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Share-Based Compensation
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Share-Based Compensation
On April 11, 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”), and most recently amended the 2011 Plan on April 10, 2019. The 2011 Plan was amended, restated and re-named the 2018 Equity Incentive Plan (“2018 Plan”), which became effective as of April 30, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The remaining shares available for issuance under the 2011 Plan were added to the shares reserved for issuance under the 2018 Plan.
The 2018 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, Restricted Stock Units (“RSUs”), performance units, and performance shares to the Company’s employees, directors, and consultants. The maximum aggregate number of shares that may be issued under the 2018 Plan is 14,482,356 shares of the Company’s common stock. In addition, the number of shares reserved for issuance under the 2018 Plan will be increased automatically on the first day of each fiscal year beginning with the 2020 fiscal year, by a number equal to the least of: (i) 2,144,521 shares; (ii) 4.0% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such number of shares determined by the Company’s Board of Directors.
The 2018 Plan may be amended, suspended or terminated by the Company’s Board of Directors at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the 2018 Plan as required by applicable law or listing requirements. Unless sooner terminated by the Company’s Board of Directors, the 2018 Plan will automatically terminate on November 14, 2028.
The following awards were made pursuant to the 2018 Plan in the year ended December 31, 2019: (i) options to purchase 264,033 shares of common stock were granted to certain employees on April 3, 2019, having an exercise price of $20.02 per share, (ii) options to purchase (A) 1,000,000 shares of common stock were granted to executive officers on April 18, 2019, (B) 48,999 shares of common stock
were granted to certain employees on April 29, 2019, and (C) 50,000 shares of common stock were granted to certain executive officers on May 1, 2019, in each case to be effective upon and subject to the effectiveness of the registration statement relating to the Company’s IPO and having an exercise price equal to the IPO price of $25.00 per share, (iii) awards covering 99,433 shares of restricted stock were granted to nonemployees on April 18, 2019 at a purchase price of $0.01 per share to be issued upon payment of the purchase price, (iv) an option to purchase 125,000 shares of common stock was granted to an executive officer on June 10, 2019, having an exercise price of $168.10 per share, (v) 70,360 RSUs with a grant date fair value of $168.10 per unit were granted to certain employees on June 10, 2019, (vi) an option to purchase 5,073 shares of common stock was granted to an executive officer on August 1, 2019, having an exercise price of $176.04 per share, (vii) 14,862 RSUs with a grant date fair value of $176.04 per unit were granted to certain employees and a consultant on August 1, 2019, (viii) options to purchase 78,820 shares of common stock having an exercise price of $84.45 were granted on October 31, 2019 to certain employees including an option to purchase 68,590 shares of common stock granted to executive officer, and (ix) 87,974 RSUs with a grant date fair value of $84.45 per unit were granted on October 31, 2019 to certain ambassadors and employees including 34,295 RSUs granted to an executive officer.
As of December 31, 2019 and 2018, there were 5,170,976 and 5,120,293 shares, respectively, issuable under stock options outstanding, 149,004 and 0 shares, respectively, issuable under unvested RSUs outstanding, 5,864,738 and 4,335,331 shares, respectively, issued for stock option exercises, RSU settlement, and restricted stock grants, and 3,297,638 and 6,859 shares, respectively, available for grant under the 2018 Plan.
Stock Options
For the periods presented, the fair value of options was estimated using the Black-Scholes option-pricing model with the following assumptions:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Risk-free interest rate
2.3%
 
2.8%
 
2.0%
Average expected term (years)
6.1
 
5.8
 
5.9
Expected volatility
55.0%
 
55.0%
 
55.0%
Dividend yield
—
 
—
 
—

•
Risk-Free Interest Rate: The yield on actively traded non-inflation indexed US Treasury notes with the same maturity as the expected term of the underlying options was used as the average risk-free interest rate.
•
Expected Term: As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, the Company’s expected term is based on the simplified method, generally calculated as the mid-point between the vesting date and the end of the contractual term.
•
Expected Volatility: As the Company has only been a public entity since May 2, 2019, there is not a substantive share price history to calculate volatility and, as such, the Company has elected to use an approximation based on the volatility of other comparable public companies, which compete directly with the Company, over the expected term of the options.
•
Dividend Yield: The Company has not issued regular dividends on common shares in the past nor does the Company expect to issue dividends in the future.
Forfeiture Rate: The Company estimates the forfeiture rate at the time of grant based on past awards canceled, the number of awards granted, and vesting terms and adjusted, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The cumulative effect on current and prior periods of a change in the estimated number of awards likely to vest is recognized in compensation cost in the period of the change.
The Plan generally provides that the Board of Directors may set the vesting schedule applicable to grants approved under the 2011 Plan. Option grants approved under the 2018 Plan typically vest 25% of the total award on the first anniversary of the grant date, and thereafter ratably monthly vesting over the remaining 3.0 years of the award. The Company has not granted equity awards with performance-based vesting conditions.
Option grants in 2019 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period. The stock option grant to one executive officer on August 1, 2019 vests monthly over a 48-month period. The stock option grant to another executive officer on October 31, 2019 begins vesting on the second anniversary of the vesting commencement date and vests monthly thereafter over a 24-month period. Options granted in the year ended December 31, 2018 and prior have a variety of different vesting schedules and have a contractual life of 10 years.
The following table summarizes the Company’s stock option activity during the period from December 31, 2016 through December 31, 2019:
 
