XML 35 R19.htm IDEA: XBRL DOCUMENT v3.23.2
Common Stock and Stockholders' Equity
 6 Months Ended
Jun. 30, 2023
Share-Based Payment Arrangement [Abstract]  
Common Stock and Stockholders' Equity Common Stock and Stockholders’ Equity
Stock Plans

The Company’s 2023 Incentive Award Plan (the “2023 Plan”) provides for the issuance of incentive and non-statutory options and other equity-based awards to its employees and non-employee service providers. Prior to the approval of the 2023 Plan at the Company’s 2023 annual meeting of stockholders, the Company’s 2015 Incentive Award Plan, 2017 Employment Inducement Incentive Award Plan and Livongo Acquisition Incentive Award Plan (together with the 2023 Plan, collectively, the “Plans”) also provided for the issuance of such awards. The Company had 14,194,292 shares available for grant under the 2023 Plan at June 30, 2023.

All stock-based awards to employees are measured based on the grant-date fair value, or replacement grant date fair value in relation to the Livongo transaction, and are generally recognized on a straight line basis in the Company’s condensed consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period for each stock option and a three-year vesting period for each restricted stock unit (“RSU”)). The Company recognizes the forfeiture of stock-based awards as they occur.

Stock Options

Options issued under the Plans are exercisable for periods not to exceed 10 years, and vest and contain such other terms and conditions as specified in the applicable award document. Options to buy common stock are issued under the Plans, with exercise prices equal to the closing price of shares of the Company’s common stock on the New York Stock Exchange on the date of award.

Stock option activity under the Plans was as follows (in thousands, except share and per share amounts and years):

Number of Shares OutstandingWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Life in YearsAggregate Intrinsic Value
Balance at December 31, 20224,243,934$27.79 6.10$20 
Stock option grants59,679$24.37 n/a
Stock options exercised(78,033)$8.67 n/a$1,402 
Stock options forfeited(89,504)$49.26 n/a
Balance at June 30, 20234,136,076$27.63 5.64$21,701 
Vested or expected to vest at June 30, 20234,136,076$27.63 5.64$21,701 
Exercisable at June 30, 20233,047,326$24.67 4.45$21,634 
The total grant-date fair value of stock options granted during the three months ended June 30, 2023 and 2022 were $0.6 million and $23.0 million, respectively. The total grant-date fair value of stock options granted during the six months ended June 30, 2023 and 2022 were $0.8 million and $24.6 million, respectively.

The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model.

The assumptions used are determined as follows:

Volatility. The expected volatility was derived from the historical stock volatilities of the Company’s stock over a period equivalent to the expected term of the stock option grants.

Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. When establishing the expected term assumption, the Company utilizes historical data.

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with terms similar to the expected term on the options.

Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future and, therefore, it used an expected dividend yield of zero.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions and fair value per share:

Six Months Ended June 30,
20232022
Volatility
65.58% - 67.92%
56.69% - 65.57%
Expected term (in years)4.34.1
Risk-free interest rate
3.68% - 4.08%
1.13% - 2.89%
Dividend yield0%0%
Weighted-average fair value of underlying stock options$13.41$17.72

For the three months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to stock options granted of $2.4 million and $4.9 million, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to stock options granted of $4.7 million and $15.6 million, respectively.

As of June 30, 2023, the Company had $18.8 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 2.2 years.

Restricted Stock Units

The fair value of RSUs is determined on the date of grant. The Company records compensation expense in the consolidated statements of operations on a straight-line basis over the vesting period for RSUs. The vesting period for employees and members of the Board of Directors ranges from 1 year to 3 years.
RSU activity under the Plans was as follows:

RSUsWeighted-Average
Grant Date
Fair Value Per RSU
Balance at December 31, 20226,481,669$63.63 
Granted6,790,129$26.75 
Vested and issued(1,861,991)$76.35 
Forfeited(836,235)$55.68 
Balance at June 30, 202310,573,572$38.26 
Vested and unissued at June 30, 202343,118$56.25 
Non-vested at June 30, 202310,530,454$38.18 

The total grant-date fair value of RSUs granted during the three months ended June 30, 2023 and 2022 was
$12.6 million and $92.8 million, respectively. The total grant-date fair value of RSUs granted during the six months ended June 30, 2023 and 2022 was $181.6 million and $274.7 million, respectively.

