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STOCK-BASED COMPENSATION
12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION
Stock-Based Compensation Plans
The Company maintains the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan, the 2016 Inducement Award Plan and the 2000 Stock Option and Incentive Plan (collectively, the “Stock Plans”).
2000 Stock Option and Incentive Plan.  The Company adopted the 2000 Stock Option and Incentive Plan (the “2000 Option Plan”) on October 17, 2000. The 2000 Option Plan expired October 17, 2010 and after such date no further awards could be granted under the plan. Under the terms of the 2000 Option Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2000 Option Plan expire ten years from the date of grant. Grants made from the 2000 Option Plan generally vest over a period of three to four years.
The 2000 Option Plan was administered by the compensation committee of the Company’s board of directors, which selected the individuals to whom equity-based awards would be granted and determined the option exercise price and other terms of each award, subject to the provisions of the 2000 Option Plan. The 2000 Option Plan provides that upon an acquisition of the Company, all options to purchase common stock will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all options then outstanding under the 2000 Option Plan held by that employee will immediately become exercisable. At December 31, 2019, options to purchase 6,505 shares were outstanding under the 2000 Option Plan. There were no shares of restricted stock outstanding under the 2000 Option Plan.
2010 Omnibus Long-Term Incentive Plan.  The Company adopted the 2010 Omnibus Long-Term Incentive Plan (the “2010 Stock Plan”) on July 16, 2010. The 2010 Stock Plan will expire on July 16, 2020 and after such date no further awards may be granted under the plan. Under the terms of the 2010 Stock Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2010 Stock Plan expire ten years from the date of grant. Grants made from the 2010 Stock Plan generally vest over a period of three to four years.
The 2010 Stock Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity-based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2010 Stock Plan. The 2010 Stock Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2010 Stock Plan held by that employee will immediately vest. At December 31, 2019, options to purchase 2,043,383 shares were outstanding under the 2010 Stock Plan and 3,462,321 shares of restricted stock and restricted stock units were outstanding. At December 31, 2019, there were no shares available for future grant under the 2010 Stock Plan.
2019 Omnibus Long-Term Incentive Plan. The Company adopted the 2019 Omnibus Long-Term Incentive Plan (the “2019 Stock Plan”) on July 25, 2019. The 2019 Stock Plan will expire on July 25, 2029 and after such date no further awards may be granted under the plan. Under the terms of the 2019 Stock Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2019 Stock Plan expire ten years from the date of grant. Grants made from the 2019 Stock Plan generally vest over a period of three to four years.
The 2019 Stock Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity-based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2019 Stock Plan. The 2019 Stock Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2019 Stock Plan held by that employee will immediately vest. At December 31, 2019, options to purchase 650,405 shares were outstanding under the 2019 Stock Plan and 356,594 shares of restricted stock and restricted stock units were outstanding. At December 31, 2019, there were 7,560,301 shares available for future grant under the 2019 Stock Plan.
2016 Inducement Award Plan.  The Company adopted the 2016 Inducement Award Plan (the “2016 Inducement Plan”) on January 25, 2016. The 2016 Inducement Plan expired on July 27, 2017, and after such date no further awards could be granted under the plan. Under the terms of the 2016 Inducement Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees who were not previously an employee of the Company or any of its Subsidiaries. Options granted under the 2016 Inducement Plan expire ten years from the date of grant. Grants made from the 2016 Inducement Plan generally vest over a period of three to four years.
The 2016 Inducement Plan was administered by the compensation committee of the Company’s board of directors, which selected the individuals to whom equity-based awards would be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2016 Inducement Plan. The 2016 Inducement Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2016 Inducement Plan held by that employee will immediately vest. At December 31, 2019, there were 229,691 shares of restricted stock and restricted stock units outstanding under the 2016 Inducement Award Plan. At December 31, 2019, there were no shares available for future grant under the 2016 Inducement Plan.
