STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

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”).

Stock-Based Compensation Expense

The Company recorded approximately $29.6 million and $16.2 million in stock-based compensation expense during the three months ended March 31, 2020 and 2019, respectively, 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.

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.

In connection with the combination with Genomic Health, the Company accelerated the vesting of shares of previously unvested stock options and restricted stock units for employees with qualifying termination events. During the three months ended March 31, 2020, the Company accelerated 34,348 shares of previously unvested stock options and 18,289 shares of previously unvested restricted stock units, and recognized the additional non-cash stock-based compensation expense of $2.9 million 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 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 pricing model utilizes 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:


	Three Months Ended March 31,
	2020	2019
Option Plan Shares
Risk-free interest rates	1.26% - 1.47%	2.54% - 2.59%
Expected term (in years)	6.15	6.28
Expected volatility	65.67% - 65.71%	64.95% - 64.99%
Dividend yield	—%	—%
Weighted average fair value per share of options granted during the period	$58.86	$57.11

Stock Option, Restricted Stock, and Restricted Stock Unit Activity

A summary of stock option activity under the Stock Plans during the three months ended March 31, 2020 is as follows:


Options	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term(Years)	Aggregate Intrinsic Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2020	2,700,293	$	34.01	2.9
Granted	309,143	97.66
Exercised	(160,286)	26.82
Forfeited	(8,558)	71.52
Outstanding, March 31, 2020	2,840,592	$	41.23	6.5	$	74,394
Exercisable, March 31, 2020	1,881,310	$	27.95	5.5	$	63,816

______________

(1)The total intrinsic value of options exercised during the three months ended March 31, 2020 and 2019 was $10.2 million and $16.1 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 three months ended March 31, 2020 is as follows:


	Restricted Shares and RSUs	Weighted Average Grant Date Fair Value
Outstanding, January 1, 2020	4,384,005	$	63.30
Granted	1,701,650	93.26
Released	(1,193,845)	45.76
Forfeited	(68,540)	74.29
Outstanding, March 31, 2020	4,823,270	$	78.06

As of March 31, 2020, there was $339.0 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 3.1 years.