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STOCKHOLDERS’ EQUITY | 12 Months Ended
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Dec. 31, 2024
Share-Based Payment Arrangement [Abstract] |
STOCKHOLDERS’ EQUITY |
NOTE 9. STOCKHOLDERS' EQUITY
Common and Preferred Stock
Our Certificate of Incorporation, as amended and restated in October 2010 in connection with the closing of our initial public offering, authorizes us to issue 1,000,000,000 shares of $0.001 par value common stock and 50,000,000 shares of $0.001 par value preferred stock. As of December 31, 2024 and 2023, there were no shares of preferred stock issued or outstanding. Common stockholders are entitled to dividends when and if declared by our board of directors. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote.
Underwritten Public Equity Offerings
In January 2023, we entered into an underwriting agreement, relating to the public offering of 17.5 million shares of our common stock, $0.001 par value per share, at a price to the public of $10.00 per share. Under the terms of the underwriting agreement, we also granted the underwriters a 30-day option to purchase up to an additional 2.6 million 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 January 2023. In total, we sold 20.1 million shares of our common stock. We paid a commission equal to 5.75% 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 $189.7 million, excluding approximately $0.5 million of offering expenses.
Equity Plans
The 2020 Equity Incentive Plan (the “2020 Plan”), the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”), and the 2021 adopted Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc. (the “Omniome Plan”) allow for the issuance of stock options, restric ted units and awards, and performance-based awards. The 2010 Employee Stock Purchase Plan (the “ESPP”) allows eligible employees to acquire common stock at a discounted price through payroll deductions during designated offering periods. On May 25, 2022, stockholders approved an amendment to the 2020 Plan, and we reserved an additional 18.0 million shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan. On June 18, 2024, stockholders approved an amendment to the 2020 Plan, and we reserved an additional 20.0 million shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan. As of December 31, 2024, we had 28.4 million shares remaining and available for future issuance under the 2020 Plan, Inducement Plan, and the Omniome Plan. Shares remaining and available for future issuance reflect shares that may become eligible to vest upon the achievement of maximum targets for certain equity awards.
Stock Options
The following table summarizes stock option activity for time-based awards:
(shares in thousands) | Number of shares |  | Weighted-average exercise price
Outstanding at December 31, 2023 | 13,011 |  | $ | 10.63 |
Granted | 493 |  | $ | 1.99 |
Exercised | (515) |  | $ | 3.15 |
Canceled | (2,153) |  | $ | 8.89 |
Expired | (327) |  | $ | 5.81 |
Outstanding at December 31, 2024 | 10,509 |  | $ | 11.09 |
The aggregate intrinsic value of the outstanding options presented in the table above as of December 31, 2024, totaled $0.1 million, and had a weighted-average remaining contractual life of 5.4 years. The aggregate intrinsic value of outstanding options represents the total pre-tax intrinsic value (i.e. the difference between $1.83, our closing stock price on the last trading day of our fourth quarter of 2024, and the option exercise price multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2024. The aggregate intrinsic value changes at each reporting date based on the fair market value of our common stock. The vested and exercisable options as of December 31, 2024, totaled 9,429,082 shares, had an aggregate intrinsic value that was not significant, a weighted-average exercise price per share of $11.26, and a weighted-average remaining contractual life of 5.1 years. The vested and expected to vest options as of December 31, 2024, totaled 10,957,644 shares, had an aggregate intrinsic value of $0.1 million, a weighted-average exercise price per share of $11.13, and a weighted-average remaining contractual life of 5.4 years. The total intrinsic value of stock options exercised during the years ended December 31, 2024, 2023, and 2022 was $0.8 million, $8.8 million, and $5.0 million, respectively. The total intrinsic value of options exercised represents the difference between our closing stock price on the exercise date and the option exercise price, multiplied by the number of in-the-money options exercised. The weighted-average grant-date fair value of all options granted was $1.40 in 2024, $7.32 in 2023, and $5.93 in 2022, each determined by the Black-Scholes option valuation method.
Restricted Stock Units ("RSU") and Performance Stock Units ("PSU")
We have awarded both Restricted Stock Units (RSUs) and Performance Stock Units (PSUs). Each RSU represents the right to receive one share of our common stock upon meeting the required service-based vesting conditions. RSUs typically vest over four years, with equal annual installments. In 2023, PSUs were granted and are based on performance against predefined revenue targets and require continued employment throughout the vesting period. These shares become issuable after the third year of the performance period. Achieving the maximum revenue goal allows up to 200% of the target PSU shares to become eligible for vesting, while failing to meet the minimum revenue goal results in no shares vesting. The following table summarizes the time-based RSU and PSU activity:
|  |  |  |  | Weighted-average grant date fair value
(shares in thousands) | Restricted Stock Units (RSUs) |  | Performance Stock Units (PSUs) |  | RSU |  | PSU
Outstanding at December 31, 2023 | 11,308 |  | 541 |  | $ | 12.06 |  |  | $ | 9.43 |
Granted | 12,722 |  | — |  |  | 5.02 |  |  | — |
Vested | (3,801) |  | — |  |  | 12.43 |  |  | — |
Forfeited | (6,018) |  | (149) |  | 7.90 |  |  | 9.43 |
Outstanding at December 31, 2024 | 14,211 |  | 392 |  | $ | 7.41 |  |  | $ | 9.43 |
The total fair value of shares vested related to RSUs during the years ended December 31, 2024, 2023, and 2022 was $47.2 million, $39.3 million, and $39.2 million, respectively. The weighted-average grant-date fair value of all RSUs granted was $5.02 in 2024, $9.65 in 2023, and $10.15 in 2022.
