Stockholders' Equity

9 Months Ended

Sep. 30, 2020

NOTE 7. STOCKHOLDERS’ EQUITY

Underwritten Public Equity Offering

In June 2020, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may, from time to time, sell up to an aggregate of $250.0 million of our common stock, preferred stock, depository shares, warrants, units or debt securities. On July 14, 2020, the registration statement was declared effective by the SEC, which allows us to access the capital markets for the three year period following this effective date.

In August 2020, we entered into an underwriting agreement, relating to the public offering of 19,430,000 shares of our common stock, $0.001 par value per share, at a price to the public of $4.47 per share. Under the terms of the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an additional 2,914,500 shares of our common stock, which was subsequently exercised in full, and the offering including the sale of shares of common stock subject to the underwriters’ option, closed in August 2020. In total, we sold 22.3 million shares of our common stock. We paid a commission equal to 6% of the gross proceeds from the sale of shares of our common stock. The total net proceeds to us from the offering after deducting the underwriting discount were approximately $93.9 million, excluding approximately $0.3 million of offering expenses, $0.2 million of which was unpaid as of September 30, 2020.

The Termination Agreement currently limits our ability to issue additional securities or incur indebtedness as up to the $52.0 million of the Continuation Advances paid to us are repayable without interest to Illumina if, within two years of March 31, 2020, we enter into, or consummate a Change of Control Transaction or raise at least $100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

Equity Plans

At June 30, 2020, in total, we had three active equity compensation plans: the 2010 Equity Incentive Plan (“2010 Plan”), the 2010 Outside Director Equity Incentive Plan (“2010 Director Plan”) and the 2010 Employee Stock Purchase Plan (“ESPP”). Our 2010 Plan and 2010 Director Plan expired on July 29, 2020.

On August 4, 2020, stockholders approved our new 2020 Equity Incentive Plan. A description of the 2020 Equity Incentive Plan can be found in our Proxy Statement for the 2020 Annual Meeting of Stockholders, dated June 24, 2020.

Pursuant to the terms of the then-in-process Merger Agreement with Illumina, offerings under our ESPP were suspended after the completion of the purchase period ended March 1, 2019. After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period beginning March 1, 2020.

Stock Options

The following table summarizes stock option activity for all our stock option plans for the nine months ended September 30, 2020 (in thousands, except per share amounts):



	Stock Options Outstanding
				Weighted
	Number			average
	of shares	Exercise price		exercise price
Balances, December 31, 2019	22,697	$	1.16 – 16.00	$	5.57
Options granted	2,717		2.45 – 9.6		6.61
Options exercised	(2,763)		1.16 – 6.98		4.25
Options canceled	(2,730)		1.16 – 15.77		7.61
Balances, September 30, 2020	19,921	$	1.16 – 16.00	$	5.62

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $1.4 million and $4.2 million, respectively, related to options.

RSUs

Time-based RSUs

The following table summarizes the time-based RSUs activity for the nine months ended September 30, 2020 (in thousands, except per share amounts):


		Weighted average
	Number	grant date
	of shares	fair value
RSUs outstanding at December 31, 2019	1,086	$	6.12
RSUs granted	6,395		4.84
RSUs released	(876)		6.76
RSUs forfeited	(634)		4.40
Unvested RSUs outstanding at September 30, 2020	5,971	$	4.84

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $1.7 million and $5.5 million, respectively, related to time-based RSUs.

Performance-based RSUs

The following table summarizes the performance-based RSUs (“PSUs”) activity for the nine months ended September 30, 2020 (in thousands, except per share amounts):


		Weighted average
	Number	grant date
	of shares	fair value
PSUs outstanding at December 31, 2019	138	$	2.63
PSUs granted	—		—
PSUs released	—		—
PSUs forfeited	(44)		2.63
Unvested PSUs outstanding at September 30, 2020	94	$	2.63

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $0 related to the performance-based RSUs.

In January 2020, an additional 7.7 million shares and 1.5 million shares, respectively, were reserved under the 2010 Plan and the 2010 Director Plan. The 2010 Plan and the 2010 Director Plan expired on July 29, 2020. On August 4, 2020, stockholders at the 2020 Annual Meeting approved a new 2020 Equity Incentive Plan with 11,000,000 shares available for issuance and the 2010 Plan and 2010 Director Plan were terminated. As of September 30, 2020, we had 7.9 million shares of common stock available for future issuance.

ESPP shares

Shares issued under our ESPP were 834,677 and 1,306,329 during the nine months ended September 30, 2020 and 2019, respectively. In January 2020, an additional 3.1 million shares were reserved under the ESPP. As of September 30, 2020, 5,878,770 shares of our common stock remain available for issuance under our ESPP.

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $1.8 million and $2.3 million, respectively, related to the ESPP shares.

Stock-Based Compensation

The following table summarizes the stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cost of revenue	$	735	$	450	$	1,714	$	1,406
Research and development		2,105		1,906		5,297		5,836
Sales, general and administrative		2,152		1,706		5,247		5,290
Total stock-based compensation expense	$	4,992	$	4,062	$	12,258	$	12,532

We estimated the fair value of employee stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards. We did not grant any stock options for the year ended December 31, 2019 due to the then-in-process merger with Illumina.

The fair value of shares to be purchased under our stock option was estimated using the following assumptions:



	Three Months Ended September 30,		Nine Months Ended September 30,
Stock Option	2020	2019	2020	2019
Expected term in years	5.1	—	5.1	—
Expected volatility	71%	—	57% - 71%	—
Risk-free interest rate	0.3%	—	0.3% - 1.2%	—
Dividend yield	—	—	—	—

We estimate the value of employee stock purchase rights on the grant date using the Black-Scholes option pricing model. Pursuant to the terms of the then-in-process merger with Illumina, the ESPP was terminated after the completion of the purchase period ended March 1, 2019 and there were no offerings after March 1, 2019. As such there were no new Black-Scholes calculations performed to calculate the fair value of new purchase rights granted for the year ended December 31, 2019. After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period on March 1, 2020.

The fair value of shares to be purchased under our ESPP was estimated using the following assumptions:



	Three Months Ended September 30,		Nine Months Ended September 30,
ESPP	2020	2019	2020	2019
Expected term in years	0.5 - 2.0	—	0.5 - 2.0	—
Expected volatility	71%	—	57% - 71%	—
Risk-free interest rate	0.1%	—	0.1% -1.0%	—
Dividend yield	—	—	—	—