Stock-based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

2004 Stock Option Plan and 2013 Equity Incentive Plan

The Company’s 2004 Stock Option Plan, 2013 Equity Incentive Plan, and the 2018 Inducement Equity Incentive Plan (the “Plans”) authorize the grant of stock options, restricted stock units (“RSUs”) and other equity awards to employees, directors and consultants. As of December 31, 2021, there were 13,241,577 shares authorized under the Plans. The Company has also granted RSUs that include service or service and certain performance conditions, or performance stock units (“PSUs”). RSUs generally vest over service periods of 1-3 years at which time award recipients receive shares of common stock equivalent to the originally awarded number of RSUs. In the case of PSUs, the number of PSUs that vest will be contingent on satisfying the service period and also based on achievement of all or part of the required performance obligations. All stock options granted have a ten-year term and generally vest and become exercisable over four years of continued employment or service as defined in each option agreement. The Board of Directors determines the option exercise price and may designate stock options granted as either incentive or nonstatutory stock options. The Company generally grants stock options to employees with exercise prices equal to the estimated fair value of the Company’s common stock on the date of grant.

Stock Option Activity

A summary of the Company’s stock option activity under the Plans is as follows:


	Shares	Weighted- average exercise price per share		Weighted- average remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at January 1, 2021	2,630,523	$	15.68	5.84	$	134,670
Canceled and forfeited	(42,329)	14.88
Exercised	(570,403)	11.35
Outstanding at December 31, 2021	2,017,791	$	16.93	5.25	$	51,105

December 31, 2021:
Options vested and expected to vest	2,017,791	$	16.93	5.25	$	51,105
Options exercisable	1,716,159	$	15.79	4.86	$	5,730

The weighted-average grant-date fair value per share of options granted with exercise prices equal to the market price on the date of the grant were $18.89 and $12.99 for the years ended December 31, 2020 and 2019, respectively. The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock for all options that were in-the-money at December 31, 2021. The aggregate intrinsic value of options exercised was $26.9 million during 2021, $39.9 million during 2020, and $19.9 million during 2019, determined as of the option exercise date. The fair value of options vested was $3.7 million, $4.2 million and $6.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The following table summarizes information about the Company’s stock options outstanding at December 31, 2021:


	Outstanding		Exercisable
Exercise Price	Number of Shares	Weighted- Average Remaining Contractual Life in Years	Number of Shares	Weighted- Average Remaining Contractual Life in Years
$1.92 – $12.56	381,265	4.99	362,291	4.93
$12.77 – $14.99	494,527	3.69	489,955	3.66
$15.21 – $18.55	238,237	3.43	228,621	3.29
$18.68 – $22.71	343,952	5.46	297,292	5.11
$23.00 – $72.33	559,810	7.46	338,000	7.37
	2,017,791		1,716,159

Restricted Stock Unit (RSU) and Performance Stock Unit (PSU) Activity

A summary of RSU and PSU activity under the Plans is as follows:


Non-vested RSUs and PSUs	Share Equivalent	Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2021	1,604,722	$	24.61
Changes during the year:
Granted	544,292	65.76
Vested	(694,168)	22.04
Forfeited	(121,631)	40.22
Non-vested at December 31, 2021	1,333,215	$	41.32

The fair value of the RSUs and PSUs is determined based on the closing price of the Company’s common stock on the date of grant. The fair value of vested RSUs and PSUs was $44.5 million, $12.5 million and $17.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. During 2021 and 2020, the Company modified certain performance conditions of its PSUs for approximately 10 employees in each year which were originally granted in 2020 and 2019. This modification resulted in incremental stock-based compensation expense of $3.0 million and $4.7 million for 2021 and 2020, respectively, recognized from the date of the modification over the remaining vesting period of the awards, adjusted for performance conditions and forfeitures.

Stock-based compensation

The following table sets forth stock-based compensation expense related to stock-based arrangements under the Plans as presented within the consolidated statement of operations for the years ended December 31 (in thousands):


	2021		2020		2019
Cost of product and service revenue	$	1,870	$	983	$	786
Research and development	5,723		3,864		4,100
Selling, general and administrative	21,270		13,643		11,726
Total stock-based compensation expense	$	28,863	$	18,490	$	16,612

As of December 31, 2021, total unrecognized stock-based compensation cost related to non-vested options and RSUs was $32.2 million for awards with a service component and $4.5 million for awards with a service and performance component. This cost will be recognized on a straight-line basis over the weighted-average remaining service period of 1.94 years, for stock awards with a service component, and 1.26 years for stock awards with a service and performance component. The Company utilizes newly issued shares to satisfy option exercises. No tax benefit was recognized related to stock-based compensation cost

since the Company has not reported taxable income to date and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets.

Valuation assumptions

The Company grants RSUs to employees, directors and consultants and PSUs to employees and values these awards based on the grant date fair value using the closing stock price of the Company’s shares on the date of the grant. Stock-based compensation expense is recognized based on awards ultimately expected to vest using actual forfeitures when incurred. The percentage achievement and vesting of PSU awards are contingent upon the achievement of predetermined tiered revenue performance goals. The Company assesses the probability of the awards expected to vest, based on the performance goals, and if probable, records compensation expense over the estimated service period. Updates to the expected probability are recorded cumulatively and remaining compensation expense, if any, is recognized over the remaining estimated service period.

Prior to January 1, 2021, the company granted stock options to employees, directors and consultants. The fair value of each employee stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	2020	2019
Risk-free interest rates	0.54% — 1.69%	1.41% — 2.56%
Expected term (years)	6.08 — 6.08	5.12 — 6.08
Expected dividend yield	—%	—%
Expected volatility	53.0% — 59.6%	52.6% — 58.0%

The risk-free interest rates are based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. For purposes of determining the expected term of the awards in the absence of sufficient historical data relating to stock-option exercises, the Company applies a simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. The Company has not declared or paid any dividends and does not currently expect to do so in the foreseeable future. Expected volatility is based on the historical cumulative volatility of the Company’s stock price.

Employee Stock Purchase Plan

The Company’s 2013 Employee Stock Purchase Plan (“ESPP”) provides eligible employees with an opportunity to purchase common stock from the Company and to pay for their purchases through payroll deductions. The ESPP has overlapping offering periods of approximately 12 months in length. The offering periods generally start with the first trading day on or after March 1 and September 1 of each year and end on the first trading day on or after March 1 and September 1 of the following year, approximately 12 months later. Within each offering period, shares are purchased each six months on an exercise date.

An employee electing to participate in the ESPP (a “participant”) will be granted an option at the start of the offering period to purchase shares with contributions in any whole percentage ranging from 0% to 10% (or greater or lesser percentages or dollar amounts that the administrator determines) of the participant’s eligible compensation. The participant’s contributions will be accumulated and then used to purchase the Company’s shares on each exercise date. The purchase price on the exercise date will be 85% of the fair market value of the lesser of the Company’s share price on either the first trading day of the offering period or on the exercise date.

During 2021, 2020 and 2019, shares issued under the ESPP were 64,809, 89,477 and 203,464, respectively. The Company recorded share-based compensation expense for shares issued from the ESPP of $1.3 million, $0.9 million and $0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. A total of 1,923,397 shares of common stock have been reserved for issuance under the ESPP, of which 752,884 shares were available for issuance as of December 31, 2021.