Share-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

On April 11, 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”), and most recently amended the 2011 Plan on April 10, 2019. The 2011 Plan was amended, restated and re-named the 2018 Equity Incentive Plan (“2018 Plan”), which became effective as of April 30, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The remaining shares available for issuance under the 2011 Plan were added to the shares reserved for issuance under the 2018 Plan.

The 2018 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance units, and performance shares to the Company’s employees, directors, and consultants. As of December 31, 2020, the maximum aggregate number of shares that may be issued under the 2018 Plan was 16,626,877 shares of the Company’s common stock. In addition, the number of shares reserved for issuance under the 2018 Plan will be increased automatically on the first day of each fiscal year beginning with the 2020 fiscal year, by a number equal to the least of: (i) 2,144,521 shares; (ii) 4.0% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such number of shares determined by the Company’s Board of Directors. As of January 1, 2021, the maximum aggregate number of shares that may be issued under the 2018 Plan increased to 18,771,398 shares.

The 2018 Plan may be amended, suspended or terminated by the Company’s Board of Directors at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the 2018 Plan as required by applicable law or listing requirements. Unless sooner terminated by the Company’s Board of Directors, the 2018 Plan will automatically terminate on November 14, 2028.

The following table summarizes the shares available for grant under the 2018 Plan:


			Shares Available for Grant
Balance - December 31, 2019			3,297,638
Authorized			2,144,521
Granted			(512,945)
Shares withheld to cover taxes			16,742
Forfeited			75,314
Balance - December 31, 2020			5,021,270

As of December 31, 2020 and 2019, there were 4,218,278 and 5,170,976 shares, respectively, issuable under stock options outstanding, 275,989 and 149,004 shares, respectively, issuable under unvested RSUs outstanding, 7,127,079 and 5,864,738 shares, respectively, issued for stock option exercises, RSU settlement, and restricted stock grants.

Stock Options

Following are the assumptions used in the Black-Scholes valuation model for options granted during the periods shown below:


	Year Ended December 31,
	2020	2019	2018
Risk-free interest rate	1.3%	2.3%	2.8%
Average expected term (years)	7.0	6.1	5.8
Expected volatility	55.0%	55.0%	55.0%
Dividend yield	—	—	—

•Risk-Free Interest Rate: The yield on actively traded non-inflation indexed US Treasury notes with the same maturity as the expected term of the underlying options was used as the average risk-free interest rate.

•Expected Term: As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, the Company’s expected term is based on the simplified method, generally calculated as the mid-point between the vesting date and the end of the contractual term.

•Expected Volatility: As the Company has only been a public entity since May 2, 2019, there is not a substantive share price history to calculate volatility and, as such, the Company has elected to use an approximation based on the volatility of other comparable public companies, which compete directly with the Company, over the expected term of the options.

•Dividend Yield: The Company has not issued regular dividends on common shares in the past nor does the Company expect to issue dividends in the future.

Forfeiture Rate: The Company estimates the forfeiture rate at the time of grant based on past awards canceled, the number of awards granted, and vesting terms and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The cumulative effect on current and prior periods of a change in the estimated number of awards likely to vest is recognized in compensation cost in the period of the change.

The 2018 Plan generally provides that the Board of Directors may set the vesting schedule applicable to grants approved under the 2018 Plan. The Company has not granted equity awards with performance-based vesting conditions.

Option grants to new employees in 2020 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period, subject to continued employment through the vesting date. Option grants to continuing employees in 2020 generally vest monthly over a 48-month period, subject to continued employment through the vesting date. Option grants in 2019 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period, subject to continued employment through the vesting date. The stock option grant to one executive officer on August 1, 2019 vests monthly over a 48-month period. The stock option grant to another executive officer on October 31, 2019 begins vesting on the second anniversary of the vesting commencement date and vests monthly thereafter over a 24-month period. Options granted in the year ended December 31, 2018 and prior have a variety of different vesting schedules and have a contractual life of 10 years.