Employee Stock Purchase Plan
As of December 31, 2024, a total of 33.5 million shares of our common stock have been reserved for issuance under the ESPP, which allows eligible employees to acquire common stock at a discounted price through payroll deductions during designated offering periods. Each offering period typically consists of four purchase periods, each lasting approximately six months. Shares are purchased at the lower of 85% of the fair market value of the common stock at either the beginning of the offering period or the end of the purchase period. If the stock price at the end of a purchase period is lower than at the start of the offering period, the existing offering period will be reset, and a new offering period will begin. The ESPP provides for an annual increase to the shares available for issuance at the beginning of each fiscal year equal to the lesser of 2% of the common shares then outstanding, 4,000,000 shares, or an amount determined by the ESPP’s administrator. For the years ended December 31, 2024, 2023, and 2022, 1,906,529 shares, 1,735,058 shares, and 1,878,168 shares of common stock were purchased under the ESPP, respectivel y. As of December 31, 2024, 14.3 million sh ares of our common stock remain available for issuance under our ESPP.
Share-based Compensation
The following table summarizes share-based compensation expense:
| Years Ended December 31,
(in thousands) | 2024 |  | 2023 |  | 2022
Cost of revenue | $ | 5,691 |  |  | $ | 5,399 |  |  | $ | 4,802 |
Research and development | 19,172 |  |  | 22,435 |  |  | 30,676 |
Sales, general and administrative | 46,173 |  |  | 44,284 |  |  | 43,135 |
Total share-based compensation | 71,036 |  |  | 72,118 |  |  | 78,613 |
As of December 31, 2024 and 2023, $0.6 million and $0.6 million of share-based compensation cost was capitalized in inventory, net, on our consolidated balance sheets, respectively. We estimate forfeitures related to our share-based compensation plans. The estimated forfeiture rate is based on historical data, trends, and other relevant factors, such as employee turnover rates and expectations about future forfeitures. The estimated forfeiture rate is reviewed periodically and adjusted as necessary to reflect changes in these factors. The tax benefit of share-based compensation expense was immaterial for the years ended December 31, 2024, 2023, and 2022 due to a valuation allowance on the net deferred tax assets of our U.S. entities, for which we have concluded that it is more likely than not that we will not realize our deferred tax assets.
Determining Fair Value
We estimate the fair value of share options granted using the Black-Scholes valuation method and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair market value of RSU awards granted is the closing price of our shares on the date of grant and is generally recognized as compensation expense on a straight-line basis over the respective vesting period. For shares purchased under the ESPP, we estimate the grant-date fair value, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model. •Expected Term – The expected term used in the Black-Scholes valuation method represents the period that the stock options are expected to be outstanding and is determined based on historical experience of similar awards, considering the contractual terms of the stock options and vesting schedules. •Expected Volatility – The expected volatility used in the Black-Scholes valuation method is derived from the implied volatility related to our share price over the expected term. •Expected Dividend – We have never paid dividends on our shares and, accordingly, the dividend yield percentage is zero for all periods. •Risk-Free Interest Rate – The risk-free interest rate used in the Black-Scholes valuation method is the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected terms. Stock Options When determining the current share prices underlying the stock options for calculating the grant-date fair value, we reference observable market prices of similar or identical instruments in active markets. The fair value of employee stock options was estimated using the following weighted-average assumptions:
| Years Ended December 31,
| 2024 |  | 2023 |  | 2022
Expected term in years | 4.9 |  | 4.9 |  | 4.6
Expected volatility | 81% - 93% |  | 77% - 78% |  | 70% - 76%
Risk-free interest rate | 3.48% – 4.32% |  | 3.73% – 4.60% |  | 0.41% – 3.66%
Dividend yield | — |  | — |  | —
Weighted-average grant date fair value per share | $ | 1.40 |  |  | $ | 7.32 |  |  | $ | 5.93 |
Cash received from option exercises for the years ended December 31, 2024, 2023, and 2022 was $1.6 million, $6.5 million and $3.4 million, respectively. ESPP The fair value of shares to be issued under the ESPP was estimated using the following assumptions:
| Years Ended December 31,
| 2024 |  | 2023 |  | 2022
Expected term in years | 0.5 - 2.0 |  | 0.5 - 2.0 |  | 0.5 - 2.0
Expected volatility | 81% - 118% |  | 79% - 97% |  | 70% - 97%
Risk-free interest rate | 3.9% - 5.3% |  | 4.9% - 5.5% |  | 0.6% - 3.5%
Dividend yield | — |  | — |  | —
Weighted-average grant date fair value per share | $ | 1.53 |  |  | $ | 5.34 |  |  | $ | 4.28 |
Cash received through the ESPP for the years ended December 31, 2024, 2023, and 2022 was $6.1 million, $8.8 million, and $7.8 million, respectively. As of December 31, 2024, $80.1 million of total unrecognized compensation expense related to stock options, restricted stock, and ESPP shares was expected to be recognized over a weighted-average period of 2.2 years.

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