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EQUITY PLANS AND SHARE-BASED COMPENSATION | 3 Months Ended
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Mar. 31, 2025
Share-Based Payment Arrangement [Abstract] |
EQUITY PLANS AND SHARE-BASED COMPENSATION |
NOTE 7. EQUITY PLANS AND SHARE-BASED COMPENSATION
Equity Plans
As of March 31, 2025, the Company had share-based compensation awards outstanding under the 2020 Equity Incentive Plan (the “2020 Plan”), the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”), the 2021 adopted Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc. (the “Omniome Plan”) and the 2010 Employee Stock Purchase Plan, from which we issued equity awards and employee stock. As of March 31, 2025, we had 11.3 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. Refer to Note 9 – Stockholders' Equity, in Part II, Item 8 of our 2024 Annual Report for more information on the Company's equity plans.
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, 2024 | 10,509 |  |  |  | $ | 11.09 |
Granted | 7,562 |  |  |  | 1.24 |
Canceled | (1,287) |  |  |  | 9.20 |
Expired | (236) |  |  |  | 6.91 |
Outstanding at March 31, 2025 | 16,548 |  |  |  | $ | 6.80 |
Restricted Stock Units ("RSU") and Performance Stock Units ("PSU")
We issue RSUs for which the respective shares vest when the requisite service period is achieved. We issue PSUs for which the number of shares issuable is based on performance relative to specified revenue targets and continued employment through the vesting period. The PSUs are issuable following the third year of the performance period. Maximum achievement of the revenue goal under the PSUs will result in up to 200% of the target number of shares subject to the PSUs to become eligible to vest, while not meeting the minimum achievement of the revenue goal under the PSUs will result in no shares subject to the PSUs becoming eligible to vest. The following table summarizes the time-based RSUs and PSUs activity:
| Restricted Stock Units (RSU) |  | Performance Stock Units (PSU) |  | Weighted average grant date fair value
(shares in thousands) |  |  | RSU |  | PSU
Outstanding at December 31, 2024 | 14,211 |  |  | 392 |  |  | $ | 7.41 |  |  | $ | 9.43 |
Granted | 11,618 |  |  | — |  |  | 1.25 |  |  | — |
Vested | (3,870) |  |  | — |  |  | 9.51 |  |  | — |
Forfeited | (552) |  |  | — |  |  | 5.79 |  |  | — |
Outstanding at March 31, 2025 | 21,407 |  |  | 392 |  |  | $ | 3.73 |  |  | $ | 9.43 |
Employee Stock Purchase Plan ("ESPP")
Shares issued under our ESPP were 1,752,417 and 1,194,436 during the three months ended March 31, 2025 and 2024, respectively. In the first quarter of 2025, an additional 4.0 million shares were reserved under the ESPP. As of March 31, 2025, 16.5 million shares of our common stock remain available for issuance under our ESPP.
Share-based Compensation
The following table summarizes share-based compensation expense:
| Three Months Ended March 31, |  |
(In thousands) | 2025 |  | 2024 |  |  |  |
Cost of revenue | $ | 1,165 |  |  | $ | 2,106 |  |  |  |  |
Research and development | 2,607 |  |  | 5,788 |  |  |  |  |
Sales, general and administrative | 5,429 |  |  | 11,631 |  |  |  |  |
Total share-based compensation expense | $ | 9,201 |  |  | $ | 19,525 |  |  |  |  |
Determining Fair Value
We estimate the fair value of stock options granted using the Black-Scholes valuation method and a single option award approach. When determining the current share prices underlying the stock options for calculating the grant-date fair value, we reference the observable market prices of our stock. 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 RSUs and PSUs 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 our ESPP, we estimate the grant-date fair value, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model. We estimate forfeitures of stock options, RSUs and shares purchased under our ESPP which is utilized to determine the compensation expense to be recorded over the requisite service period. •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. The fair value of employee stock options was estimated using the following assumptions:
|  |  | Three Months Ended March 31,
|  |  |  |  | 2025 |  | 2024
Expected term in years |  |  |  |  | 4.9 |  | 4.9
Expected volatility |  |  |  |  | 95% — 96% |  | 81%
Risk-free interest rate |  |  |  |  | 3.92% — 4.29% |  | 4.32%
Dividend yield |  |  |  |  | — |  | —
Weighted average grant date fair value per share |  |  |  |  | $0.91 |  | $2.45
The fair value of shares to be issued under the ESPP was estimated using the following assumptions:
|  |  | Three Months Ended March 31,
|  |  |  |  | 2025 |  | 2024
Expected term in years |  |  |  |  | 0.5 — 2.0 |  | 0.5 — 2.0
Expected volatility |  |  |  |  | 113% |  | 81%
Risk-free interest rate |  |  |  |  | 3.96% — 4.31% |  | 4.54% — 5.27%
Dividend yield |  |  |  |  | — |  | —
Weighted average grant date fair value per share |  |  |  |  | $0.93 |  | $2.78

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