Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Equity Incentive Plan

On May 27, 2021, the stockholders of the Company approved an amendment to the Equity Incentive Plan, originally effective as of October 14, 2003, and previously amended and restated and approved by the stockholders on December 21, 2015, and then again on May 25, 2017 (the “Amended Plan”). The Amended Plan allows for the award of equity incentives, including stock options, stock appreciation rights, restricted stock awards, stock bonus awards, deferred stock awards, and other stock-based awards to certain employees, directors, or officers of, or key non-employee advisers or consultants, including contracted physicians to the Company or its subsidiaries. The Amended Plan provides that the maximum aggregate number of shares of the Company’s common stock reserved and available for issuance under the Amended Plan is 25,625,000.

Inducement Awards

Mr. Christopher M. Smith was appointed CEO effective August 15, 2022. In connection with his appointment, the Company and Mr. Smith entered into a Form of Stand-Alone Inducement Restricted Stock Agreement and a Form of Stand-Alone Inducement Stock Option Agreement (together, the “2022 CEO Inducement Agreements”). The 2022 CEO Inducement Agreements provided for a sign-on inducement equity award consisting of 602,219 restricted stock awards and 694,444 stock options to purchase the Company’s common stock at a strike price of $12.62 per share. The restricted stock awards and stock options vest ratably on an annual basis over a period of four years from the date of the grant so long as Mr. Smith remains employed with the Company through the applicable vesting dates. The awards subject to the 2022 CEO Inducement Agreements were not charged against the Amended Plan’s share reserve and were granted outside of the Amended Plan as the 2022 CEO Inducement Award.

Mr. Jeffrey S. Sherman was appointed CFO effective December 5, 2022. In connection with his appointment, the Company and Mr. Sherman entered into a Form of Stand-Alone Inducement Restricted Stock Agreement and a Form of Stand-Alone Inducement Stock Option Agreement (together, the “2022 CFO Inducement Agreements”). The 2022 CFO Inducement Agreements provided for a sign-on inducement equity award consisting of 133,809 restricted stock awards and 249,169 stock options to purchase the Company’s common stock at a strike price of $11.62 per share. The awards vest ratably on an annual basis over a period of four years from the date of the grant so long as Mr. Sherman remains employed with the Company through the applicable vesting dates. Of the 133,809 restricted stock awards granted, vesting of 89,206 restricted shares are also contingent upon achievement of an absolute total shareholder return (“TSR”) performance target. The awards subject to the 2022 CFO Inducement Agreements were not charged against the Amended Plan’s share reserve and were granted outside of the Amended Plan as the 2022 CFO Inducement Award.

Stock Options

As of December 31, 2022 and 2021, stock options outstanding totaled 4.2 million and 3.0 million shares, respectively. As of December 31, 2022 and 2021, a total of approximately 4.9 million and 6.8 million shares, respectively, were available for future option and stock awards under the Amended Plan. Options typically expire after 5 or 7 years and generally vest over 3 or 4 years, but each grant’s expiration, vesting, and exercise price provisions are determined at the time the awards are granted by the Compensation Committee of the Board of Directors.

The fair value of each stock award granted during the years ended December 31, 2022 and 2021 was estimated as of the grant date using a Black-Scholes model. The fair value of each stock option award granted during the year ended December 31,

2020 was estimated as of the grant date using a trinomial lattice model. Weighted average assumptions used during the years ended December 31, 2022, 2021 and 2020 are as follows:


	2022	2021	2020
Expected term (in years)	3.0 – 5.5	1.2 – 5.5	3.8 – 5.5
Risk-free interest rate (%)	1.4% - 4.5%	0.2% - 1.3%	0.2% - 1.7%
Expected volatility (%)	41.9% - 66.7%	38.7% - 51.4%	39.9% - 44.6%
Dividend yield (%)	—	—	—
Weighted average fair value/share at grant date	$6.42	$18.87	$8.88

The status of the stock options are summarized as follows:


	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2019	5,318,759	$	9.97
Granted	845,120	28.33
Exercised	(2,310,934)	7.96
Forfeited	(67,004)	16.37
Outstanding at December 31, 2020	3,785,941	15.21
Granted	1,232,056	42.13
Exercised	(1,372,564)	9.97
Forfeited	(684,238)	29.70
Outstanding at December 31, 2021	2,961,195	25.46
Granted	4,494,333	14.49
Exercised	(949,259)	10.87
Forfeited	(2,291,652)	26.50
Outstanding at December 31, 2022	4,214,617	16.48
Exercisable at December 31, 2022	873,808	27.53

The number and weighted average grant-date fair values of options non-vested at the beginning and end of 2022, as well as options granted, vested, and forfeited during the year were as follows:


	Number of Options	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2021	1,292,839	$	13.93
Granted	4,494,333	6.42
Vested	(684,633)	$	12.41
Forfeited	(1,761,730)	10.27
Non-vested at December 31, 2022	3,340,809	$	6.11

