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Stock-Based Compensation and Employee Benefits

12 Months Ended

Dec. 31, 2023

Stock-Based Compensation and Employee Benefits

Stock-Based Compensation and Employee Benefits

12.Stock-Based Compensation and Employee Benefits

Equity Incentive Plans

In October 2014, the Company’s board of directors and its stockholders adopted the 2014 Equity Incentive Plan, which became effective upon the closing of the Company’s IPO on November 6, 2014. The 2014 Plan is subject to automatic annual increases in the number of shares available for issuance on the first business day of each fiscal year equal to four percent (4%) of the number of shares of the Company’s common stock outstanding as of such date or a lesser number of shares as determined by the Company’s board of directors with 2024 being the last calendar year with an automatic annual increase under the 2014 Plan. All remaining shares under the Company’s 2010 Stock Plan (the “2010 Plan”) were transferred to the 2014 Plan upon adoption and any additional shares that would otherwise return to the 2010 Plan as a result of forfeiture, termination or expiration of the awards will return to the 2014 Plan. The 2014 Plan provided for the Company to grant shares and/or options to purchase shares of common stock to employees, directors, consultants and other service providers. While the 2014 Plan allows for non-qualified or incentive stock options, primarily all option grants made since June 2016 have been for non-qualified stock options. Under the 2010 Plan, no awards have been issued since 2014, and there were no shares of common stock available for future issuance as of December 31, 2023. There were 881,231 shares of common stock available for future issuance as of December 31, 2023 under the 2014 Plan.

In June 2016, the Company adopted the 2016 Employment Commencement Incentive Plan. The 2016 Plan is designed to comply with the inducement exemption contained in Nasdaq’s Rule 5635(c)(4), which provides for the grant of non-qualified stock options, restricted stock units, restricted stock awards, performance awards, dividend equivalents, deferred stock awards, deferred stock units, stock payment and stock appreciation rights to a person not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to the individual’s entering into employment with the Company. As of December 31, 2023, the Company had 1,773,921 shares of common stock available for future issuance for new employees. The 2016 Plan does not provide for any annual increases in the number of shares available.

Stock option exercises are settled with common stock from the plans’ previously authorized and available pool of shares. If any shares subject to an award granted under the 2014 Plan or the 2016 Plan expire or become forfeited or canceled without the issuance of shares, the shares subject to such awards are added back into the authorized pool on the same basis that they were removed. In addition, shares withheld to pay for minimum statutory tax obligations with respect to full-value awards are added back into the authorized pool. The annual grant to eligible employees can vary depending on the type of award, and the award size is determined by the employee’s grade level.

Stock Options

Incentive stock options and non-statutory stock options may be granted with exercise prices of not less than the fair value of the common stock on the date of grant. These stock options generally vest over four years, expire in ten years from the date of grant and are generally exercisable after vesting.

The following table sets forth the summary of option activities under the 2016 Plan and the 2014 Plan:


		Options
							Weighted-
							Average		Aggregate
				Weighted-			Remaining		Intrinsic
		Number of		Average			Contractual Terms		Value
		Options		Exercise Price			(Years)		(in thousands)
Outstanding at December 31, 2022		21,691,321		$	15.00
Granted - at fair value		5,947,607		$	6.86
Exercised		(430,504)		$	1.61
Forfeited/Canceled		(3,549,184)		$	14.25
Outstanding at December 31, 2023		23,659,240		$	13.31		5.7		$	2,337
Exercisable at December 31, 2023		16,279,679		$	15.20		4.3		$	1,815

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the year in excess of the exercise price multiplied by the number of options outstanding or exercisable.

Information on options outstanding and exercisable as of December 31, 2023 is summarized as follows:


						Options Outstanding							Options Exercisable
								Weighted-
								Average		Weighted-					Weighted-
								Remaining		Average					Average
						Number		Contractual Terms		Exercise			Number		Exercise
Range of Exercise Prices						Outstanding		(Years)		Price			Exercisable		Price
$	1.67	-	$	5.44		4,288,840		6.9		$	3.92		1,356,589		$	2.32
$	5.86	-	$	10.05		4,493,996		6.5		$	9.20		2,436,570		$	9.45
$	10.37	-	$	13.63		4,143,765		5.6		$	12.41		3,317,635		$	12.53
$	14.03	-	$	17.17		4,436,113		5.8		$	15.82		3,304,217		$	15.86
$	17.30	-	$	19.40		3,827,172		5.5		$	17.96		3,403,068		$	17.95
$	19.85	-	$	46.38		2,469,354		2.1		$	26.90		2,461,600		$	26.91
						23,659,240		5.7		$	13.31		16,279,679		$	15.20

Additional information on options is summarized as follows:


		Year Ended December 31,
(in thousands, except weighted-average grant-date fair value per share)		2023			2022			2021
Total intrinsic value of options exercised		$	425		$	914		$	9,726
Total grant date fair value of options vested		$	30,467		$	34,916		$	40,365
Weighted-average grant date fair value per share of options granted		$	4.19		$	7.04		$	9.80

As of December 31, 2023, total unrecognized stock-based compensation expense related to unvested stock options was $37.4 million, which is expected to be recognized over a weighted-average period of 2.3 years.

