Stock-Based Compensation

6 Months Ended

Jun. 30, 2017

Note 6. Stock-Based Compensation

The Company has four stock-based compensation plans (collectively, the Stock Plans)—the 2001 Stock Option Plan (the 2001 Stock Plan), the 2011 Stock Plan (the 2011 Stock Plan), the 2015 Omnibus Incentive Compensation Plan (the 2015 Stock Plan) and the 2015 Employee Stock Purchase Plan (the ESPP). The 2015 Stock Plan permits grants of restricted stock units (RSUs). The Company has historically granted stock options, but the Company began to award RSU grants to certain employees during the three months ended June 30, 2017. RSU awards vest 25% on each of the first, second, third and fourth anniversaries of the grant date.

The following table summarizes stock option and restricted stock activity under the 2001 Stock Plan, 2011 Stock Plan and 2015 Stock Plan (in thousands):



		Number of
		Shares
		Underlying
		Options/
		RSUs
Outstanding at December 31, 2016		5,911
Granted		1,877
Exercised		(453)
Canceled/forfeited/expired		(79)
Outstanding at June 30, 2017		7,256

Exercisable at June 30, 2017		3,334

The following table summarizes the allocation of stock-based compensation related to stock options and restricted stock units in the accompanying condensed consolidated statements of operations (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Cost of sales	$	141	$	44	$	270	$	82
Selling, general and administrative		3,470		1,391		5,784		2,503
Research and development		1,123		613		1,881		880
Total	$	4,734	$	2,048	$	7,935	$	3,465

Stock-based awards to employees and nonemployees

The Company recognizes compensation expense for all stock-based awards granted to employees and nonemployees, including members of its board of directors.

The fair value of stock option awards is estimated at the grant date using the Black-Scholes option pricing model, and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period using the straight-line method. The determination of the fair value-based measurement of stock options on the date of grant using an option pricing model is affected by the determination of the fair value of the underlying stock as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s stock price volatility over the expected term of the grants, and actual and projected employee stock option exercise behaviors. In the future, as additional empirical evidence regarding these estimates becomes available, the Company may change or refine its approach of deriving them, and these changes could impact the fair value-based measurement of stock options granted in the future. Changes in the fair value-based measurement of stock awards could materially impact the Company’s operating results.

The fair values of stock option awards made to nonemployees are remeasured at each reporting period using the Black-Scholes option pricing model. Compensation expense for these stock option awards is determined by applying the remeasured fair values to the shares that have vested during a period.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model applying the assumptions noted in the following table. The weighted average assumptions used to estimate the fair value of options granted to employees were as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Risk-free interest rate	2.01	%	1.45	%	2.13	%	1.58	%
Expected dividend yield	0.0	%	0.0	%	0.0	%	0.0	%
Expected volatility	46.6	%	53.2	%	46.6	%	52.8	%
Expected term (in years)	6.09		5.78		6.09		6.05

The fair value of RSU awards made to employees and nonemployees is equal to the closing market price of the Company’s common stock on the grant date.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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