Stock-based compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

The following table summarizes the stock-based compensation expense recognized in the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of goods sold	$	403	$	607	$	1,523	$	1,765
Research and development	565		748		2,171		2,505
Sales and marketing	353		565		1,168		1,833
General and administrative	873		853		2,949		2,975
	$	2,194	$	2,773	$	7,811	$	9,078

As of September 30, 2021 and December 31, 2020, stock-based compensation capitalized in inventories totaled $0.2 million and $0.3 million, respectively.

Determining Fair Value

The Company estimated the fair value of certain stock-based awards using a Black-Scholes-Merton valuation model.

Stock Options and Restricted Stock Units (RSUs)

The following table summarizes the Company’s stock option and RSU activity, excluding market and performance-based RSUs, during the three and nine months ended September 30, 2021:


	Stock Options	Restricted Stock Units
	Number of Shares	Number of Units
Balance as of December 31, 2020	2,096,917	3,621,681
Granted	60,944	1,434,500
Exercised/Converted	(529,482)	(1,445,813)
Cancelled/Forfeited	(24,393)	(336,294)
Balances at September 30, 2021	1,603,986	3,274,074

At September 30, 2021, the Company had $0.3 million of unrecognized stock-based compensation expense for stock options, net of estimated forfeitures. At September 30, 2021, the Company had $19.4 million of unrecognized stock-based compensation expense for RSUs, excluding market and performance-based RSUs, net of estimated forfeitures.

Market-based Restricted Stock Units

As of September 30, 2021, the Company has granted 705,000 shares of market-based RSUs and 133,875 shares remain outstanding to certain employees. These RSUs will vest if the 30-day weighted average closing price of the Company's common stock is equal to or greater than certain price targets per share and the recipients remain in continuous service with the Company through such service period. A total of 437,125 market-based RSUs have vested and 134,000 market-based RSUs have been cancelled/forfeited through September 30, 2021. As of September 30, 2021, the Company had $0.2 million of unrecognized stock-based compensation expense for these RSUs, net of estimated forfeitures. The fair value of market-based RSUs was measured on the grant date using Monte Carlo simulation model with the following assumptions:


			Assumptions Used
Weighted-average volatility			66%
Risk-free interest rate			2.79%
Expected dividends			—%

Performance-based Restricted Stock Units

In April 2020, the Company granted 90,400 shares of performance-based RSUs to certain employees. These RSUs will vest upon certification by the Board of Directors or the Compensation Committee that the Company has achieved at least $425 million in revenue over four consecutive fiscal quarters and the recipients remain in continuous service with the Company through such service period. None of these performance-based RSUs were vested through September 30, 2021.

In July 2021, the Company granted 165,000 shares of performance-based RSUs to certain employees. These RSUs will vest upon certification by the Board of Directors or the Compensation Committee that the Company has achieved at least $100 million in revenue from Data Center Customers as measured over four consecutive quarters and the recipients remain in continuous service with the Company through such service period.

None of such performance-based RSUs were vested through September 30, 2021, and 14,950 of these performance-based RSUs have been cancelled/forfeited through September 30, 2021.

Stock Appreciation Units (SAUs)

SAUs are liability classified share-based awards. Outstanding SAUs are re-measured each reporting period at fair value until settlement. The Company did not grant any SAUs during the three and nine months ended September 30, 2021 or 2020. As of September 30, 2021 and December 31, 2020, there were 150,000 SAUs outstanding, respectively, and related SAU liabilities were $0.6 million and $0.7 million, respectively.

Employee Stock Purchase Plan (ESPP)

The Company did not issue shares under the ESPP during the three months ended September 30, 2021. As of September 30, 2021, there was $0.1 million of unrecognized stock-based compensation expense for employee stock purchase rights that will be recognized over the remaining offering period through November 2021.

2020 Equity Incentive Plan

On June 1, 2021, at the 2021 Annual Meeting of Stockholders of NeoPhotonics Corporation, the Company's stockholders approved NeoPhotonics Corporation 2020 Equity Incentive Plan as amended and restated (the “Amended 2020 Plan”) to increase the number of shares available for the grant of stock options, restricted stock unit awards, and other awards by 900,000 shares. The Amended 2020 Plan became effective immediately upon stockholder approval at the Annual Meeting. After taking this amendment into account, the aggregate number of shares of common stock reserved for issuance under the Amended 2020 Plan will not exceed the sum of (i) 2,821,414 shares and (ii) certain shares subject to outstanding awards granted under the Company’s 2010 Equity Incentive Plan or 2011 Inducement Award Plan that may become available for issuance under the Amended 2020 Plan, as such shares become available from time to time.