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Stock-Based Compensation | 6 Months Ended
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Jun. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Stock-Based Compensation | Note 9. Stock-Based Compensation 2011 Equity Incentive Plan In 2011, the Company established its 2011 Equity Incentive Plan (the “2011 Plan”) that provided for the granting of stock options to employees and nonemployees of the Company. Under the 2011 Plan, the Company had the ability to issue incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, and restricted stock unit awards (“RSUs”). Options under the 2011 Plan could be granted for periods of up to 10 years. The ISOs could be granted at a price per share not less than the fair value at the date of grant. For stock option grants issued prior to December 31, 2015, the Company allowed employees to exercise options granted under the 2011 Plan prior to vesting (early exercise of stock options). The unvested shares are subject to the Company’s repurchase rights at the original purchase price. Initially, the proceeds were recorded as an accrued liability from the early exercise of stock options and reclassified to common stock as the Company’s repurchase rights lapse. There were zero unvested shares subject to the Company’s repurchase rights as of June 30, 2020 and December 31, 2019. 2019 Equity Incentive Plan The Company’s board of directors adopted and the Company’s stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) in May 2019 and June 2019, respectively. The 2019 Plan became effective in June 2019 in connection with the Company’s IPO, and no further grants will be made under the 2011 Plan. Shares reserved and remaining available for issuance under the 2011 Plan were added to the 2019 Plan reserve upon its effectiveness. The 2019 Plan provides for the grant of ISOs, NSOs, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards, and other forms of equity compensation. Additionally, the 2019 Plan provides for the grant of performance cash awards. ISOs may be granted only to the Company’s employees and to any of the Company’s parent or subsidiary corporation’s employees. All other awards may be granted to employees, including officers, and to non-employee directors and consultants of the Company and any of the Company’s affiliates. The exercise price of a stock option generally cannot be less than 100% of the fair market value of the Company’s common stock on the date of grant. Options under the 2019 Plan may be granted for periods of up to 10 years. 2020 Inducement Plan The Compensation Committee of the Company’s board of directors adopted the 2020 Inducement Plan (the “Inducement Plan”) in May 2020, which became effective upon adoption. The Inducement Plan was adopted without stockholder approval, as permitted by the Nasdaq Stock Market rules. The Inducement Plan provides for the grant of equity-based awards, including NSOs, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards, and other forms of equity compensation, and its terms are substantially similar to the stockholder-approved 2019 Plan. In accordance with relevant Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals entry into employment with the Company. 2019 Employee Stock Purchase Plan The Company’s board of directors adopted and the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”) in May 2019 and June 2019, respectively. Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of the Company’s common stock at a discounted price per share. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower. The ESPP provides for separate six-month offering periods beginning on May 1 and November 1 of each year. Shares of common stock available for issuance under the Company’s equity incentive plans at June 30, 2020 and December 31, 2019 were as follows:
|  | June 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Reserved for issuance upon exercise of options outstanding under the 2011 Plan |  |  | 3,902,797 |  |  |  | 4,474,057 |
Reserved for issuance upon exercise or settlement of awards outstanding under the 2019 Plan |  |  | 2,231,539 |  |  |  | 377,378 |
Reserved and available for issuance under the 2019 Plan (1) |  |  | 2,113,980 |  |  |  | 2,392,343 |
Reserved for issuance upon exercise or settlement of awards outstanding under the Inducement Plan |  |  | 119,900 |  |  |  | — |
Reserved and available for issuance under the Inducement Plan |  |  | 880,100 |  |  |  | — |