Number
of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value (in thousands)(1)
Outstanding at December 31, 2016
4,879,850

 
$
0.83

 
8.2
 
$
3,557

Granted
382,476

 
$
1.56

 
—
 
—

Exercised
(446,201
)
 
$
0.85

 
—
 
347

Cancelled/Forfeited
(609,096
)
 
$
0.97

 
—
 
—

Outstanding at December 31, 2017
4,207,029

 
$
0.88

 
7.2
 
$
8,936

Granted
2,136,012

 
$
6.49

 
—
 
—

Exercised
(1,139,962
)
 
$
1.20

 
—
 
5,722

Cancelled/Forfeited
(82,786
)
 
$
2.03

 
—
 
—

Outstanding at December 31, 2018
5,120,293

 
$
3.13

 
7.3
 
$
81,371

Granted
1,571,925

 
$
39.01

 
—
 
—

Exercised
(1,429,756
)
 
$
1.87

 
—
 
121,591

Cancelled/Forfeited
(91,486
)
 
$
9.33

 
—
 
—

Outstanding at December 31, 2019
5,170,976

 
$
14.28

 
7.5
 
$
329,879

Vested and exercisable at December 31, 2019
2,533,199

 
$
2.32

 
6.0
 
$
185,671

Vested and expected to vest at December 31, 2019
3,761,031

 
$
8.55

 
6.9
 
$
256,967

__________
(1) Aggregate intrinsic value is calculated as the difference between the value of common stock on the transaction date and the exercise price multiplied by the number of shares issuable under the stock option.

During the years ended December 31, 2019, 2018 and 2017, the Company recorded in aggregate $6.3 million, $1.5 million, and $0.5 million, respectively, of share-based compensation expense related to options issued to employees and nonemployees. The share-based compensation expense is included in
cost of goods sold, research and development expenses and SG&A expenses in the Company’s statements of operations.
As of December 31, 2019, there was $10.4 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over 3.1 years.
Restricted Stock Units
RSU awards in the year ended December 31, 2019 generally vest 25% of the total award on the first anniversary of the grant date, and thereafter ratably vesting quarterly over the remaining three years of the award. The RSU award to one executive officer on August 1, 2019 vests quarterly over 16 quarters. The RSU award to a consultant on August 1, 2019 was scheduled to vest monthly over a 12-month period, however a portion of this award was forfeited upon termination of the consulting agreement. The RSU award to another executive officer on October 31, 2019 begins vesting on the 27th month anniversary of the vesting commencement date and vests over 8 quarters.
In addition to the grants to employees and consultants, on October 31, 2019, the Company granted 30,496 RSUs to nonemployees serving as the Company’s brand ambassadors. These RSUs generally vest over a period of less than one year from the date of grant, with 22,620 RSUs subject to immediate vesting upon grant.
The following table summarizes the Company’s RSU activity in 2019:
 
 
Number of Units
 
Weighted
Average
Grant Date Fair Value Per Unit
Unvested at January 1, 2019
 
—

 
$
—

Granted
 
173,196

 
$
126.29

Vested
 
(23,552
)
 
$
84.84

Cancelled/Forfeited
 
(640
)
 
