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STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2019
STOCK-BASED COMPENSATION  
STOCK-BASED COMPENSATION

(5) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company maintains the 2019 Omnibus Long-Term Incentive Plan, the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2010 Employee Stock Purchase Plan, the 2015 Inducement Award Plan, the 2016 Inducement Award Plan and the 2000 Stock Option and Incentive Plan (collectively, the “Stock Plans”). At the Company’s 2019 Annual Stockholders Meeting held July 25, 2019, the Company’s stockholders approved the Company’s 2019 Omnibus Long-Term Incentive Plan.

Stock-Based Compensation Expense

The Company records stock-based compensation expense in connection with the amortization of restricted stock and restricted stock unit awards (“RSUs”), 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. The Company recorded $24.3 million and $60.7 million in stock-based compensation expense during the three and nine months ended September 30, 2019. The Company recorded $16.5 million and $44.6 million in stock-based compensation expense during the three and nine months ended September 30, 2018.

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 vested 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 through December 31, 2018. During the transition period in 2018, the Company recorded $3.9 million of non-cash stock-based compensation expense for the modified awards.

In February 2019, the Company issued performance-based equity awards to certain employees which vest upon the achievement of certain performance goals, including financial performance targets and operational milestones. Determining the appropriate amount to expense based on the anticipated achievement of the stated goals requires judgment, including forecasting future financial results. The estimate of the timing of the expense recognition is revised periodically based on the probability of achieving the goals and adjustments are made as appropriate. The cumulative impact of any revision is reflected in the period of the change. If the financial performance targets and operational milestones are not achieved, the award would not vest, so no compensation cost would be recognized and any previously recognized stock-based compensation expense would be reversed.

Determining Fair Value

Valuation and Recognition – The fair value of each 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. 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 used in the Black-Scholes and Monte Carlo valuation models on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.

Forfeitures - The Company records the effects of actual forfeitures at the time they occur.

The fair value of each option and market measure-based award is based on the assumptions in the following table:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

    

2019

    

2018

Option Plan Shares

Risk-free interest rates

(1)

(1)

 

2.54% - 2.59%

2.73% - 2.79%

Expected term (in years)

(1)

(1)

 

6.28

5.45 - 6.43

Expected volatility

(1)

(1)

 

64.95% - 64.99%

61.82% - 66.17%

Dividend yield

(1)

(1)

 

0 %

0 %

Weighted average fair value per share of options granted during the period

(1)

(1)

$ 57.11

$ 24.55

ESPP Shares

Risk-free interest rates

(2)

(2)

2.31% - 2.44%

2.05%  -  2.50%

Expected term (in years)

(2)

(2)

0.5 - 2.0

0.5  -  2.0

Expected volatility

(2)

(2)

55.00% - 57.97%

51.75%  -  65.39%

Dividend yield

(2)

(2)

0 %

0 %

Weighted average fair value per share of stock purchase rights granted during the period

(2)

(2)

$ 35.91

$ 18.68

(1)The Company did not grant options under its 2010 Omnibus Long-Term Incentive Plan or 2019 Omnibus Long-Term Incentive Plan during the period indicated.
(2)The Company did not issue stock purchase rights under its 2010 Employee Stock Purchase Plan during the respective period.

Stock Option, Restricted Stock, and Restricted Stock Unit Activity

A summary of stock option activity under the Stock Plans during the nine months ended September 30, 2019 is as follows:

    

    

    

Weighted

    

Weighted

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Options

Shares

Price

Term (Years)

Value(1)

(Aggregate intrinsic value in thousands)

Outstanding, January 1, 2019

 

2,531,561

$

17.86

 

6.6

Granted

 

186,044

92.61

Exercised

 

(492,699)

12.97

Forfeited

 

(25,792)

33.25

Outstanding, September 30, 2019

 

2,199,114

$

25.10

6.4

$

143,943

Exercisable, September 30, 2019

 

1,252,387

$

15.28

5.4

$

94,038

(1)The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $90.37 market price of the Company’s common stock at September 30, 2019. The total intrinsic value of options exercised during the nine months ended September 30, 2019 and 2018 was $41.7 million and $40.1 million, respectively.

As of September 30, 2019, there was $188.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all Stock Plans. Total unrecognized compensation cost will be adjusted for future forfeitures. The Company expects to recognize that cost over a weighted average period of 2.8 years.

A summary of restricted stock and restricted stock unit activity under the Stock Plans during the nine months ended September 30, 2019 is as follows:

    

    

Weighted

Restricted

Average Grant

Shares and RSUs

Date Fair Value

Outstanding, January 1, 2019

 

6,246,174

$

23.16

Granted

 

1,672,854

94.07

Released

 

(3,808,767)

14.80

Forfeited

 

(207,978)

55.96

Outstanding, September 30, 2019

 

3,902,283

$

60.37