Reserved and available for issuance under the ESPP (2) |  |  | 413,266 |  |  |  | 172,316 |
Total number of shares reserved |  |  | 9,661,582 |  |  |  | 7,416,094 |
(1) June 30, 2020 balance includes share increase added January 1, 2020 pursuant to the “evergreen” provision in the amount of 1,562,151 shares |
(2) June 30, 2020 balance includes share increase added January 1, 2020 pursuant to the “evergreen” provision in the amount of 312,430 shares |
Stock Option Activity A summary of the Company’s stock option activity (excluding performance-based stock option activity summarized further below) under the 2011 Plan, 2019 Plan, and Inducement Plan for the six months ended June 30, 2020 is as follows:
|  | Outstanding Options |
(in thousands, except share and per share data) |  | Number of Shares |  |  | Weighted- Average Exercise Price |  |  | Weighted- Average Remaining Contractual Term (in years) |  |  | Aggregate Intrinsic Value |
Balance—December 31, 2019 |  |  | 4,731,435 |  |  | $ | 4.94 |  |  |  | 6.60 |  |  | $ | 29,730 |
Options granted |  |  | 1,059,841 |  |  |  | 8.26 |  |  |  |  |  |  |  |  |
Options exercised |  |  | (513,993 | ) |  |  | 1.97 |  |  |  |  |  |  |  |  |
Options cancelled |  |  | (73,517 | ) |  |  | 8.19 |  |  |  |  |  |  |  |  |
Balance—June 30, 2020 |  |  | 5,203,766 |  |  | $ | 5.86 |  |  |  | 7.00 |  |  | $ | 37,398 |
Options vested and exercisable as of June 30, 2020 |  |  | 2,785,325 |  |  | $ | 3.78 |  |  |  | 5.28 |  |  | $ | 25,711 |
Options granted to new hires generally vest over a four-year period, with 25% vesting at the end of one year and the remaining vesting monthly thereafter. Options granted as merit awards generally vest monthly over a three- or four-year period. The aggregate intrinsic value of unexercised stock options is calculated as the difference between the closing price of the Company’s common stock of $12.97 on June 30, 2020 and the exercise prices of the underlying stock options. Out-of-the money stock options are excluded from the aggregate intrinsic value. The weighted-average grant date fair value of options granted was $6.70 and $8.40 per share for the three months ended June 30, 2020 and 2019, respectively, and $4.81 and $8.07 per share for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the unrecognized stock-based compensation cost of unvested options was $12.0 million, which is expected to be recognized over a weighted-average period of 2.6 years. Valuation of Stock Options The Company estimated the fair value of stock options using the Black-Scholes option-pricing model. The fair value of stock options is recognized on a straight-line basis over the requisite service periods of the awards. The fair value of stock options was estimated using the following weighted-average assumptions:
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Expected term (in years) |  | 5.50 - 6.08 |  | 5.00 - 6.08 |  | 5.50 - 6.08 |  | 5.00 - 6.87
Volatility |  | 67.58 - 68.18% |  | 56.89 - 57.27% |  | 61.74 - 68.18% |  | 56.20 - 57.27%
Risk-free interest rate |  | 0.36 - 0.44% |  | 2.31 - 2.36% |  | 0.36 - 1.66% |  | 2.31 - 2.52%
Dividend yield |  | –% |  | –% |  | –% |  | –%
Performance-Based Stock Option Activity Pursuant to the 2019 Plan, in March 2020, the Company’s board of directors granted the Company’s Chief Executive Officer a performance-based stock option (“PSO”) to purchase 421,000 shares of common stock. The PSO is subject to the Chief Executive Officer’s continued service to the Company through the date of vesting and, if the performance condition is not met within 10 years from the date of grant, the PSO will be canceled. The shares subject to the PSO will vest in full if the Company’s average market capitalization is equal to or greater than $1 billion over a 30 calendar day period. Upon a change in control, the vesting of the shares subject to the PSO will accelerate on a pro rata basis based on the price per share in such change in control transaction multiplied by the price per share at such time divided by $1 billion, with up to 100% of the shares eligible for such accelerated vesting. A summary of the Company’s performance-based stock option activity under the 2019 Plan for the six months ended June 30, 2020 is as follows:
|  | Outstanding Performance-Based Options |
(in thousands, except share and per share data) |  | Number of Shares |  |  | Weighted- Average Exercise Price |  |  | Weighted- Average Remaining Contractual Term (in years) |  |  | Aggregate Intrinsic Value |
