XML 29 R15.htm IDEA: XBRL DOCUMENT

Stock-Based Compensation

9 Months Ended

Sep. 30, 2021

9. Stock-Based Compensation

2015 Equity Incentive Plan

General. The Company’s board of directors adopted its 2015 Equity Incentive Plan (the “2015 Plan”) in June 2015. The 2015 Plan replaced all of its prior stock plans.

Share Reserve. The initial number of shares of the Company’s common stock available for issuance under the 2015 Plan was 3,451,495 shares. The number of shares reserved for issuance under the 2015 Plan will be increased automatically on the first business day of each fiscal year, commencing in 2016, by a number equal to the smallest of:

●

3,500,000 shares;

●

4% of the shares of common stock outstanding on the last business day of the prior fiscal year; or

●

the number of shares determined by the Company’s board of directors.

Stock options vest as determined by the compensation committee. In general, they will vest over a four-year period following the date of grant. Stock options expire at the time determined by the compensation committee but in no event more than ten years after they are granted. These awards generally expire earlier if the participant's service terminates earlier.

Restricted Shares and Stock Units. Restricted shares and stock units may be awarded under the 2015 Plan in return for any lawful consideration, and participants who receive restricted shares or stock units generally are not required to pay cash for their awards. In general, these awards will be subject to vesting. Vesting may be based on length of service, the attainment of performance-based milestones or a combination of both, as determined by the compensation committee.

Performance-based Awards

The Company grants certain senior-level executives performance stock options and units which vest based on either market and time-based service conditions or performance and time-based service conditions, which are referred to herein as performance-based awards. The Company assessed the performance-based awards with the appropriate valuation method and has recognized the applicable stock-based compensation expense. The following table summarizes the performance-based awards as of September 30, 2021:


Period Granted	Options Granted	RSUs Granted	Options Vested	RSUs Vested	Milestone	Valuation Method
(in thousands)
Q1 2019	200	300	201	300	(1)	Monte-Carlo Simulation
Q2 2019	—	188	—	81	(2)	Fair Market Value
Q3 2019	—	50	—	50	(1)	Monte-Carlo Simulation
Q1 2020	150	300	113	225	(1)	Monte-Carlo Simulation
Q1 2020	—	436	—	406	(3)	Fair Market Value
Q1 2020	129	—	129	—	(3)	Black-Scholes-Merton
Q2 2020	—	21	—	21	(3)	Fair Market Value
Q3 2020	10	—	10	—	(4)	Black-Scholes-Merton
Q3 2020	—	27	—	17	(3)	Fair Market Value
Q4 2020	—	32	—	6	(1)	Monte-Carlo Simulation
Q4 2020	—	22	—	2	(5)	Fair Market Value
Q1 2021	150	125	—	—	(1)	Monte-Carlo Simulation
Q1 2021	—	279	—	10	(3)	Fair Market Value
Q2 2021	163	—	—	—	(1)	Monte-Carlo Simulation
Q2 2021	29	—	—	—	(3)	Black-Scholes-Merton
Q2 2021	—	7	—	—	(3)	Fair Market Value

________________________________

(1) The awards will vest based on the achievement of certain values of the Company’s common stock at multiple thresholds within certain periods and are contingent upon the completion of requisite service through the date of such vesting.

(2) The vesting of the awards will be triggered after the end of the achievement milestone, as measured by the Company.

(3) The awards will vest based on achievement of a revenue target and are contingent upon the completion of requisite service through the date of such vesting.

(4) The awards vest based on achievement of a reimbursement target.

(5) The awards will vest based on achievement of certain revenue and recruiting targets.

The Company has recognized $9.6 million and $39.5 million in stock-based compensation for performance-based awards for the three and nine months ended September 30, 2021, respectively. The Company has recognized $6.6 million and $11.8 million in stock-based compensation for performance-based awards for the three and nine months ended September 30, 2020, respectively.

The Company estimated the fair value of performance-based awards with market conditions using a Monte-Carlo simulation model with the following inputs for the period ended September 30, 2021:


	September 30,
	2021
Risk-free interest rate		0.80	%	—	1.42	%
Expected dividend yield					0.00	%
Expected volatility					60	%
Expected term (years)		7.25		—	10.00

Employee Stock Purchase Plan

During the period ended September 30, 2021, there have not been any changes to the Company’s 2015 Natera, Inc. Employee Stock Purchase Plan (the “ESPP”) as disclosed in Form 10-K for the fiscal year ended December 31, 2020. The Company has made 2,940,084 shares available for issuance under the Plan as of September 30, 2021, a number that is automatically increased by the least of (i) 1% of the total number of shares of common stock actually issued and outstanding on the last business day of the prior fiscal year, (ii) 880,000 shares of common stock (subject to certain adjustments pursuant to Subsection (c) below), or (iii) a number of shares of common stock determined by the Company’s board of directors.

