Stock-Based Compensation

9 Months Ended

Sep. 30, 2023

Equity Incentive Plan

Effective May 25, 2023, the Company adopted the NeoGenomics, Inc. 2023 Equity Incentive Plan (the “2023 Plan”) as approved by the Board of Directors on March 28, 2023 and the Company’s stockholders on May 25, 2023. The 2023 Plan replaced the NeoGenomics, Inc. Amended and Restated Equity Incentive Plan, as most recently amended and subsequently approved by the stockholders on May 25, 2017 (the “Prior Plan”). The 2023 Plan allows for the award of equity incentives including stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, and other stock-based awards to certain employees, directors, or officers of, or key non-employee advisers or consultants, including contracted physicians to the Company or its subsidiaries. The 2023 Plan provides that the maximum aggregate number of shares of the Company’s common stock reserved and available for issuance under the 2023 Plan is 3,975,000. Additionally, effective May 25, 2023, any remaining unissued shares from the Prior Plan are available for the grant of new awards under the 2023 Plan.

The Company recorded approximately $7.2 million and $4.3 million for stock-based compensation in general and administrative expenses on the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively, and approximately $17.6 million and $20.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Stock Options

The Company recorded approximately $3.0 million and $1.6 million for stock-based compensation related to stock options in general and administrative expenses on the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively, and approximately $7.0 million and $6.4 million for the nine months ended September 30, 2023 and 2022, respectively.

A summary of the stock option activity under the Company’s plans for the nine months ended September 30, 2023 is as follows:


	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2022	4,214,617	$	16.48
Granted	1,644,070	$	17.17

Exercised	(223,044)	$	10.70
Forfeited	(1,142,470)	$	21.11
Outstanding at September 30, 2023	4,493,173	$	15.84
Exercisable at September 30, 2023	1,126,578	$	21.05

The fair value of each stock option award granted during the nine months ended September 30, 2023 was estimated as of the grant date using a Black-Scholes model with the following assumptions:


			Nine Months Ended September 30, 2023
Expected term (in years)			4.0 - 6.5
Risk-free interest rate (%)			3.3% - 4.4%
Expected volatility (%)			53.3% - 67.9%
Dividend yield (%)			—
Weighted average grant date fair value per share			$9.04

As of September 30, 2023, there was approximately $15.8 million of unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 1.9 years.

Restricted Stock

The Company recorded approximately $3.4 million and $2.4 million for stock-based compensation related to restricted stock in general and administrative expenses on the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively, and approximately $8.9 million and $12.8 million for the nine months ended September 30, 2023 and 2022, respectively.

A summary of the restricted stock activity under the Company’s plans for the nine months ended September 30, 2023 is as follows:


	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2022	1,994,861	$	12.71
Granted	986,142	$	16.90
Vested	(548,543)	$	14.00
Forfeited	(385,489)	$	15.72
Nonvested at September 30, 2023	2,046,971	$	13.79

As of September 30, 2023, there was approximately $18.8 million of unrecognized stock-based compensation expense related to restricted stock that will be recognized over a weighted-average period of approximately 1.9 years.

Performance-Based Restricted Stock Units

In the second quarter of 2023, the Company granted 305,105 PSUs subject to a market condition to certain of its executives with an aggregated grant date fair value of approximately $6.7 million. The number of shares awarded will be subject to adjustment based on the achievement of a TSR performance target. If the TSR performance target is achieved, the awards will vest at the end of the three-year requisite service period so long as the employee remains employed with the Company through the applicable vesting date. Compensation cost for the PSUs is recognized straight-line over the requisite service period, regardless of when, if ever, the market condition is satisfied.

The Company recognized approximately $0.6 million and $0.9 million of stock-based compensation related to the PSUs in general and administrative expenses on the Consolidated Statements of Operations for the three and nine months ended September 30, 2023, respectively. There were no such amounts for the three and nine months ended September 30, 2022.

A summary of the PSU activity under the Company’s plans for the nine months ended September 30, 2023 is as follows:


	Number of Stock Units	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2022	—	$	—
Granted	305,105	$	21.83
Vested	—	$	—
Forfeited	—	$	—
Nonvested at September 30, 2023	305,105	$	21.83

The fair value of each PSU granted during the nine months ended September 30, 2023 was estimated as of the grant date using a Monte Carlo with the following assumptions:


			Nine Months Ended September 30, 2023
Expected term (in years)			3.0
Risk-free interest rate (%)			3.6% - 4.0%
Expected volatility (%)			68.4% - 69.9%
Dividend yield (%)			—
Weighted average grant date fair value per share			$21.83

As of September 30, 2023, there was approximately $5.8 million of unrecognized stock-based compensation expense related to PSUs that will be recognized over a weighted-average period of approximately 2.6 years.

Modification of Stock Option and Restricted Stock Awards

In the second quarter of 2023, upon the departure of certain executives from the Company and in accordance with the terms of each of their respective employment agreements, 101,937 previously granted time-based vesting stock option awards and 61,746 previously granted time-based vesting restricted stock awards accelerated vesting. The Company accounted for the effects of the accelerated vesting of these stock awards as modifications, and recognized $0.9 million of incremental stock-based compensation which consisted of $0.3 million and $0.6 million for the acceleration of stock option awards and restricted stock awards, respectively, within general and administrative expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2023. There were no such amounts for the three months ended September 30, 2023 and for the three and nine months ended September 30, 2022.

In the second quarter of 2022, upon the prior Chief Legal Officer’s departure from the Company and in accordance with the terms of the prior Chief Legal Officer’s employment agreement, 41,487 previously granted time-based vesting stock option awards and 76,138 previously granted time-based vesting restricted stock awards accelerated vesting. The Company accounted for the effects of the accelerated vesting of these stock awards as a modification, and recognized $2.2 million of incremental stock-based compensation which consisted of $0.3 million and $1.9 million for the acceleration of stock option awards and restricted stock awards, respectively, within general and administrative expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2022. There were no such amounts for the three and nine months ended September 30, 2023.

In the first quarter of 2022, upon the prior Chief Executive Officer’s departure from the Company and in accordance with the terms of the prior Chief Executive Officer’s separation agreement, 237,960 previously granted time-based vesting stock option awards and 142,302 previously granted time-based vesting restricted stock awards accelerated vesting. The Company accounted for the effects of the accelerated vesting of these stock awards as a modification, and recognized $5.9 million of incremental

stock-based compensation which consisted of $2.3 million and $3.6 million for the acceleration of stock option awards and restricted stock awards, respectively, within general and administrative expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2022. There were no such amounts for the three and nine months ended September 30, 2023.