$
—

Unvested at December 31, 2019
 
149,004

 
$
132.73


During the years ended December 31, 2019, 2018 and 2017, the Company recorded in aggregate $3.7 million, $0, and $0, respectively, of share-based compensation expense related to RSUs. The share-based compensation expense is included in cost of goods sold, research and development expense and SG&A expenses in the Company’s statements of operations.
As of December 31, 2019, there was $5.1 million in unrecognized compensation expense related to nonvested RSUs which is expected to be recognized over 3.3 years.
Share-Settled Obligation
Share-based compensation expense in 2019 includes $1.0 million in accrual for a liability classified, share-settled obligation to an executive officer related to a sign-on award pursuant to the terms of the executive officer’s offer letter with the Company. The Company is obligated to deliver a variable number of shares based on a fixed monetary amount on the first annual anniversary of the executive officer’s commencement date and on each quarterly anniversary thereafter through the second annual anniversary of the executive officer’s commencement date. The liability classified award is considered unearned until the requirements for issuance of the shares are met and is included in Accrued expenses and other current liabilities on the Company’s balance sheet as of December 31, 2019. There were no such liability classified share-settled obligations in 2018 and 2017. As of December 31, 2019, there was $6.0 million in unrecognized compensation expense related to this share-settled obligation which is expected to recognized over 1.7 years.
Restricted Stock to Nonemployees
In April 2019, the Company’s Board of Directors approved the issuance of 99,433 shares of restricted stock with a fair value of $20.02 per share and a purchase price of $0.01 per share to nonemployees serving as the Company’s brand ambassadors. The Company has the right to repurchase the unvested shares upon a voluntary or involuntary termination of a brand ambassador’s service; however, as shares vest monthly over 24 months, they are being released from the repurchase option (and all such shares will be released from the repurchase option by May 18, 2021).
In October 2018, the Company’s Board of Directors approved the issuance of 135,791 shares of restricted stock with a fair value of $17.03 per share and a purchase price of $0.02 per share to nonemployees serving as the Company’s brand ambassadors. The Company has the right to repurchase the unvested shares upon a voluntary or involuntary termination of a brand ambassador’s service; however, as shares vest monthly over 12 to 24 months, they are being released from the repurchase option (and all such shares will be released from the repurchase option by November 1, 2020).
The following table summarizes the Company’s restricted stock activity:
 
Number
of Shares of
Restricted Stock
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Weighted
Average
Grant Date
Fair Value
Per Share
Unvested at December 31, 2017
—

 
—
 
$
—

Granted
135,791

 
—
 
$
17.03

Vested/Released
(35,664
)
 
—
 
$
17.03

Cancelled/Forfeited
—

 
—
 
$
—

Unvested at December 31, 2018
100,127

 
1.6
 
$
17.03

Granted
99,433

 
—
 
$
20.02

Vested/Released
(87,239
)
 
—
 
$
19.21

Cancelled/Forfeited
(23,333
)
 
—
 
$
—

Unvested at December 31, 2019
88,988

 
1.2
 
$
19.49


As of December 31, 2019, 88,988 shares of restricted stock had been purchased by nonemployee brand ambassadors which remained subject to vesting requirements and repurchase pursuant to restricted stock purchase agreements.
During 2019, 2018 and 2017, the Company recorded in aggregate $1.8 million, $0.7 million and $0, respectively, of share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors, which is included in SG&A expenses in the Company’s statements of operations.
As of December 31, 2019, there was $1.7 million in unrecognized compensation expense related to nonvested restricted stock, which is expected to be recognized over 1.2 years.
Restricted Stock and Loans to Related Parties
In December 2015, the Company’s Board of Directors approved the issuance of 1,006,658 shares of restricted stock to nonemployee board members. The Company had the option of repurchasing the shares; however, as shares vest monthly over 36 months, they were being released from the repurchase option (and all such shares were released from the repurchase option by November 1, 2018). In connection with the issuance and for value received, the nonemployee board members entered into promissory notes to pay the Company the principal sum of $951,245 with interest at a fixed rate of 1.68% per annum, compounded annually, on the unpaid balance of such principal sum. The promissory notes are secured by a pledge of the common stock issued to the nonemployee board members. The loans are
classified as a reduction to stockholders’ deficit in the accompanying balance sheets. In determining the accounting for the promissory notes, management evaluated the legal provisions of the promissory notes as well as the Company’s intent to fully collect on the outstanding note amounts. The Company collected on the promissory notes in their entirety in July 2018.
Common Stock Repurchase
In July 2018, the Company repurchased 48,909 shares of common stock from one of its individual investors at a negotiated price of $10.50 per share.
Employee Stock Purchase Plan
On November 15, 2018, the Company’s Board of Directors adopted its 2018 Employee Stock Purchase Plan (“2018 ESPP”), which was subsequently approved by the Company’s stockholders and became effective on April 30, 2019, the day immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2018 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code (the “Code”) for U.S. employees. In addition, the 2018 ESPP authorizes grants of purchase rights that do not comply with Section 423 of the Code under a separate non-423 component for non-U.S. employees and certain non-U.S. service providers. The Company has reserved 804,195 shares of common stock for issuance under the 2018 ESPP. In addition, the number of shares reserved for issuance under the 2018 ESPP will be increased automatically on the first day of each fiscal year for a period of up to ten years, starting with the 2020 fiscal year, by a number equal to the least of: (i) 536,130 shares; (ii) 1% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such lesser number of shares determined by the Company’s Board of Directors. The 2018 ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of the Company’s common stock on specified dates during such offerings. The administrator has not yet approved an offering under the 2018 ESPP.