The following table summarizes information about the options outstanding at December 31, 2022:


	Options Outstanding				Options Exercisable
Range of Exercise Prices ($)	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
7.34 – 8.13	876,001	6.42	$	8.04	7,881	0.16	$	8.03
8.14 – 11.34	863,300	5.91	9.40		89,470	0.28	9.32
11.35 – 12.61	504,781	6.05	11.87		47,294	0.48	11.94
12.62 – 21.40	943,249	5.45	14.19		207,971	1.97	18.22
21.41 – 55.40	1,027,286	4.34	33.98		521,192	3.19	36.08
	4,214,617	5.55	16.48		873,808	2.43	27.53

As of December 31, 2022, the aggregate intrinsic value of all stock options outstanding and expected to vest was approximately $1.4 million and the aggregate intrinsic value of currently exercisable stock options was immaterial. The intrinsic value of each option share is the difference between the fair market value of NeoGenomics’ common stock and the exercise price of such option share to the extent it is “in-the-money.” Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $9.24 closing stock price of the Company’s common stock on December 30, 2022, the last trading day of 2022. The total number of in-the-money options outstanding and exercisable as of December 31, 2022 was approximately 0.1 million.

The total intrinsic value of options exercised during each of the years ended December 31, 2022, 2021 and 2020 was approximately $6.1 million, $46.7 million and $68.6 million, respectively. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options. The total cash proceeds received from the exercise of stock options were approximately $10.3 million, $13.7 million and $18.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The total fair value of options granted during the years ended December 31, 2022, 2021 and 2020 was approximately $28.9 million, $23.2 million and $7.5 million, respectively. The total fair value of option shares vested during the years ended December 31, 2022, 2021 and 2020 was approximately $8.3 million, $11.7 million and $5.2 million, respectively.

The Company recognizes stock-based compensation expense using the straight-line basis over the awards’ requisite service periods. Stock compensation expense related to stock options for the years ended December 31, 2022, 2021 and 2020 was approximately $8.1 million, $11.6 million and $6.0 million, respectively, and is included in general and administrative expenses in the Consolidated Statements of Operations. As of December 31, 2022, there was approximately $13.5 million of total unrecognized stock-based compensation cost related to non-vested stock options granted under the Amended Plan, the 2022 CEO Inducement Award and the 2022 CFO Inducement Award. This cost is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock Awards

The number of shares and weighted average grant date fair values of restricted non-vested common stock at the beginning and end of 2022, 2021 and 2020, as well as stock awards granted, vested, and forfeited during the year were as follows:


	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	335,298	$	15.75
Granted	149,012	28.45
Vested	(184,127)	12.90
Forfeited	(8,292)	20.75
Nonvested at December 31, 2020	291,891	23.82
Granted	936,648	39.52
Vested	(213,777)	32.83
Forfeited	(163,359)	38.58
Nonvested at December 31, 2021	851,403	36.00
Granted	2,865,727	14.16
Vested	(413,747)	33.19
Forfeited	(1,308,522)	24.57
Nonvested at December 31, 2022	1,994,861	12.71

Stock compensation expense related to restricted stock for the years ended December 31, 2022, 2021 and 2020 was approximately $15.5 million, $9.8 million, and $3.4 million, respectively, and is included in general and administrative expenses in the Consolidated Statements of Operations. As of December 31, 2022, there was approximately $17.1 million of total unrecognized stock-based compensation cost related to non-vested restricted stock granted under the Amended Plan, the 2022 CEO Inducement Award and the 2022 CFO Inducement Award. This cost is expected to be recognized over a weighted-average period of 2.2 years.

Modifications of Stock Option and Restricted Stock Awards

For the year ended December 31, 2022, the Culture and Compensation Committee of the Company’s Board of Directors approved the accelerated vesting of 353,265 previously granted time-vesting stock option awards and 285,114 previously granted time-vesting restricted stock awards upon the exit of certain officers of the Company. The Company accounted for the effects of the stock awards as modifications, and recognized $8.6 million of incremental stock-based compensation upon acceleration, which consisted of $2.7 million and $5.9 million for the acceleration of stock option awards and restricted stock awards, respectively, for the year ended December 31, 2022. These amounts are included in stock compensation expense for the year ended December 31, 2022 and are recorded as general and administrative expenses in the Company’s Consolidated Statements of Operations.

Employee Stock Purchase Plan

The Company sponsors an Employee Stock Purchase Plan (“ESPP”), under which eligible employees can purchase common stock at a 15.0% discount from the fair market value. Stock-based compensation expense related to the ESPP for the years ended December 31, 2022, 2021 and 2020 was approximately $1.0 million, $1.1 million and $0.9 million, respectively. Shares issued pursuant to this plan were 415,450, 112,094 and 138,309 for each of the years ended December 31, 2022, 2021 and 2020, respectively.