2010 Employee Stock Purchase Plan.  The 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) was adopted by the Company on July 16, 2010. The 2010 Purchase Plan provides participating employees the right to purchase shares of common stock at a discount through a series of offering periods. The 2010 Purchase Plan will expire on October 31, 2030. On July 24, 2014, the Company’s stockholders approved an amendment to the 2010 Employee Stock Purchase Plan to increase the number of shares available for purchase thereunder by 500,000 shares. On July 28, 2016 the Company’s stockholders approved an amendment to the 2010 Employee Stock Purchase Plan to increase the number of shares available for purchase thereunder by 2,000,000 shares. At December 31, 2019, there were 1,879,636 shares of common stock available for purchase by participating employees under the 2010 Purchase Plan.
The compensation committee of the Company’s board of directors administers the 2010 Purchase Plan. Generally, all employees whose customary employment is more than 20 hours per week and more than five months in any calendar year are eligible to participate in the 2010 Purchase Plan. Participating employees authorize an amount, between 1 percent and 15 percent of the employee’s compensation, to be deducted from the employee’s pay during the offering period. On the last day of the offering period, the employee is deemed to have exercised the employee’s option to purchase shares of Company common stock, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the 2010 Purchase Plan, the option exercise price is an amount equal to 85 percent of the fair market value, as defined under the 2010 Purchase Plan, and no employee can purchase more than $25,000 of Company common stock under the 2010 Purchase Plan in any calendar year. Rights granted under the 2010 Purchase Plan terminate upon an employee’s voluntary withdrawal from the 2010 Purchase Plan at any time or upon termination of employment. At December 31, 2019, there were 1,739,921 cumulative shares issued under the 2010 Purchase Plan, and 176,458 shares were issued in the year ended December 31, 2019, as follows:
Offering period ended
Number of Shares
Weighted Average
price per Share
April 30, 201993,591  $44.23  
October 31, 201982,867  $51.51  
Stock-Based Compensation Expense
The Company recorded approximately $108.5 million, $60.3 million, and $35.5 million in stock-based compensation expense during the years ended December 31, 2019, 2018, and 2017, respectively, in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors. Non-cash stock-based compensation expense by expense category for the years ended December 31, 2019, 2018, and 2017 is as follows:
December 31,
(In thousands)
201920182017
Cost of sales
$5,799  $3,531  $1,783  
Research and development
17,196  10,189  6,836  
General and administrative
64,222  34,181  20,221  
Sales and marketing
21,266  12,363  6,672  
Total stock-based compensation
$108,483  $60,264  $35,512  
In connection with the April 2018 transition of the Company’s former Chief Operating Officer, the Company accelerated the vesting of 69,950 shares under his previously unvested stock options and 54,350 shares under his previously unvested restricted stock units whereby such unvested stock options and unvested restricted stock units vest on December 31, 2018. It was determined that the continuing service to be provided by the Company’s Chief Operating Officer to the Company through December 31, 2018 was substantive and, as a result, the Company recognized the additional non-cash stock-based compensation expense for the modified awards evenly over the transition term of April 25, 2018 to December 31, 2018. During the year ended December 31, 2018, the Company recorded $3.9 million of non-cash stock-based compensation expense for the modified awards.
In connection with the combination with Genomic Health, the Company accelerated the vesting of 364,281 shares of previously unvested stock options and 70,138 shares of previously unvested restricted stock units for employees with qualifying termination events. The Company recognized the additional non-cash stock-based compensation as of December 31, 2019. During the year ended December 31, 2019, the Company recorded $21.6 million of non-cash stock-based compensation expense for the accelerated awards.
Determining Fair Value
Valuation and Recognition—The fair value of each service-based option award is estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of each market measure-based award is estimated on the date of grant using a Monte Carlo simulation pricing model. The fair value of service-based awards for each restricted stock unit award is determined on the date of grant using the closing stock price on that day. The estimated fair value of these awards is recognized to expense using the straight-line method over the vesting period. For awards that vest when a performance condition is achieved, the Company performs an evaluation of internal and external factors to determine the number of shares that are most likely to vest based on the probability of what performance conditions will be met. The Black-Scholes and Monte Carlo pricing models utilize the following assumptions:
Expected Term—Expected life of an option award is the average length of time over which the Company expects employees will exercise their options, which is based on historical experience with similar grants. Expected life of a market measure-based award is based on the applicable performance period.
