Stockholders' Equity and Stock-Based Compensation

12 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

Stockholders' Equity and Stock-Based Compensation

Stock Repurchase Program

On December 11, 2019, the Board of Directors authorized a share repurchase plan to repurchase up to $500.0 million of the Company's outstanding common stock. During the first quarter of fiscal 2021, the Company repurchased 1.5 million shares of its common stock under this plan for a total consideration of $101.3 million. On December 9, 2020, the Board of Directors authorized a new five-year share repurchase program to repurchase up to $1.0 billion of the Company's outstanding common stock. The prior program was terminated in connection with this new authorization. Under this authorization, during fiscal 2021, the Company repurchased 4.6 million shares of its common stock for a total consideration of $308.5 million, and during fiscal 2022, the Company repurchased 7.7 million shares of its common stock for a total consideration of $542.1 million.

On September 22, 2022, the Board of Directors authorized a new stock repurchase program, with a five-year term, to repurchase up to $1.0 billion of the Company’s outstanding common stock, effective as of the close of trading September 23, 2022. This repurchase program replaced the previous $1.0 billion authorization. During fiscal 2023, the Company repurchased 6.8 million shares of its common stock for total consideration of $501.6 million, excluding the 1% excise tax on share repurchases of $2.9 million. As of September 30, 2023, $498.6 million remained available under this authorization. Subsequent to September 30, 2023, the Company repurchased 2.2 million shares for a total consideration of $150.0 million.

On November 6, 2023, the Board of Directors authorized the Company to repurchase up to $500 million of the Company’s outstanding shares pursuant to an accelerated share repurchase (ASR) agreement. On November 15, 2023, the Company executed the ASR agreement with Goldman Sachs & Co. (“Goldman Sachs”) pursuant to which the Company agreed to repurchase $500 million of the Company’s common stock. In connection with the launch of the ASR, on November 17, 2023, the Company paid Goldman Sachs an aggregate of $500 million and received approximately 5.6 million shares of the Company’s common stock, representing 80% of the transaction value based on the Company’s closing share price on November 14, 2023. The final number of shares to be received under the ASR agreement will be determined upon completion of the transaction and will be based on the total transaction value and the volume-weighted average share price of the Company’s common stock during the term of the transaction. Final settlement of the transaction is expected to be completed in the second quarter of fiscal 2024.

Stock-Based Compensation

Equity Compensation Plans

The Company has one share-based compensation plan pursuant to which awards are currently being issued—the 2008 amended and restated Equity Incentive Plan (“2008 Equity Plan”). The purpose of the 2008 Equity Plan is to provide stock options, restricted stock units and other equity interests in the Company to employees, officers, directors, consultants and advisors of the Company and any other person who is determined by the Board of Directors to have made (or is expected to make) contributions to the Company. The 2008 Equity Plan is administered by the Board of Directors of the Company. On December 8, 2022, the Board of Directors approved an additional 6.5 million shares of common stock available under the 2008 Equity Plan increasing the total shares reserved for issuance under the plan to 38 million. As of September 30, 2023, the Company had 8.8 million shares available for future grant under the 2008 Equity Plan.

The following presents stock-based compensation expense in the Company’s Consolidated Statements of Operations in fiscal 2023, 2022 and 2021:


	2023		2022		2021
Cost of revenues	$	10.5	$	9.1	$	8.0
Research and development	10.5		8.8		7.7
Selling and marketing	12.0		10.5		9.5
General and administrative	46.6		38.3		38.9
Restructuring	—		—		0.9
	$	79.6	$	66.7	$	65.0

Grant-Date Fair Value

The Company uses a binomial model to determine the fair value of its stock options. The Company considers a number of factors to determine the fair value of options including the assistance of an outside valuation adviser. Information pertaining to stock options granted during fiscal 2023, 2022 and 2021 and related assumptions are noted in the following table:


	Years ended
	September 30, 2023			September 24, 2022			September 25, 2021
Options granted (in millions)	0.5			0.7			0.6
Weighted-average exercise price	$	74.66		$	71.07		$	68.62
Weighted-average grant date fair value	$	25.95		$	21.01		$	19.86
Assumptions:
Risk-free interest rates	4.3		%	1.1		%	0.4		%
Expected life (in years)	4.8			4.8			4.8
Expected volatility	33.9		%	34.2		%	35.0		%
Dividend yield	—			—			—

The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. In projecting expected stock price volatility, the Company uses a combination of historical stock price volatility and implied volatility from observable market prices of similar equity instruments. The Company estimated the expected life of stock options based on historical experience using employee exercise and option expiration data.

Stock-Based Compensation Expense Attribution

The Company uses the straight-line attribution method to recognize stock-based compensation expense for stock options and restricted stock units (“RSUs”), unless the employee meets the plan retirement provision of reaching a certain age and years of service criteria in which case the expense is accelerated to match the required service period to receive such benefit. The vesting term of stock options is generally four years with annual vesting of 25% per year on the anniversary of the grant date, and RSUs generally vest over three years with annual vesting at 33% per year on the anniversary of the grant date.

The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Under ASC 718, the Company's accounting policy is to estimate forfeitures at the time awards are granted and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on an analysis of historical forfeitures, the Company has determined a specific forfeiture rate for certain employee groups and has applied forfeiture rates ranging from 0% to 6.0% as of September 30, 2023 depending on the specific employee group. This analysis is re-evaluated annually and the forfeiture rate adjusted as necessary. Ultimately, the actual stock-based compensation expense recognized will only be for those stock options and RSUs that vest.

