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Stock-Based Compensation | 6 Months Ended
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Jun. 30, 2022
Stock-Based Compensation |
Stock-Based Compensation | 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 (“RSUs”) 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. ​ Employee Stock Purchase Plan During the period ended June 30, 2022, 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, 2021. The Company has made 3,455,128 shares available for issuance under the Plan as of June 30, 2022, a number that is automatically increased on the first business day of each fiscal year of the Company during the term of the ESPP 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 the ESPP), or (iii) a number of shares of common stock determined by the Company’s board of directors. The first offering period of 2022 started on November 1, 2021 and ended on April 30, 2022, and 284,583 shares were purchased for proceeds of $8.5 million. The second offering period of 2022 began on May 1, 2022 and will end on October 31, 2022. As of June 30, 2022, no shares have been purchased in the second offering period. Stock Options and Restricted Stock Units ​ The following table summarizes option and RSU activity for the six months ended June 30, 2022:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Outstanding Options and RSUs
​ |  | ​ |  | ​ |  | ​ |  | 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, 2021 |  | 4,319 |  | 5,900 | ​ | $ | 17.54 |  | 5.40 | ​ | $ | 451,505
Additional shares authorized |  | 3,500 | ​ | — | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Options granted |  | (264) |  | 264 | ​ | $ | 61.49 | ​ | ​ | ​ | ​ | ​
Options exercised |  | — |  | (701) | ​ | $ | 6.53 | ​ | ​ | ​ | ​ | ​
Options forfeited/cancelled |  | 28 |  | (28) | ​ | $ | 36.77 | ​ | ​ | ​ | ​ | ​
RSUs granted | ​ | (4,698) | ​ | — | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
RSUs forfeited/cancelled | ​ | 308 | ​ | — | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance at June 30, 2022 |  | 3,193 |  | 5,435 | ​ | $ | 21.00 | ​ | 5.39 | ​ | $ | 112,272
Exercisable at June 30, 2022 | ​ | ​ |  | 4,550 | ​ | $ | 12.00 | ​ | 4.79 | ​ | $ | 108,487
Vested and expected to vest at June 30, 2022 | ​ | ​ |  | 5,380 | ​ | $ | 20.55 | ​ | 5.36 | ​ | $ | 112,049
​ 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 outstanding performance-based awards as of June 30, 2022:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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 | ​ | — | ​ | 140 | ​ | (2) | ​ | Grant Date Stock Price
Q3 2019 | ​ | — | ​ | 50 | ​ | — | ​ | 50 | ​ | (1) | ​ | Monte-Carlo Simulation
Q1 2020 | ​ | 150 | ​ | 300 | ​ | 150 | ​ | 300 | ​ | (1) | ​ | Monte-Carlo Simulation
Q1 2020 | ​ | — | ​ | 436 | ​ | — | ​ | 408 | ​ | (3) | ​ | Grant Date Stock Price
Q1 2020 | ​ | 129 | ​ | — | ​ | 129 | ​ | — | ​ | (3) | ​ | Black-Scholes-Merton
Q2 2020 | ​ | — | ​ | 21 | ​ | — | ​ | 21 | ​ | (3) | ​ | Grant Date Stock Price
Q3 2020 | ​ | 10 | ​ | — | ​ | 10 | ​ | — | ​ | (4) | ​ | Black-Scholes-Merton
Q3 2020 | ​ | — | ​ | 27 | ​ | — | ​ | 17 | ​ | (3) | ​ | Grant Date Stock Price
Q4 2020 | ​ | — | ​ | 32 | ​ | — | ​ | 19 | ​ | (1) | ​ | Monte-Carlo Simulation
Q4 2020 | ​ | — | ​ | 22 | ​ | — | ​ | 2 | ​ | (5) | ​ | Grant Date Stock Price
Q1 2021 | ​ | 150 | ​ | 125 | ​ | — | ​ | — | ​ | (1) | ​ | Monte-Carlo Simulation
Q1 2021 | ​ | — | ​ | 279 | ​ | — | ​ | 15 | ​ | (3) | ​ | Grant Date Stock Price
Q2 2021 | ​ | 163 | ​ | — | ​ | — | ​ | — | ​ | (1) | ​ | Monte-Carlo Simulation
Q2 2021 | ​ | 29 | ​ | — | ​ | — | ​ | — | ​ | (3) | ​ | Black-Scholes-Merton
Q2 2021 | ​ | — | ​ | 7 | ​ | — | ​ | 2 | ​ | (3) | ​ | Grant Date Stock Price
Q4 2021 | ​ | — | ​ | 20 | ​ | — | ​ | — | ​ | (1) | ​ | Monte-Carlo Simulation
Q4 2021 | ​ | — | ​ | 205 | ​ | — | ​ | 3 | ​ | (3) | ​ | Grant Date Stock Price
Q1 2022 | ​ | 110 | ​ | — | ​ | — | ​ | — | ​ | (3) | ​ | Black-Scholes-Merton
Q1 2022 | ​ | — | ​ | 849 | ​ | — | ​ | — | ​ | (3) | ​ | Grant Date Stock Price