Expected Volatility—Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.
Risk-Free Interest Rate—The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.
Forfeitures—The Company recognizes forfeitures as they occur.
The fair value of each option is based on the assumptions in the following table:
Year Ended December 31
201920182017
Option Plan Shares
Risk-free interest rates2.54% - 2.59%  2.73% - 2.79%  2.1% - 2.2%  
Expected term (in years)6.285.45 - 6.446.51 - 6.59
Expected volatility64.95% - 64.99%  61.82% - 66.17%  62.1% - 62.95%  
Dividend yield0%  0%  0%  
Weighted average fair value per share of options granted during the period$57.11  $24.55  $25.23  
ESPP Shares
Risk-free interest rates1.6%-2.4%  2.1%-2.8%  1% - 1.6%  
Expected term (in years)0.4 - 2.00.5 - 2.00.5 - 2.0
Expected volatility43.2% - 57.6%  51.7% - 65.4%  45% - 85.5%  
Dividend yield0%  0%  0%  
Weighted average fair value per share of stock purchase rights granted during the period$29.21  $20.47  $17.87  
Stock Option, Restricted Stock, and Restricted Stock Unit Activity
A summary of stock option activity under the Stock Plans during the years ended December 31, 2019, 2018, and 2017 is as follows:
OptionsSharesWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 20173,505,481  $7.00  5.5
Granted953,097  21.97  
Exercised(1,067,120) 4.78  
Forfeited(30,997) 13.90  
Outstanding, December 31, 20173,360,461  $11.89  6.4
Granted343,566  44.37  
Exercised(1,033,012) 6.42  
Forfeited(139,454) 24.07  
Outstanding, December 31, 20182,531,561  $17.86  6.6
Granted186,044  92.61  
Assumed through acquisition650,405  60.02  
Exercised(641,925) 13.69  
Forfeited(25,792) 33.25  
Outstanding, December 31, 20192,700,293  $34.01  6.7$158,466  
Exercisable, December 31, 20191,411,179  $24.17  5.7$96,608  
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(1)The total intrinsic value of options exercised during the years ended December 31, 2019, 2018, and 2017 was $52.0 million, $53.0 million, and $47.0 million, respectively, determined as of the date of exercise.
A summary of restricted stock and restricted stock unit activity under the Stock Plans during the years ended December 31, 2019, 2018, and 2017 is as follows:
Restricted
Shares 
 Weighted
Average Grant
Date Fair Value 
 
Outstanding, January 1, 20175,601,316  $9.19  
Granted2,035,679  33.04  
Released(1,132,265) 14.24  
Forfeited(355,952) 19.68  
Outstanding, December 31, 20176,148,778  $9.19  
Granted1,686,385  50.49  
Released(1,277,727) 21.66  
Forfeited(311,262) 24.39  
Outstanding, December 31, 20186,246,174  $23.16  
Granted1,800,467  93.26  
Assumed through acquisition528,420  79.95  
Released(3,952,372) 16.50  
Forfeited(238,684) 57.28  
Outstanding, December 31, 20194,384,005  $63.30  
As of December 31, 2019, there was approximately $214.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. The Company expects to recognize that cost over a weighted average period of 2.43 years.
The Company received approximately $8.8 million, $6.6 million, and $5.1 million from stock option exercises during the years ended December 31, 2019, 2018 and 2017, respectively. During the years ended December 31, 2019, 2018, and 2017, 176,458, 346,609, and 423,423 shares of common stock, respectively, were issued under the Company’s 2010 Purchase Plan, resulting in proceeds to the Company of $8.4 million, $4.9 million, and $2.8 million, respectively.
Shares Reserved for Issuance
The Company has reserved shares of its authorized common stock for issuance pursuant to its employee stock purchase and equity plans, including all outstanding stock option grants noted above at December 31, 2019, as follows:
Shares reserved for issuance
2019 Stock Plan7,560,301  
2010 Purchase Plan
1,879,636  
9,439,937