STOCKHOLDERS’ EQUITY

6 Months Ended

Jun. 30, 2024


6. STOCKHOLDERS’ EQUITY

As of June 30, 2024, approximately 5.4 million shares remained available for future grants under the Amended and Restated 2015 Stock and Incentive Compensation Plan (the 2015 Stock Plan). In connection with the Spin-Off of GRAIL, all unvested RSU and PSU were equitably adjusted pursuant to the 2015 Stock Plan in order to preserve their intrinsic value and, accordingly, the number of shares reserved for issuance under the 2015 Stock Plan was also increased by 160,000 shares.

Restricted Stock

Restricted stock activity was as follows:


	Restricted Stock Units (RSU)	Performance Stock Units (PSU)(1)	Weighted-Average Grant Date Fair Value per Share
Units in thousands			RSU		PSU
Outstanding at December 31, 2023	2,198	—	$	236.32	$	—
Awarded	2,666	457	$	134.22	$	145.49
Unvested adjustment for GRAIL Spin-Off	107	12	$	—	$	—
Vested	(52)	—	$	266.34	$	—
Cancelled	(234)	(19)	$	209.42	$	167.68
Outstanding at June 30, 2024	4,685	450	$	174.03	$	146.23

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(1)We issue three types of PSU. We issue PSU for which the number of shares issuable is based on our performance relative to specified earnings per share targets (EPS PSU) and PSU with a market condition that vest based on the Company’s relative total shareholder return as compared to a peer group of companies (rTSR PSU). In Q1 2024, we began to issue PSU for which the number of shares issuable is based on our performance relative to specified operating margin targets (OM PSU). For EPS and OM PSU, the number of units reflect the estimated number of shares to be issued at the end of the performance period. For rTSR PSU, the number of units reflect the estimated number of shares to be issued based on performance as of the current reporting period. Awarded units are presented net of performance adjustments.

Stock Options

Stock option activity was as follows:


Units in thousands	Options	Weighted-Average Exercise Price		Performance Options(1)	Weighted-Average Exercise Price
Outstanding at December 31, 2023	35	$	330.25	16	$	87.74


Cancelled	(35)	$	330.25	(16)	$	87.74
Outstanding at June 30, 2024	—	$	—	—	$	—

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(1)In connection with the GRAIL acquisition, we issued replacement performance stock options to GRAIL employees in 2021. In connection with the GRAIL Spin-Off, all outstanding performance stock options were assumed by GRAIL.

Liability-Classified Awards

Prior to the GRAIL Spin-Off, we granted cash-based equity incentive awards to GRAIL employees, which were accounted for as liability-classified awards. In connection with the Spin-Off, these awards were assumed by GRAIL.

Cash-based equity incentive award activity was as follows:


In millions
Outstanding at December 31, 2023	$	292
Granted	67
Vested and paid in cash	(54)
Cancelled	(13)
Change in fair value	(9)
Derecognition for GRAIL Spin-Off(1)	(283)
Outstanding at June 30, 2024	$	—

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(1)The estimated liability immediately prior to the Spin-Off, recorded in accrued liabilities, was $53 million, which was disposed of as part of GRAIL’s net assets. See note 2. GRAIL Spin-Off for additional details.

We recognized share-based compensation expense on these cash-based equity incentive awards of $23 million and $52 million in Q2 2024 and YTD 2024, respectively, and $25 million and $46 million in Q2 2023 and YTD 2023, respectively.

In connection with the acquisition of GRAIL, we assumed a performance-based award for which vesting was based on GRAIL’s future revenues and had an aggregate potential value of up to $78 million. Prior to the GRAIL Spin-Off, it was not probable that the performance conditions associated with the award would be achieved and, therefore, no share-based compensation expense was recognized in the condensed consolidated statements of operations. In connection with the GRAIL Spin-Off, this award was assumed by GRAIL. For a period of 2.5 years following the Spin-Off, we are obligated to indemnify GRAIL for cash payments that become earned and payable related to this award. The indemnification is accounted for in accordance with ASC 460. As of June 30, 2024, we recognized a non-contingent liability of $1 million for this indemnification, with a corresponding charge to additional paid-in capital.

Employee Stock Purchase Plan

The price at which common stock is purchased under the Employee Stock Purchase Plan (ESPP) is equal to 85% of the fair market value of the common stock on the first day of the offering period or purchase date, whichever is lower. During YTD 2024, approximately 0.3 million shares were issued under the ESPP. As of June 30, 2024, there were approximately 12.6 million shares available for issuance under the ESPP, which reflects an upward adjustment of approximately 0.5 million shares pursuant to the terms of the ESPP to account for the GRAIL Spin-Off.

The assumptions used and the resulting estimate of weighted-average fair value per share for stock purchased under the ESPP during YTD 2024 were as follows:



Risk-free interest rate	4.66% - 5.54%
Expected volatility	45% - 49%
Expected term	0.5 - 1.1 year
Expected dividends	0		%
Weighted-average grant-date fair value per share	$	44.95

Share Repurchases

We did not repurchase any shares during YTD 2024. As of June 30, 2024, authorizations to repurchase approximately $15 million of our common stock remained available under the $750 million share repurchase program authorized by our Board of Directors on February 5, 2020. The repurchases may be completed under a 10b5-1 plan or at management’s discretion.

Share-Based Compensation

Share-based compensation expense, which includes expense for both equity and liability-classified awards, reported in our condensed consolidated statements of operations was as follows:



In millions	Q2 2024		Q2 2023		YTD 2024		YTD 2023
Cost of product revenue	$	7	$	8	$	13	$	15
Cost of service and other revenue	1		6		4		12
Research and development	43		43		82		79
Selling, general and administrative	59		48		109		93
Share-based compensation expense, before taxes	110		105		208		199
Related income tax benefits	(26)		(24)		(48)		(45)
Share-based compensation expense, net of taxes	$	84	$	81	$	160	$	154

As of June 30, 2024, approximately $735 million of total unrecognized compensation cost related to restricted stock, including RSU and PSU, and ESPP shares issued to date was expected to be recognized over a weighted-average period of approximately 2.7 years.