For the three months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to RSUs of $53.7 million and $49.7 million, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to RSUs of $96.9 million and $94.2 million, respectively.

As of June 30, 2023, the Company had $347.2 million in unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted-average period of approximately 2.2 years.

Performance Stock Units

Stock-based compensation costs associated with the Company’s RSUs subject to performance criteria (“PSUs”) are initially determined using the fair market value of the Company’s common stock on the date the awards are granted (service inception date). The vesting of these PSUs is subject to certain performance conditions and a service requirement ranging from one to three years. Stock-based compensation costs associated with these PSUs are re-assessed each reporting period based upon the estimated performance attainment on the reporting date until the performance conditions are met. The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance targets and generally ranges from 0% to 200% of the initial grant. Stock compensation expense for PSUs is recognized on an accelerated tranche by tranche basis for performance-based awards.

PSU activity under the Plans was as follows:

SharesWeighted-Average
Grant Date
Fair Value Per PSU
Balance at December 31, 2022629,672$99.07 
Granted1,297,725$26.90 
Vested and issued(117,966)$153.96 
Forfeited(5,999)$88.78 
Performance adjustment (1)(283,282)$79.12 
Balance at June 30, 20231,520,150$36.96 
Vested and unissued at June 30, 20230$0.00 
Non-vested at June 30, 20231,520,150$36.96 
___________________________
(1)Based on the Company's 2022 results, PSUs were attained at rates ranging from 0% to 86.25% of the target award.

The total grant-date fair value of PSUs granted during the three months ended June 30, 2023 and 2022 was
$4.6 million and $4.9 million, respectively. The total grant-date fair value of PSUs granted during the six months ended June 30, 2023 and 2022 was $34.9 million and $35.0 million, respectively.
For the three months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to PSUs of $3.7 million and $2.1 million, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to PSUs of $7.2 million and $9.4 million, respectively.

As of June 30, 2023, the Company had $43.2 million in unrecognized compensation cost related to non-vested PSUs, which is expected to be recognized over a weighted-average period of approximately 1.8 years.

Employee Stock Purchase Plan

In July 2015, the Company adopted the 2015 Employee Stock Purchase Plan (“ESPP”) in connection with its initial public offering. At the Company’s 2023 annual meeting of stockholders, the Company’s stockholders approved an amendment to the ESPP to increase the number of shares of the Company’s common stock available for issuance under the ESPP by 3,000,000. A total of 4,113,343 shares of common stock were reserved for issuance under this plan as of June 30, 2023. The Company’s ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or on the date of purchase.

During the three months ended June 30, 2023 and 2022, the Company issued 271,736 shares and 148,609 shares, respectively, under the ESPP. As of June 30, 2023, 3,121,353 shares remained available for issuance.

For the three months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to the ESPP of $0.9 million and $(0.4) million, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to the ESPP of $2.4 million and $1.1 million, respectively.

As of June 30, 2023, the Company had $1.7 million in unrecognized compensation cost related to the ESPP, which is expected to be recognized over a weighted-average period of approximately 0.4 years.

Total compensation costs for stock-based awards were recorded as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cost of revenue (exclusive of depreciation and amortization, which is shown separately)$1,243 $2,123 $2,596 $4,319 
Advertising and marketing4,002 3,198 7,128 6,909 
Sales9,870 10,709 17,947 22,781 
Technology and development15,689 15,093 28,416 33,180 
General and administrative24,921 19,877 45,676 44,247 
Total stock-based compensation expense (1)$55,725 $51,000 $101,763 $111,436 
___________________________
(1)Excludes the amount capitalized related to internal software development projects.
In the six months ended June 30, 2023, the Company reversed $4.5 million of share-based compensation expense associated with individuals terminated under its restructuring plans. See Note 12, "Restructuring," for further information