Stock-based compensation expense related to stock options was $14.2 million, $12.0 million, and $13.0 million in fiscal 2023, 2022 and 2021, respectively. Stock compensation expense related to stock units, including RSUs, performance stock units (“PSUs”), free cash flow performance stock units (“FCFs”) and market stock units (“MSUs”) was $58.5 million, $48.2 million, and $46.1 million in fiscal 2023, 2022 and 2021, respectively. The related tax benefit recorded in the Consolidated Statements of Income was $10.7 million, $8.6 million and $7.9 million in fiscal 2023, 2022 and 2021, respectively. At September 30, 2023, there was $11.4 million and $46.9 million of unrecognized compensation expense related to stock options and stock units, respectively, to be recognized over a weighted average period of 2.1 years and 1.7 years, respectively.

Share Based Payment Activity

The following table summarizes all stock option activity under the Company’s stock option plans for the year ended September 30, 2023:


	Number of Shares (in millions)	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value (in millions)
Options outstanding at September 24, 2022	4.4	$	48.46	6.1	$	71.0
Granted	0.5	74.66
Canceled/ forfeited	(0.2)	67.33
Exercised	(0.5)	42.59			18.4
Options outstanding at September 30, 2023	4.2	$	51.63	5.6	$	77.6
Options exercisable at September 30, 2023	3.0	$	44.49	4.6	$	73.8
Options vested and expected to vest at September 30, 2023 (1)	4.2	$	51.56	5.6	$	77.6

(1)This represents the number of vested stock options as of September 30, 2023 plus the unvested outstanding options at September 30, 2023 expected to vest in the future, adjusted for estimated forfeitures.

During fiscal 2022 and 2021, the total intrinsic value of options exercised (i.e., the difference between the market price on the date of exercise and the price paid by the employee to exercise the options) was $11.1 million and $30.4 million, respectively.

A summary of the Company’s RSU, PSU, FCF and MSU activity during the year ended September 30, 2023 is presented below:


Non-vested Shares	Number of Shares (in millions)	Weighted-Average Grant-Date Fair Value
Non-vested at September 24, 2022	1.7	$	64.43
Granted	1.0	75.73
Vested	(0.9)	55.40
Forfeited	(0.2)	72.11
Non-vested at September 30, 2023	1.6	$	73.33

The number of RSUs vested includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. The Company pays the minimum statutory tax withholding requirement on behalf of its employees. During fiscal 2023, 2022 and 2021 the total fair value of RSUs vested was $48.4 million, $43.8 million and $73.1 million, respectively.

The Company granted 0.7 million, 0.7 million and 0.5 million RSUs during fiscal 2023, 2022 and 2021, respectively. In addition, included in the above chart, the Company also granted 0.1 million, 0.1 million and 0.1 million PSUs during fiscal 2023, 2022, and 2021, respectively, to members of the Company's senior management team, which includes additional shares issued upon achieving metrics within the performance criteria. Each recipient of the PSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of the three year performance period provided the Company’s defined Return on Invested Capital metrics are achieved. The Company also granted $0.1 million and $0.1 million of FCF PSUs based on a three-year cumulative free cash flow measure (FCF) to its senior management team in fiscal 2023 and 2022, respectively. The Company granted 0.1 million of FCF PSUs based on a one-year measurement period to its senior management team in fiscal 2021. Each recipient of FCF PSUs is eligible to receive between zero and 200% of the target number of shares of the Company's common stock at the end of the three year or one-year measurement periods. The PSUs and FCF PSUs were valued at $74.35, $71.16 and $68.51 per share based on the ending stock price on the date of grant in fiscal 2023, 2022 and 2021, respectively. The PSUs and FCF PSUs cliff-vest three years from the date of grant, and the Company recognizes compensation expense ratably over the required service period based on its estimate of the number of shares that will vest upon achieving the measurement criteria. If there is a change in the estimate of the number of shares that are probable of vesting, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made. The Company also granted 0.1 million, 0.1 million and 0.1 million MSUs during fiscal 2023, 2022 and 2021, respectively, to its senior management team. Each recipient of MSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of the three year performance period based upon achieving a certain total shareholder return relative to a defined peer group. The MSUs were valued at $97.91, $75.43 and $82.31 per share using the Monte Carlo simulation model in fiscal 2023, 2022 and 2021, respectively. These awards cliff-vest three years from the date of grant, and the Company recognizes compensation expense for the MSUs ratably over the service period regardless of the measurement criteria being met.

Employee Stock Purchase Plan

The Hologic, Inc. 2012 Employee Stock Purchase Plan (“2012 ESPP”) provides for the granting of up to 2.5 million shares of the Company’s common stock to eligible employees. The 2012 ESPP plan period is semi-annual and allows participants to purchase the Company’s common stock at 85% of the lower of (i) the market price per share of the common stock on the first day of the offering period or (ii) the market price per share of the common stock on the purchase date. Stock-based compensation expense in fiscal 2023, 2022 and 2021 was $6.9 million, $6.5 million and $5.9 million, respectively.

The Company uses the Black-Scholes model to estimate the fair value of shares to be issued as of the grant date using the following weighted average assumptions:


	September 30, 2023		September 24, 2022		September 25, 2021
Assumptions:
Risk-free interest rates	4.10	%	0.96	%	0.26	%
Expected life (in years)	0.5		0.5		0.5
Expected volatility	34.0	%	34.0	%	34.1	%
Dividend yield	—		—		—