Q2 2022 | ​ | — | ​ | 103 | ​ | — | ​ | — | ​ | (3) | ​ | Grant Date Stock Price
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
________________________________ (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 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 $14.1 million and $27.5 million in stock-based compensation for performance-based awards for the three and six months ended June 30, 2022. The Company has recognized $19.0 million and $30.0 million in stock-based compensation for performance-based awards for the three and six months ended June 30, 2021. ​ There were no performance-based awards with market conditions and a fair value estimated using a Monte Carlo simulation model granted in the six months ended June 30, 2022 ​ Restricted Stock Units ​ The following table summarizes unvested RSU for the six months ended June 30, 2022:
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Weighted-
​ | ​ | ​ | ​ | Average
​ | ​ | ​ | ​ | Grant Date
(in thousands, except for grant date fair value) | ​ | Shares | ​ | Fair Value
​ | ​ | ​ | ​ | ​ | ​
Balance at December 31, 2021 | ​ | 3,988 | ​ | $ | 74.33
Granted | ​ | 4,698 | ​ | $ | 43.60
Vested | ​ | (777) | ​ | $ | 56.05
Cancelled/forfeited | ​ | (308) | ​ | $ | 59.83
Balance at June 30, 2022 | ​ | 7,601 | ​ | $ | 58.05
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. If awards have both a service condition and performance or market condition, then an accelerated expense method is used. 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 six months ended June 30, 2022 and 2021.
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended June 30,
​ | ​ | 2022 | ​ | 2021
​ |  | Employee |  | Non-Employee |  | Total |  | Employee |  | Non-Employee |  | Total
​ | ​ | (in thousands)
Cost of revenues | ​ | $ | 2,063 | ​ | $ | — | ​ | $ | 2,063 | ​ | $ | 1,275 | ​ | $ | — | ​ | $ | 1,275
Research and development | ​ |  | 11,938 | ​ |  | 520 | ​ |  | 12,458 | ​ |  | 6,276 | ​ |  | 340 | ​ |  | 6,616
Selling, general and administrative | ​ |  | 26,296 | ​ |  | 156 | ​ |  | 26,452 | ​ |  | 27,146 | ​ |  | 66 | ​ |  | 27,212
Total | ​ | $ | 40,297 | ​ | $ | 676 | ​ | $ | 40,973 | ​ | $ | 34,697 | ​ | $ | 406 | ​ | $ | 35,103
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six months ended June 30, |
​ | ​ | 2022 | ​ | 2021 |
​ |  | Employee |  | Non-Employee |  | Total |  | Employee |  | Non-Employee |  | Total |
​ |  | (in thousands) | ​
Cost of revenues | ​ | $ | 3,779 | ​ | $ | — | ​ | $ | 3,779 | ​ | $ | 1,983 | ​ | $ | — | ​ | $ | 1,983 | ​
Research and development | ​ |  | 20,944 | ​ |  | 935 | ​ |  | 21,879 | ​ |  | 9,926 | ​ |  | 564 | ​ |  | 10,490 | ​
Selling, general and administrative | ​ |  | 50,171 | ​ |  | 231 | ​ |  | 50,402 | ​ |  | 45,751 | ​ |  | 111 | ​ |  | 45,862 | ​
Total | ​ | $ | 74,894 | ​ | $ | 1,166 | ​ | $ | 76,060 | ​ | $ | 57,660 | ​ | $ | 675 | ​ | $ | 58,335 | ​
As of June 30, 2022, approximately $344.5 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 and six months ended June 30, 2022, 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 June 30, | ​ | Six months ended June 30,
​ |  | 2022 |  |  | 2021 |  | ​ | 2022 | ​ | 2021 | ​
Expected term (years) |  | ​ | ​ | ​ | 10.00 | ​ |  | 5.11 | ​ | — | 10.00 | ​ | ​ | 5.12 | ​ | — | 10.00 | ​ | ​ | 5.11 | ​ | — | 10.00 | ​
Expected volatility |  | 56.15 | % | — | 56.38 | % |  | 56.01 | % | — | 63.30 | % | ​ | 55.91 | % | — | 62.30 | % | ​ | 55.33 | % | — | 63.30 | %
Expected dividend rate |  | ​ | ​ | ​ | 0.00 | % |  | ​ | ​ | ​ | 0.00 | % | ​ | ​ | ​ | ​ | 0.00 | % | ​ | ​ | ​ | ​ | 0.00 | %
Risk-free interest rate |  | 2.72 | % | — | 2.74 | % |  | 0.81 | % | — | 1.67 | % | ​ | 1.62 | % | — | 2.74 | % | ​ | 0.81 | % | — | 1.67 | %
​ As of June 30, 2022, total options outstanding include 28,053 shares of option awards that were granted to non-employees, of which all shares are vested. 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.

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