Balance—December 31, 2019 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Options granted |  |  | 421,000 |  |  |  | 5.10 |  |  |  |  |  |  |  |  |
Options exercised |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |
Options cancelled |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |
Balance—June 30, 2020 |  |  | 421,000 |  |  | $ | 5.10 |  |  |  | 9.71 |  |  | $ | 3,313 |
Options vested and exercisable as of June 30, 2020 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
The aggregate intrinsic value of unexercised stock options is calculated as the difference between the closing price of the Company’s common stock of $12.97 on June 30, 2020 and the exercise price of the underlying stock options. As of June 30, 2020, the unrecognized stock-based compensation cost of unvested performance-based options was $1.3 million, which is expected to be recognized over a period of 4.3 years. Valuation of Performance-Based Stock Options The Company estimated the fair value of the PSO using a Monte Carlo Model and the following assumptions and estimates:
|  | 2020 |
Performance period (in years) |  |  | 10.00 |
Derived service period (in years) |  |  | 4.55 |
Volatility |  | 63.60% |
Risk-free interest rate |  | 1.02% |
Dividend yield |  | –% |
Estimated fair value (per share) |  | $ | 3.31 |
Restricted Stock Units Activity A summary of the Company’s RSU activity under the 2019 Plan and Inducement Plan for the six months ended June 30, 2020 is as follows:
|  | Unvested Restricted Stock Units |
(in thousands, except share and per share data) |  | Number of Shares |  |  | Weighted- Average Grant Date Fair Value |  |  | Aggregate Fair Value |
Balance—December 31, 2019 |  |  | 120,000 |  |  | $ | 8.86 |  |  | $ | 1,308 |
RSUs granted |  |  | 554,590 |  |  |  | 7.88 |  |  |  |  |
RSUs vested |  |  | (43,620 | ) |  |  | 6.63 |  |  |  | 523 |
RSUs cancelled |  |  | (1,500 | ) |  |  | 4.75 |  |  |  |  |
Balance—June 30, 2020 |  |  | 629,470 |  |  | $ | 8.16 |  |  | $ | 8,164 |
The Company granted RSUs to employees to receive shares of the Company’s common stock. The RSUs awarded are subject to each individual’s continued service to the Company through each applicable vesting date. RSUs granted to new hires generally vest annually over a four-year period. RSUs granted as merit awards generally vest semi-annually over a three-year period, or in some cases quarterly over a three-year period. The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant. The aggregate fair value of unvested RSUs is calculated using the closing price of the Company’s common stock of $12.97 on June 30, 2020. As of June 30, 2020, the unrecognized stock-based compensation cost of unvested RSUs was $5.0 million, which is expected to be recognized over a weighted-average period of 3.1 years. The Company's default tax withholding method for RSUs is the sell-to-cover method, in which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the RSUs upon vesting and settlement to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities. ESPP Activity and Valuation During the six months ended June 30, 2020, 71,480 shares of common stock were purchased under the ESPP. The following assumptions were used to calculate the stock-based compensation for each stock purchase right granted under the ESPP: a weighted-average expected life of 0.5 years, expected volatility of 102.1%, a risk-free interest rate of 0.1%, and a zero dividend yield. Stock-Based Compensation Expense The following is a summary of stock-based compensation expense by award type (in thousands):
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Stock options |  | $ | 1,259 |  |  | $ | 1,366 |  |  | $ | 2,262 |  |  | $ | 1,975 |
Performance-based stock options |  |  | 76 |  |  |  | 280 |  |  |  | 89 |  |  |  | 280 |
RSUs |  |  | 310 |  |  |  | — |  |  |  | 423 |  |  |  | — |
ESPP |  |  | 177 |  |  |  | — |  |  |  | 297 |  |  |  | — |
Total stock-based compensation expense |  | $ | 1,822 |  |  | $ | 1,646 |  |  | $ | 3,071 |  |  | $ | 2,255 |
The following is a summary of stock-based compensation expense by function (in thousands):
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Costs of revenues |  | $ | 209 |  |  | $ | 105 |  |  | $ | 352 |  |  | $ | 190 |
Research and development |  |  | 394 |  |  |  | 193 |  |  |  | 653 |  |  |  | 357 |
Selling, general and administrative |  |  | 1,219 |  |  |  | 1,348 |  |  |  | 2,066 |  |  |  | 1,708 |
Total stock-based compensation expense |  | $ | 1,822 |  |  | $ | 1,646 |  |  | $ | 3,071 |  |  | $ | 2,255 |

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