The following table summarizes the Company’s stock option activity during the period from December 31, 2017 through December 31, 2020:


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in thousands)(1)




Outstanding at December 31, 2017	4,207,029	$	0.88	7.2	$	8,936
Granted	2,136,012	$	6.49	—	$	—
Exercised	(1,139,962)	$	1.20	—	$	5,722
Cancelled/Forfeited	(82,786)	$	2.03	—	$	—
Outstanding at December 31, 2018	5,120,293	$	3.13	7.3	$	81,371
Granted	1,571,925	$	39.01	—	$	—
Exercised	(1,429,756)	$	1.87	—	$	121,591
Cancelled/Forfeited	(91,486)	$	9.33	—	$	—
Outstanding at December 31, 2019	5,170,976	$	14.28	7.5	$	329,879
Granted	268,193	$	99.74	—	$	—
Exercised	(1,163,374)	$	7.75	—	$	132,935
Cancelled/Forfeited	(57,517)	$	37.14	—	$	—
Outstanding at December 31, 2020	4,218,278	$	21.20	6.6	$	443,595
Vested and exercisable at December 31, 2020	2,634,631	$	9.74	5.7	$	305,890
Vested and expected to vest at December 31, 2020	3,869,597	$	18.26	6.5	$	417,857

__________

(1) Aggregate intrinsic value is calculated as the difference between the value of common stock on the transaction date and the exercise price multiplied by the number of shares issuable under the stock option. Aggregate intrinsic value of shares outstanding at the beginning and end of the reporting period is calculated as the difference between the value of common stock on the beginning and end dates, respectively, and the exercise price multiplied by the number of shares outstanding.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded in aggregate $13.1 million, $6.3 million and $1.5 million, respectively, of share-based compensation expense related to

options. The share-based compensation expense is included in cost of goods sold, research and development expenses and SG&A expenses in the Company’s consolidated statements of operations.

As of December 31, 2020, there was $16.4 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over a weighted average period of 2.0 years.

Restricted Stock Units

RSU grants to new employees in 2020 and 2019 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting quarterly over the remaining three years of the award, subject to continued employment through the vesting date. RSU grants in 2020 include fully vested RSUs granted to an executive officer issued in settlement of the obligation discussed in Note 10 under Share-Settled Obligation. RSU grants to continuing employees in 2020 and 2019 vest quarterly over 16 quarters, subject to continued employment through the vesting date. RSU grants to non-employee directors in 2020 vest monthly over 12 months, subject to continued service through the vesting date. RSU grants to consultants and brand ambassadors in 2020 have a variety of different vesting schedules.

The following table summarizes the Company’s RSU activity from January 1, 2019 through December 31, 2020:


	Number of Units	Weighted Average Grant Date Fair Value Per Unit
Unvested at January 1, 2019	—	$	—
Granted	173,196	$	126.29
Vested	(23,552)	$	84.84
Cancelled/Forfeited	(640)	$	—
Unvested at December 31, 2019	149,004	$	132.73
Granted	244,752	$	109.61
Vested	(99,970)	$	127.71
Cancelled/Forfeited	(17,797)	$	—
Unvested at December 31, 2020	275,989	$	114.99

During the years ended December 31, 2020, 2019 and 2018, the Company recorded in aggregate $9.8 million, $3.7 million, and $0, respectively, of share-based compensation expense related to RSUs. The share-based compensation expense is included in cost of goods sold, research and development expense and SG&A expenses in the Company’s consolidated statements of operations.

As of December 31, 2020, there was $14.9 million in unrecognized compensation expense related to nonvested RSUs which is expected to be recognized over a weighted average period of 1.8 years.

Share-Settled Obligation

Share-based compensation expense in 2020 and 2019 includes $3.0 million and $1.0 million, respectively, for a liability classified, share-settled obligation to an executive officer related to a sign-on award pursuant to the terms of the executive officer’s offer letter with the Company. The share-based compensation expense related to this share-settled obligation is included in SG&A expenses in the Company’s consolidated statements of operations. Financing activities in the statement of cash flows for the year ended December 31, 2020 includes a $3.0 million noncash reclassification of the share-settled obligation from other current liabilities to additional paid-in capital.

