Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Stock-Based Compensation

Stock-Based Compensation

9.    Stock-Based Compensation

Equity Plans

2015 Equity Incentive Plan

General.   The Company’s board of directors adopted its 2015 Equity Incentive Plan, or the 2015 Plan, in June 2015. The Company’s 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 and market-based milestones or a combination of both, as determined by the compensation committee.

2015 Employee Stock Purchase Plan

General.    The Company’s 2015 Employee Stock Purchase Plan, or 2015 ESPP, was adopted by its board of directors in June 2015 and its stockholders approved it in June 2015. The 2015 ESPP is intended to qualify under Section 423 of the Internal Revenue Code.

Share Reserve.    The Company has reserved 893,548 shares of its common stock for issuance under the 2015 ESPP. As of December 31, 2021, 2,859,711 shares were available for issuance under the 2015 ESPP. The number of shares reserved for issuance under the 2015 ESPP will automatically be increased on the first business day of each of the Company’s fiscal years, commencing in 2016, by a number equal to the least of:

● 880,000 shares;

● 1% 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.

The number of shares reserved under the 2015 ESPP will automatically be adjusted in the event of a stock split, stock dividend or a reverse stock split (including an adjustment to the per-purchase period share limit).

Purchase Price.    Employees may purchase each share of common stock under the 2015 ESPP at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of the six-month offering periods. An employee’s payroll deductions under the ESPP are limited to 15% of the compensation, and up to a maximum of 5,000

shares may be purchased during any offering period. A participant shall not be granted an option under the ESPP if such option would permit the participant’s rights to purchase stock to accrue at a rate exceeding $25,000 fair market value of stock for each calendar year in which such option is outstanding at any time.

Offering Periods.    Each offering period will last a number of months determined by the compensation committee, not to exceed 27 months. A new offering period will begin periodically, as determined by the compensation committee. Offering periods may overlap or may be consecutive. Unless otherwise determined by the compensation committee, two offering periods of six months' duration will begin in each year on May 1 and November 1.

The following table summarizes the offering activity during the years ended December 31, 2021 and 2020:

	Number of	Total
	Shares Purchased	Proceeds
Offering Period	(in thousands)
November 1, 2019 - April 30, 2020	97,247	$	3,062
May 1, 2020 - October 31, 2020	136,288	$	4,052
November 1, 2020 - April 30, 2021	106,435	$	6,085
May 1, 2021 - October 31, 2021	79,820	$	7,465

Stock Options

The following table summarizes option and RSU activity during the year ended December 31, 2021:

	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
	Grant	Shares	Price		Life	Value
(in thousands, except for contractual life and exercise price)					(in years)
Balance at December 31, 2020	3,148	6,707	$	11.19	6.04	$	592,468
Additional shares authorized	3,446	—	$	—
Options granted	(391)	391	$	104.03
Options exercised	—	(1,165)	$	10.14
Options forfeited/cancelled	33	(33)	$	15.00
RSUs granted	(2,208)
RSUs forfeited/cancelled	291
Balance at December 31, 2021	4,319	5,900	$	17.54	5.40	$	451,505
Exercisable at December 31, 2021		4,977	$	10.65	4.90	$	411,841
Vested and expected to vest at December 31, 2021		5,840	$	17.17	5.37	$	449,026

The total intrinsic value of stock options exercised during the years ended December 31, 2021, 2020, and 2019 were $97.0 million, $184.7 million, and $70.0 million, respectively.

The weighted-average grant date fair value of options granted during the years ended December 31, 2021, 2020, and 2019 were $104.03, $27.70 and $8.01 per share, respectively.

The total fair value of stock options vested during the years ended December 31, 2021, 2020, and 2019 were $46.0 million, $52.5 million, and $11.0 million, respectively.

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 has assessed the performance-based award with the appropriate valuation method and has recognized the applicable stock-based compensation expense. The following table summarizes the performance-based and market-based awards as of December 31, 2021:

Period Granted	Options Granted	RSUs Granted	Options Vested	RSUs Vested	Milestone	Valuation Method
(in thousands)
Q1 2019	200	300	200	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	130	289	(1)	Monte-Carlo Simulation
Q1 2020	—	436	—	408	(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	—	19	(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
Q4 2021	—	20	—	—	(1)	Monte-Carlo Simulation
Q4 2021	—	205	—	—	(3)	Fair Market Value

(1) The awards 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 vest based on achievement of certain revenue targets, units, and system implementation, contingent upon the completion of requisite service through the date of such vesting.

(4) The awards have vested based on a change of coverage.

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

The Company has recognized $50.3 million in stock-based compensation for performance-based awards for the year ended December 31, 2021 compared to $17.2 million in stock-based compensation for performance-based awards for the year ended December 31, 2020.

The fair value of the performance-based awards with market conditions granted estimated using a Monte Carlo simulation model used the following inputs for the years ended December 31, 2021 and 2020:

	December 31,						December 31,
	2021						2020
Risk-free interest rate		0.80	%	—	1.52	%		0.54	%	—	1.64	%
Expected dividend yield					—						—
Expected volatility					60	%		55			65	%
Expected term (years)		7.25		—	10.0			5.25		—	7.25

Restricted Stock Units

The following table summarizes restricted stock unit (“RSU”) activity for the year ended December 31, 2021:

		Weighted-
		Average
	Number of	Grant Date
	Shares	Fair Value
	(in thousands)
Balance at December 31, 2020	4,188	$	34.02
Granted	2,208	$	106.74
Vested	(2,117)	$	29.46
Canceled/Forfeited	(291)	$	55.16
Balance at December 31, 2021	3,988	$	74.33

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 table presents the effect of employee and non-employee stock-based compensation expense on selected statements of operations line items for the years ended December 31, 2021, 2020, and 2019.

	Year ended December 31,
	2021						2020						2019
	Employee		Non-Employee		Total		Employee		Non-Employee		Total		Employee		Non-Employee		Total
	(in thousands)
Cost of revenues	$	4,811	$	—	$	4,811	$	1,691	$	—	$	1,691	$	905	$	32	$	937
Research and development		24,507		1,361		25,868		10,777		647		11,424		5,354		—		5,354
Selling, general and administrative		84,368		172		84,540		36,747		309		37,056		21,730		603		22,333
Total	$	113,686	$	1,533	$	115,219	$	49,215	$	956	$	50,171	$	27,989	$	635	$	28,624

As of December 31, 2021, approximately $233.3 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 Black-Scholes option pricing model when estimating the fair value of stock options. For the year ended December 31, 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.

	Year ended December 31,
	2021					2020					2019
Expected term (years)	5.11		—	10.00		5.22		—	10.00		5.23		—	10.00
Expected volatility	55.33	%	—	63.30	%	49.94	%	—	61.96	%	42.53	%	—	45.84	%
Expected dividend rate				0	%				0	%				0	%
Risk-free interest rate	0.81	%	—	1.67	%	0.31	%	—	1.70	%	1.60	%	—	2.60	%

As of December 31, 2021, total options outstanding include 31,553 shares of option awards that were granted to non-employees, of which 730 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.