Restricted Stock Units

The Company grants RSUs primarily to its employees. RSUs are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. The RSUs cannot be transferred and are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The Company’s RSUs generally vest over one to three years from the applicable grant date, provided the employee remains continuously employed with the Company. The estimated fair value of RSUs is based on the closing price of the Company’s common stock on the grant date.

The following table sets forth the summary of RSUs activity, under the 2014 Plan:


		RSUs Outstanding
				Weighted-Average
		Number of		Grant Date Fair
		RSUs		Value
Balances at December 31, 2022		2,333,307		$	14.66
RSUs granted		1,274,753		$	8.93
RSUs vested		(1,280,901)		$	14.35
RSUs canceled		(600,430)		$	11.02
Balances at December 31, 2023		1,726,729		$	11.93

Additional information on RSUs is summarized as follows:


		Year Ended December 31,
(in thousands, except weighted-average grant-date fair value per share)		2023			2022			2021
Total grant date fair value of RSUs vested		$	18,381		$	13,598		$	8,434
Total grant date fair value of RSUs granted		$	11,386		$	22,502		$	27,869
Weighted-average grant-date fair value per share of RSUs granted		$	8.93		$	13.34		$	16.86

As of December 31, 2023, total unrecognized stock-based compensation expense related to unvested RSUs was $10.8 million, which is expected to be recognized over a weighted-average period of 1.5 years.

Employee Stock Purchase Plan

In October 2014, the Company’s board of directors and its stockholders approved the establishment of the ESPP. The ESPP provides for annual increases in the number of shares available for issuance on the first business day of each fiscal year equal to the lesser of one percent (1%) of the number of shares of the Company’s common stock outstanding as of such date or a number of shares as determined by the Company’s board of directors. The ESPP had 2,541,769 shares of common stock available for future issuance as of December 31, 2023. Eligible employees may purchase common stock at 85% of the lesser of the fair market value of the Company’s common stock on the first or last day of the offering period. The offering periods of the ESPP are on May 16 and November 16. As of December 31, 2023, there was $0.4 million of unrecognized compensation expense associated with the ESPP, which is expected to be recognized over an estimated weighted-average period of 4.5 months.

Stock-Based Compensation

The following table summarizes the classification of stock-based compensation expense in the Company’s consolidated statements of operations related to employees and nonemployees:



		Year Ended December 31,
(in thousands)		2023			2022			2021
Cost of goods sold ⁽¹⁾		$	632		$	736		$	1,099
Research and development			14,596			18,999			18,688
Selling, general and administrative			27,882			31,002			31,577
Stock-based compensation expense		$	43,110		$	50,737		$	51,364

Stock-based compensation expense capitalized into inventory		$	1,062		$	1,187		$	1,025

(1)	Stock-based compensation capitalized into inventory is recognized as cost of goods sold when the related product is sold.

The stock-based compensation for the year ended December 31, 2023 includes restructuring charges described in Note 15 of $1.1 million in research and development expense and a net forfeiture credit of $0.1 million in selling, general and administrative expense.

The stock-based compensation expense recorded in connection with the Surface Acquisition that was not included in the consideration transferred was immaterial.

Valuation Assumptions of Awards Granted to Employees

The Company estimated the fair value of each stock option and awards granted under the ESPP on the date of grant using the Black-Scholes option-pricing model. The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of the awards during the years ended December 31, 2023, 2022 and 2021:


		Year Ended December 31,
		2023		2022		2021
Expected term (years)
Stock options		6.0		6.1		6.1
ESPP		0.5		0.5		0.5
Expected volatility
Stock options		64	%	62	%	65	%
ESPP		105	%	70	%	42	%
Risk-free interest rate
Stock options		3.92	%	2.37	%	0.89	%
ESPP		5.35	%	3.77	%	0.06	%
Expected dividend yield
Stock options		—	%	—	%	—	%
ESPP		—	%	—	%	—	%

Expected Term: The expected term represents the period for which the stock-based awards are expected to be outstanding and is based on the options’ vesting term and contractual term. Since January 1, 2021, the Company has used historical data to calculate the expected term.

Expected Volatility: The expected volatility is calculated based on the Company’s daily stock closing prices for a period equal to the expected life of the award.

Risk-Free Interest Rate: The risk-free interest rate is based on the United States Treasury constant maturity rate at the time of grant using a term equal to the expected life.

Expected Dividends: The Company has not paid and does not anticipate paying any dividends in the near future, and therefore used an expected dividend yield of zero in the valuation model.

401(k) Retirement Plan

In 2019, the Company’s Compensation Committee approved the Company’s matching of the employees 401(k) Plan whereby eligible employees may elect to contribute up to the lesser of 90% of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service regulations. Beginning January 1, 2021, the Company made matching contributions of 100% of the first 4% of eligible compensation, up to a maximum of $7,500. The Company recorded compensation expense related to the match of $1.8 million, $2.1 million and $1.7 million in 2023, 2022 and 2021, respectively.