board of Directors approved the grant of stock options to the Company's Chief Financial Officer in connection with his employment agreement. Subject to continuing service, 50% of the shares subject to these stock options will vest when the average closing price of the Company's common stock is equal to three times the exercise price of the option for ten consecutive trading days, and the remaining 50% of the shares subject to these stock options will vest when the average closing price of the Company's common stock is equal to five times the exercise price of the option for ten consecutive trading days. Notwithstanding the foregoing, the options will immediately vest upon the occurrence of certain conditions such as a change in control. The fair value of the stock option granted was estimated at the trading day of the date of the grant using a Monte Carlo simulation model. The key assumptions utilized to calculate the grant-date fair value for the award is summarized below:

Issuance Date		September 9, 2024
Fair value lower range		$	—
Fair value higher range		$	15.59
Exercise price		$	2.75
Expected term (in years)			3.0 - 4.3
Expected volatility			65	%
Dividend yield			—	%
Risk-free rate			3.7	%

For the nine months ended September 30, 2024, details of stock option activity were as follows:

		*Number of options*				*Weighted average exercise price per share*				*Weighted average remaining contractual term (in years)*				*Aggregate intrinsic value*
Outstanding as of December 31, 2023			302,333			$	25.68				5.4			$	—
Granted⁽¹⁾			136,667				3.06				9.8				114
Exercised			—				—				—				—
Forfeited			(41,333	)			—				—				—
Outstanding as of September 30, 2024			397,667			$	21.74				5.8			$	114
Options exercisable as of September 30, 2024			249,001			$	25.78				4.6			$	—

(1)Balance includes the stock options granted on June 3, 2024 to one employee of the Company totaling 16,667 that vest equally over four annual installments and are exercisable for ten years after the grant date.

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of the Company's common stock at the end of the reporting period and the corresponding exercise prices, multiplied by the number of in-the-money stock options as of the same date.

For the nine months ended September 30, 2024, the unvested balance of stock options was as follows:

		*Number of stock options*				*Weighted average exercise price per share*				*Weighted average remaining contractual term (in years)*
Unvested as of December 31, 2023			123,833			$	29.72				5.4
Granted⁽¹⁾			136,667				3.06				9.8
Forfeited			(6,000	)			—				—
Vested			(105,834	)			—				—
Unvested as of September 30, 2024			148,666			$	5.66				9.6

(1)Balance includes the stock options granted on June 3, 2024 to one employee of the Company totaling 16,667 that vest equally over four annual installments and are exercisable for ten years after the grant date.

Compensation expense recognized for stock options was $4 and $0 for the three months ended September 30, 2024 and 2023, respectively, and $5 and $0 for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, there was $264 of unrecognized share-based compensation with respect to outstanding stock options.

Restricted stock units and restricted stock

For the nine months ended September 30, 2024, details of unvested RSU activity were as follows:

		*Number of units*				*Weighted average grant-date fair value*
Unvested as of December 31, 2023			731,538			$	25.95
Granted			697,211				3.62
Vested and delivered			(305,348	)			10.40
Withheld as treasury stock ⁽¹⁾			—				—
Vested not delivered ⁽²⁾			3,833				10.60
Forfeited			(133,611	)			11.59
Unvested as of September 30, 2024			993,623				17.40

(1)	As discussed in Note 8, Equity, the treasury stock was related to shares withheld to cover statutory withholding taxes upon the delivery of shares following the vesting of RSUs. As of September 30, 2024, there were 768,595 outstanding shares of treasury stock.

(2)

Vested not delivered represents vested RSUs with delivery deferred to a future time. For the nine months ended September 30, 2024, there was a change in the vested not delivered balance due to a net 568 shares that were deferred due to timing of delivery of certain shares, along with 3,265 shares that elected deferred delivery. As of September 30, 2024, 286,099 outstanding RSUs were vested not delivered.

Compensation expense recognized for RSUs of $466 and $982 for the three months ended September 30, 2024 and 2023, respectively, and $1,517 and $3,090 for the nine months ended September 30, 2024 and 2023, respectively, was recorded in sales and marketing, product development and general and administrative in the consolidated statements of operations, and intangible assets, net in the consolidated balance sheets. The fair value of the RSUs and restricted stock was estimated using the closing prices of the Company's common stock on the dates of grant.

As of September 30, 2024, unrecognized share-based compensation expense associated with the granted RSUs and stock options amounted to $2,734, which is expected to be recognized over a weighted average period of 2.1 years.

For the three and nine months ended September 30, 2024 and 2023, share-based compensation for the Company's stock options, RSUs, and common stock awards were allocated to the following accounts in the consolidated financial statements:

		*Three Months Ended September 30,*								*Nine Months Ended September 30,*
		*2024*				*2023*				*2024*				*2023*
Sales and marketing			22			$	123			$	163			$	419
Product development			74				158				174				485
General and administrative			364				680				1,146				2,114
Share-based compensation expense			460				961				1,483				3,018
Capitalized in intangible assets			10				21				39				72
Total share-based compensation		$	470			$	982			$	1,522			$	3,090

As of September 30, 2024 and December 31, 2023, the Company recorded a liability of $29 and $22, respectively, related to PSUs that are to be settled in cash.