Management lays out rationale and impact to shareholders below
NEW HAVEN, Conn., Sept. 06, 2024 (GLOBE NEWSWIRE) -- Specialty cancer diagnostics company Precipio, Inc.(NASDAQ: PRPO) announces the Company’s repricing of a portion of its employee stock options to ensure their effectiveness as a retention tool for valuable employees. Management is confident that the practical, strategic, and economic benefit to shareholders will ultimately be positive. Retaining valuable employees in an extremely competitive industry is key to ensuring the company’s continued growth and success.
“The company’s achievement of its milestones would not have been possible without the hard work and dedication of its employees. Management believes it is in the shareholders’ interest to recognize their efforts and encourage their continued work by addressing a long-standing issue with stock options that are ‘underwater.’ Management and the board of directors have spent significant time structuring this change with only one goal in mind – creating shareholder value,” said Ilan Danieli, Precipio’s CEO. “We are confident that as you read further, you will recognize that these changes have been designed to ultimately create shareholder value. We encourage you to read this press release in its entirety so you can gain an insight into management’s rationale, and understand the expected impact of this change on you, our shareholder.”
In this press release we will provide the following:
Rationale for the repricing
Changes made to the ESOP
Expected Impact on shareholders
As you can appreciate, the intent of any established company’s ESOP is to create a long-term retention tool for its employees by sharing in the benefits of share price appreciation. Given that a large portion of our outstanding stock options are “underwater,” the plan has become ineffective.
Management has decided on several repricing principles that we believe will ultimately benefit the shareholders (as well as the employees), thereby aligning incentives. We wanted to ensure that while we are repricing some of the stock options, there is still a significant high bar required for them to become of value.
The rationale for the repricing
The diagnostic field is known for its complexity and the specialized skill set required for the business to operate and succeed. With growing competition and rapid advancements in technology, retaining highly qualified professionals has become increasingly challenging. The cost of losing a valuable employee is substantial, often reaching six figures per employee and includes several factors, among them:
Impact on daily workflow and company operations
Loss of training invested in that employee
Cost of recruiting, hiring and training a replacement employee
To address this, Precipio has decided to reprice some of its employee stock options to ensure that this is an effective tool in retaining our employees and providing fair compensation for their expertise, dedication, and contribution.
As with all young developing companies, an ESOP is an important retention tool that provides a potential upside in the event of the Company’s growth and share price appreciation, and for many can provide the balancing factor for taking that risk versus working for more established companies. However, as in our case, if the stock options are underwater and have no value, the impact of that balancing factor is eliminated.
Furthermore, having properly priced stock options aligns employee and company goals. By offering equity ownership at a price that can potentially generate value for employees, employees are more motivated to contribute to the Company's success.
The following changes will be made to our ESOP:
Management has distinguished between stock options granted prior to year-end 2022 (representing 58% of the current options outstanding), and stock options granted in 2023 and 2024 (representing 42% of the current options outstanding).
The Company is repricing only stock options granted prior to year-end 2022, representing approximately 58% of the total outstanding options. All options granted in 2023 (with strike prices ranging from $7.80 to $12.40), and in 2024 (with strike prices ranging from $4.98 to $6.52) will remain unaltered.
This structure creates an aggressive target for management to reach before these options are valuable, ensuring that shareholders will have experienced a substantial appreciation. This incentivizes management and employees to continue to work hard and create shareholder value for all constituents.
A vast majority (88%) of the repriced stock options are already vested. The weighted average strike price of the stock options granted prior to year-end 2022 is $57.22, which when compared to the closing share price of $6.56 last week renders them virtually ineffective as an incentive tool. Therefore, these stock options will be repriced to a strike price of $6.56, the Company’s closing stock price on Friday, August 30th, 2024.
In order to ensure that these options serve as an incentive tool to retain our employees, we have included a 1-year lock-in mechanism. This means that the employees will be able to exercise their repriced options at the new price only after August 30th, 2025.
Expected Impact on Shareholders
Management realizes that this decision may elicit frustration from long-term shareholders who have experienced a decline in the value of their shares. The following are the expected positive impacts (or lack of any negative impact) to shareholders:
Cash/balance sheet impact. There is no cash impact to this repricing since employee stock options are a non-cash item and do not cost the company any cash.
P&L statement. We will be calculating the non-cash expense based on Black-Scholes model, which will be charged to the P&L. This will not impact company performance in terms of revenue, and gross margin.
The revised ESOP will create a more realistic incentive for employees to target. We believe that realistic incentives drive behavior. Whereas in the past, management has noticed that many of our employees essentially disregard the ESOP as an unrealistic and meaningless vehicle, they have now expressed significant appreciation of this change.
In summary, we believe this change presents no downside for our shareholders, while realigning a plan that is intended as a tool for retaining valuable employees, the key to the company achieving success.
About Precipio
Precipio is a healthcare biotechnology company focused on cancer diagnostics. Our mission is to address the pervasive problem of cancer misdiagnoses by developing solutions in the form of diagnostic products and services. Our products and services deliver higher accuracy, improved laboratory workflow, and ultimately better patient outcomes, which reduce healthcare expenses. Precipio develops innovative technologies in our laboratory where we design, test, validate, and use these products clinically, improving diagnostic outcomes. Precipio then commercializes these technologies as proprietary products that serve the global laboratory community and further scales Precipio’s reach to eradicate misdiagnosis. For more information, please visit www.precipiodx.com.
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding the targets set herein and related timing.
Except for historical information, statements about future volumes, sales, growth, costs, cost savings, margins, earnings, earnings per share, diluted earnings per share, cash flows, plans, objectives, expectations, growth or profitability are forward-looking statements based on management’s estimates, beliefs, assumptions and projections. Words such as “could,” “may,” “expects,” “anticipates,” “will,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “predicts,” and variations on such words, and similar expressions that reflect our current views with respect to future events and operational, economic and financial performance, are intended to identify such forward-looking statements. These forward-looking statements are only predictions based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and our other reports filed with the U.S. Securities and Exchange Commission. Any such forward-looking statements represent management’s estimates as of the date of this press release only. While we may elect to update such forward-looking statements at some point in the future, except as required by law, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.