The Company is obligated to deliver a variable number of shares based on a fixed monetary amount on the first annual anniversary of the executive officer’s commencement date and on each quarterly anniversary thereafter through the second annual anniversary. The liability classified award is considered unearned until the requirements for issuance of the shares are met and is included in Accrued expenses and other current liabilities in each of the Company’s consolidated balance sheets as of December 31, 2020 and 2019 in the amount of $1.0 million. As of December 31, 2020, there was $2.5 million in unrecognized compensation expense related to this share-settled obligation which is expected to be recognized over 0.7 years.

In the fourth quarter of 2020, the first annual award related to this obligation was earned, and the Company delivered to this executive officer 23,666 fully vested RSUs with a settlement date fair value of $3.0 million.

Restricted Stock to Nonemployees

In 2020, the Company issued no restricted stock. In April 2019, the Company’s Board of Directors approved the issuance of 99,433 shares of restricted stock with a fair value of $20.02 per share and a purchase price of $0.01 per share to nonemployees serving as the Company’s brand ambassadors. The Company has the right to repurchase the unvested shares upon a voluntary or involuntary termination of a brand ambassador’s service; however, as shares vest monthly over 24 months, they are being released from the repurchase option and all such shares will be released from the repurchase option by May 18, 2021.

In October 2018, the Company’s Board of Directors approved the issuance of 135,791 shares of restricted stock with a fair value of $17.03 per share and a purchase price of $0.02 per share to nonemployees serving as the Company’s brand ambassadors. The Company had the right to repurchase the unvested shares upon a voluntary or involuntary termination of a brand ambassador’s service; however, as shares vested monthly over 12 to 24 months, they were released from the repurchase option and all such shares were released from the repurchase option by November 1, 2020.

The following table summarizes the Company’s restricted stock activity:


	Number of Shares of Restricted Stock	Weighted Average Remaining Contractual Life (Years)	Weighted Average Grant Date Fair Value Per Share
Unvested at December 31, 2017	—	—	$	—
Granted	135,791	—	$	17.03
Vested/Released	(35,664)	—	$	17.03
Cancelled/Forfeited	—	—	$	—
Unvested at December 31, 2018	100,127	1.6	$	17.03
Granted	99,433	—	$	20.02
Vested/Released	(87,239)	—	$	19.21
Cancelled/Forfeited	(23,333)	—	$	—
Unvested at December 31, 2019	88,988	1.2	$	19.49
Granted	—	—	$	—
Vested/Released	(76,804)	—	$	19.97
Cancelled/Forfeited	—	—	$	—
Unvested at December 31, 2020	12,184	0.3	$	20.02

As of December 31, 2020, 12,184 shares of restricted stock had been purchased by nonemployee brand ambassadors which remained subject to vesting requirements and repurchase pursuant to restricted stock purchase agreements.

During 2020, 2019 and 2018, the Company recorded in aggregate $1.4 million, $1.8 million, and $0.7 million, respectively, of share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors, which is included in SG&A expenses in the Company’s consolidated statements of operations.

As of December 31, 2020, there was $0.2 million in unrecognized compensation expense related to nonvested restricted stock, which is expected to be recognized over 0.3 years.

Employee Stock Purchase Plan

On November 15, 2018, the Company’s Board of Directors adopted its 2018 Employee Stock Purchase Plan (“2018 ESPP”), which was subsequently approved by the Company’s stockholders and became effective on April 30, 2019, the day immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2018 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code (the “Code”) for U.S. employees. In addition, the 2018 ESPP authorizes grants of purchase rights that do not comply with Section 423 of the Code under a separate non-423 component for non-U.S. employees and certain non-U.S. service providers. As of December 31, 2020, the Company has reserved 1,340,325 shares of common stock for issuance under the 2018 ESPP. In addition, the number of shares reserved for issuance under the 2018 ESPP will be increased automatically on the first day of each fiscal year for a period of up to ten years, starting with the 2020 fiscal year, by a number equal to the least of: (i) 536,130 shares; (ii) 1.0% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such lesser number of shares determined by the Company’s Board of Directors. As of January 1, 2021, the maximum aggregate number of shares that may be issued under the 2018 ESPP increased to 1,876,455 shares. The 2018 ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of the Company’s common stock on specified dates during such offerings. The administrator has not yet approved an offering under the 2018 ESPP.