The first offering period of 2021 started on November 1, 2020 and ended on April 30, 2021, and 106,435 shares were purchased for proceeds of $6.1 million. The second offering period of 2021 began on May 1, 2021 and will end on October 31, 2021. As of September 30, 2021, no shares have been purchased in the second offering period.

Stock Options and Restricted Stock Units

The following table summarizes option activity for the nine months ended September 30, 2021:


	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(in years)
Balance at December 31, 2020	3,197	6,707	$	11.19	6.04	$	592,468
Additional shares authorized	3,446	—
Options granted	(391)	391	$	104.02
Options exercised	—	(1,051)	$	10.26
Options forfeited/cancelled	35	(35)	$	13.78
RSUs granted	(1,528)	—
RSUs forfeited/cancelled	227	—
Balance at September 30, 2021	4,986	6,012	$	17.37	5.63	$	566,871
Exercisable at September 30, 2021		4,785	$	9.99	4.98	$	485,498
Vested and expected to vest at September 30, 2021		5,936	$	17.00	5.60	$	561,788

The following table summarizes RSU activity for the nine months ended September 30, 2021:



		Weighted-
		Average
		Grant Date
(in thousands, except for grant date fair value)	Shares	Fair Value

Balance at December 31, 2020	4,188	$	34.02
Granted	1,528	$	104.48
Vested	(1,707)	$	25.83
Cancelled/forfeited	(227)	$	49.39
Balance at September 30, 2021	3,782	$	64.78

Stock-Based Compensation Expense

Stock based compensation is related to stock options and RSUs granted to the Company’s employees and is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards on a straight-line basis. No compensation cost is recognized when the requisite service has not been met and the awards are therefore forfeited.

Employee stock-based compensation expense was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Non-employee stock-based compensation expense was not adjusted for estimated forfeitures up until the occurrence of the actual forfeiture of the associated awards.

The following tables present the effect of employee and non-employee stock-based compensation expense on selected statements of operations line items for the three and nine months ended September 30, 2021 and 2020.


	Three months ended September 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total

	(in thousands)
Cost of revenues	$	1,262	$	—	$	1,262	$	458	$	—	$	458
Research and development		6,242		410		6,652		3,081		17		3,098
Selling, general and administrative		18,478		67		18,544		11,404		72		11,476
Total	$	25,982	$	477	$	26,459	$	14,943	$	89	$	15,032


	Nine months ended September 30,
	2021						2020
	Employee		Non-Employee		Total		Employee		Non-Employee		Total

	(in thousands)
Cost of revenues	$	3,246	$	—	$	3,246	$	1,213	$	—	$	1,213
Research and development		16,168		974		17,142		7,394		459		7,853
Selling, general and administrative		64,231		178		64,409		25,183		157		25,340
Total	$	83,645	$	1,152	$	84,797	$	33,790	$	616	$	34,406

As of September 30, 2021, approximately $195.3 million of unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested option awards and RSUs will be recognized over a weighted-average period of approximately 2.8 years.

Valuation of Stock Option Grants to Employees and Non-employees

The Company utilizes the Black-Scholes option pricing model when estimating the fair value of stock options. For the three nine months ended September 30, 2021, the following valuation assumptions were applied on both the employee and non-employee options. In the same period of the prior year, the valuation assumptions as follows were only used for stock options granted to employees.


	Three months ended September 30,								Nine months ended September 30,
	2021			2020					2021					2020
Expected term (years)		10.00		5.22		—	10.00		5.11		—	10.00		5.22		—	10.00
Expected volatility		56.31	%	54.18	%	—	61.96	%	55.33	%	—	63.30	%	49.94	%	—	61.96	%
Expected dividend rate		0.00	%				0.00	%				0.00	%				0.00	%
Risk-free interest rate		1.30	%	0.31	%	—	0.65	%	0.81	%	—	1.67	%	0.31	%	—	1.70	%

As of September 30, 2021, total options outstanding include 32,053 shares of option awards that were granted to non-employees, of which 1,459 shares are unvested. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock option is earned and the services are rendered. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered.